Chapter 2 Operations Strategy and Competitiveness A Framework for Operations Strategy in Manufacturing Operations Strategy in Services Meeting the Competitive Challenge Productivity Measurement 2

Operations Strategy - Definition Operations Strategy - involves setting broad policies and plans on how to use “available” resources of a firm to support its long-term competitive strategy. Corporate strategy leads to Operations strategy

Corporate Strategy Formulation COLLBORATORS & COOPERATORS

Vision and Mission Statements Vision statements used to express organization’s values and aspirations. Mission statements express organization’s purpose or reason for existence.

Operations Strategy - Operations Priorities Cost Quality - product quality and process quality Delivery Flexibility Delivery Speed Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction Speed Other Product-Specific Criteria ... Irwin/McGraw-Hill 4

Dealing with Trade-offs Cost Quality Delivery Flexibility Traditional Approach Advanced Approaches World Class Manufacturing Trade-offs Plant within a Plant (PWP) FOCUS 5 Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 1998 5

Strategy Begins with Priorities Consider the case of a personal computer manufacturer. 1. How would we segment the market according to product group? 2. How would we identify product requirements, demand patterns, and profit margins for each group? 3. How do we identify order winner and order qualifiers for each group? 9

Operations Strategy Customer Needs Corporate Strategy Alignment Core Competencies Operations Strategy Decisions Processes, Infrastructure, and Capabilities 3

Core Competencies Collective knowledge and skills an organization has that distinguish (or differentiate) it from the competition. Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. Building blocks of core capabilities.

Core Competencies continued Are basis on which new outputs are developed. Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. Identifying and developing core competencies is one of top management’s most important roles.

Examples of Core Competencies Sony - miniaturization 3M- knowledge of substrates, coatings and adhesives; Knowledge management Black and Decker - small electrical motors and industrial design Honda - engines and power trains Daimei-Benz - safety systems, quality and luxury.

Core Competencies Used to Gain Access to Variety of Markets Cannon core competencies in optics, imaging, and electronic controls Products include copiers, laser printers, cameras, and image scanners. Boeing integrating large scale systems commercial jetliners, space stations, missiles

Core Capabilities Organization practices and business processes Collection of competencies lead to “capabilities”

Key Characteristics of Core Competencies/Capabilities Should be used to gain access to a variety of markets Should be strongly related to key benefits provided by products or services Should be difficult to imitate (what about benchmarking?)

4. How do we convert order winners into specific performance requirements? Competition (Them) Us (Core competencies) Differentiation 10

A Framework for Manufacturing Strategy Customer Needs New and Current Products Performance Priorities and Requirements Quality, Dependability, Speed, Flexibility, and Price Operations & Supplier Capabilities Technology People Systems R&D CIM JIT TQM Distribution Support Platforms Financial Management Human Resource Management Information Management Enterprise Capabilities Strategic Vision 8

World-Class Manufacturing World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They have become order qualifiers. What are the order winners in today’s market? 6

Service Breakthroughs Service can be an “order winner” Travel Planning Warranty Leases Roadside Assistance Loaner Vehicles 7

MIT Commission on Industrial Productivity 1985 Recommendations Place less emphasis on short-term financial payoffs and invest more in R&D. Revise corporate strategies to include responses to foreign competition. greater investment in people and equipment Knock down communication barriers within organizations and recognize mutuality of interests with other companies and suppliers. 14

MIT Commission on Industrial Productivity 1985 Recommendations Recognize that the labor force is a resource to be nurtured, not just a cost to be avoided. Get back to basics in managing production operations. Build in quality at the design stage. Place more emphasis on process innovations rather than focusing sole attention on product innovations. 15

U. S. Competitiveness Drivers Product Development Teams speed development and enhance manufacturability Waste Reduction (JIT Philosophy) WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships Borrowed from Japanese Keiretsu Improved Leadership Strong, independent boards of directors Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 1998 16

Productivity Partial measures Multi-factor measures Total measure output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs) 17

Example 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000 What is the labor productivity? 18

Example--Labor Productivity 10,000 units/500hrs = 20 units/hour ... ... or we can arrive at a “unit less” figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22 Can you think of any advantages or disadvantages of each approach? 19

Applying Productivity Figures You’ve just told your boss that the plant labor productivity at your facility is better than that of a plant in a related business. Why might he not be pleased with you? 20