Manufacturing Strategy & Operations Saad Ahmed Javed National College of Business Administration & Economics

Role & development of operation strategy for manufacturing firms

DEVELOPMENT OF OPERATION STRATEGY FOR MANUFACTURING ORGANIZATIONS Chapter-2

Develop an Operations Strategy -What products can be produced in which facility and how much? -Which products are going to be produced internally, and which ones will be purchased? -How many facilities are needed?

Develop an Operations Strategy -Where will the facilities be located, with how much capacity? -What type of processes will be utilized to produce products? -How much flexibility is required from each process and each product?

Develop an Operations Strategy -What level of technology (automation, etc.) will be used? -Are the resources going to be owned or bought? -How will the products be distributed to the end customers?

Develop an Operations Strategy -Which suppliers will provide materials, and how much? -What kind of human skills are needed? -And so on.

Develop an Operations Strategy Operations decisions given regarding these issues must be consistent with the firm’s corporate strategy. These decisions made by operations managers are going to be viewed in detail throughout this course.

OPERATIONS STRATEGY STRATEGY PROCESS CUSTOMER NEEDS CORPORATE STRATEGY OPEARTIONS STRATEGY DECISIONS ON PROCESSES AND INFRASTRUCTURE EXAMPLE MORE PRODUCTS INCREASE ORGANIZATION SIZE INCREASE PRODUCTION CAPACITY BUILT NEW FACTORY

ROLE OF OPERATION STRATEGY

Operations’ Role in Corporate Strategy Operations provides support for a differentiated strategy Operations serves as a firm’s distinctive competence in executing similar strategies better than competitors Copyright 2006 John Wiley & Sons, Inc.2-11

Operations Strategy at Wal-Mart Copyright 2006 John Wiley & Sons, Inc.2-12

Operations Strategy: Products and Services Make-to-Order – products and services are made to customer specifications after an order has been received Make-to-Stock – products and services are made in anticipation of demand Assemble-to-Order – products and services add options according to customer specifications Copyright 2006 John Wiley & Sons, Inc.2-13

Operations Strategy: Human Resources What are the skill levels and degree of autonomy required to operate production system? What are the training requirements and selection criteria? What are the policies on performance evaluations, compensation, and incentives? Will workers be salaried, paid an hourly rate, or paid a piece rate? Will profit sharing be allowed, and if so, on what criteria? Copyright 2006 John Wiley & Sons, Inc.2-14

Operations Strategy: Human Resources (cont.) Will workers perform individual tasks or work in teams? Will they have supervisors or work in self- managed work groups? How many levels of management will be required? Will extensive worker training be necessary? Should workforce be cross-trained? What efforts will be made in terms of retention? Copyright 2006 John Wiley & Sons, Inc.2-15

Operations Strategy: Quality What is the target level of quality for our products and services? How will it be measured? How will employees be involved with quality? What will the responsibilities of the quality department be? Copyright 2006 John Wiley & Sons, Inc.2-16

Operations Strategy: Quality (cont.) What types of systems will be set up to ensure quality? How will quality awareness be maintained? How will quality efforts be evaluated? How will customer perceptions of quality be determined? How will decisions in other functional areas affect quality? Copyright 2006 John Wiley & Sons, Inc.2-17

Operations Strategy: Sourcing Vertical Integration – degree to which a firm produces parts that go into its products Strategic Decisions – How much work should be done outside the firm? – On what basis should particular items be made in- house? – When should items be outsourced? – How should suppliers be selected? Copyright 2006 John Wiley & Sons, Inc.2-18

Operations Strategy: Sourcing (cont.) – What type of relationship should be maintained with suppliers? – What is expected from suppliers? – How many suppliers should be used? – How can quality and dependability of suppliers be ensured? – How can suppliers be encouraged to collaborate? Copyright 2006 John Wiley & Sons, Inc.2-19

Operations Strategy Customer Needs Corporate Strategy Operations Strategy Decisions on Processes and Infrastructure Example Strategy Process More Product Increase Org. Size Increase Production Capacity Build New Factory

Competitive Dimensions Cost Quality and Reliability Delivery –Flexibility –Speed –Reliability Coping with Changes in Demand New Product Introduction –Speed –Flexibility

Dealing with Trade-offs Cost Quality DeliveryFlexibility Example II, if we improve customer service problem solving by cross- training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems. For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.

Order Qualifiers and Winners Order Qualifiers: Screening criterion that permits a firm’s products or services to be considered as possible candidates for purchase Order Winners: Criterion that differentiates the products or services of one firm from another

Strategy Begins with Priorities ‡Consider the personal computer assembler 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 winners and order qualifiers for each group? 4. How do we convert order winners into specific performance requirements?

Manufacturing’s Role in Corporate Strategy Stage I--Internally Neutral - minimize potential manufacturing negative Stage II--Externally Neutral - achieve parity with competitors Stage III--Internally Supportive - support business strategy Stage IV--Externally Supportive - manufacturing based competitive strategy

Four Stages of Service Firm Competitiveness Stage I. Available for Service Stage II. Journeyman Stage III. Distinctive Competence Achieved Stage IV. World Class Service Delivery

U. S. Competitiveness Drivers Product Development – speed development & 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

Execution!! Unless you translate big thoughts into concrete steps for action, they’re pointless. (Larry Bossidy) Strategy is execution. (Louis Gerstner) In the business world, having a good objective means nothing if you implement it badly. (Fareed Zakaria) You cannot have an execution culture without robust dialogue - one that brings reality to the surface through openness, candor, and informality. Robust dialogue starts when people go in with open minds. You cannot set realistic goals until you’ve debated the assumptions behind them.

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

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?

10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = Example--Labor Productivity

Example: Productivity Measurement You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Is productivity increasing or decreasing?

Balanced Scorecard 1.Financial perspective 2.Internal perspective 3.Customer perspective 4.Innovation and learning perspective

THANK YOU! See you in next lecture… 35