1. Business, Operations and Supply Chain Strategy (BOSCS) Business and Operations Strategy: Strategic Management of Operations Technology

2. Teaching schedule for business and operations strategy TopicCase studies 1Introduction to business strategy 2Key models in business strategy: activity-system view 3Key models in business strategy: resource-based view & capabilities-based view 4Introduction to operations strategyPractice case study 5Strategic management of operations technology 6Strategic management of operations capacityPractice case study 2

3. Further details of assessment 1.Group report on a case study: please see the separate handout on this 2.Class test of 1.5 hours duration: please study the following chapters from the CIPS book: 1, 3, 5, 6, 10, 11, 13, 14, 15, 16, 17, 19, 20 3.End-of-semester exam of 1.5 hours duration 3

4. Required reading for this lecture Required reading for this lecture on operations strategy: Hayes, Pisano, Upton & Wheelwright (2005), Operations, Strategy, and Technology – Pursuing the Competitive Edge, chapters 2 and 6 4

5. Production system To-be-transformed resources (materials, customers, info) Transforming resources (capital equipment, labour, info) Customers External Environment Customer service Resource utilisation Transformed resources (goods, services) Capabilities Transforming resources Capabilities External Environment A basic model of a production system 5

6. Workflow design: determination of resource flows Basic layout types: Fixed position layout Process (or functional) layout Cell layout Product (or line) layout 6

7. Fixed position layout The to-be-transformed resources (materials, customers) do not move between the transforming resources but are, instead, ‘fixed’ in a given location. A specific set of transforming resources (labour, tools, machines) is gathered together and brought to this location. Examples: project to build the Channel tunnel shipyard operating theatre in a hospital 7

8. Example: Product Routing 1 A – B – C – D 2B – E – D – F 3E – A – E – D 4 B – C – A – F...… … 8 Layout design involving a range of different products

9. ABC DE 1 1 F 2 2 3 3 4 4 9 Process (or functional) layout

10. Advantages of a process layout Relatively robust to disruption (caused by unpredictability of demand and/or supply, for instance) Relatively varied work for production employees, demanding higher levels of skill May allow superior quality of product design High level of flexibility (new and/or customised products and product mix) Advantages of a process (or functional) layout 10

11. ABC DE 1 1 F 2 2 3 3 4 4 5 5 Adding a 5th product (with routing C-E-D-F) 11

12. Disadvantages of a process layout Complex production scheduling, resulting in low level of dependability (Very) high level of WIP inventory Relatively low level of resource utilisation Very low level of throughput efficiency, resulting in low overall speed of operations Relatively low level of specialisation of transforming resources In general, relatively high unit costs Relatively low level of standardisation of (to-be) transformed resources 12 Disadvantages of a process (or functional) layout

13. ABC DE 1 1 F 2 2 3 3 4 4 Work-in-progress (WIP) stock 13

14. Product (or line) layout ABCD E 11 F 22 33 44 BDF EEAD BCA 14

15. Advantages of a product layout Relatively simple production scheduling, resulting in a high level of dependability (Very) low level of WIP inventory High level of resource utilisation Very high level of throughput efficiency, resulting in high overall speed of operations High level of specialisation of production tasks and of transforming resources If, and only if, output volumes are high: low unit costs High level of standardisation of production tasks and of (to-be) transformed resources Advantages of a product (or line) layout 15

16. Disadvantages of a product layout Not very robust to disruption (caused by unpredictability of demand and/or supply, for instance) Monotonous work for production employees, not requiring higher levels of skill May be less appropriate for products of high design quality Low level of flexibility (new and/or customised products and product mix, and also total volume) High level of capital investment required Disadvantages of a product (or line) layout 16

17. ABCD E 11 F 22 33 44 BDF EEAD BCA CEDF 55 17 Adding a 5th product (with routing C-E-D-F)

18. Layout design involving a range of different products Example: Product Routing 1 A – B – C – D 2B – E – D – F 3E – A – E – D 4 B – C – A – F C – E – D – F B – C – E – D 5 6 18

19. A possible cell layout A B CDE 1 F 2 2 3 3 4 5 B E CD 1 5 4 6 6 19

20. The facilities layout procedure Volume and variety of outputs Select the process type Select the basic layout type Carry out the detailed design of the layout Strategic performance objectives Project Jobbing prod’n system Batch prod’n system Mass production system Continuous prod’n system Fixed position layout Process layout Cell layout Product layout 20

21. Types of production systems Manufacturing production system Service production system Jobbing production system Batch production systemService shop system ProjectProfessional service Mass production systemMass service system Continuous production system 21

22. Project A project is a ‘one-off’ operation. It is meant to result in a single product that is, in some sense, unique – that is, it will tend to differ in some important aspects from otherwise similar products made previously. The product is usually highly complex. The product is made with its own set of transforming resources that is specifically assembled for the project. A project typically uses a fixed position layout. For a good example of a project, consider the Channel Tunnel project that was completed in 1994 in order to provide a fixed transportation link between England and France. 22

23. Jobbing production system In a jobbing production system, the variety of products made will be very high and the volumes correspondingly low. The products will tend to be complex, but less so than in the case of a project. Each job must share the transforming resources it needs with (perhaps many) other jobs. A jobbing production system may use either a fixed position layout or a process layout. Examples of jobbing production systems include the production of certain specialist machine tools, garments for fashion shows, and printed publicity materials for rock concerts. 23

24. Batch production system (1) A batch is a set of specific products made at the same time. Batch production systems span a much wider range of variety and volume levels than other types of production systems. At one end of the spectrum, a small batch production system is quite similar to jobbing production – but it is usually assumed that one or more other batches of the same product will be made in the future. At the other end of the spectrum, large numbers of products are made at the same time – but in discrete batches repeated at irregular intervals rather than at a regular, more or less constant, rate over time (as would be the case in a mass production system). 24

25. Batch production systems (2) Whether small or large, each batch must typically share many or most (or even all) of the transforming resources that it needs with batches of other products. A small batch production system may use either a process layout or, if some sequences of production tasks have quite a high degree of repeatability, a cell layout. A large batch production system may use either a cell layout or even, if very large batches are produced in a highly repetitive manner, a product layout. Examples of batch production systems include the production of most types of machine tools, various types of medical equipment, most types of garments, and components for the automotive industry. 25

26. Mass production system (1) A mass production system is characterised by a very high degree of repeatability. As the name implies, mass production involves high volumes of products, but the variety of products will be relatively low. Each product is made at a regular, more or less constant, rate over time (often with very short intervals – measured in minutes or even seconds – between successive items). Each product – or similar group of products, such as different variants of a given model of car – is typically given its own, dedicated set of transforming resources for many or most (or even all) of the tasks involved in its production. 26

27. Mass production system (2) A product layout is often regarded as the most appropriate type of layout for a mass production system. However, in cases where there is a relative high need for flexibility or where production employees are not willing to accept the monotony of a conventional assembly line, some form of cell layout may be used, instead. Examples of mass production systems include car assembly plants, plants assembling consumer electronics products (e.g. televisions), whisky bottling lines, manufacturing plants for high-volume pre- packaged food products (e.g. various kinds of canned foods or frozen foods). 27

28. Continuous production system A continuous production system is similar to mass production – but with even higher volumes and even less variety – except that the products are not made in discrete units but as a continuous, steady flow (measured, for instance, in litres/hour or tonnes/hour). Typically, each product, or similar group of products, is given its own, dedicated set of transforming resources for all of the tasks involved in its production. A continuous production typically uses a product layout. Examples of continuous production systems include petrochemical plants and sugar refineries. 28

29. Product-process matrix A ‘production system’ is a coherent set of operations (or production) processes. A production system can be characterised as occupying a particular region in the product-process matrix. In other words, a production system is characterised by both its process and product structure. Production systems that are positioned on the main diagonal of the product-process matrix represent points of best fit between process structure and product structure. On this main diagonal, the specific operations capabilities of the production system (emanating from the process structure) are fully consistent with its specific competitive priorities (as reflected in the product structure). 29

30. PRODUCT STRUCTURE Disconnected line flow (cell layout) PROCESSSTRUCTUREPROCESSSTRUCTURE Jumbled flow (process layout) Connected line flow (product layout) Continuous flow (product layout) Low volume, low stand- ardisation, one of a kind Multiple products, low volume Few major products, higher volume High volume, high stand- ardisation, commodity products Jobbing production system Batch production system Mass production system Continuous production system Product-process matrix 30

31. PRODUCT STRUCTURE Disconnected line flow (cell layout) PROCESSSTRUCTUREPROCESSSTRUCTURE Jumbled flow (process layout) Connected line flow (product layout) Continuous flow (product layout) Low volume, low stand- ardisation, one of a kind Multiple products, low volume Few major products, higher volume High volume, high stand- ardisation, commodity products Examples of manufacturing systems Commercial printer Heavy equipment manufacturer Car assembler Oil refinery 31

32. Managerial choices regarding trade-offs In the north-west corner – corresponding to a jobbing process making low-volume products characterised by low standardisation – the strategic performance objectives that are prioritised are flexibility and quality of product design. In the south-east corner – corresponding to a mass production or continuous process making high-volume products characterised by high standardisation – the strategic performance objectives that are prioritised are the speed, dependability and low cost of operations. Different positions on the main diagonal represent different managerial choices regarding trade-offs between the various strategic performance objectives. 32

33. speed, dependability, low cost of production flexibility, quality Competitive priorities speed & dependability of delivery, quality (reliability), low selling price product innovation & customisation, product range, quality (product performance) Capabilities of production system PRODUCT STRUCTURE Disconnected line flow (cell layout) PROCESSSTRUCTUREPROCESSSTRUCTURE Jumbled flow (process layout) Connected line flow (product layout) Continuous flow (product layout) Low volume, low stand- ardisation, one of a kind Multiple products, low volume Few major products, higher volume High volume, high stand- ardisation, commodity products Jobbing production system Batch production system Mass production system Continuous production system Trade-offs between performance objectives 33

34. Professional service A professional service involves a lot of contact and interaction between the customer and the service provider. Customers tend to spend a substantial amount of time in the service process. The process by which a professional service is provided must be highly adaptable in order to meet individual customer needs. Professional services tend to be people-based rather than equipment-based. How the service is delivered may be (almost) as important to the customer as what service is delivered. Examples of professional service providers include management consultants, auditors, lawyers, architects and medical practitioners. 34

35. Service shop system A service shop system is characterised by ‘intermediate’ levels of customer numbers, customer contact & interaction, customisation and staff discretion. A service shop system is based on a mix of ‘front-office’ (customer-facing) and ‘back-office’ (non-customer- facing) activities. Examples of service shop systems include high-street banks, high-street shops (i.e. not supermarkets!), car- rental companies, hotels and schools. 35

36. Mass service system A mass service system needs to cope with many customer transactions. Each transaction involves a very limited amount of customer contact & interaction and a low level of customisation. A mass service system tend to be equipment-based. Most value is added in the back office. Front-office staff will have little discretion in how to deal with customers. What service is delivered tends to be more important than how the service is delivered. Examples of mass service systems include supermarkets, train/bus stations and airports, (mobile) phone operators and many call centres. 36

37. speed, dependability, low cost of service provision flexibility, quality Competitive priorities speed & dependability of service delivery, quality (service reliability), low selling price service innovation & customisation, service range, quality (service experience) Capabilities of production system Product-process matrix for services 37 NATURE OF SERVICE NATUREOFPROCESSNATUREOFPROCESS Line flow, low customer contact & interaction, fast throughput, high K/L Potential use of IT-based automation Low volume, low standardisation Knowledge- intensive Professional service Service shop system Mass service system Jumbled flow, high customer contact & interaction, slow throughput, low K/L Potential use of expert systems High volume, high standardisation Information- intensive