1. OPSM 301 Operations Management Spring 2012 Class 2 Operations Strategy
Evrim Didem Güneş

2. Announcements
Web page available, please check for announcements and lecture notes
Please get copies of the course pack from Copyland

3. Learning Objectives of Today
Competitive dimensions
Order winners-order qualifiers
Efficient frontier and operational effectiveness
The concept of a trade-off
The concept of strategic fit

4. Operations & the Process View: What is a Process?
Management
Information
structure
Network of
Activities and Buffers
Inputs
Outputs
Goods
Services
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital
Resources

5. What is Operations Management?
Management of business processes
How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs.
What is appropriate?

6. What Defines a Good Process? Performance: Financial Measures
Absolute measures:
Revenues, costs, operating income, net income
Net Present Value (NPV) =
Relative measures:
ROI, ROE
ROA =
Survival measure:
Cash flow

7. To deliver we need “capabilities”
Firms compete on product attributes… This requires process capabilities
Price (Cost) P
Quality Q
Customer service
Product quality
Time T
Rapid, reliable delivery
New product development
Variety V
Degree of customization
Ability to cope with changes
in demand volume
Ability to introduce a variety
of products
“Order Winners”
To deliver we need “capabilities”

8. Process Performance Measures
Objective
Some typical Measures
Cost
Minimum delivery time/average delivery time, utilization of resources, labor productivity, added value, efficiency, cost per operation hour
Quality
Number of defects per unit, level of customer complaints, scrap level, mean time between failures, customer satisfaction scores
Speed
Customer query time, Order lead time, frequency of delivery, actual versus theoretical throughput time, cycle time
Flexibility
Time needed to develop new products/services, range of products/services, machine change-over time, average batch size, time to increase activity rate, average capacity/maximum capacity, time to change schedules
Effective measures are:
Linked to external measures important for the customer
Directly controllable by the process manager

9. Order Qualifiers and Winners Defined
Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers
Screening criteria
Standard, expected performance
Order winners: the criteria that differentiates the products and services of one firm from another
The more, the better
Customer chooses based on this criteria 6

10. Order-Winners and Qualifiers
Positive
Less
Important
Competitive Benefit
Neutral
Order
Qualifier
Negative
Low
High
Performance
Source: Slack and Lewis

11. Fit Between Strategy and Processes
Processes must fit the operations strategy of the firm:
Competing on
Cost (BİM,Southwest Airlines)
Quality ( Organic Food market, e.g. Whole foods in the US)
Flexibility/Variety (Honda, Carrefour etc)
Speed (Domino’s Pizza)
all require different process designs and different measures to focus on
Corporate StrategyKey Performance Indicators
Operations StrategyProcess Design& Improvement

12. Cost Competition-Discount Supermarkets

13. Flexibility at Honda
Honda has some of the most flexible plants in the U.S.
Honda is able to switch from producing  Civics to CR-Vs with only 5 minutes of downtime! 
the Civic and CR-Vs were designed to be manufactured in the same sequence of steps
Honda did have to invest $400m several years ago to improve its flexibility. 
“Honda's manufacturing flexibility is almost as key to its success as its product lineup. To respond to changes in economic conditions, Honda is able to shuffle production among different plants as well as make different models in one plant.”
Honda's Flexible Plants Provide Edge 
Wall Street Journal, Sep 23, 2008

14. Strategic Fit: Desired Capabilities Processes
Match processes with desired capabilities

15. A Framework for Designing an Operations Strategy and Structure
Corporate Strategy
Business Unit
Strategy
Desired
Competencies
Notes:
Operations
Structure
Resources
Processes 15
S. Chopra/Operations/Strategy

16. Representation of Strategy
Current Position and Strategic Directions of Movement in the competitive product space:
Variety B A
Strategic positioning defines where the firm wans to position itself in its competitive product space.
Firm B provides customized, high cost products (this could be ferrari), whereas firm A provides standardized, low cost products (Tata steel). The direction of arrow shows how the firms would want to move according to their strategy. Or responsiveness can be variety (migros vs bim)
High
Low
Price
OPSM901 Operations Management

17. Strategy vs. Operational Effectiveness
The Operations Frontier as the minimal curve containing all current positions in an industry
strategy
Where on the frontier should we position
ourselves? (the direction)
High A
operational effectiveness
How far are we from the
efficient frontier? How to get there? B
Responsiveness C
Operations
Frontier
Low
High
Low
Price

18. Increasing Customer Value
Increasing Value
High
Operations Frontier A B C
Low
High
Low
Price

19. Lowering Costs Operations Frontier Lowering Costs Value Price
Trade-off: decreasing one aspect to increase another
High
Operations Frontier A B
Lowering Costs C
Low
High
Low
Price

20. Focused Strategy and Focused Processes
“ The essence of strategy is what to do and what not to do.”
Porter, 1996

21. Shouldice Hospital Video Case

22. Shouldice Business Model
Medical
Simple hernias
Optimized process
Check-ups and follow-up
Social
Club Med like experience
Co-production at individual and cohort level
A network for life

23. Shouldice Patient Experience
COST
Low, both real and opportunity
QUALITY
Low recurrence, satisfaction with experience
SPEED
Fast operation and recovery
X FLEXIBILITY
The process rules: only simple hernias

24. Comparison to General Hospital
FOCUS at Shouldice
General Hospital: prepares for the most complex
Hernia complexity
Shouldice: prepares
for the simplest

25. A product/process matrix
Wish of Marketing
High customization
Low volume
High unit margin
High standardization
High volume
Low unit margin
Product
General Hospital:
Variety & flexibility
High cost
Low margins
Low Cost
High margins
(difficult to achieve)
Shouldice Hospital:
Standardization
Cost, speed, quality
Flexible
Job shop
Process
Rigid line flow
Wish of
Operations
Industrialization

26. Shouldice as a lean enterprise
General Hospital
Focus on low risk cases
No focus, multiple goals
Clear single value prop.
Confusion of value prop.
Predictable process
Unpredictable process
Strive for perfection
Strive for threshold perf.
Eliminate waste
Tolerate some excess
Manage patient flows
View patients as functional tasks
Pull patients into process
Push patients through process
Womack and Jones (2000) From Lean Production to Lean Enterprise, HBR March-April 1994

27. Focus at Shouldice: the results
Breakthrough service
High customer and employee satisfaction
Industrial approach to service

28. Shouldice Process Life Cycle
Birth of the Shouldice formula
Process selection, design,
and improvement
Innovation at the interfaces
Process overtaken (when?)

29. Next Time
Will discuss Process Selection and Product-Process Matrix