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© Nigel Slack and Michael Lewis 2003
Operations Resources
Market Requirements
OPERATIONS STRATEGY
Strategic Reconciliation
Level 1 - Fit
Level 3 - Risk
Align resources with requirements
Include impact of uncertainty
Level 2 - Sustainability Develop sustainable
competitive advantage
Resource Usage
Pe
rfo
rma
nc
e
ob
jec
tiv
es
Ma
rke
t c
om
pe
titi
ve
ne
ss
Decision areas
Operations strategy processOperations strategy content
Topics in operations strategy treated in this chapter
© Nigel Slack and Michael Lewis 2003
‘Installed’ product/service fully operational
End of core processing
Start of core processing
Request for product/service
Receipt of information
Request for information
Awareness of need
MilestoneHospital Software producer
Presentation of symptoms
Visit to doctor for advice and tests
Test information confirms diagnosis
Decide on surgery
Enter hospital for surgery
Procedure successfully completed
Patient fully recovered
Installation time
Waiting time
Enquiry time
Core processing time
Customer decision time
Enquiry decision time
Asks for specification and estimates
Receives proposal
Places order
Start of design and coding
Software ‘completed’
Software fully debugged and working
Customer decides new software is needed
Significant ‘milestone’ times for the delivery of two products/services
© Nigel Slack and Michael Lewis 2003
First/Business-class cabin, airport lounges, pick-up service
Economy cabin
Wealthy people, business people, VIPs
Travellers (friends and family), vacation takers, cost-sensitive business travel
Wide range, may need to be customised
Standardized cabin
Relatively high Relatively low
Relatively low volume Relatively high volume
Medium to high Low to medium
First/Business class Economy class
Customization, extra service, comfort features, convenience
Quality (specification and conformance), Flexibility, Speed
Price, acceptable service
Cost, Quality (conformance)
Services
Customers
Service range
Rate of service innovation
Volume of activity
Profit margins
Main competitive factors
Performance objectives
Different product groups require different performance objectives
© Nigel Slack and Michael Lewis 2003
Mar
ket
Co
mp
etit
iven
ess
Speed
Flexibility
Cost
Dependability
Quality
The operations function can provide a competitive advantage through its performance at the five competitive objectives
Being RIGHT
Being FAST
Being ON TIME
Being ABLE TO CHANGE
Being PRODUCTIVE
© Nigel Slack and Michael Lewis 2003
Low HighNegative
PositiveC
om
pet
itiv
e b
enef
it
Neutral
Achieved performance
Order-winners and qualifiers
Order-winners
Less important
Qualifiers
© Nigel Slack and Michael Lewis 2003
Priority of performance
objectives
Customer Needs
Competitors’ Actions
The priority of performance objectives is influenced by what is regarded as important by customers and how
the operation performs against competitors
Performance against competitors
Importance to customers
© Nigel Slack and Michael Lewis 2003
OutputTotal assets
ProfitOutput
ProfitTotal assets = x
ProfitOutput
RevenueOutput
CostOutput
Average revenue
Average cost
OutputTotal assets
OutputCapacity
Fixed assetsTotal assets
CapacityFixed assets = x x
Utilization Working capital Productivity of fixed assets
= x
Operations strategy decision areas
Development and organization
Process technology
Supply network
Capacity
Decomposing the ratio profit/total assets
© Nigel Slack and Michael Lewis 2003
Operations Decisions are shaped by
COMPETENCIES and CONSTRAINTS
Resource Deployment
• Do it yourself or buy-in?
• Customer and supplier relationships
• Supply chain dynamics and integration
Supply Network
ISSUES -
Capacity Structure
ISSUES -
• Capacity
• Location
• Focus & segmentation
• L/T forecasts
Process Technology
ISSUES -
• Development rate
• Automation
• Size
• Integration
• In our out-house development
Development and Organization
• New product/service
development
• Organization structure
• Performance measurement
• Improvement strategy
ISSUES -
The Elements of an International Operations Strategy
© Nigel Slack and Michael Lewis 2003
Issues include:
•Total capacity
•Number, size of sites
•Allocation of tasks to sites
•Location
Issues include:
•Vertical integration
•Network behaviour
•Supplier relationships
•Supplier development
Issues include:
•Rate of development
•Automation
•Integration
•Implementation
•Subcontracted development
Issues include:
•Responsibility relationships
•Performance and control
•Process development
•Product and service development
Capacity Supply NetworkProcess
TechnologyDevelopment and
Organization
The four categories of operations strategy decision areas
Resource Usage
© Nigel Slack and Michael Lewis 2003
Structural issues
Infrastructural issues
Operations strategy decision areas are partly structural and partly infrastructural
Process Technology
Development and Organization
Supply NetworkCapacity
© Nigel Slack and Michael Lewis 2003
Quality
Mar
ket
Co
mp
etit
iven
ess
Speed
Dependability
Flexibility
CostCo
mp
etit
ive
Ob
ject
ives
ar
e p
rio
riti
zed
by
CU
ST
OM
ER
S a
nd
C
OM
PE
TIT
OR
S
Capacity Supply Network
Process Technology
Development and
Organization
Resource Usage
Operations Decisions shape
COMPETENCIES and CONSTRAINTS
Operations strategy is defined by the intersections of performance objectives and Operations decisions
© Nigel Slack and Michael Lewis 2003
Quality
Per
form
ance
ob
ject
ives
Resource Usage
Mar
ket
Co
mp
etit
iven
ess
Decision areas
Speed
Dependability
Flexibility
Cost
The operations strategy matrix
Capacity Supply Network
Process Technology
Development and
Organization
Operations strategy
© Nigel Slack and Michael Lewis 2003
Largest retailer in Japan
Sells 1.5X as much per store as nearest rival
History of cautious expansion and technical and service innovation
“Field Counsellors” spread operations knowledge (also do distance training)
Expansion by territory to reduce disn costs
Early use of TIS (total information system)
TIS controls stock replenishment twice a day delivery (sales analysed twice a day)
New system not internet-based
New services include,
Banking terminals
Downloading games
Downloading music to MD
Internet ordering and collection
7-Eleven Japan
© Nigel Slack and Michael Lewis 2003
COST in terms of minimizing…•operating cost•capital cost•working capital
QUALITY of products and services
Speed and dependability combined to indicate AVAILABILITY
FLEXIBILITY of response to sales and customer trends
Area dominance reduces distribution and advertising costs
•Location of stores•Size of stores
Distribution center grouping by temperature
Distribution centers and inventory management systems give fast stock replenishment
TIS allows trends to be forecast and supply adjustments made
Common distribution centers give small frequent deliveries from fewer sources
•Number and type of distribution centers
•Order and stock replenishment
TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily
•The Total Information System (TIS)
Information sharing and parenting system spreads service ideas
Field counselors with sales data help stores to minimize waste and increase sales
•Franchisee relationships
•New product/service development•Approach to operations improvement
DEVELOPMENT AND
ORGANIZATION PROCESS
TECHNOLOGYSUPPLY
NETWORKS CAPACITY
Resource Deployment
Mar
ket
Co
mp
etit
iven
ess
pivotal critical secondary
7-11 JAPAN
© Nigel Slack and Michael Lewis 2003
Level 1 - Fit
The practice of operations strategy involves considering fit, sustainability and risk
Level 2 - Sustainability
Level 3 - Risk
Align resources with requirements
Develop sustainable competitive advantage
Include impact of uncertainty In
crea
sin
g c
om
ple
xity
© Nigel Slack and Michael Lewis 2003
Mar
ket
req
uir
emen
ts
Level of operations resource capability
In operations strategy ‘fit’ is the alignment between market and operations capability
Line
of fit
Alignment between market and operations capabilityX
Y
© Nigel Slack and Michael Lewis 2003
Mar
ket
req
uir
emen
ts
Sustainable improvement implies simultaneous extension/improvement of market requirements and operations capabilities
Level of operations resource capability
Ext
en
sio
n o
f m
ark
et
req
uir
em
ents
Sustai
nable
impro
vem
ent
Improvements in operations capabilities
© Nigel Slack and Michael Lewis 2003
Mar
ket
req
uir
emen
ts
Virgin Trains and Nissan positioned in relation to market requirements and operations capabilities
Level of operations resource capability
Line
of fit
Nissan
Virgin Trains
© Nigel Slack and Michael Lewis 2003
Dresding Medical - Polar diagram illustrating the relative importance of the performance objectives for the current
and new products
X
X
X
Quality (specification)
Quality (conformance)
Speed
DependabilityVolume flexibility
Delivery flexibility
Customization
Cost
Current productsNew products
X X
X
X
X
© Nigel Slack and Michael Lewis 2003
Quality (spec)
Quality (conform)
Speed
Dependability
Delivery flex
Volume flex
Customization
CostPer
form
ance
ob
ject
ives
Lab style manufacture easy to change capacity incrementally
50% of activities in-house
Low process technology (but high product technology)
R&D, Mfg. and Sales all share common knowledge base. Incremental new product development
Capacity Supply Network
Process Technology
Development and
Organization
Resource Usage
Mar
ket
Co
mp
etit
iven
ess
Dresding Medical - Current product range
***
*
**
**
**
* * ****
*
******
*
**
*
very importantmedium importancesome importance
**
***
***
Decision areas
******
Slide 2.17
© Nigel Slack and Michael Lewis 2003
Quality (spec)
Quality (conform)
Speed
Dependability
Delivery flex
Volume flex
Customization
CostPer
form
ance
ob
ject
ives
May need to adjust quickly depending on demand
New supplies will be needed / developed
Needs investment in volume processes
R&D, Mfg. and Sales less interdependent. Faster time-to-market needed
Capacity Supply Network
Process Technology
Development and
Organization
Resource Usage
Mar
ket
Co
mp
etit
iven
ess
Dresding Medical - New product range
***
*
* * ****
*
***
*
**
*
very importantmedium importancesome importance
****
*
**
Decision areas
******
**
**
* ** **
****
** *
Slide 2.18
© Nigel Slack and Michael Lewis 2003
Quality
Per
form
ance
ob
ject
ives
Capacity Supply Network
Process Technology
Development and
Organization
Resource Usage
Mar
ket
Co
mp
etit
iven
ess
Decision areas
‘Fit’ is concerned with ensuring comprehensiveness, correspondence, coherence and criticality
Speed
Dependability
Flexibility
Cost
Critical
Critical
Critical
CriticalCritical
Coherence
Co
rres
po
nd
ence
Comprehensive?