OM_Final Full and Final

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Course Code: MGT 323Course Code: MGT 323Course Title: Operations ManagementCourse Title: Operations Management

Date of SubmissionDate of Submission

November 07, 2011November 07, 2011

Operations StrategyOperations Strategy


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Strategy FormulationStrategy Formulation

Strategy:Strategy: Strategy is how the mission of a company is accomplished. IT unites anStrategy is how the mission of a company is accomplished. IT unites an

organization, provides consistency in decision, and keeps the organization moving in theorganization, provides consistency in decision, and keeps the organization moving in theright direction.right direction.

Strategy formulation consists of four basic steps:Strategy formulation consists of four basic steps:

1.1. Defining A Primary TaskDefining A Primary Task

The primary task represents the purpose of a firm what the firm is in the business ofThe primary task represents the purpose of a firm what the firm is in the business of

doing. It also determines the competitive arena. As such, the primary task should not bedoing. It also determines the competitive arena. As such, the primary task should not be

defined too narrowly. For example, Norfolk Southern Railways in the business ofdefined too narrowly. For example, Norfolk Southern Railways in the business oftransportation, not railroads, Paramount is in the business of communication, not makingtransportation, not railroads, Paramount is in the business of communication, not making

movies. Amazons business is providing the fastest, earliest, and most enjoyablemovies. Amazons business is providing the fastest, earliest, and most enjoyableshopping experience. While Disneys is making people happy! The primary task isshopping experience. While Disneys is making people happy! The primary task isusually expressed in the firms mission statement. A vision statement that describes whatusually expressed in the firms mission statement. A vision statement that describes what

the organization sees itself becoming may accompany the mission.the organization sees itself becoming may accompany the mission.

2.2. Assessing core competenciesAssessing core competencies

Core competency is what a firm does better than anyone else does, its distinctiveCore competency is what a firm does better than anyone else does, its distinctivecompetence does. A firms core competence can be exceptional service, higher quality,competence does. A firms core competence can be exceptional service, higher quality,

faster delivery, or lower cost. One company may strive to be first to the market withfaster delivery, or lower cost. One company may strive to be first to the market with

innovative designs, whereas another may look for success arriving later but with betterinnovative designs, whereas another may look for success arriving later but with better

quality.quality.

Based on experience, knowledge, and know how, core competencies representBased on experience, knowledge, and know how, core competencies represent

sustainable competitive advantages. For this reason, product and technologies are seldomsustainable competitive advantages. For this reason, product and technologies are seldomcore competencies. The advantage they provide is short-lived and other companies cancore competencies. The advantage they provide is short-lived and other companies can

readily purchase, emulate, or improve on them. Core competencies are more likely to bereadily purchase, emulate, or improve on them. Core competencies are more likely to be

processes, a companys ability to do certain things better than a competitor. Thus, while aprocesses, a companys ability to do certain things better than a competitor. Thus, while a particular product is not a core competence, the process of developing new products is.particular product is not a core competence, the process of developing new products is.

Consider Chaparral Steel for example. Chaparral management allows its competitors toConsider Chaparral Steel for example. Chaparral management allows its competitors to

tour its plans at will because they cant take (what we do best) home with them.tour its plans at will because they cant take (what we do best) home with them.

Although Chaparral is known for its low cost and high technology, its core competency isAlthough Chaparral is known for its low cost and high technology, its core competency is

not technology, but the ability to transform technology rapidly into new products andnot technology, but the ability to transform technology rapidly into new products and processes. By the time, a competitor copies its current technology, Chaparral will haveprocesses. By the time, a competitor copies its current technology, Chaparral will have

moved on to something else. Core competencies are not static. They should be nurtured,moved on to something else. Core competencies are not static. They should be nurtured, enhanced, and developed over time. Close contact with the customer is essential toenhanced, and developed over time. Close contact with the customer is essential to

ensuring that a competence does not become obsolete.ensuring that a competence does not become obsolete.

3.3. Determining order winners and order qualifiers.Determining order winners and order qualifiers.


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A firm is in trouble if the things it does best are not important to the customer. That isA firm is in trouble if the things it does best are not important to the customer. That is

why it is essential to look toward customers to determine what influences their purchasewhy it is essential to look toward customers to determine what influences their purchase decision.decision.

Order qualifiersOrder qualifiers are the characteristics of a product or service that qualify it to beare the characteristics of a product or service that qualify it to be

considered for purchase by a customer. For example, when purchasing a DVD player,considered for purchase by a customer. For example, when purchasing a DVD player, customers may determine a price range.customers may determine a price range.

Order winnerOrder winner is the characteristics of a product or service that wins orders in theis the characteristics of a product or service that wins orders in the

marketplace. For example, when purchasing a DVD player, customers may determine amarketplace. For example, when purchasing a DVD player, customers may determine a

price range and then choose the product with the most features within the price range.price range and then choose the product with the most features within the price range.

Order winners and order qualifiers can evolve over time, just as competencies can beOrder winners and order qualifiers can evolve over time, just as competencies can be

gained and loss. Japanese automakers initially competed on price but had to ensuregained and loss. Japanese automakers initially competed on price but had to ensure

certain levels of quality before the U.S. consumer would consider their product. Overcertain levels of quality before the U.S. consumer would consider their product. Overtime, the consumer was willing to pay a higher price (within reason) for the assurance oftime, the consumer was willing to pay a higher price (within reason) for the assurance of

a superior-quality Japanese car. Price became a qualifier, but quality won the orders.a superior-quality Japanese car. Price became a qualifier, but quality won the orders.

4.4. Positioning of the firmPositioning of the firm

No firm can be all things to all people. Strategic positioning involves making choices-No firm can be all things to all people. Strategic positioning involves making choices-

choosing one or two important things on which to concentrate and doing them extremelychoosing one or two important things on which to concentrate and doing them extremely

well. A firms positioning strategy defines how it will compete in the marketplace-whatwell. A firms positioning strategy defines how it will compete in the marketplace-what

unique value it will deliver to the customer. An effective positioning strategy considersunique value it will deliver to the customer. An effective positioning strategy considers

the strengths and weakness of the organization, the needs of the marketplace, and thethe strengths and weakness of the organization, the needs of the marketplace, and the positions of competitors.positions of competitors.

Strategic decision in operationsStrategic decision in operations

Stratic decision in opertions involves Products and services, processes and technology,Stratic decision in opertions involves Products and services, processes and technology,

capacity and facilities, human recourses, quality, sourcing and operating systems.capacity and facilities, human recourses, quality, sourcing and operating systems.

Products and services:Products and services:

The kind of product and services offered by a company drive operations strategy. ProductThe kind of product and services offered by a company drive operations strategy. Product

and services can be classified as-and services can be classified as-

Make-to- order:Make-to- order: Product and services are designed, produced, and delivered toProduct and services are designed, produced, and delivered tocustomer specification in response to customer orders. Examples include weddingcustomer specification in response to customer orders. Examples include weddinginvitations, custom-built homes, custom-tailored clothes, charter airline flights,invitations, custom-built homes, custom-tailored clothes, charter airline flights,

component parts, and professional services (such as medical, legal, and financialcomponent parts, and professional services (such as medical, legal, and financial

services).services).


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Make-to-stock:Make-to-stock: Products and services are designed and produced for standardProducts and services are designed and produced for standardcustomers in anticipation of demand. Examples include ready- to wear apparel, books,customers in anticipation of demand. Examples include ready- to wear apparel, books,televisions, airline flights, spec homes, standers vacations packages.televisions, airline flights, spec homes, standers vacations packages.

Assemble-to-order:Assemble-to-order: Product and services, also known as build-to-order, are producedProduct and services, also known as build-to-order, are produced

in standards modules to which options are added according to customer specification.in standards modules to which options are added according to customer specification. Thus, components are made-to- stock and then assembled to order after the customerThus, components are made-to- stock and then assembled to order after the customer

order has been received. Examples include company system, corporate training, andorder has been received. Examples include company system, corporate training, andindustrial equipment.industrial equipment.

PROCESSES AND TECHNOLOGYPROCESSES AND TECHNOLOGY

Production process can be classified into projects, batch production, mass production, andProduction process can be classified into projects, batch production, mass production, and

continuous production.continuous production.

AA projectproject takes a long time to complete, involves a large investment of funds andtakes a long time to complete, involves a large investment of funds and

resources, and produce on item at a time to customer order. Examples includeresources, and produce on item at a time to customer order. Examples includeconstruction project, and shipbuilding.construction project, and shipbuilding.

Batch productionBatch production process many different jobs through the production system at the sameprocess many different jobs through the production system at the same

time in groups or batches. Products are typically made to customer order. Volume is low,time in groups or batches. Products are typically made to customer order. Volume is low, demand is fluctuates. Examples of batch production include printers, bakeries anddemand is fluctuates. Examples of batch production include printers, bakeries and

furniture making.furniture making.

Mass ProductionMass Production produces large volumes of a standard product for a mass market.produces large volumes of a standard product for a mass market.

Product demand is stable, and product volume is high. Goods that are mass-producedProduct demand is stable, and product volume is high. Goods that are mass-produced

include automobiles, televisions, and personal computers.include automobiles, televisions, and personal computers.

Continuous productionContinuous production is used for very high-volume commodity products that are veryis used for very high-volume commodity products that are very

standardized. The system is highly automated and is typically in operation continuouslystandardized. The system is highly automated and is typically in operation continuously

24 hours a day. Refined oil, treated water, paints, chemicals, and foodstuff are produced24 hours a day. Refined oil, treated water, paints, chemicals, and foodstuff are producedby continuous production.by continuous production.

The process chosen to create the product or service must be consistent with product andThe process chosen to create the product or service must be consistent with product and service characteristics. The most important product characteristics are degree toservice characteristics. The most important product characteristics are degree to

standardization and demand volumestandardization and demand volume

CAPACITY AND FACILITYCAPACITY AND FACILITY

Capacity decision affects product lead times, customer responsiveness, operating costs,Capacity decision affects product lead times, customer responsiveness, operating costs,

and a firms ability to compete. Inadequate capacity can loss customers and limit growth.and a firms ability to compete. Inadequate capacity can loss customers and limit growth.

Excess capacity can drain a companys resources and prevent and investments in moreExcess capacity can drain a companys resources and prevent and investments in more

lucrative venture. When, how much, and in what from to alter capacity are criticallucrative venture. When, how much, and in what from to alter capacity are criticaldecisions.decisions.


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Overall capacity must then be divided into individual facility strategic decision includeOverall capacity must then be divided into individual facility strategic decision include

determining whether demand should be met with a few large facilities or with severaldetermining whether demand should be met with a few large facilities or with several smaller ones, and whether facilities should focus on serving certain geographic regions,smaller ones, and whether facilities should focus on serving certain geographic regions,

product line, or customers.product line, or customers.

Facility location can also be a strategic decision, especially when it concerns globalFacility location can also be a strategic decision, especially when it concerns globalexpansion. If items are to be made as well as sold in foreign countries, what kind ofexpansion. If items are to be made as well as sold in foreign countries, what kind of

relationship is needed with manufacturers in the foreign countries licensing agreements,relationship is needed with manufacturers in the foreign countries licensing agreements, joint venture, partnership, alliances, and mergers?joint venture, partnership, alliances, and mergers?

HUMAN RESOURCESHUMAN RESOURCES

Strategic issues in human resources involve determining the skill levels and degree ofStrategic issues in human resources involve determining the skill levels and degree of

autonomy required to operate the production system, outlining training requirements andautonomy required to operate the production system, outlining training requirements and

selection criteria, and setting up policies on performance evaluations, compensation, andselection criteria, and setting up policies on performance evaluations, compensation, and incentives. Will workers be salaried, paid an hourly rate, or paid a price rate? Will profitincentives. Will workers be salaried, paid an hourly rate, or paid a price rate? Will profit

sharing be allowed, and if so, on what criteria? Will workers perform individual tasks orsharing be allowed, and if so, on what criteria? Will workers perform individual tasks orwork in teams? Will they have supervisors or work in self-managed work groups?work in teams? Will they have supervisors or work in self-managed work groups?

QUALITYQUALITY

Quality permeates virtually every strategic decision. What is target level of quality forQuality permeates virtually every strategic decision. What is target level of quality for

our products and services? How will it be measured? How will employees be involvedour products and services? How will it be measured? How will employees be involved

with quality? What types of training are necessary? What will be the responsibilities ofwith quality? What types of training are necessary? What will be the responsibilities ofthe quality department? What types of system will be set up to ensure quality? How willthe quality department? What types of system will be set up to ensure quality? How will

quality awareness be maintained? How will quality efforts be evaluated?quality awareness be maintained? How will quality efforts be evaluated?

SOURCINGSOURCING

A firm that sells the product, assembles the product, makes all the parts, and extracts theA firm that sells the product, assembles the product, makes all the parts, and extracts the

raw material is completely vertically integrated. However, most companies cannot or willraw material is completely vertically integrated. However, most companies cannot or will not make all of the parts go into a product. A major strategic decision, then, is how muchnot make all of the parts go into a product. A major strategic decision, then, is how much

of the work should be done outside the firm. This decision involves questions ofof the work should be done outside the firm. This decision involves questions of

dependence, competency-building, and proprietary knowledge, as well as cost.dependence, competency-building, and proprietary knowledge, as well as cost.

On what basis should particular items be made in-house? When should items be outOn what basis should particular items be made in-house? When should items be out

sourced? How should suppliers be selected? What type of relationship should besourced? How should suppliers be selected? What type of relationship should bemaintained with suppliers arms length, controlling, partnership, alliance? What ismaintained with suppliers arms length, controlling, partnership, alliance? What is

expected from the suppliers? How many suppliers should be used?expected from the suppliers? How many suppliers should be used?


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OPERATING SYSTEMOPERATING SYSTEM

Operating systems execute strategic decision on a day-to-day basis, so it is important thatOperating systems execute strategic decision on a day-to-day basis, so it is important that

they be designed to support how the firm competes in the marketplace. The IT systemthey be designed to support how the firm competes in the marketplace. The IT system

must be able to support both customer and worker demands for rapid access, storage, andmust be able to support both customer and worker demands for rapid access, storage, and

retrieval of information. Planning and control systems must be set up with timelyretrieval of information. Planning and control systems must be set up with timelyfeedback loops and consistent decision-making criteria. Inventory levels, schedulingfeedback loops and consistent decision-making criteria. Inventory levels, scheduling

priorities, and reward systems should align with strategic goals.priorities, and reward systems should align with strategic goals.

Strategy DevelopmentStrategy Development

Strategic ProcessStrategic Process

Strategy Development ProcessStrategy Development Process


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