Operation Strategy 1

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DOWN-SIZING(Layoff )

Layoff(in British[1] and American English), also called redundancy in the UK, is thetemporary suspension or permanent termination of employment of an employee or (more

commonly) a group of employees for business reasons, such as when certain positions areno longer necessary or when a business slow-down occurs. Originally the term layoffreferred exclusively to a temporary interruption in work, as when factory work cyclicallyfalls off. The term however nowadays usually means the permanent elimination of aposition, requiring the addition of "temporary" to specify the original meaning.

Many synonyms such as downsizingexist, most of which are euphemisms and moreabstract descriptions of the process, most of which can also be used for more inclusiveprocesses than that of reducing the number of employees. Downsizing is the "conscioususe of permanent personnel reductions in an attempt to improve efficiency and/oreffectiveness".[2] Since the 1980s, downsizing has gained strategic legitimacy. Indeed,

recent research on downsizing in the U.S.,

[3]

UK,

[4]

and Japan

[5][6]

suggests thatdownsizing is being regarded by management as one of the preferred routes to turningaround declining organisations, cutting costs, and improving organisational performance,[7] most often as a cost-cutting measure

Capacity Decision(Capacity planning )

From Wikipedia, the free encyclopedia

Jump to: navigation,search

Capacity planning is the process of determining the production capacity needed by anorganization to meet changingdemandsfor itsproducts.[1] In the context of capacityplanning, "capacity" is the maximum amount of work that an organization is capable ofcompleting in a given period. The phrase is also used in business computing as asynonym forCapacity Management.

A discrepancy between the capacity of an organization and the demands of its customersresults in inefficiency, either in under-utilized resources or unfulfilled customers. Thegoal of capacity planning is to minimize this discrepancy. Demand for an organization's

capacity varies based on changes in production output, such as increasing or decreasingthe production quantity of an existing product, or producing new products. Betterutilization of existing capacity can be accomplished through improvements in overallequipment effectiveness(OEE). Capacity can be increased through introducing newtechniques, equipment and materials, increasing the number of workers or machines,increasing the number of shifts, or acquiring additional production facilities.
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Capacity is calculated: (number of machines or workers) (number of shifts) (utilization) (efficiency).

The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.

Lead strategy is adding capacity in anticipation of an increase in demand. Leadstrategy is an aggressive strategy with the goal of luring customers away from thecompany's competitors. The possible disadvantage to this strategy is that it oftenresults in excess inventory, which is costly and often wasteful.

Lag strategy refers to adding capacity only after the organization is running at

full capacity or beyond due to increase in demand (North Carolina StateUniversity, 2006). This is a more conservative strategy. It decreases the risk ofwaste, but it may result in the loss of possible customers.

Match strategy is adding capacity in small amounts in response to changing

demand in the market. This is a more moderate strategy.

In the context ofsystems engineering, capacity planning[2]

is used during system designand system performance monitoring.

Capacity planning is long-term decision that establishes a firms' overall level ofresources. It extends over time horizon long enough to obtain resources. Capacitydecisions affect the production lead time, customer responsiveness, operating cost andcompany ability to compete. Inadequate capacity planning can lead to the loss of thecustomer and business. Excess capacity can drain the company's resources and preventinvestments into more lucrative ventures. The question of when capacity should beincreased and by how much are the critical decisions.

Capacity Available or Required?

From a scheduling perspective it is very easy to determine how much capacity (or time)will be required to manufacture a quantity of parts. Simply multiply the Standard CycleTime by the Number of Parts and divide by the part or process OEE %.

If production is scheduled to produce 500 pieces of product A on a machine having acycle time of 30 seconds and the OEE for the process is 85%, then the time to producethe parts would be calculated as follows:

(500 Parts X 30 Seconds) / 85% = 17647.1 seconds The OEE index makes it easy to

determine whether we have ample capacity to run the required production. In thisexample 4.2 hours at standard versus 4.9 hours based on the OEE index.

Repeating this process for all the parts that run through a given machine, it is possible todetermine the total capacity required to run production.

Capacity Available
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If you are considering new work for a piece of equipment or machinery, knowing howmuch capacity is available to run the work will eventually become part of the overallprocess. Typically, an annual forecast is used to determine how many hours per year arerequired. It is also possible that seasonal influences exist within your machinerequirements, so perhaps a quarterly or even monthly capacity report is required.

To calculate the total capacity available, we can use the formula from our earlier exampleand simply adjust or change the volume accordingly based on the period beingconsidered. The available capacity is difference between the required capacity andplanned operating capacity.

CAPACITY DETETEMINATION CAS 2

Order Winners & Order QualifiersOrder winners are "those competitive characteristics that cause a firm's customers tochoose that firm's goods and services over those of its competitors. Order winners can beconsidered to be competitive advantages for the firm. Order winners usually focus on onerarely more than two) of the following strategic initiatives: price/cost, quality, deliveryspeed, delivery reliability, product design, flexibility, after-market service, and image."(APICS Dictionary 2008).

Order qualifiers are "those competitive characteristics taht a firm must exhibit to be aviable competitor in the marketplace." (APICS Dictionary 2008)

The order winners/qualifiers distinction ascribed to Hill (1993) is a widely adoptedapproach to distinguishing between the different competitive factors that operations maychoose to emphasize. The basis of the classification is that different competitive factorscan play different roles in determining the competitive contribution of the operationsfunction. Orderwinning competitive factors (simply called order winners by Hill) are

held to be those on which better performance will result in more business, or an increasedchance of gaining more business. Qualifying competitive factors (called qualifiers byHill), on the other hand, are those for which performance has to be above a particularlevel in order for the product or service offered to be considered by the customer, but do

not, if improved beyond that level, appreciably affect the customer's buying decision.This suggests that, for factors identified as qualifiers, there is little to be gained byimproving them beyond the qualifying level, whereas for order winners, effortexpended in improving performance should continue to lead to more orders. Thedistinction between order winners and qualifiers as a concept is widespread in theoperations strategy literature. It has been taken up by many authors and is generallyregarded as being both practical and conceptually useful.
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Performance indicator

From Wikipedia, the free encyclopediaJump to: navigation,search

"Key Performance Indicator" redirects here.

A performance indicator orkey performance indicator (KPI) is an industry jargon fora type ofperformance measurement.[1] KPIs are commonly used by an organization toevaluate its success or the success of a particular activity in which it is engaged.Sometimes success is defined in terms of making progress toward strategic goals,[2]butoften success is simply the repeated achievement of some level of operational goal (forexample, zero defects, 10/10 customer satisfaction, etc.). Accordingly, choosing the rightKPIs is reliant upon having a good understanding of what is important to theorganization. 'What is important' often depends on the department measuring theperformance - the KPIs useful to finance will be quite different than the KPIs assigned to

sales, for example. Because of the need to develop a good understanding of what isimportant, performance indicator selection is often closely associated with the use ofvarious techniques to assess the present state of the business, and its key activities. Theseassessments often lead to the identification of potential improvements; and as aconsequence, performance indicators are routinely associated with 'performanceimprovement' initiatives. A very common method for choosing KPIs is to apply amanagement framework such as thebalanced scorecard.

[edit] Categorization of indicators

Key performance indicators define a set of values used to measure against. These raw

sets of values, which are fed to systems in charge of summarizing the information, arecalled indicators. Indicators identifiable as possible candidates for KPIs can besummarized into the following sub-categories:

Quantitative indicators which can be presented as a number.

Practical indicators that interface with existing company processes.

Directional indicators specifying whether an organization is getting better or not.

Actionable indicators are sufficiently in an organization's control to effect

change. Financial indicators used inperformance measurementand when looking at an

operating index.

Key performance indicators, in practical terms and for strategic development, areobjectives to be targeted that will add the most value to the business.[citation needed] These arealso referred to as key success indicators.
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[edit] Some important aspects

Key performance indicators (KPIs) are ways to periodically assess the performances oforganizations, business units, and their division, departments and employees.Accordingly, KPIs are most commonly defined in a way that is understandable,

meaningful, and measurable. They are rarely defined in such a way such that theirfulfillment would be hampered by factors seen as non-controllable by the organizationsor individuals responsible. Such KPIs are usually ignored by organizations.[citation needed]

In order to be evaluated, KPIs are linked to target values, so that the value of the measurecan be assessed as meeting expectations or not.

[edit] Identifying indicators of organization

Performance indicators differ from business drivers and aims (or goals). A school mightconsider the failure rate of its students as a key performance indicator which might help

the school understand its position in the educational community, whereas a businessmight consider the percentage of income from returning customers as a potential KPI.

The key stages in identifying KPIs are:

Having a pre-defined business process (BP).

Having requirements for the BPs.

Having a quantitative/qualitative measurement of the results and comparison with

set goals. Investigating variances and tweaking processes or resources to achieve short-term

goals.

A KPI can follow the SMART criteria. This means the measure has a Specific purposefor the business, it is Measurable to really get a value of the KPI, the defined norms haveto be Achievable, the improvement of a KPI has to be Relevant to the success of theorganization, and finally it must be Time phased, which means the value or outcomes areshown for a predefined and relevant period.

[edit] KPI examples

[edit] Marketing

Some examples are:

1. New customersacquired2. Demographic analysis of individuals (potential customers) applying to become

customers, and the levels of approval, rejections, and pending numbers.3. Status of existing customers4. Customer attrition5. Turnover(i.e., revenue) generated by segments of the customer population.
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6. Outstanding balances held by segments of customers and terms of payment.7. Collection of bad debts within customer relationships.8. Profitability of customers by demographic segments and segmentation of

customers by profitability.

Many of these customer KPIs are developed and managed withcustomer relationshipmanagementsoftware.

Faster availability of data is a competitive issue for most organizations. For example,businesses which have higher operational/credit risk (involving for example credit cardsor wealth management) may want weekly or even daily availability of KPI analysis,facilitated by appropriate IT systems and tools.

[edit] Manufacturing

Overall equipment effectiveness, is a set of broadly accepted non-financial metrics which

reflect manufacturing success.

Cycle Time Cycle time is the total time from the beginning to the end of your

process, as defined by you and your customer. Cycle time includes process time,during which a unit is acted upon to bring it closer to an output, and delay time,during which a unit of work is spent waiting to take the next action.

Cycle Time Ratio

Utilization

Rejection rate

[edit] IT Availability

Mean time between failure

Mean time to repair

Unplanned availability

[edit] Supply Chain Management

Businesses can utilize KPIs to establish and monitor progress toward a variety of goals,including lean manufacturing objectives, minority business enterpriseand diversityspending, environmental "green" initiatives, cost avoidance programs and low-cost

country sourcing targets.

Any business, regardless of size, can better manage supplier performance with the help ofKPIs robust capabilities, which include:

Automated entry and approval functions

On-demand, real-time scorecard measures

Single data repository to eliminate inefficiencies and maintain consistency
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Advanced workflow approval process to ensure consistent procedures

Flexible data-input modes and real-time graphical performance displays

Customized cost savings documentation

Simplified setup procedures to eliminate dependence upon IT resources.

Main SCM KPIs will detail the following processes:

Sales forecasts

Inventory

Procurement and suppliers

Warehousing

Transportation

Reverse logistics

Suppliers can implement KPIs to gain an advantage over the competition. Suppliers haveinstant access to a user-friendly portal for submitting standardized cost savings templates.

Suppliers and their customers exchange vital supply chain performance data whilegaining visibility to the exact status of cost improvement projects and cost savingsdocumentation.

[edit] Government

The provincial government ofOntario, Canadahas been using KPI since 1998 to measurethe performance of higher education institutions in the province. All post secondaryschools collect and report performance data in five areas graduate satisfaction, studentsatisfaction, employer satisfaction, employment rate, and graduation rate.[3]

[edit] Further performance indicators Duration of a stockout situation

Customer order waiting time

[edit] Problems

In practice, overseeing key performance indicators can prove expensive or difficult fororganizations. Some indicators such as staff morale may be impossible to quantify. Assuch dubious KPIs can be adopted that can be used as a rough guide rather than a precisebenchmark.

Another serious issue in practice is that once a measure is created, it becomes difficult toadjust to changing needs as historical comparisons will be lost. As such measures arekept even if of dubious relevance, because history does exist.

Comparisons between different organizations are often difficult as they depend ondifferent in-house practices and policies so making it difficult for an organization tocompare
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PQCDSM

PQCDSM - short version

Production Quality Cost Delivery Safety Morale.

http://www.tpmconsulting.org/english_show.php?id=5&engin=TPM

%20literature,Benefit%20of%20TPM%20implementation

Benefits of TPM Implementation

The literature documents dramatic tangible operational improvements resulting fromsuccessful TPM implementation. Companies practicing TPM invariably achievestartling results, particularly in reducing equipment breakdowns, minimizing idling andminor stops (indispensable in unmanned plants), lessening quality defects and claims,boosting productivity, trimming labor and costs, shrinking inventory, cutting accidents,and promoting employee involvement (as shown bysubmission of improvementsuggestions). (Suzuki 1994 p. 3) He cites, for example, PQCDSM (Productivity,Quality, Cost, Delivery, Safety, Morale) improvements forearly TPM implementers inJapan.

P Productivity.

Net productivity up by 1.5 to 2.0 times.Number of equipment breakdowns reduced by 1/10 to 1/250 of baseline.Overall plant effectiveness 1.5 to 2.0 times greater.

Q Quality.

Process defect rate reduced by 90%.Customer returns/claims reduced by 75%.

C Cost: Production costs reduced by 30%.

D Delivery: Finished goods and Work in Progress (WIP) reduced by half.

S Safety.

Elimination of shutdown accidents.Elimination of pollution incidents.

M Morale: Employee improvement suggestions up by 5 to 10 times.

Tajiri and Gotoh observe that, The actual targets of TPM are fixed more concretely interms of PQCDSM. (Tajiri and Gotoh 1992 p. 72) Fairchild Semiconductor-PenangMalaysia utilizes TPM as an umbrella program to drivestrategic PQCDSM goals (20%OEE improvement on critical production equipment, $14 mil cost savings over five years,for example). (Tan, Hoh et al. 2003) Gardner provides an overview of TPM success atNational Semiconductor that is typical of the benefits gained by many companies.
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Hundreds of thousands of dollars are being saved each month in terms of reducing lostrevenue or in terms of cost avoidance. More efficient equipment and processes meansfewer new pieces of equipment need to be purchased to meet demand. Early detection ofproblems means less resources spent on major breakdowns and scrap. Clean, safefactories are more enjoyable towork in and impress external auditors and customers.

Total workforce engagement using TPM methods is a very valuable way to reduce lossand improve profit.(Gardner 2000 p. 4) Japanese firms that won the JIPM PM prizebetween 1984 and 1986 demonstrated similar improvements. (Patterson and Fredendall1995)

Equipment failures reduced from 1,000 per month to 20 per month.

Quality defects reduced from 1.0% to 0.1%.

Warranty claims reduced by 25%.

Maintenance costs reduced by 30%.

WIP decreased by 50%.

Productivity improved by 50%.

Hartmann also finds tangible results for TPM initiatives in the Non-Japaneseplants.(Hartmann 1992)

Maintenance service calls reduced by 29%.

Plant output increased by 40%.

Speed of manufacturing (cycle time) increased by 10%.

Defects reduced by 90%. Productivity increased by 50%.

Maintenance costs reduced by 30%.

Return on Investment improved by 262% to 500%.

Specific results for companies are frequently cited, as noted in the followingexamples.

Asten, Inc.

While Asten instituted TPM in conjunction with other programs such as TQMthe operating managers give TPM much of the credit. (Patterson,Fredendall et al.1996 p. 35) Operational performance improvements arenoted below.

Performance Metric 1989 Results 1995 Results

Production Cycle Time(order entry to shipping)

67.8 days


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WIP level 15% decrease since 1989

Sales 61.6% increase since 1989

Texas Instruments Philippines (Mika 1999)The Texas Instruments Philippines assembly plant was the first Americansemiconductor operation to win the JIPM TPM Prize. Highlights of their TPM-based improvement include the following.

o Increased annual revenue from $350 M to >$1,000 M between 1992 and 1998without adding people or expanding production floor space.o Increased productivity 25% annually to stay ahead of the annual Philippinesinflation rate of 15% to 18%.o Reduced scrap by 90%.o Reduced cycle time by 50%.

o Reduced quality defects from 4,000 ppm to 50 ppm.o Decreased production costs by 50%.

According to Plant Manager, Don Mika, the first benefit of TPM implementation wasthat people could exercise their minds at work and feel pride in their efforts. Over timewe could feel a change in attitude throughout the company. (Mika 1999 p. 7) EastmanChemical Eastman Chemical Company has effectively used Total ProductiveMaintenance (TPM) to reduce maintenance costs by $16 million per year and improveequipment uptime. (McCloud 1998 p. 1)o Reduced requests for equipment energize/de-energize by 20,000 calls per year resulting in labor savings of $1.3 million.

Eastman ChemicalEastman Chemical Company has effectively used Total Productive Maintenance(TPM) to reduce maintenance costs by $16 million per year and improveequipment uptime. (McCloud 1998 p. 1)

o Reduced requests for equipment energize/de-energize by 20,000 calls per yearresulting in labor savings of $1.3 million.o Increased equipment uptime by 36,000 hours per year.o Reduced maintenance response time from 54 minutes to 18minutes as a result ofimproved equipment availability.o Zero maintenance accidents reported during TPM implementation.

o Multi-skill training for operators resulted in $5 million laborsaving.

Intangible benefits of TPM implementation are also cited frequently in the literature.Suzuki, for example, identifies intangible results of TPM implementation that includeself-management of shop-floor workers, improved confidence of production workers,clean up of production and administrative areas, and improved company image forcustomers. (Suzuki 1994) At Fairchild Semiconductor Tan notes that TPM is key togetting people together to own processes and performance of the machine and builds


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teamwork on the shop floor, leading to a standard and disciplined work culture, andimproved engineering discipline. (Tan, Hoh et al. 2003) While TPM Program Managerfor SEMATECH, Ames observed that the intangible benefits of TPM implementation insemiconductor operations included increased management involvement in day-to-dayactivities, higher level of shop floor employee involvement (team activities) in

improvement activity, and greater employee empowerment. (Ames 2003)

[Original: Total Productive Maintenance (TPM) Concepts and Literature Review byThomas R. Pomorski, Principal Consulting Engineer, Brooks Automation, Inc.]

Technology strategyFrom Wikipedia, the free encyclopediaJump to: navigation,search

A Information Technology strategy (e.g. as in Information technology(IT)) is aparticular generation of an organization's overall objective(s), principles and tacticsrelating to the technologies that the organization uses. Such strategies primarily focus onthe technologies themselves and in some cases the people who directly manage thosetechnologies. The strategy can be implied from the organization's behaviors towards

technology decisions, and may be written down in a document.

Other generations of technology-related strategies primarily focus on: the efficiency ofthe company's spending on technology; how people, for example the organization'scustomers and employees, exploit technologies in ways that create value for theorganization; on the full integration of technology-related decisions with the company'sstrategies and operating plans, such that no separate technology strategy exists other thanthe de facto strategic principle that the organization does not need or have a discreet'technology strategy'.

A technology strategy has traditionally been expressed in a document that explains how

technology should be utilized as part of an organization's overall corporate strategy andeachbusiness strategy. In the case of IT, the strategy is usually formulated by a group ofrepresentatives from both the business and from IT.[1] Often the Information TechnologyStrategy is led by an organization's Chief Technology Officer(CTO) or equivalent.Accountability varies for an organization's strategies for other classes of technology.Although many companies write an overall business plan each year, a technologystrategy may cover developments somewhere between three and 5 years into the future.
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The United States identified the need to implement a technology strategy in order torestore the country's competitive edge. In 1983 Project Socrates, a US DefenseIntelligence Agency program, was established to develop a national technology strategypolicy.

Contents

[hide] 1 Typical structure of a (IT) technology strategy

2 Audience

3 Presentation

4 Relationship between strategy and enterprise technology architecture

5 See also

6 References

[edit] Typical structure of a (IT) technology strategy

The following are typically sections of a technology strategy:

Executive Summary - This is a summary of the IT strategy

o High level organizational benefits

o Project objective and scope

o Approach and methodology of the engagement

o Relationship to overall business strategy

o Resource summary

Staffing Budgets Summary of key projects

Internal Capabilities

o IT Project Portfolio Management - An inventory of current projects

being managed by the information technology department and their status.Note: It is not common to report current project status inside a future-looking strategy document. Show Return on Investment (ROI) andtimeline for implementing each application.

o An inventory of existing applications supported and the level of resources

required to support themo Architectural directions and methods for implementation of IT solutions

o Current IT departmental strengths and weaknesses

External Forces

o Summary of changes driven from outside the organization

o Rising expectations of users

Example: Growth of high-quality web user interfaces driven byAjax technology
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Example: Availability of open-source learning managementsystems

o List of new IT projects requested by the organization

Opportunities

o Description of new cost reduction or efficiency increase opportunities

Example: List of available Professional Service contractors forshort term projects

o Description of how Moore's Law (faster processors, networks or storage at

lower costs) will impact the organization's ROI for technology Threats

o Description of disruptive forces that could cause the organization to

become less profitable or competitiveo Analysis IT usage by competition

IT Organization structure and Governance

o IT organization roles and responsibilities

o IT role description

o IT Governance Milestones

o List of monthly, quarterly or mid-year milestones and review dates to

indicate if the strategy is on tracko List milestone name, deliverables and metrics

Relations the important components of information tehno-strategy is informationtechnology and strategic planning working together.

[edit] Audience

A technology strategy document is usually designed to be read by non-technicalstakeholders involved in business planning within an organization. It should be free oftechnical jargon and information technology acronyms.

The IT strategy should also be presented to or read by internal IT staff members. Manyorganizations circulate prior year versions to internal IT staff members for feedbackbefore new annual IT strategy plans are created.

One critical integration point is the interface with an organization's marketing plan. Themarketing plan frequently requires the support of a web site to create an appropriate on-line presence. Large organizations frequently have complex web site requirements such

as web content management.

[edit] Presentation

The CIO, CTO or IT manager frequently creates a high-level overview presentationdesigned to be presented to stakeholders. Many experienced managers try to summarizethe strategy in 5-7 slides and present the plan in under 30 minutes to a board of directors.
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It is also common to produce a professionally bound booklet version of the strategy -something physical that IT teams can refer to, rather than the more disposablepresentation slides.

[edit] Relationship between strategy and enterprise technology

architecture

A technology strategy document typically refers to but does not duplicate an overallenterprise architecture. The technology strategy may refer to:

High-level view ofLogical architecture of information technology systems

High-level view ofPhysical architecture of information technology systems

MAKE-OR-BUY DECISIONS
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Photo by: Ben Chams

The make-or-buy decision is the act of making a strategic choice between producing anitem internally (in-house) or buying it externally (from an outside supplier). The buy sideof the decision also is referred to as outsourcing. Make-or-buy decisions usually arisewhen a firm that has developed a product or partor significantly modified a product orpartis having trouble with current suppliers, or has diminishing capacity or changingdemand.

Make-or-buy analysis is conducted at the strategic and operational level. Obviously, thestrategic level is the more long-range of the two. Variables considered at the strategiclevel include analysis of the future, as well as the current environment. Issues likegovernment regulation, competing firms, and market trends all have a strategic impact onthe make-or-buy decision. Of course, firms should make items that reinforce or are in-line with their core competencies. These are areas in which the firm is strongest andwhich give the firm a competitive advantage.

The increased existence of firms that utilize the concept of lean manufacturing hasprompted an increase in outsourcing. Manufacturers are tending to purchasesubassemblies rather than piece parts, and are outsourcing activities ranging fromlogistics to administrative services. In their 2003 bookWorld Class Supply Management,David Burt, Donald Dobler, and Stephen Starling present a rule of thumb for out-sourcing. It prescribes that a firm outsource all items that do not fit one of the following

three categories: (1) the item is critical to the success of the product, including customerperception of important product attributes; (2) the item requires specialized design andmanufacturing skills or equipment, and the number of capable and reliable suppliers isextremely limited; and (3) the item fits well within the firm's core competencies, orwithin those the firm must develop to fulfill future plans. Items that fit under one of thesethree categories are considered strategic in nature and should be produced internally if atall possible.


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Make-or-buy decisions also occur at the operational level. Analysis in separate texts byBurt, Dobler, and Starling, as well as Joel Wisner, G. Keong Leong, and Keah-ChoonTan, suggest these considerations that favor making a part in-house:

Cost considerations (less expensive to make the part)

Desire to integrate plant operations Productive use of excess plant capacity to help absorb fixed overhead (using

existing idle capacity) Need to exert direct control over production and/or quality

Better quality control

Design secrecy is required to protect proprietary technology

Unreliable suppliers

No competent suppliers

Desire to maintain a stable workforce (in periods of declining sales)

Quantity too small to interest a supplier

Control of lead time, transportation, and warehousing costs

Greater assurance of continual supply Provision of a second source

Political, social or environmental reasons (union pressure)

Emotion (e.g., pride)

Factors that may influence firms to buy a part externally include:

Lack of expertise

Suppliers' research and specialized know-how exceeds that of the buyer

cost considerations (less expensive to buy the item)

Small-volume requirements

Limited production facilities or insufficient capacity Desire to maintain a multiple-source policy

Indirect managerial control considerations

Procurement and inventory considerations

Brand preference

Item not essential to the firm's strategy

The two most important factors to consider in a make-or-buy decision are cost and theavailability of production capacity. Burt, Dobler, and Starling warn that "no other factoris subject to more varied interpretation and to greater misunderstanding" Costconsiderations should include all relevant costs and be long-term in nature. Obviously,

the buying firm will compare production and purchase costs. Burt, Dobler, and Starlingprovide the major elements included in this comparison. Elements of the "make" analysisinclude:

Incremental inventory-carrying costs

Direct labor costs

Incremental factory overhead costs

Delivered purchased material costs


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Incremental managerial costs

Any follow-on costs stemming from quality and related problems

Incremental purchasing costs

Incremental capital costs

Cost considerations for the "buy" analysis include:

Purchase price of the part

Transportation costs

Receiving and inspection costs

Incremental purchasing costs

Any follow-on costs related to quality or service

One will note that six of the costs to consider are incremental. By definition, incrementalcosts would not be incurred if the part were purchased from an outside source. If a firmdoes not currently have the capacity to make the part, incremental costs will include

variable costs plus the full portion of fixed overhead allocable to the part's manufacture.If the firm has excess capacity that can be used to produce the part in question, only thevariable overhead caused by production of the parts are considered incremental. That is,fixed costs, under conditions of sufficient idle capacity, are not incremental and shouldnot be considered as part of the cost to make the part.

While cost is seldom the only criterion used in a make-or-buy decision, simple break-even analysis can be an effective way to quickly surmise the cost implications within adecision. Suppose that a firm can purchase equipment for in-house use for $250,000 andproduce the needed parts for $10 each. Alternatively, a supplier could produce and shipthe part for $15 each. Ignoring the cost of negotiating a contract with the supplier, the

simple break-even point could easily be computed:$250,000 + $10Q = $15Q$250,000 = $15Q $10Q$250,000 = $5Q50,000 = QTherefore, it would be more cost effective for a firm to buy the part if demand is less than50,000 units, and make the part if demand exceeds 50,000 units. However, if the firm hadenough idle capacity to produce the parts, the fixed cost of $250,000 would not beincurred (meaning it is not an incremental cost), making the prospect of making the parttoo cost efficient to ignore.

Stanley Gardiner and John Blackstone's 1991 paper in theInternational Journal ofPurchasing and Materials Managementpresented the contribution-per-constraint-minute(CPCM) method of make-or-buy analysis, which makes the decision based on the theoryof constraints. They also used this approach to determine the maximum permissiblecomponent price (MPCP) that a buyer should pay when outsourcing. In 2005 JaydeepBalakrishnan and Chun Hung Cheng noted that Gardiner and Blackstone's method didnot guarantee a best solution for a complicated make-or-buy problem. Therefore, theyoffer an updated, enhanced approach using spreadsheets with built-in liner programming


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(LP) capability to provide "what if" analyses to encourage efforts toward finding anoptimal solution.

Firms have started to realize the importance of the make-or-buy decision to overallmanufacturing strategy and the implication it can have for employment levels, asset

levels, and core competencies. In response to this, some firms have adopted total cost ofownership (TCO) procedures for incorporating non-price considerations into the make-or-buy decision.

Read more: Make-or-Buy Decisions - strategy, levels, definitionhttp://www.referenceforbusiness.com/management/Log-Mar/Make-or-Buy-Decisions.html#ixzz1rpvSSvx1

Stakeholder Management Strategy

Posted on June 16, 2009 by tapuniversity

A Stakeholder Management Strategy is a document used by project managers to outline aplan to increase support and minimize obstruction from the project stakeholders. Thisdocument is created through the Identify Stakeholders process, which is one of the 42project management processes described in the fourth edition PMBOK.

The Stakeholder Management Strategy is then used as an input to two otherCommunication processesPlan Communications and Manage StakeholderExpectations. The document should include all key stakeholders for the project. Groupsof stakeholders should be identified that increase the ease of communication andmanagement. For example, a group could include individuals from a certain geographiclocation or individuals with a specific interest in the project. Also documented should bethe level of participation desired by these key stakeholders. Do they want to be intimatelyinvolved with each phase of the project, or merely informed when the deliverables areapproved? Because this document can include sensitive information on managing specificstakeholders, the project manager must be careful about the type of information that is

included and control who has access to it. Also see the earlier postings of ProjectStakeholders (posted February 13, 2009) and Identify Stakeholders Process (postedFebruary 19, 2009.)
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Value chain

From Wikipedia, the free encyclopediaJump to: navigation,search

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[edit] Firm Level

A value chain is a chain of activities for a firm operating in a specific industry. Thebusiness unit is the appropriate level for construction of a value chain, not the divisionallevel or corporate level. Products pass through all activities of the chain in order, and ateach activity the product gains some value. The chain of activities gives the productsmore added value than the sum of the independent activities' values.[vague] A diamond

cutter, as a profession, can be used to illustrate the difference of cost and the value chain.The cutting activity may have a low cost, but the activity adds much of the value to theend product, since a rough diamond is significantly less valuable than a cut diamond.Typically, the described value chain and the documentation of processes, assessment andauditing of adherence to the process routines are at the core of the quality certification ofthe business, e.g. ISO 9001.[citation needed]

[edit] Activities

The value chain categorizes the genericvalue-adding activities of an organization. The"primary activities" include: inbound logistics, operations (production), outbound,

marketing & sales, service .[vague][citation needed][2]

[edit] Industry Level

An industry value chain is a physical representation of the various processes that areinvolved in producing goods (and services), starting with raw materials and ending withthe delivered product (also known as thesupply chain). It is based on the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-
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added yields total value. The French Physiocrat's Tableau conomique is one of theearliest examples of a value chain. Wasilly Leontief's Input-Output tables, published inthe 1950s, provide estimates of the relative importance of each individual link inindustry-level value-chains for the U.S. economy.

[edit] Significance

The value chain framework quickly made its way to the forefront of management thoughtas a powerful analysis tool forstrategic planning. The simpler concept ofvalue streams, across-functional process which was developed over the next decade,[3] had some successin the early 1990s.[4]

The value-chain concept has been extended beyond individual firms. It can apply towhole supply chains and distribution networks. The delivery of a mix ofproducts andservices to the end customer will mobilize different economic factors, each managing itsown value chain. The industry wide synchronized interactions of those local value chains

create an extended value chain, sometimes global in extent. Porter terms this largerinterconnected system of value chains the "value system." A value system includes thevalue chains of a firm's supplier (and their suppliers all the way back), the firm itself, thefirm distribution channels, and the firm's buyers (and presumably extended to the buyersof their products, and so on).

Capturing the value generated along the chain is the new approach taken by manymanagement strategists. For example, a manufacturer might require its parts suppliers tobe located nearby its assembly plant to minimize the cost of transportation. By exploitingthe upstream and downstream information flowing along the value chain, the firms maytry to bypass the intermediaries creating newbusiness models, or in other ways create

improvements in its value system.

Value chain analysis has also been successfully used in large Petrochemical PlantMaintenance Organizations to show how Work Selection, Work Planning, WorkScheduling and finally Work Execution can (when considered as elements of chains) helpdrive Lean approaches to Maintenance. The Maintenance Value Chain approach isparticularly successful when used as a tool for helping Change Management as it is seenas more user friendly than other business process tools.

Value chain approach could also offer a meaningful alternative to valuate private orpublic companies when there is a lack of publically known data from direct competition,

where the subject company is compared with, for example, a known downstream industryto have a good feel of its value by building useful correlations with its downstreamcompanies.

Value chain analysis has also been employed in the development sector as a means ofidentifying poverty reduction strategies by upgrading along the value chain.[5] Althoughcommonly associated with export-oriented trade, development practitioners have begun
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to highlight the importance of developing national and intra-regional chains in addition tointernational ones.[6]

[edit] SCOR

The Supply-Chain Council, a global trade consortium in operation with over 700 membercompanies, governmental, academic, and consulting groups participating in the last 10years, manages the Supply-Chain Operations Reference (SCOR), the de facto universalreference model forSupply Chainincluding Planning, Procurement, Manufacturing,Order Management, Logistics, Returns, and Retail; Product and Service Design includingDesign Planning, Research, Prototyping, Integration, Launch and Revision, and Salesincluding CRM, Service Support, Sales, and Contract Management which are congruentto the Porter framework. The SCOR framework has been adopted by hundreds ofcompanies as well as national entities as a standard for business excellence, and the USDOD has adopted the newly-launched Design-Chain Operations Reference (DCOR)framework for product design as a standard to use for managing their development

processes. In addition to process elements, these reference frameworks also maintain avast database of standard process metrics aligned to the Porter model, as well as a largeand constantly researched database of prescriptive universal best practices for processexecution.

[edit] Value Reference Model

VRM Quick Reference Guide V3R0

A Value Reference Model (VRM) developed by the trade consortiumValue Chain Groupoffers an open source semantic dictionary for value chain management encompassing oneunified reference framework representing the process domains of product development,customer relations and supply networks.

The integrated process framework guides the modeling, design, and measurement ofbusiness performance by uniquely encompassing the plan, govern and executerequirements for the design, product, and customer aspects of business.

The Value Chain Group claims VRM to be next generation Business ProcessManagement that enables value reference modeling of all business processes andprovides product excellence, operations excellence, and customer excellence.
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Six business functions of the Value Chain:

Research and Development

Design of Products, Services, or Processes

Production

Marketing & Sales Distribution

Customer Service

This guide to the right provides the levels 1-3 basic building blocks for value chainconfigurations. All Level 3 processes in VRM have input/output dependencies, metricsand practices. The VRM can be extended to levels 4-6 via the Extensible ReferenceModel schema.

Key Elements of the Value Chain

Approach

Introduction

USAIDs Microenterprise Development office (USAID/MD) applies the value chainapproach to drive economic growth with poverty reduction through the integration oflarge numbers of micro- and small enterprises (MSEs) into increasingly competitivevalue chains. By influencing the structures, systems and relationships that define the

value chain, USAID helps MSEs to improve (or upgrade) their products and processes,and thereby contribute to and benefit from the chains competitiveness. Through thisapproach USAID enables MSEsincluding small-scale farmersto create wealth andescape poverty.

The value chain approach has distinctive features in terms of both i) the scope used inanalyzing an industry and ii) the tangible and non-tangible considerations used indesigning and implementing interventions. The features discussed here are notnecessarily unique to the value chain approach; but few, if any, other economicdevelopment approaches simultaneously emphasize all of these features:

A market system perspective A focus on end markets

Understanding the role of value chain governance

Recognition of the importance of relationships

Facilitating changes in firm behavior

Transforming relationships

Targeting leverage points

Empowering the private sector


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Why Use the Value Chain Approach?

Globalization of markets ties the sustainability of firms to the competitiveness of theindustries in which they participate. Firms within an industry in a country or region mustincreasingly competeeven in local marketswith firms and industries from across the

globe. To succeed in global markets, entire industries (or value chains) must be able todeliver a product to the consumer more efficiently, with a higher quality and/or in a moreunique form than the value chains in competing countries. In this way, competitiveness atthe firm and industry levels are interdependent. Increasing the competitiveness of thefirm is only effective at sustainably creating wealth and alleviating poverty when thecompetitiveness of the industry is similarly raised by interventions at all levels of thevalue chain.

What is the Value Chain Approach?

Taking a value chain approach necessitates understanding a market system in its totality:

the firms that operate within an industryfrom input suppliers to end market buyers; thesupport markets that provide technical, business and financial services to the industry;and the business environment in which the industry operates. Such a broad scope forindustry analysis is needed because the principal constraints to competitiveness may liewithin any part of this market system or the environment in which it operates. While itmay be beyond the capacity or outside the mandate of a donor or implementing agency toaddress certain constraints, the failure to recognize and incorporate the implications ofthe full range of constraints will generally lead to limited, short-term impact or evencounter-productive results.

The end markets into which a product or service is soldwhether local, regional or

internationalprovide the opportunities and set the parameters for economic growth.Generally there are multiple actual and potential end markets, each with different demandcharacteristics and returns. It is therefore important to segment the market: list each of thepotential end markets, what is required to compete in them, and what benefits and riskscan be expected by selling into them. Since end markets are dynamic, the identification oftrends should complement information about the current situation.

Understanding the role ofvalue chain governanceis fundamental to the value chainapproach. Governance describes which firms within a value chain set and enforce theparameters under which others in the chain operate. Embedded in governance are inter-firm relationships, power dynamicsboth symmetrical and asymmetricaland the

distribution of benefits. While the form of value chain governance is influenced by thecharacteristics of the product and the degree of specification in the end market,governance patterns evolve over time with changes in markets, products and inter-firmrelationships.

The quality ofrelationshipsbetween different stakeholders is a key factor affecting thefunctioning of a value chain. Strong, mutually beneficial relationships between firmsfacilitate the transfer of information, skills and servicesall of which are essential to
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upgrading. Value chain opportunities and constraints generally require a coordinatedresponse by multiple firms in the chainwhich necessitates trust and a willingness tocollaborate. The value chain approach therefore emphasizes a dynamic that has long beenrecognized: Social capital (networks of relationships and social institutions) are critical tobusiness and competitiveness.In contrast to much enterprise development work in the

past, the value chain approach seeks to do more than solve specific identified productionand marketing problems. Directly solving problems may create some initial momentum,but building internal capacity to address value chain constraints will empowerstakeholders, reduce dependency and ensure sustainability of investment impacts. Thefocus of the value chain approach is therefore on transforming relationshipsparticularlybetween firms linked vertically in the value chain to: i)facilitate upgrading to becomecompetitive, and ii)adapt to changes in end markets, in the enabling environment orwithin the chain to remain competitive.

For more on key features of the value chain approach, please clickhere.

How is the Value Chain Approach Implemented?

In addition to the features of the approach described above, the following implementationprinciples can be used to design and implement successful value chain developmentprograms:

Facilitating changes in firm behavior. The value chain approach seeks to

facilitate changes in firm behavior that increase the competitiveness of the chainand generate wealth for all participating firms, thereby contributing to economicgrowth with poverty reduction. Changing firm behavior requires an understandingof the incentives of the various stakeholderswhy they behave in the way they

do, and what is needed to motivate them to change their behavior. Implementersof the value chain approach identify firms within the industry with the incentives,ability and willingness to address constraints and facilitate upgrading throughoutthe chain.

Transforming relationships. By making the benefits of win-win relationships

explicit to stakeholders, some firms can be encouraged to change the way theyrelate to others. However, sometimes conflicting incentives and high levels ofmistrust diminish the effectiveness of such simple appeals to self-interest.

Targeting leverage points. Value chain project implementers target points of

leverage that have a multiplier effect on interventions in order to maximize impactand outreach. Points of leverage include economic and social structures,commercial incentives and social norms and incentives.

Empowering the private sector. The goal of the value chain approach is to

enable private-sector stakeholders to act on their own behalf: to upgrade theirfirms and collectively create a competitive value chain that contributes toeconomic growth with poverty reduction. The value chain analysis and strategy
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development process is therefore participatory to the extent possible. The role ofthe donor and implementing partner is to facilitate and support implementation ofthe competitiveness strategy by the private sector in such a way that ensures thatdevelopment objectiveseconomic growth, poverty reduction and other concernssuch as sustainable natural resource managementare also met.

For information on implementing the value chain approach, please clickhere.

How Applicable are the Principles of the Value Chain Approach?

The value chain approach is comprehensive, with an extensive set of tools and bestpractices. This approach is not appropriate for every development project or in all countrycontexts. Prerequisites for taking a value chain approach include a minimum level ofgood governance and stability in the enabling environment, the existence of at least somemarket activity (even with low-value products or exclusively local markets), and a projectgoal of economic recovery, growth or poverty reduction.

Nevertheless, there are important aspects of the value chain approach that can be appliedto any private sector development project, as well as to other kinds of projects, includingthose focusing on post-conflict livelihoods and private sector-driven environment orhealth projects. In particular, these aspects include the need for a thorough understandingof end-market dynamics and consideration of the business enabling environment.Without analysis of these two aspects of the value chain framework, project impact islikely to be limited and unsustainable.

Product-Focused Strategy

Product-Focused Strategy is the second type, fromtypes of Process Strategies. Thecharacteristics : facilities are organized by product, high volume, and low varietyproducts. Where found : discrete unit manufacturing, continuous process manufacturing.Other names : line flow production or continuous production
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Advantages :

1. Lower variable cost per unit2. Lower but more specialized labor skills3. Easier production planning and control4. Higher equipment utilization (70% to 90%)

Disadvantages :

1. Lower product flexibility2. More specialized equipment3. Usually higher capital investment

Examples of Product-Focused strategy : Soft Drinks (Continuous, then Discrete), Paper(Continuous), Light Bulbs (Discrete), and MassFlu Shots (Discrete).


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Process-Focused Strategy

I have been told types of Process Strategies. First, Process-Focused Strategy. The

characteristics : facilities are organized by process, similar processes are together(example: all drill presses are together), low volume, high variety products, Jumbledflow. Other names : intermittent process or Job shop.

Process-Focused Strategy Examples : Machine Shop, Hospital, and Bank.
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Advantages :

1. Greater product flexibility2. More general purpose equipment3. Lower initial capital investmentDisadvantages :1. High variable costs2. More highly trained personnel3. More difficult production planning & control4. Low equipment utilization (5% to 25%)

Documents

Operation Strategy 1