Operations Strategy

Today’s competitive market

• Buyer’s market

• Buyer wants it faster, better, and cheaper/customised

• Competitors are global

• Increasing short Life-cycles

Car choices in 1980

• Ambassador• Premier• Standard-Herald

In 2009 what are the choices?

• Maruti• Fiat- Punto• Mitsubishi• TATA- Indica• Ambassador• Nissan• BMW• Audi

• Ford• GM• Hyundai• Honda• Mercedes• Volvo• Toyota• VW

What is the impact of this global competition?

• Operations must achieve simultaneous improvement of price, quality, and delivery speed.

What is a Strategy?

• “Strategy is the determination of the basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Strategy Strategic goals are common throughout an

organization

What set of business should we be in ?How should we compete in XYZ business ?

How can a specific area contribute to the competitive advantage of a business ?

(order qualifying and order winning attributes -AC’s from Japan))

An organization therefore, requires a strategy

Operations Strategy

An operations strategy is defined by a pattern of decisions , both structural and infra-structural, which determine the capability of a Manufacturing / Service system and specify how it will operate in order to meet a set of operations objectives which are consistent with overall business objectives.

Operations Role In Corporate Strategy

• Provide support for overall strategy of a firm

• Serve as firm’s distinctive competence

• Must be consistent with overall strategy

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy

Alignment

CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

Linking the Strategic Role & Process View

Business Strategy

Operations Strategy

Desired Capabilities

Marketing Strategy Financial Strategy. . .

p, Q, t, flexibility

compatible?

Operations Structure:

Processes & Resources

Operations StrategyExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

Dealing with Trade-Offs

Cost (Value)

Quality

Delivery (Speed)Flexibility

WCM -companies adopt TQM, Pull systems, JIT,TPM

Steps in Developing a Manufacturing Strategy• 1. Segment the market according to the product group.

• 2. Identify product requirements, demand patterns, and profit margins of each group.

• 3. Determine order qualifiers and winners for each group.(criterion for purchase by customer e.g. Japanese or American)

• 4. Convert order winners into specific performance requirements.(differentiation, e.g. warranty,quick response, Lease)

STRATEGIC OPTIONS FOR OPERATIONS

Product portfolio – Jet vs Air Deccan Process – Hero Honda vs BHEL Technology – Asian Paints Capacity - Economies of scale Supply Chain Issues – Annapurna vs

Tanishq

Service Strategy Capacity Capabilities• Process-based

– Capacities that transforms material or information and provide advantages on dimensions of cost and quality.

• Systems (co-ordination) -based – Capacities that are broad-based involving the entire operating

system and provide advantages of short lead times and customize on demand.

• Organization-based– Capacities that are difficult to replicate and provide abilities to

master new technologies.

Operations Strategy - Wal-Mart(USA)

Corporate Strategy

(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices

Operations Strategy– Short flow times

– Low inventory levels

Operations StructureCross docking

EDI

Fast transportation system

Focused locations

Communication between retail stores

Wal-Mart – Operations Strategy

• Inventory at retail stores turned over twice a week (Industry averages once every two weeks)

• Improved targeting of products to markets• Sourcing of Products – World-wide• Sales per square foot increased from $140 in 1991

to $250 in 2004 (Industry average increased from $110 to $150). Sales revenue:$250bn

Core Competence• Competitiveness Competitiveness derives from an ability to build, at lower cost

and more speedily than competitors, the core competenciescore competencies that spawn unanticipated products.– Core competencies are the collective learningcollective learning in the

organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.

– Core competence is about harmonizing streams of harmonizing streams of technologytechnology.

– Core competence is about the organization of workorganization of work and the delivery of valuedelivery of value.

– Core competence is communicationcommunication, involvement and a deep commitment to working across organizational across organizational boundariesboundaries.

• Companies need to do a better job of leveraging technologies and offering a wider variety of products on the same technology platform.

.

CORE COMPETANCE….

• HOW TO IDENTIFY ?

• WHAT IT DOES BEST

• WHAT IT CAN DO.. OTHERSCAN NOT DO

• WHAT WILL PERMIT IT TO ACHIEVE THE BEST IN THE WORLD

• STATUS(GAP) W.R.T . WHAT IT CAN NOT DO

• DEVELOP PLANS TO FULLY EXPLOIT CAPABILITIES

CORE COMPETANCY…. EXAMPLES

• SONY• HONDA• MOTOROLA

• MCDONALD

RELIANCEAMULHLL

Infosys

• MINIATURISATION

• MOTORS

• WIRELESS COMMUNICATION

• LOCALISATION/

HYGIENE

OM Decisions

• Strategic Decisions

• Design Decisions

• Operating Decisions

Strategic Decisions

• Product and Service plans – What products and services?

• Competitive priorities • Excel on cost or flexibility?

• Positioning strategy • Organize around products and processes?

• Quality management • How to get everyone involved?

• Quality control • How to best achieve quality goals?

Design Decisions• Process Design

– What transformation processes? • Technology management

– Should we automate? • Job design

– Should our jobs be specialized or enlarged? • Capacity

– Is our facility too large or small? • Location

– Where is a good store location? • Layout

– What departments should be close?

Operating Decisions • Forecasting

– How do we design the best forecasting system? • Materials management

– Who should be our suppliers? • Inventory

– How should we control our inventory? • Aggregate plans

– How big should our workforce be? • Master production scheduling

– Should we make to stock? • Production control systems

– When should we release new orders?

• Yamaha announces plans for a new factory, making it the worlds largest motorcycle manufacturer (1981)– Honda responds “Yamaha wo tsubusu!”

– (“We will crush, squash, slaughter Yamaha”)

• Honda cut prices, increased advertising, flooded distribution channels

• Both firms started with about 60 models– Yamaha introduced 37 product line changes during next 18

months– Honda introduced 113 new products, including new styles and

new technologies (4-valve engines, composite materials, ...)• Yamaha decimated, despite drastic price cuts, has 12 month

inventory of unsold motor cycles• Yamaha capitulates, Pres. Eguchi publicly apologizes• Honda wins war with superior design, cycle times

Effective Key Success Measures of OM

• Quality as felt by the customer– Warranty

• Flexibility as felt by the customer– Customized Product that exceeds need

• Speed as felt by the customer– On Time Delivery

• Price as felt by the Customer– Internal Profit Margin (Price minus Costs)

supported by the market

Current POM Challenges

• Speeding product development time

• Developing production systems to enable mass customization of products and services

• Managing global production networks

• Developing and integrating new process technologies into existing production systems .

Current POM Challenges

• Achieving high quality quickly and maintaining it in the face of restructuring

• Managing an increasingly diverse workforce

• Conforming to environmental constraints, ethical standards, and government regulations.

GOALS FOR OM EXCELLENCE

OPERATIONAL EXCELLENCEON-TIME DELIVERY PERFORMANCEZERO ERROR INVENTORY REDUCTION(IN-BOUND)

Questioning The Process

``It is always amazing how many of the things we do will never be missed. And nothing is less productive than to make more efficient what should not be done at all.”

Peter Drucker