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Session 2 : Operations StrategySession 2 : Operations Strategy

Learning Objectives

By the end of this Unit, you should be able to:Understand the concept of business strategy.Explain the strategic planning process and the differences between strategic, tactical and operations planning.Appreciate operations from a systems perspective.Recognize the importance of operations strategy.Describe the key criteria of distinctive competencies.Distinguish between order qualifiers and order winners.Appreciate the concept of the balanced scorecard when formulating strategies.

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ETHICS

YourYourorganizationorganization

CustomersSuppliers

OIL Price

Global-

izatio

n

KYOTOKYOTO

Unions

Competitors

ITC - MLS

Training Business

Cycles

Share-holders

TransportModesBanks

Taxe

s

World

World

Trade

Trade

ExchangeRates

CSR

GlobalW

arming

Technolo

gy

What is a System?A set of interconnected elements that

must function together in unison within a certain environment

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InputInputss

TransformatiTransformationon

OutpuOutputsts

Customers

Suppliers

Competitors

Crud

e Oil

Shor

tage

sEnvironme

nt

Kyoto Protocol

Tech

nolo

g

y

Demand for new

products

Ethics & Governance

Globalization

World

Economies

Shareholders

Trade Unions

Wor

ld

Trad

e

Competing Supply Chains

Government Regulations

Exchan

ge

ratesBanks Taxes

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Your Organization from a Systems PerspectiveUsing the template below, illustrate your organization from a systems perspective i.e. your organization interacting with its environment:

Action Point

InputsInputs TransformationTransformation OutputsOutputs CustomersSuppliers

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Corporate / business strategies are...

…how an organization plans to accomplish its mission and goals

…needed to survive in a changing world

…implemented through the process of strategic planning

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OperationsStrategy

FinancialStrategy

MarketingStrategy

Corporate / BusinessStrategy

Vision/Mission

StrategicPlanning

TacticalPlanning

OperationalPlanning

StrategicPlanning

TacticalPlanning

OperationalPlanning

StrategicPlanning

TacticalPlanning

OperationalPlanning

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Strategic planning is the preparation of long-term plans by top management aimed at achieving organizational goals and objectives.Tactical planning is the preparation of medium- term plans by middle management aimed at supporting the strategic plan by achieving functional goals and tactical objectives.

Operational planning is the preparation of short-term plans by first-line management aimed at supporting tactical plans and achieving operational goals and objectives.

Planning levels:

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TopManage-

ment

Senioror Middle

Management

First Line Management

Types of Planning Examples of Decisions

Strategic Planning:long-range decisions (typically 1 to 5 years)

Tactical Planning:medium-term decisions (Typically one month and less than 1 year)

Operational Planning& Control (OPC):short-term decisions (daily, weekly, monthly)

Where do we locate a new factory? What new products do we introduce? How do we increase market share? Should we implement ISO 9001? Do we need additional capacity? When?

What orders have priority? When can we schedule maintenance? How do we increase productivity?

What layout do we need for the new product? When ? What new quality checks are required? What equipment do we replace? Do we need an extra shifts?

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Developing a winning strategy:

Order Qualifiers vs. Order WinnersOrder Qualifiers: the six competencies needed for a business to be considered as a potential supplier: quality, delivery, flexibility, time, cost and service. Order Winners: the criteria that differentiate the goods and/or services of one business from those of another, and which result in it being awarded the order.

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Order Qualifiers and Order WinnersTo achieve a winning strategy, it is important for organizations to convert from being order qualifiers to become order winners. Using your organization, how would you develop your package of key competencies/criteria to be distinctive competencies in order to win repeat orders?

Action Point

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What is the Balanced Scorecard ?A holistic strategic planning system that aligns the various business activities of an organization with its overall vision and mission using balanced performance measures in four

areas: financial, customers, internal processes and learning & growth.

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Financial Perspective

How do we add value for our customers but also reduce our operating and material costs?

Customer PerspectiveHow do we create value for our customers?

Learning & Growth Perspective

How do we change to meet our customers’ present and future demands? What are our training needs?

Internal Process Perspective

How do we improve our processes to meet the present and future demands of our customers?

From an operations management strategic viewpoint,

these four performance measures could include the following:

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Strategic Operations Objectives - The BIG SIX Key Competencies

COST

QUALITY

DELIVERYFLEXI-BILITY

SERVICE

TIME14

High and consistent quality is essential to prosper in a competitive environment

It is the easiest of the key criteria for a customer to judge

Continuously improving quality results in higher productivity and lower costs

High quality attracts customers; improving quality retains customers

The BIG SIX Key Competencies:

QUALITYQUALITY1

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Relates to the delivery of the product or the performance of the service

Sometimes called the “Reliability / Dependability” competency

Late delivery can have serious consequences

The BIG SIX Key Competencies:

DELIVERYDELIVERY2

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Higher productivity leads to lower costs

Lower costs allow a business to offer lower prices

This helps to increase its market share

The BIG SIX Key Competencies:

COSTCOST3

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In recent decades, competition has changed: from price… …to price & quality …to price & quality & delivery …to price & quality & delivery & TIME

Time (& speed) provide a sustainable competitive advantage

Reducing time serves to gain an advantage

The BIG SIX Key Competencies:

TIMETIME4

12

3

6

9

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It means being able to… …adapt rapidly to changing business

conditions …respond quickly to evolving customer

needs

Three types of flexibility: Volume flexibility – responding to

changes in demand Variety (or mix) flexibility – providing

the range of products that customers ask for

Product flexibility – developing new products when needed

The BIG SIX Key Competencies:

FLEXIBILITY FLEXIBILITY5

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It is the fusion of the other five competencies – a blend of quality, delivery, cost, time & flexibility

It also means agility – how quickly a business responds to both market and customer needs

Agility is increasingly important with the growing focus on supply chains

The BIG SIX Key Competencies:

SERVICESERVICE6

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Trade-offs between Key Competencies

Often, one key competency may conflict with another

An organization may thus take a strategic decision to excel in one or more key competencies at the expense of others

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Productivity Agility in servicing customers enables organizations along a supply chain to obtain a competitive advantage

One way of achieving this is to improve productivity

Productivity is probably the performance measure most used in operations management

It measures the amount of output (goods and / or services) achieved per unit of input (labour, materials, capital & energy)

It measures how efficiently resources have been used

Productivity = Output

Input

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