SOM Soumitra s Slides 2

8/6/2019 SOM Soumitra s Slides 2

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strategic

operation

Soumitra ChowdhurySoumitra Chowdhury


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Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What is operations management?


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Operations management is the activity

of managing the resources which are

devoted to the production and delivery

of products and services.

Operations management defined


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They are

all

operations

Back office operation

in a bankKitchen unit

manufacturing

operation

Retail operation

Take-out / restaurant

operation


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The best way to start understanding the nature of

operations is to look around you

Everything you can see around you (except the flesh and

blood) has beenprocessedby an operation

Every service you consumed today (radio station, busservice, lecture, etc.) has also beenproducedby an

operation

Operations Managers create everything you buy, sit on,wear, eat, throw at people, and throw away


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A general model ofoperationsmanagement

Transformedresources

MaterialsInformationCustomers

Transforming

resources

FacilitiesStaff

Customers

Outputproducts

andservices

Inputresources

Planningand control

ImprovementDesign

Operationsstrategy

The operationsstrategic

objectives

The operationscompetitive role

and position

Operationsmanagement

Operationsstrategy


7/144Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Design a store layout

which gives smooth

and effective flowDesign elegant

products which can be

flat-packed efficiently

Site stores of an

appropriate size inthe most effective

locations

Maintain cleanliness

and safety of storage

areaArrange for fast

replenishment of

products

Monitor and enhance

quality of service to

customers

Continually examine

and improveoperations practice

Ensure that the jobs of

all staff encouragetheir contribution to

business success

Operations management at IKEA



All operations are transformation processes

Transformation processInputs

that transform inputs

Outputs

into outputs



Transformedresources

MaterialsInformationCustomers

Transformingresources

FacilitiesStaff

Customers

Outputproducts

andservices

Inputresources

Some inputs are transformed resources

Some inputs are transforming resources

Outputs are products and services that add

value for customers

Transformation process



The output from most operations is a mixture of

products and services

Mixture of products

and services Outputs

that are a mixture of

the tangible and the

intangible

Prt a Manger

Acme Whistles

Mwagusi Safari Lodge

Crude oil production

Aluminium smelting

Specialist machine tool

production

Restaurant

Information systems provider

Management consultancy

Psychotherapy clinic

Pure products Outputs

that are exclusively

tangible

Pure services Outputs

that are exclusively

intangible

IKEA



A Typology of Operations

Variation in

demandHigh Low

VisibilityHigh Low

VarietyHigh Low

HighVolumeLow High




Implications Implications

High

Low repetition

Each staff memberperforms more of job

Less systemization

High unit costs

High repeatability

Specialization

Capital intensive

Low unit costs

VolumeLow High





Flexible

Complex

Match customer needs

High unit costs

Well defined

Routine

Standardized

Regular

Low unit costs

VarietyHigh Low





Changing capacity

Anticipation

Flexibility

In touch with demand

High unit costs

Stable

Routine

Predictable

High utilization

Low unit costs

Variation in

demandHigh Low





VisibilityHigh Low

Short waiting tolerance

Satisfaction governed bycustomer perception

Customer contact skills

neededReceived variety is high

High unit costs

Time lag betweenproduction andconsumption

Standardization

Low contact skills

High staff utilizationCentralization

Low unit costs



A Typology of OperationsImplications Implications

Changing capacityAnticipation

Flexibility

In touch with demand

High unit costs

StableRoutine

Predictable

High utilization

Low unit costs

Variation in

demandHigh Low

VisibilityHigh Low

Short waiting tolerance

Satisfaction governed bycustomer perception

Customer contact skillsneeded

Received variety is high

High unit costs

Time lag betweenproduction and

consumptionStandardization

Low contact skills

High staff utilization

Centralization

Low unit costs

Flexible

Complex

Match customer needs

High unit costs

Well defined

Routine

Standardized

Regular

Low unit costs

VarietyHigh Low

High

Low repetition

Each staff memberperforms more of job

Less systemization

High unit costs

High repeatability

Specialization

Capital intensive

Low unit costs

VolumeLow High



Volume

Important to understand how different operations are positioned

on the 4 Vs.

Is their position where they want to be?

Do they understand the strategic implications?

Variety

Variation

Visibility

Low

High

High

High

High

Low

Low

Low

Mwagusi

Safari Lodge

4 Vs profile of two operations

Formule 1

Hotel



Some interfunctional relationships between the operations

function and other core and support functions

Engineering/technicalfunction

Accountingand finance

function

Humanresourcesfunction

Informationtechnology(IT) function

Understanding of the

capabilities andconstraints of theoperations process

New product andservice ideas

Understanding of the

capabilities andconstraints of theoperations process

Marketrequirements

Financial analysisfor performanceand decisions

Provisionof relevant

data

Recruitmentdevelopmentand training

Understanding ofhuman resource needs

Analysis of newtechnology options Understanding of

process technologyneeds

Provision of systems fordesign, planning and

control, and improvement

Understandingof

infrastructuraland systemneeds

Marketingfunction

Product/service

developmentfunction

Operationsfunction



The strategic role and objectives

of operations

Source: Honda Motor Company



What is the role of the Operations function?Operations as

implementer

Operations

implements strategy

Strategy

Operations

Operations

drives strategy

Operations

as driver

Strategy

Operations

Operations supports

strategy

Operations

as

supporter

Strategy

Operations



The 3 key attributes

of Operations

Operations contribution

Implementing Be dependable

Operationalize strategy

Explain practicalities

Supporting Be appropriate

Understand strategy

Contribute to decisions

Driving Be innovativeProvide foundation of strategy

Develop long-term capabilities

The strategic role of the Operations function


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Internallyneutral

STAGE 1Correct the

worstproblems

Holding the

organization back

Incre

asing

contrib

ution

ofope

rations

The four-stage model of Operations contribution

Externally

neutral

As good as thecompetitors

STAGE 2

Adopt bestpractice

Imple

mentin

g

strategy

Internally

supportive

Clearly the best in

the industry

STAGE 3Link strategywith operations

Supp

orting

strate

gy

Externally

supportive

Redefining industry

expectations

STAGE 4

Give anoperationsadvantage

Driving

strategy

Increasin

gstrategicimpa

ct

Increasing operations capabilities


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Broad strategic objectives for an operationapplied to stakeholder groups

SocietyIncrease employment

Enhance community well-beingProduce sustainable productsEnsure clean environment

CustomersAppropriate product orservice specification

Consistent quality

Fast deliveryDependable deliveryAcceptable price

SuppliersContinue businessDevelop suppliercapability

Provide transparentinformation

ShareholdersEconomic value frominvestment

Ethical value frominvestment

EmployeesContinuous employmentFair payGood working conditionsPersonal development


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Competitive

ness

The Operations function can provide a competitive advantage

through its performance at the five competitive objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGEFlexibility


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What do the terms quality, speed, dependability, flexibility

and cost mean in the context of operations?

Which enables you to do things cheaply (cost advantage)?

Which enables you to change what you do (flexibility advantage)?

Which enables you to do things quickly (speed advantage)?

Which enables you to do things on time (dependability advantage)?

Which enables you to do things right (quality advantage)?


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Minimum cost,

maximum value

Minimum price, highest value

Fastthroughput

Quick

delivery

Reliableoperation

Dependable

delivery

Error-free

processes

Error-free

products and

services

Ability to

change

Frequent new

products, maximumchoice

The benefits of excelling

Dependability

Cost

Speed

Quality Flexibility


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What does Quality mean in

Patients receive the most appropriate treatment

a hospital?

Treatment is carried out in the correct manner

Patients are consulted and kept informed

Staff are courteous, friendly and helpful


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an automobile plant?

All assembly is to specification

Product is reliable

All parts are made to specification

The product is attractive and blemish-free


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a bus company?


The buses are clean and tidy

The buses are quiet and fume-free

The timetable is accurate and user-friendly



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a supermarket?


The store is clean and tidy

Dcor is appropriate and attractive

Goods are in good condition



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Quality

Quality has several meanings. The two most common are

Quality as the specification of

a product or service

e.g. Lower Hurst Farm

produces organic meat raised

exclusively on its own farm

Quality as the conformance

with which the product or

service is produced

e.g. Quick-service restaurants

like McDonalds may buy less

expensive meat, but its

conformance must be high


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Quality

Irrespective of a product or services specification quality, producing it so

it conforms to its specification consistently brings benefits to any operation

Externally it enhances the product or service in the market, or at least

avoids customer complaints

Internally it brings other benefits to the operation:

It prevents errors slowing down throughput speed

It prevents errors causing internal unreliability and low

dependability

It prevents errors causing wasted time and effort, therefore saving

cost

Q lit


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Depend-

ability

FlexibilityQuality

Speed

Cost

Quality

External and

internal benefits

On-specification

products and

services


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The time between requiring treatment and receivingtreatment is kept to a minimum

a hospital?

What does Speed mean in

The time for test results, X-rays, etc. to be returnedis kept to a minimum


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The time between dealers requesting a vehicle of aparticular specification and receiving it is minimized

The time to deliver spares to service centres isminimized


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a bus company?

The time between a customer setting out on thejourney and reaching his or her destination is kept

to a minimum


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Speed again has different interpretations, externally and internally

Externally it means the elapsed time between a customer asking for a

product or service and getting it (in a satisfactory condition)

It often enhances the value of the product or service to customers


It helps to overcome internal problems by maintaining dependability

It reduces the need to manage transformed resources as they passthrough the operation, therefore saving cost

Speed

Speed


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Depend-

ability

FlexibilityQuality

Speed

Cost

Speed

External and

internal benefits

On-specification

products and

services

Short delivery

lead-time


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What does Dependability mean in

The proportion of appointments that are cancelledis kept to a minimum

a hospital?

Keeping appointment times

Test results, X-rays, etc. are returned as promised


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On-time delivery of vehicles to dealers

On-time delivery of spares to service centres


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a bus company?

Keeping to the published timetable at all points onthe route

Constant availability of seats for passengers


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a supermarket?

Predictable opening hours

Proportion of goods out of stock kept to a minimum

Keeping to reasonable queuing times

Constant availability of parking


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Externally it enhances the product or service in the market, or at leastavoids customer complaints


It prevents late delivery slowing down throughput speed

It prevents lateness causing disruption and wasted time and effort,

therefore saving cost

Dependability

Dependability


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Depend-

ability

FlexibilityQuality

Speed

Cost

Dependability

External and

internal benefits

Depend-

ability

FlexibilityQuality

Speed

Cost

On-specification

products and

services

Short delivery

lead-timeReliable

delivery


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Flexibility has several distinct meanings but is always associated with an

operations ability to change

Change what ?

The products and services it brings to the market Product/service

flexibility

The mix of products and services it produces at any one time Mix

flexibility

The volume of products and services it produces Volume flexibility

The delivery time of its products and services Delivery flexibility

Flexibility


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What does Flexibility mean in

Introducing new treatments

a hospital?

Providing a wide range of treatments

The ability to adjust the number of patients treated

The ability to reschedule appointments


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The introduction of new models

A wide range of options

The ability to adjust the number of vehiclesmanufactured

The ability to reschedule manufacturing priorities


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a bus company?


The introduction of new routes and excursions

A large number of locations served

The ability to adjust the frequency of services

The ability to reschedule trips


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a supermarket?


The introduction of new lines

A wide range of goods stocked

The ability to adjust the number of customers served

The ability to get out-of-stock items

Flexibility


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Depend-

ability

FlexibilityQuality

Speed

Cost

External and

internal benefits

Flexibility

External and

internal benefits

Depend-

ability

FlexibilityQuality

Cost

On-specification

products and

services

Short delivery

lead-timeReliable

deliverySpeed

Frequent newproducts/services

Wide range

Volume and deliverychanges


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What does Cost mean in

a hospital?

Staff

costs

Technology

and facilities

costs

Bought-in

materials

and

services


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Technology

and facilities

costs

Staffcosts

Bought-in

materials

and

services


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a bus company?


Staffcosts

Technology

and facilities

costs

Bought-in

materials

and

services


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a supermarket?


Staff

costs

Technology

and facilities

costs

Bought-in

materials

and

services

Cost


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The cost of producing products and services is obviously

influenced by many factors such as input costs, but two

important sets are

The 4 Vs: volume

variety

variationvisibility

The internal performance of the operation in terms of

quality

speeddependability

flexibility

Cost

Cost


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Cost

External and

internal benefits

Depend-

ability

FlexibilityQuality

Speed

Cost

Depend-

ability

FlexibilityQuality

Cost

On-specification

products and

services

Short delivery

lead-timeReliable

deliverySpeed

Frequent newproducts/services

Wide range

Volume and deliverychanges

Low price, high

margin, or both


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Operations strategy

Source: courtesy of Justin Waskovich


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What is strategy?

Strategic decisions means those decisions which

Are widespread in their effect on the organization to

which the strategy refers

Define the position of the organization relative to its

environment

Move the organization closer to its long-term goals.


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Operationsis not the same as operational

Operations are the resources that create products and

services

Operational is the opposite of strategic, meaning day-to-day and detailed

So, one can examine both the operational andthe

strategic aspects of operations

The four perspectives on operations strategy


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Top-downperspective

What the businesswants operations

to do

Operationsresources

perspective

What operationsresources can do

What day-to-dayexperience suggestsoperations should do

Bottom-upperspective

Marketrequirementperspective

What the marketposition requiresoperations to do

Operationsstrategy

p p p gy

Top-down and bottom-up perspectives of strategy


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Corporate strategy

Business strategy

Emergent sense of what the

strategy should be

Operational experience

p p p p gy

Operations strategy

The strateg hierarch


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The strategy hierarchy

Key strategicdecisions

Influences ondecision making

Businessstrategy

What is the mission?

What are the strategicobjectives of the firm?

How to compete?

Customer/market dynamics

Competitor activityCore technology dynamicsFinancial constraints

Corporate

strategy

What business to be in?What to acquire?What to divest?How to allocate cash?

Economic environmentSocial environmentPolitical environmentCompany values and ethics

Functional

strategy

How to contribute to thestrategic objectives?

How to manage the

functions resources?

Skills of functions staffCurrent technologyRecent performance of the

function

The effects of the product/service life cycle on the


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organization

Sa

les

vol

ume

Introduction Growth Maturity Decline

Likely order

winners

Product/service

characteristics,performance or

novelty

Availability of

qualityproducts/services

Low price

Dependablesupply

Low price

Likely

qualifiersQuality

Range

Price

Range

Quality

Range

Dependable

supply

Dominantoperations

performance

objectives

FlexibilityQuality

SpeedDependability

Quality

CostDependability

Cost

Different competitive factors imply different performancebj i


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objectives

Competitive factorsIf the customers value these ...

Performance objectivesThen, the operations will need to

excel at these ...Low price Cost

High quality Quality

Fast delivery Speed

Reliable delivery Dependability

Innovative products and services Flexibility (products and services)

Wide range of products and services Flexibility (mix)

Ability to change the timing or quantityof products and services

Flexibility (volume and/or delivery)


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M k t


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What you

HAVE

in terms ofoperationscapabilities

What you

NEED

to compete inthe market

Operations

resources

Market

requirements

What you

WANT

from youroperations to

help youcompete

What you

DO

to maintainyour

capabilities andsatisfy markets

Strategicreconciliation


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The challenge of operations strategy formulation

An operations strategy should be:

Appropriate ...

Comprehensive ...

Coherent ...

Consistent over time ...


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An implementation agenda is needed

When to start?

Where to start?

How fast to proceed?

How to coordinate the implementationprogramme?


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The five Ps of operations strategy implementation

Purpose a shared understanding of the motivation,

boundaries and context for developing the operationsstrategy

Point of entry the point in the organization where the

process of implementation starts

Process how the operations strategy formulation process

is made explicit

Project management the management of the

implementation

Participation who is involved in the implementation

Trade-offs


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Trade offs

Do you want it good, or do you want it Tuesday?

No such thing as a free lunch.

You cant have an aircraft which flies at the speed of sound,

carries 400 passengers and lands on an aircraft carrier.

Operations are just the same. (Skinner)

Trade-offs in operations are the way we are willing to

sacrifice one performance objective to achieve

excellence in another.


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Quality planning and control

Source: Archie Miles

Th i d fi iti f lit


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The various definitions of quality

The transcendent approach views quality as synonymous with

innate excellence.

The manufacturing-based approach assumes quality is all about

making or providing error-free products or services.

The user-based approach assumes quality is all about providing

products or services that are fit for their purpose.

The product-based approach views quality as a precise and

measurable set of characteristics.

The value-based approach defines quality in terms of value.

High quality puts costs down and revenue up


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Quality up

Profits up

Processingtime down

Inventorydown

Capital costsdown

Complaint andwarranty costs

down

Rework andscrap costs

down

Inspection andtest costs

down

Productivityup

Servicecosts down

Image up

Scale

economies up

Pricecompetition

down

Salesvolume up

Revenueup

High quality puts costs down and revenue up

Operation costsdown

Perceived quality is governed by the gap between customers


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Customersexpectations

for theproduct or

service

Customersperceptions

of the

product orservice

Gap

Perceived quality ispoor

Perceived quality isgood

Expectations >perceptions

Expectations =perceptions

Expectations

Documents

SOM Soumitra s Slides 2