Operations Strategy/ Competitive Advantage

N.K.Agarwal

• Operation/Production function essential to every business

• Operations create wealth in a global economy• Operation function responsible to make four key

decisions– Process– Quality– Capacity– Inventory

Production Function

• Production function in manufacturing involves – Transforming a set of inputs through a process into a

predetermined set of outputs

Production Function

• Production / operations manager is the wealth creator in the company

• Operations managers make– Decisions regarding the operations function,– Its interaction with other functions within the organisation

and the external environment, and– Plan and control the production process

• In an efficient and effective manner

Production Manager

Major Decisions at Pizza USAA Framework for OM

• Process– How to produce & deliver

• Quality– Criteria, measurement & process for achieving

• Capacity– Physical facilities & labor

• Inventory– What, when & how much?

Productive System

Means by which

Input resources

Are transformed to create

Useful goods (products) & services

As outputs.

Production process (Converter)

Material

Labour

Energy

Capital

Information

Products

Services

Information

Information Processor(controller)

Con

vers

ion

subs

yste

m

Control (Feedback)

subsystem

Env

iron

men

t

Inputs Transformation Output

AN OPERATING SYSTEM

• Products– Tangible things that can be carried away with the person

• Services– Intangible and perishable are consumed in the process of

their production.

Products and Services

Characteristics of Products Vs Services

Products ServicesTangible Intangible & perishable; consumed in the

process of their productionCan be produced to inventory for off-the-shelf availability

Availability achieved by keeping the productive system open for services

Minimal contact with ultimate consumer High contact with clients/customers

Demand on system varies on weekly, monthly or seasonal basis

Demand commonly variable on hourly, daily and weekly basis

Markets served by productive systems are regional,national or international

Markets served are usually local

Large units that can take advantage of economies of scale

Relatively small units to serve local markets

Location of system is in relation to regional, national and international markets

Location dependent on location of local customers, clients & users

Complex and interrelated processing Simple processing

• Defined as – Decision making in the operations function– Integration of these decisions with other functions – A transformation system that converts inputs into outputs

• In an efficient and effective manner

Production / Operation Management (POM)

Interfacing with other systems

• Basic functional groups:– Marketing

• Generates demand– Finance

• Generates the capital– Production

• Generates the supply of outputs.

Marketing and POM

• Marketing system – Discovers and transmits the need of consumers to the total

organisation including the POM system • Which supplies these needs.

– Translates the demand for future into units of production & desired delivery schedules.

POM-Marketing interface

• Marketing furnishes data on:– Size of market– Volume of production needed to meet anticipated market

needs– Desired inventories– Anticipated changes in production of other products– Anticipated delivery schedules: amount,location,timing– Packaging needs

• Unreasonable commitment to customers regarding– Customisation– Delivery schedule– Order quantity

Conflicts between Marketing and POM

Production/Operation Management

• POM system generally consists of:– Forecasting facility requirement– Designing total production facility– Planning output levels– Planning inventory levels– Controlling work input– Controlling work output– Feedback– Replanning

• POM – Provides production facilities-plants,equipment and

personnel.– Provides statistical quality control– Sustains technological growth and improvement & economic

viability.

Production/ Operation Management

POM- Finance & Accounting interface

• F&A Function – Responsible for all cash flows between the organisation and

external environment.– Interfaces from the inception of the idea of product through

its development stages till it is sold

POM-F&A Interfacing

• Important areas– Accumulation of operating data to form a starting point for

standards– Accumulation of cost data of a job, a time period or a

process– Assignment of general costs to profit centres– Determination of profit/loss of profit centres– Determination of value of work-in-process (w-i-p)– Determination of financial value of raw material & finished

goods inventories– Providing status of jobs or w-i-p

POM- Information system

• Information function– Incorporates policy information flow from management– Feedback information to management – Information from external environment, as well as – Internal systems within the organisation

POM-Information interfacing

• Information function interfaces in respect of – Inventory control– Cost control– Reporting status on orders– Production schedules– Forecasting & scheduling material requirement– Control of w-i-p– Quality control– Preventive maintenance planning– Make or buy decision– Labour efficiency records

Operations Strategy

• Strategy formulation a process by which a firm determines how it will compete in its industry

• It involves goal determination and the development of policies for achieving these goals

• Some of these functional areas to define key operating policies are– Marketing– Sales– Target markets– Product line– Finance & control– Engineering and R&D

– Labour– Purchasing– Production– Distribution

• Purchasing, Production and Distribution must be carefully related for the operation function

• Production stand alone can not work– Purchasing provides the material inputs– Physical distribution system actually involves additional

processing steps in the product flow– Engineering, R&D and labour provide key inputs to the

operations function• Product design and key process technology comes from

R&D function– Labour provides a crucial input to the production

Operations Strategy

• All the activities in the line of material flow from suppliers through fabrication and assembly and culminating in product distribution must be integrated for a sensible operational strategy formulation

• There are six major components to operations strategy– Strategic implications of operating decisions– Matching the productive system design to market needs– Capacity and location– Technological choices– The work force and job design– Suppliers and vertical integration

Operations Strategy

Enterprise Competitiveness and the Operations Function

• Four dimensions of competitiveness that measure the effectiveness of the operations function– Cost– Quality– Dependability as a supplier– Flexibility/ service

• Cost– Profitability is related to the difference between price and

cost– To compete on the basis of price requires an operations

function capable of manufacturing at low cost

• The effects of location, product design, equipment use and replacement, labour productivity, good inventory management, employment of process technology etc.,all contribute to the resulting costs

• Unit costs are usually reduced as experience is gained through production

• However, a number of additional sources contribute to this– Improved production methods and tools, improved product

design, standardisation, improved material utilisation, reduction of system inventories, improved layout and flow, economics of scale and improved organisation

Enterprise Competitiveness and the Operations Function

• Quality• Product quality has often been cited as a reason for

preferring the products purchased by the customers– Dominance by Japanese products

• Customers are often willing to pay more for or wait for delivery of superior quality products

• Dependability of a Supplier– Reputation for dependability of supply or even off-the-shelf

availability is often strong competitive weapon– Customers may compromise on cost or even quality in order

to obtain on-time delivery when they need an item– The scheduling and coordination of all elements of the

productive system determine its ability to produce on time

Enterprise Competitiveness and the Operations Function

• Flexibility / Service• Ability to be flexible will depend upon the design of

the productive system and the process technology employed

• For large volume production of a standardised item, perhaps it is not worthwhile

• A competitor could offer such flexibility and there may a substantial market for him

• Ready availability of good service facility, spare parts can be winners in the competitive market

Enterprise Competitiveness and the Operations Function

Reference

• Production & Operations Management: Aswathappa / Bhat

• Modern Production/Operations Management: Buffa / Sarin

Thank You