Operations StrategyOperations Strategy

Operations Management - 5th EditionOperations Management - 5th Edition

Chapter 2Chapter 2

Roberta Russell & Bernard W. Taylor, III

2-2

Four Steps for Strategy Four Steps for Strategy FormulationFormulation

Defining a primary taskDefining a primary task What is the firm in the business of doing?What is the firm in the business of doing?

Assessing core competenciesAssessing core competencies What does the firm do better than anyone else?What does the firm do better than anyone else?

Determining order qualifiers and order winners Determining order qualifiers and order winners Order qualifier – characteristics of an item that qualify Order qualifier – characteristics of an item that qualify

it to be considered for purchaseit to be considered for purchase Order winner – the final factor in the purchasing Order winner – the final factor in the purchasing

decisiondecision Positioning the firmPositioning the firm

How will the firm compete?How will the firm compete?

2-3

Competitive PrioritiesCompetitive Priorities

CostCost QualityQuality FlexibilityFlexibility SpeedSpeed

2-4

Competitive Priorities: Competitive Priorities: CostCost

Eliminate all wasteEliminate all waste Invest inInvest in

Updated facilities and equipmentUpdated facilities and equipment Streamlining operationsStreamlining operations Training and developmentTraining and development

Example – Southwest AirlinesExample – Southwest Airlines One type of airplane facilitates crew changes, One type of airplane facilitates crew changes,

record-keeping, maintenance, and inventory costsrecord-keeping, maintenance, and inventory costs Direct flights mean no baggage transfersDirect flights mean no baggage transfers $30 million annual savings in travel agent $30 million annual savings in travel agent

commissions by requiring customers to contact the commissions by requiring customers to contact the airline directlyairline directly

2-5

Competitive Priorities: Competitive Priorities: QualityQuality

Please the customerPlease the customer Understand her attitudes towards and expectations of qualityUnderstand her attitudes towards and expectations of quality

Example – Ritz-Carlton - one customer at a timeExample – Ritz-Carlton - one customer at a time Teams at all levels set objectives and devise quality action Teams at all levels set objectives and devise quality action

plansplans Each hotel has a quality leader Each hotel has a quality leader Quality reports tracksQuality reports tracks

Guest room preventive maintenance cyclesGuest room preventive maintenance cycles Percentage of check-ins with no waitingPercentage of check-ins with no waiting Time spent to achieve industry-best clean room appearanceTime spent to achieve industry-best clean room appearance

Guest Preference Reports are recorded in a databaseGuest Preference Reports are recorded in a database

2-6

Competitive Priorities: Competitive Priorities: FlexibilityFlexibility

Produce wide variety of productsProduce wide variety of products Introduce new productsIntroduce new products Modify existing products quicklyModify existing products quickly Respond to customer needsRespond to customer needs Example – National Bicycle Industrial CompanyExample – National Bicycle Industrial Company

offers 11,231,862 variationsoffers 11,231,862 variations delivers within two weeks at costs only 10% above standard delivers within two weeks at costs only 10% above standard

modelsmodels

2-7

Competitive Priorities: Competitive Priorities: SpeedSpeed

Fast movesFast moves Fast adaptationsFast adaptations Tight linkagesTight linkages Example – Wal-Mart Example – Wal-Mart

Replenishes its stock twice a week Replenishes its stock twice a week

Example – DellExample – Dell Ships custom-built computers in two daysShips custom-built computers in two days

2-8

Operations Strategy at Operations Strategy at Wal-MartWal-Mart

2-9

Strategic Decisions in Strategic Decisions in OperationsOperations

ProductsProducts

ServicesServices ProcessProcess

andand

TechnologyTechnology

CapacityCapacity

HumanHuman

ResourcesResources QualityQuality

FacilitiesFacilities SourcingSourcing OperatingOperating

SystemsSystems

2-10

Operations Strategy: Operations Strategy: Products and ServicesProducts and Services

Make-to-OrderMake-to-Order Products and services are made to customer Products and services are made to customer

specifications after an order has been receivedspecifications after an order has been received

Make-to-StockMake-to-Stock Products and services are made in anticipation of Products and services are made in anticipation of

demanddemand

Assemble-to-OrderAssemble-to-Order Products and services add options according to Products and services add options according to

customer specificationscustomer specifications

2-11

Production Strategy:Production Strategy:Processes and TechnologyProcesses and Technology

ProjectProject One-at-a-time production of a product to customer orderOne-at-a-time production of a product to customer order

Batch ProductionBatch Production Systems process many different jobs at the same time Systems process many different jobs at the same time

in groups (or batches)in groups (or batches) Mass ProductionMass Production

Large volumes of a standard product for a mass marketLarge volumes of a standard product for a mass market Continuous ProductionContinuous Production

Used for very high volume commodity productsUsed for very high volume commodity products

2-12

Product-Process MatrixProduct-Process Matrix

Source: Source: Adapted from Robert Adapted from Robert Hayes and Steven Wheelwright, Hayes and Steven Wheelwright, Restoring the Competitive Restoring the Competitive Edge: Competing Through Edge: Competing Through Manufacturing Manufacturing (New York: John (New York: John Wiley & Sons, 1984), p. 209Wiley & Sons, 1984), p. 209

2-13

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ProjectConstruction of the aircraft carrier USS Nimitz was a huge project that took almost 10 years to complete.

Batch ProductionAt Martin Guitars bindings on the guitar frame are installed by hand and are wrapped with a cloth webbing until glue is dried.

Mass Production Here in a clean room a worker performs quality checks on a computer assembly line.

Continuous ProductionA paper manufacturer produces a continuous sheet paper from wood pulp slurry, which is mixed, pressed, dried, and wound onto reels.

2-14

Service Strategy:Service Strategy:Processes and TechnologyProcesses and Technology

Professional ServiceProfessional Service Highly customized and very labor intensiveHighly customized and very labor intensive

Service ShopService Shop Customized and labor intensiveCustomized and labor intensive

Mass ServiceMass Service Less customized and less labor intensiveLess customized and less labor intensive

Service FactoryService Factory Least customized and least labor intensiveLeast customized and least labor intensive

2-15

Service-Process MatrixService-Process Matrix

Source: Source: Adapted from Roger Adapted from Roger Schmenner, “How Can Service Schmenner, “How Can Service Businesses Survive and Businesses Survive and Prosper?” Prosper?” Sloan Management Sloan Management Review Review 27(3):2927(3):29

2-16

Professional ServiceA doctor provides personal service to each patient based on extensive training in medicine.

Service ShopAlthough a lecture may be prepared in advance, its delivery is affected by students in each class.

Mass ServiceA retail store provides a standard array of products from which customers may choose.

Service FactoryElectricity is a commodity available continuously to customers.

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2-17

Operations Strategy:Operations Strategy:Capacity and FacilityCapacity and Facility

Capacity strategic decisions includeCapacity strategic decisions include: : WhenWhen, , how muchhow much, and in , and in what what form to alter form to alter

capacitycapacity Facility strategic decisions include: Facility strategic decisions include:

Whether demand should be met with a few large Whether demand should be met with a few large facilities or with several smaller onesfacilities or with several smaller ones

Whether facilities should focus on serving certain Whether facilities should focus on serving certain geographic regions, product lines, or customersgeographic regions, product lines, or customers

Facility location can also be a strategic decisionFacility location can also be a strategic decision

2-18

Operations Strategy: Operations Strategy: Human ResourcesHuman Resources

What are the skill levels and degree of autonomy What are the skill levels and degree of autonomy required to operate production system?required to operate production system?

What are the training requirements and selection What are the training requirements and selection criteria?criteria?

What are the policies on performance What are the policies on performance evaluations, compensation, and incentives?evaluations, compensation, and incentives?

Will workers be salaried, paid an hourly rate, or Will workers be salaried, paid an hourly rate, or paid a piece rate?paid a piece rate?

Will profit sharing be allowed, and if so, on what Will profit sharing be allowed, and if so, on what criteria?criteria?

2-19

Operations Strategy: Operations Strategy: Human Resources (cont.)Human Resources (cont.)

Will workers perform individual tasks or work Will workers perform individual tasks or work in teams?in teams?

Will they have supervisors or work in self-Will they have supervisors or work in self-managed work groups?managed work groups?

How many levels of management will be How many levels of management will be required?required?

Will extensive worker training be necessary?Will extensive worker training be necessary? Should workforce be cross-trained?Should workforce be cross-trained? What efforts will be made in terms of What efforts will be made in terms of

retention?retention?

2-20

Operations Strategy: Operations Strategy: QualityQuality

What is the target level of quality for our What is the target level of quality for our products and services?products and services?

How will it be measured? How will it be measured? How will employees be involved with How will employees be involved with

quality?quality? What will the responsibilities of the What will the responsibilities of the

quality department be? quality department be?

2-21

Operations Strategy: Operations Strategy: Quality (cont.)Quality (cont.)

What types of systems will be set up to What types of systems will be set up to ensure quality? ensure quality?

How will quality awareness be maintained?How will quality awareness be maintained? How will quality efforts be evaluated?How will quality efforts be evaluated? How will customer perceptions of quality be How will customer perceptions of quality be

determined? determined? How will decisions in other functional areas How will decisions in other functional areas

affect quality?affect quality?

2-22

Operations Strategy: Operations Strategy: SourcingSourcing

Vertical IntegrationVertical Integration Degree to which a firm produces parts that go Degree to which a firm produces parts that go

into its productsinto its products Strategic DecisionsStrategic Decisions

How much work should be done outside the How much work should be done outside the firm? firm?

On what basis should particular items be On what basis should particular items be made in-house?made in-house?

When should items be outsourced?When should items be outsourced? How should suppliers be selected?How should suppliers be selected?

2-23

Operations Strategy: Operations Strategy: Sourcing (cont.)Sourcing (cont.)

What type of relationship should be What type of relationship should be maintained with suppliers?maintained with suppliers?

What is expected from suppliers?What is expected from suppliers? How many suppliers should be used?How many suppliers should be used? How can quality and dependability of How can quality and dependability of

suppliers be ensured?suppliers be ensured? How can suppliers be encouraged to How can suppliers be encouraged to

collaborate?collaborate?

2-24

Operations Strategy: Operations Strategy: Operating SystemsOperating Systems

How will operating systems execute strategic How will operating systems execute strategic decisions?decisions?

How does one align information technology and How does one align information technology and operations strategic goals?operations strategic goals?

How does information technology support both How does information technology support both customer and worker demands for rapid access, customer and worker demands for rapid access, storage, and retrieval of information?storage, and retrieval of information?

How does information technology support How does information technology support decisions making process related to inventory decisions making process related to inventory levels, scheduling priorities, and reward levels, scheduling priorities, and reward systems?systems?

2-25

Strategic PlanningStrategic Planning

Missionand VisionMission

and Vision

CorporateStrategy

CorporateStrategy

OperationsStrategy

OperationsStrategy

MarketingStrategy

MarketingStrategy

FinancialStrategyFinancialStrategy

Voice of theBusiness

Voice of theBusinessVoice of the

CustomerVoice of the

Customer