Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR
Operations Strategy. What is Operations Strategy ? Operations Strategy is concerned with setting...
Transcript of Operations Strategy. What is Operations Strategy ? Operations Strategy is concerned with setting...
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Operations StrategyOperations Strategy
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What is Operations Strategy ?What is Operations Strategy ?
Operations Strategy is concerned with setting broad policies and plans for using firm resources to best support long-term competitive strategy.
Operations strategy needs to support overall corporate strategy.
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Competitive DimensionsCompetitive Dimensions
1. Cost
2. Quality (product & process)
3. Delivery Speed
4. Delivery Reliability
5. Demand Management
6. Variety
7. Innovation
Make it cheap
Make it good
Make it fast
Deliver as promised
Handle Changes in Demand
Make more than one type
First mover advantage
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Competitive DimensionsCompetitive Dimensions
All of the competitive dimensions are important…
why not try to excel along every one?
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Competitive Dimensions and Trade-offsCompetitive Dimensions and Trade-offs
Trade-offs
Trade-offs: Decisions that arise because of the inability of processes to excel simultaneously across all competitive dimensions.
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Which Dimensions Should Be the Focus?Which Dimensions Should Be the Focus?
Order winners: Criterion that differentiates one firm from another.
Examples: Cost (Southwest Airlines), service quality (Ritz-Carlton Hotels), Flexibility (Dell)
Order qualifier: Criterion that permits the firm’s products to even be considered for purchase.
Example: basic quality necessary to be considered a good car (consumer reports).
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ExampleExample
Southwest Airlines overall corporate strategy is to
“serve price- and convenience-sensitive customers.”
Corporate Strategy
Marketing Strategy
FinanceStrategy
Operations Strategy
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Developing an Operations StrategyDeveloping an Operations Strategy
1. Segment the market according to the product group. Example: High-end vs. low-end consumers
2. Identify (a) product requirements, (b) demand patterns, (c) profit margins. Example: many components, seasonal, low demand, high profit margin.
3. Determine the order winners and order qualifiers. Example: delivery speed (winner), cost (qualifier)
4. Convert order winners into specific performance requirements. Example: Must sell at or below $600
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Developing an Operations StrategyDeveloping an Operations Strategy
The next step is to analyze the process level…
1. Define the complexity and volume of your product/service.
2. Define whether you offer few specific products/services or highly customized products/services.
3. Determine product design, process design, supply chain design, supplier relations, capacity management plan & technology choice
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ExamplesExamples
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ExamplesExamples
• Southwest Operations – low cost
– Point-to-point between midsize cities & secondary airports in large cities
– 15-min gate turnaround
– No meals
– No assigned seats
– No interline baggage checking
– No premium classes of service
– Automated gate ticketing
– Standardized fleet of aircraft
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Measuring whether the strategy is workingMeasuring whether the strategy is working
Productivity is a common measure for how well a company is utilizing its resources
Inputs
Outputs ty Productivi
• Productivity measurement shows how well the company performs for a given level of inputs.
• Partial measures may give more specific details about performance.
Material
Outputor
Captial
Outputor
Labor
Output
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Productivity MeasurementProductivity Measurement
Example: Consider the following case. A bank has net output (income) of $500,000. The bank employs 40,000 people.
The partial labor productivity is 500,000 / 40,000 = 12.5
What does this tell you?
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Productivity MeasurementProductivity Measurement
The productivity index is a relative measure. It has to be compared with something else:
1. Benchmarking.
2. Changes over time.
The important thing is to be consistent in measurement!
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ExamplesExamples
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ExamplesExamples
• Walmart – low cost
– High investment into IT to manage inventory, analyze point of sales data, track shipments, etc.
– Management by data
– Scale
– Negotiation power with suppliers
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Summary and ConclusionsSummary and Conclusions
1. Firms must trade-off competitive dimensions when defining operations strategy.
2. This can be done by defining order winners and order qualifiers.
3. A Productivity Index can measure the relative performance between firms (or products, SBU’s, etc)