BIZ2121 Production & Operations Management
Operations Strategy
Sung Joo Bae, Associate Professor
Yonsei University School of Business
Disclaimer: Many slides in this presentation file are from the copyrighted material in 2010 by Pearson
Education, Inc. Publishing as Prentice Hall.
A few operational issues for this
class For HW 1, submit the hard copy (before the
class begins)
There are deadlines set up for the HWs
Office hours by appointment (any time)
My expectation
I want you….
◦ to be
◦ to think
◦ to relate
◦ to work
◦ to learn
◦ to feel
Operations Management
The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers
Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers
From here
To here
Source: http://www.trendbird.co.kr/2440
Who’s in charge of this? Who is he?
Let’s find out who he is and what he does in Apple. (wiki)
How about this face? Familiar?
Product Design and Development
vs. Operations Management Fancy new product is not the end of the
game
Think about the quality control, logistical
challenge of this type of product
Why is OM critical?
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Apple; AirTran; American Standard Companies;
Amgen; Adobe Systems, Inc.; Autodesk, Inc; eBay;
Heidrick & Struggles; InBev; Kohlberg Kravis
Roberts & Company; Mattel, Inc; Motorola;
PepsiCo; Raytheon Company; Starbucks
Across the Organization
Material & Service Inputs
Sales Revenue
Product & Service Outputs
Finance
Acquires financial resources and capital
for inputs
Marketing
Generates sales of outputs
Operations
Translates materials and service into
outputs
Support Functions
• Accounting • Information Systems • Human Resources • Engineering
Figure 1.1 in our textbook
iPhone 4 Bumper Program
A Process View
External environment
Information on performance
Internal and external customers
Processes and operations
1
2
3
4
5
Inputs
• Workers
• Managers
• Equipment
• Facilities
• Materials
• Land
• Energy
Outputs
• Goods
• Services
Figure 1.2
Departments have their own objectives and resources to achieve them.
Processes may cross different department boundaries, and require resources
from several departments.
A Process View – Mfr vs. Svc
• Physical, durable output
• Output can be inventoried
• Low customer contact
• Long response time
• Capital intensive
• Quality easily measured
• Intangible, perishable output
• Output cannot be inventoried
• High customer contact
• Short response time
• Labor intensive
• Quality not easily measured
More like a manufacturing
process
More like a service process
Figure 1.3
Q. Is McDonald a service provider or manufacturer? Samsung
Electronics? Hyundai Motors?
Manufacturing: Transformation of materials on following dimensions –
physical properties, shape, size, surface finish, joining parts and materials
An Extended Process View (supplier
included) External environment
Information on performance
Internal and external customers
Processes and operations
1
2
3
4
5
Inputs
• Workers
• Managers
• Equipment
• Facilities
• Materials
• Land
• Energy
Outputs
• Goods
• Services
Figure 1.2 modified
Internal and external suppliers
The Supply Chain View
Support Processes
Exte
rnal su
pp
liers
Exte
rnal c
usto
mers
Supplier relationship process
New service/ product development
Order fulfillment process
Customer relationship management
Figure 1.4
Strategic insight: Processes must add value for customers throughout the supply
chain.
The Supply Chain View
Core processes are sets of activities that deliver value to external customers
1. Supplier relationship process
Negotiating fair prices
Scheduling on-time deliveries
Gaining ideas from critical suppliers
2. New service/product development process
3. Order fulfillment process (e.g. Tesco Homeplus)
4. Customer relationship process
Support processes provide vital resources and inputs to the core processes
Support Processes TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES
Capital acquisition The provision of financial resources for the organization to do its work and to execute its strategy
Budgeting The process of deciding how funds will be allocated over a period of time
Recruitment and hiring The acquisition of people to do the work of the organization
Evaluation and compensation The assessment and payment of people for the work and value they provide to the company
Human resource support and development
The preparation of people for their current jobs and future skills and knowledge needs
Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations
Information systems The movement and processing of data and information to expedite business operations and decisions
Enterprise and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business
Managerial Practice 1.2 (p.42) - Group Discussion
Zara Case
What are the operational innovation (i.e.
process innovation) that Zara achieved?
How can you measure the success of this
operational innovation?
Operations Strategy
Specifies the means by which operations
implements corporate strategy and helps
build a customer-driven firm
Corporate strategy provides an overall
direction that serves as the framework for
carrying out all the organization's functions
Operations Strategy
Figure 1.5
Corporate Strategy
• Environmental scanning
• Core competencies
• Core processes
• Global strategies
Market Analysis
• Market segmentation
• Needs assessment
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility
New Service/
Product Development
• Design
• Analysis
• Development
• Full launch
Operations Strategy
Decisions
• Managing processes
• Managing supply chains
Competitive Capabilities
• Current
• Needed
• Planned
Performance
Gap?
No
Yes
Corporate Strategy
Environmental scanning: monitoring trends in the environment
Developing core competencies: unique resources and strengths
◦ Workforce
◦ Facilities – location, flexibility
◦ Market and financial know-how
◦ Systems and technologies
Developing core processes (Hyundai Card vs. KB Star)
Global strategies
◦ Procurement, competition – global vs. local standard (McDonald vs. Jollibee, Burger King’s Bulgogi Burger)
◦ Expansion – make/buy/alliance
Corporate strategy provides an overall direction that serves as the
framework for carrying out all the organization’s function
Market Analysis
Market segmentation ◦ The process of identifying groups of customers with
enough in common to be the target for a specific product or service
Needs assessment ◦ Service or product needs (price, quality, degree of
customization)
◦ Delivery system needs (convenience, safety, reliability, speed, etc.)
◦ Volume needs (volume, variability and predictability in volume)
◦ Other needs
Competitive Priorities are…
The critical operational dimensions a
process or supply chain must possess to
satisfy internal or external customer
Forming teams for team projects
4-5 students (no less than 4, no more
than 5)
Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
COST Definition Process Considerations Example
1. Low-cost operations
Delivering a service or a product at the lowest possible cost
Processes must be designed and operated to make them efficient
Costco – products on pallets, negotiations with suppliers
QUALITY
2. Top quality Delivering an outstanding service or product
May require a high level of customer contact and may require superior product features
Ferrari – superior product features and high performance
3. Consistent quality
Producing services or products that meet design specifications on a consistent basis
Processes designed and monitored to reduce errors and prevent defects
McDonald’s – standardization, training, procurement
TIME
4. Delivery speed Quickly filling a customer’s order
Design processes to reduce lead time
Dell – superior order fulfillment
5. On-time delivery
Meeting delivery-time promises
Planning processes to increase percent of customer orders shipped when promised
United Parcel Service (UPS) – efficient logistics and warehousing processes
6. Development speed
Quickly introducing a new science or a product
Cross-functional integration and involvement of critical external suppliers
Li & Fung, Zara – fast NPD and delivery
Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES
FLEXIBILITY Definition Process Considerations Example
7. Customization Satisfying the unique needs of each customer by changing service or products designs
Low volume, close customer contact, and easily reconfigured
Ritz Carlton –highly individualized service
8. Variety Handling a wide assortment of services or products efficiently
Capable of larger volumes than processes supporting customization
Amazon.com – IT in delivering the variety of products
9. Volume flexibility
Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand
Processes must be designed for excess capacity
The United States Postal Service (USPS) – handling Christmas volume!!!
Competitive Priorities - Fedex
What is the CP for Fedex?
How did it change over time?
Are CPs Stable or Dynamic?
Competitive Priorities - Fedex
Are CPs Stable or Dynamic?
Competitive Priorities - Fedex
Are CPs Stable or Dynamic?
◦ FedEx – CP switched from on-time delivery
(speed) to low-cost and zero error-rate
(dependability)
Order Winners and Qualifiers
Sale
s ($
)
Achievement of competitive priority
Low High
Order Winner
Figure 1.6
A criterion customers use to differentiate the
services or products of one firm from those
of another
Sale
s ($
)
Achievement of competitive priority
Low High
Order Qualifier
Threshold
A demonstrated level of performance of an
order winner that is required for a firm to do
business in a particular market segment
Operations Strategy: Toyota case?
Figure 1.5
Corporate Strategy
• Environmental scanning
• Core competencies
• Core processes
• Global strategies
Market Analysis
• Market segmentation
• Needs assessment
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility
New Service/
Product Development
• Design
• Analysis
• Development
• Full launch
Operations Strategy
Decisions
• Managing processes
• Managing supply chains
Competitive Capabilities
• Current
• Needed
• Planned
Performance
Gap?
No
Yes
Operations Strategy: Toyota case?
Corporate Strategy
• Environmental scanning
• Core competencies
• Core processes
• Global strategies
Market Analysis
• Market segmentation
• Needs assessment
Competitive Priorities
• Cost ($1000/car in 3-4 yr)
• Quality
New Service/
Product Development
• New design that reduces the
number of parts
Operations Strategy
Decisions
• Managing processes – rethinking “Lean System”
• “Simple and slim” equipment
• Shortening the paint time
• Managing supply chains – 30% cut in procurement
Competitive Capabilities
• Current
• Needed
• Planned
Performance
Gap?
No
Yes
Operations Strategy
A Bank’s
Credit Card
Division
Credit Card Holders Merchants
1. Receive
transactions
2. Pay
3. Assembles and
sends the bill
4. Process payments
Operations Strategy TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS
Competitive Priority
Measure Capability Gap Action
Low-cost operations
Cost per billing statement
$0.0813 Target is $0.06
Eliminate microfilming and storage of billing statements
Weekly postage $17,000 Target is $14,000
Develop Web-based process for posting bills
Consistent quality
Percent errors in bill information
0.90% Acceptable No action
Percent errors in posting payments
0.74% Acceptable No action
Delivery speed Lead time to process merchant payments
48 hours
Acceptable No action
Volume flexibility
Utilization 98% Too high to support rapid increase in volumes
Acquire temporary employees
Improve work methods
Trends in Operations Management
Productivity improvement
Global competition
Ethical, workforce, and environmental issues
Productivity Improvement
Productivity Improvement
Case: Starwood’s new program
1. What are the key inputs and outputs associated with Starwood’s new meeting planning process
2. How does the meeting planning process at Starwood interact with the following core processes in their hotels
◦ Customer relationship (internal & external)
◦ New service or product development
◦ Order fulfillment
◦ Supplier relationship
OM as a Set of Decisions
In practice, managers make strategic and tactical decisions
1. Each part of the organization designs and operates processes
2. Each function is connected through shared resources
Part 1: Designing & building operation systems
Part 2: Managing Operation systems
Part 3: Managing beyond boundaries: supply chain management
Operations Strategy – Big picture
Figure 1.5
Corporate Strategy
• Environmental scanning
• Core competencies
• Core processes
• Global strategies
Market Analysis
• Market segmentation
• Needs assessment
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility
New Service/
Product Development
• Design
• Analysis
• Development
• Full launch
Operations Strategy
Decisions
• Managing processes
• Managing supply chains
Competitive Capabilities
• Current
• Needed
• Planned
Performance
Gap?
No
Yes
Challenges in OM
Part 1: Designing & building operation systems
Part 2: Managing Operation systems
Part 3: Managing beyond boundaries: supply
chain management
Solved Problem 1
Solved Problem 1
Solved Problem 2
Natalie Attire makes fashionable garments. During a particular week
employees worked 360 hours to produce a batch of 132 garments, of
which 52 were “seconds” (meaning that they were flawed). Seconds are
sold for $90 each at Attire’s Factory Outlet Store. The remaining 80
garments are sold to retail distribution at $200 each. What is the labor
productivity ratio of this manufacturing process?
Solved Problem 2
SOLUTION
Labor productivity = = $20,680
360 hours
Output
Input
Labor hours of input = 360 hours
Value of output = (52 defective 90/garment)
+ (80 defective 200/garment)
= $20,680
= $57.44 in sales per hour
Top Related