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Operations Strategy and Competitiveness
Operations Strategy as a competitive weapon
One of the key objectives of any business organization is to reach a position where it is able to attract more customers than its competitors
Shorter Product Cycle / Pioneer status advantage Production flexibility Low-cost process (e.g. Outsourcing) Convenience and Location (e.g. Courier services) Product variety and Facility size (e.g. super markets) Quality (e.g. MNCs producing cars in India for Exports)
Competitive Dimensions
Cost or Price
Make the Product or Deliver the Service Cheap
Quality
Make a Great Product or Deliver a Great Service
Delivery Speed
Make the Product or Deliver the Service Quickly
Delivery Reliability
Deliver It When Promised
Coping with Changes in Demand
Change Its Volume
Flexibility and New Product Introduction Speed
Change It
Other Product-Specific Criteria
Support It
Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
Cost
Flexibility
Quality
Delivery
Order Qualifiers and Winners
Defined
Order
qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers winners are the criteria that differentiates the products and services of one firm from another
Order
Service Breakthroughs
A
brand name car can be an order qualifier
Repair services can be order winners
Examples: Warranty, Roadside Assistance, Leases, etc
Operations Strategy
Strategy Process
Customer Needs
Example
More Products
Corporate Strategy
Increase Org. Size
Operations Strategy
Increase Production Capacity
Decisions on Processes and Infrastructure
Build New Factory
Strategy Design Process
Strategy Map
Financial Perspective
What it is about!
Improve Shareholder Value
Customer Perspective
Customer Value Proposition
Internal Perspective
Build-Increase-Achieve
Learning and Growth Perspective
A Motivated and Prepared Workforce
The Balanced Scorecard
Judicious mix of financial and operational measures for measuring the performance
Customer perspective
Business process perspective Innovation and learning perspective Financial perspective
Balanced Scorecard Model for Measuring Operations Performance How do stakeholders view
Operations?
Financial Perspective Goals Measures
How do customers view the Operations?
Customer Perspective Goals Measures
At which Operations tasks must we excel
Internal / Process Perspective
Goals
measures
Innovation & Learning Perspective
Goals
Measures
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Kaplan and Nortons Generic Strategy Map
In the Kaplan and Nortons Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components:
1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital
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Kaplan and Nortons Generic Strategy Map (Continued)
In the Kaplan and Nortons Generic Strategy
Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components:
1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company
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Kaplan and Nortons Generic Strategy Map (Continued)
In the Kaplan and Nortons Generic Strategy
Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace:
1. Product leadership 2. Customer intimacy 3. Operational excellence
Kaplan and Nortons Generic Strategy Map (Continued)
In the Kaplan and Nortons Generic Strategy
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Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning:
1. Strategic competencies 2. Strategic technologies 3. Climate for action
Developing an Operations Strategy
Corporate Objectives
Business Plan Marketing Plan Budget Production Plan
Functional Areas
Operations Marketing Business Strategies Financing/Accounting Research & Dev. Strengths and Weaknesses Human Capital Operations Objectives
Other Plan
Operation Strategies
Long-range Decisions about Products, Processes and Facilities
Position the Production System Focus of Factories or Service Facilities Product / Service Design and Development Allocation of Resources to Alternatives Facility Planning : Capacity, Location and Layout
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Steps in Developing a Manufacturing Strategy
1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements
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Service Strategy Capacity Capabilities
Process-based
Capacities that transforms material or information and provide advantages on dimensions of cost and quality
Systems-based
Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand
Organization-based
Capacities that are difficult to replicate and provide abilities to master new technologies
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What is Productivity?
Defined
Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs
Productivity Introduction & Definition
Productivity primarily is an attitude of mind an attitude of looking at the scope for improvement It stands for the elimination of MUDA( Japanese ) or Waste in all forms It is the function of providing more and more of everything, for more and more people with less and less consumption of Resources The essence of productivity lies in producing the same volume with less resources or producing more output with proportionately less increase in inputs
Factors affecting Productivity
External Factors
Beyond the control of individual Enterprise External Infrastructure Non- availability of Funds, Water, Power, Transportation Raw Material Supply constraints
Government Policies ( Emission Laws etc.)
Social / Political / Economic Environment
Factors affecting Productivity ( contd.)
Internal Factors
Hard Factors Products / Technology / Plant & Eqpt.
/ Raw Materials
Soft Factors People / Work Methods / Systems &
Procedures / Organisation Structure / Management Practices
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Total Measure Productivity
Total Measure Productivity = Outputs Inputs
or
= Goods and services produced All resources used
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Partial Measure Productivity
Partial
measures of productivity =
Output or Output or Output or Output
Labor Capital Materials Energy
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Multifactor Measure Productivity
Multifactor measures of productivity =
Output
Labor + Capital
or
.
+ Energy
Output
Labor + Capital +
.
Materials
Example of Productivity Measurement
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You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. Is productivity increasing or decreasing? Answer: Last weeks productivity = 480/2000 = 0.24, and this weeks productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.
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Question Bowl
An operations strategy is concerned with which of the following? a. Setting specific policies and plans b. Short-term competitive strategies c. Coordination of operational goals d. All of the above e. None of the above Answer: c. Coordination of operational goals
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Question Bowl
Typically a strategy breaks down into what major components? a. Operations effectiveness b. Customer management c. Production innovation d. All of the above e. None of the above Answer: d. All of the above
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Question Bowl
A criterion that differentiates the products and services of one firm from another can be which of the following? a. An order qualifier b. An order winner c. PWP d. KPI e. None of the above
Answer: b. An order winner
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Question Bowl
A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? An increase in productivity from Day 1 to Day 2 A decrease in productivity from Day 1 to Day 2 The same productivity from Day 1 to Day 2 Can not be computed from data above None of the above Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)
a. b.
c.
d. e.
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Question Bowl
In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer? a. How do customers see us? b. What must we excel at? c. How can we continue to improve and create value? d. All of the above e. None of the above
Answer: d. All of the above
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Solved Problems OPERATIONS MANAGEMENT (Class of 2010)
Q3. d) Various financial data for 2002 & 2003 follow. Calculate the total productivity
measure and the partial measure for labour, capital and raw materials for this company for both years. What do these measures tell you about this company?
2002 Output Input 2003
Sales Labour Raw Material Energy Capital Others
$ 2,00,000 $2,20,000 30,000 35,000 5,000 50,000 2,000 40,000 45,000 6,000 50,000 3,000
Answer :-
Total Productivity = Output Input
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Output
2002 2,00,000
2003 2,20,000
Input Labour Raw Materials Energy Capital Others Total Inputs
2002 30,000 35,000 5,000 50,000 2,000 1,22,000
2003 40,000 45,000 6,000 50,000 3,000 1,44,000
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a)
Total Productivity measure
Year 2002 Total Productivity = Output Input = 2,00,000 1,22,000 = Year 2003 Total Productivity = 2,20,000 1,44,000 = 1.53 1.66
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b)
Partial Productivity measure (Labour)
Partial Productivity measure = Total Output Cost of Labour for the year 2002 = 2,00,000 = 6.67 30,000 for the year 2003 = 2,20,000 = 5.5 40,000
c) Partial Productivity measure (Capital)
Partial Productivity measure = Total Output Capital for the year 2002 = 2,00,000 = 4 50,000 for the year 2003 = 2,20,000 = 4.4 50,000
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d) Partial Productivity measure (Raw Materials)
Partial Productivity measure = Total Output Cost of Raw Materials
for the year 2002 = 2,00,000 = 5.71 35,000
for the year 2003 = 2,20,000 = 4.88 45,000
