Chapter 2

Operations Strategy and Competitiveness

Operations Strategy

A Framework for Operations Strategy in Manufacturing

Operations Strategy in Services

Meeting the Competitive Challenge

Productivity Measurement

Operations Strategy - Definition

Operations Strategy - involves setting broad policies and plans on how to use “available” resources of a firm to support its long-term competitive strategy.

Corporate strategy leads to Operations strategy

Corporate Strategy Formulation

COLLBORATORS& COOPERATORS

Vision and Mission Statements

Vision statements used to express organization’s values and aspirations.

Mission statements express organization’s purpose or reason for existence.

Operations Strategy - Operations Priorities

Cost Quality - product quality and process quality Delivery Flexibility Delivery Speed Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction Speed Other Product-Specific Criteria ...

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5

Dealing with Trade-offs

Cost

Quality

DeliveryFlexibility

FOCUS FOCUS

FOCUSFOCUS

Plant within a Plant (PWP)

TraditionalApproach

Advanced Approaches

World Class Manufacturing

Trade-offs

©The McGraw-Hill Companies, Inc., 1998

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Strategy Begins with Priorities

Consider the case of a personal computer manufacturer.

1. How would we segment the market according to product group?

2. How would we identify product requirements, demand patterns, and profit margins for each group?

3. How do we identify order winner and order qualifiers for each group?

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy

Alignment

CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

Core Competencies

Collective knowledge and skills an organization has that distinguish (or differentiate) it from the competition.

Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services.

Building blocks of core capabilities.

Core Competencies continued

Are basis on which new outputs are developed. Better to think of organization in terms of its

portfolio of core competencies than as a portfolio of products.

Identifying and developing core competencies is one of top management’s most important roles.

Examples of Core Competencies

Sony - miniaturization 3M- knowledge of substrates, coatings and

adhesives; Knowledge management Black and Decker - small electrical motors and

industrial design Honda - engines and power trains Daimei-Benz - safety systems, quality and

luxury.

Core Competencies Used to Gain Access to Variety of Markets

Cannon– core competencies in optics, imaging, and electronic

controls– Products include copiers, laser printers, cameras, and

image scanners. Boeing

– integrating large scale systems– commercial jetliners, space stations, missiles

Core Capabilities

Organization practices and business processes Collection of competencies lead to “capabilities”

Key Characteristics of Core Competencies/Capabilities

Should be used to gain access to a variety of markets

Should be strongly related to key benefits provided by products or services

Should be difficult to imitate (what about benchmarking?)

4. How do we convert order winners into specific performance requirements?

Us(Core competencies)

Competition(Them) Differentiation

A Framework for Manufacturing Strategy

Customer Needs

New and CurrentProducts

Performance Prioritiesand Requirements

Quality, Dependability,Speed, Flexibility, and Price

Operations & Supplier Capabilities

Technology PeopleSystems R&D CIM JIT TQM Distribution

Support Platforms

Financial Management Human Resource Management Information Management

Enterprise Capabilities

Strategic Vision

World-Class Manufacturing

World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs.

They have become order qualifiers.

What are the order winners in today’s market?

Service Breakthroughs

Service can be an “order winner”

Warranty

RoadsideAssistance

TravelPlanning

LoanerVehicles

Leases

MIT Commission on Industrial Productivity1985 Recommendations

Place less emphasis on short-term financial payoffs and invest more in R&D.

Revise corporate strategies to include responses to foreign competition.

– greater investment in people and equipment

Knock down communication barriers within organizations and recognize mutuality of interests with other companies and suppliers.

MIT Commission on Industrial Productivity1985 Recommendations

Recognize that the labor force is a resource to be nurtured, not just a cost to be avoided.

Get back to basics in managing production operations. – Build in quality at the design stage. – Place more emphasis on process innovations rather

than focusing sole attention on product innovations.

U. S. Competitiveness Drivers

Product Development– Teams speed development and enhance

manufacturability Waste Reduction (JIT Philosophy)

– WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships

– Borrowed from Japanese Keiretsu Improved Leadership

– Strong, independent boards of directors©The McGraw-Hill Companies, Inc., 1998

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Productivity

Partial measures– output/(single input)

Multi-factor measures– output/(multiple inputs)

Total measure– output/(total inputs)

Inputs

Outputs =ty Productivi

Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

What is the labor productivity?

10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a “unit less” figure

(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22

Can you think of any advantages or disadvantages of each approach?

Example--Labor Productivity

Applying Productivity Figures

You’ve just told your boss that the plant labor productivity at your facility is better than that of a plant in a related business.

Why might he not be pleased with you?