Operation
Strategy:
Operations
strategy is concerned with setting broad policies and plans for using the
resources of a firm to best support its long-term competitive strategy. A
firm’s operations strategy is comprehensive through its integration with
corporate strategy.
Operations
competitive dimensions
The
major competitive dimensions are as follows:
Cost
or Price : “Make the Product or
Deliver the Service Cheap”. To compete in the market, lower price is always an
important consideration. However companies like BMW charges high price against
the quality they provide in terms of performance, outlook and features.
Quality
: “Make a Great Product or Deliver
Great Service”. There are two characteristics of a product or service that
define quality: design quality and process quality. Design quality relates to
the set of features the product or service contains. Process quality is
critical because it relates directly to reliability of the product or services.
Thus, the goal of process quality is to produce defect free products and
services.
Ex:
A bi-cycle for a 5 years’old boy will be different to that of a racing cycle
and so the price.
Delivery
speed: “Make the product or Deliver
the service Quickly”. In some markets, a firm’s ability to deliver more quickly
than its competitors may be critical. A company that can offer an on-site
repair service in only 1 or 2 hours has a significant advantage over a
competing firm that guarantees service only within 24 hours.
Delivery
reliability : “Deliver It When
Promised” This dimension relates to the firm’s ability to supply the product or
service on or before a promised delivery due date. For an automobile
manufacturer, it is very important that its supplier of tires provide the
needed quantity and types for each day’s car production. If the tires needed
for a particular car are not available when the car reaches the point on
the assembly line where the tires are
installed, the whole assembly line may have to be shut down until they arrive.
Coping
with Changes in Demand : “Change Its
Volume” In many markets, a company’s ability to respond to increase and
decrease in demand is important to its ability to compete. When demand is
strong and increasing, costs are continuously reduced due to economies of
scale, and investments in new technologies can be easily justified. But when
demand decreases, may require many difficult decisions like lay off, reduction
of assest.
Flexibility
and New – Product Introduction Speed :
“Change It”. Flexibility, from a strategic perspective, refers to the ability
of a company to offer a wide variety of products to its customers. An important
element of this ability to offer different products is the time required for a
company to develop a new product and to convert its processes to offer the new
product.
Other
Product-Specific Criteria : “Support It”
- Technical liaison and support.
- Meeting a launch date.
- Supplier after-sale support.
- Other dimensions: Colours available, size, weight, fabrication, customization etc.
The
corporate strategy design process
The
task of developing a comprehensive strategy for a firm that integrates the
finance, marketing, and operations function is complex.
The
Financial Perspective
1.
Build the franchise. Develop new sources of revenue from new markets, new
products, or new customers.
2.
Increase customer value. Work with existing customers to expand their
relationship with the company. This component tends to be intermediate term in
duration and focuses on processes that integrate the firm’s systems with the
customer’s to make processes more efficient.
The
Productivity Perspective:
1 Improve
cost structure: Lower the direct costs
of products and services, reduce indirect costs, and share common resources
with other business units.
2.
Improve asset utilization. Reduce the working and fixed capital needed to
support a given level of business by more efficient utilization, more careful
acquisition, or disposal of parts of the current and fixed asset base.
The
Customer Perspective:
1.
The customer perspective is the heart of the strategy and defines how growth
will be achieved. The following are three different ways to differentiate.
Product
leadership: A product leadership
company pushes its products into the realm of the unknown, the untried or the
highly desirable.
Customer
intimacy: A customer-intimate company
builds bonds with its customers: it knows the people to whom it sells and the
products and services it needs.
Operational
excellence: Operationally excellent
companies deliver a combination of quality, price, and ease of purchase that no
one else can match. Ex: McDonald’s, Southwest Airlines, Dell Computer etc.
The
Internal Perspective
The
internal perspective defines the business processes and the specific activities
the organization must master to support the customer value proposition.
- A product leadership strategy would require a leading-edge innovation process that creates new products with best-in-class functionality and brings them to market rapidly.
- A customer intimacy strategy requires excellent customer management processes such as relationship management and solution development.
- A strategy of operational excellence emphasizes cost. quality, quickness of operating processes, excellent supplier relationships and speed and efficiency of supply and distribution processes.
- A strategy of regulatory and environmental excellence is important for companies such as telecommunications and utilities, whose prices and operations are regulated to some extent by the government.
The
Learning and Growth perspective
The
learning and growth perspective defines the intangible assets needed to enable
activities and customer relationships to be conducted at high levels of
performance.
- Strategic competencies are the strategic skills and knowledge required by the work force to support the strategy.
- Strategic technologies are the materials and process technologies, information system, database and network required to support the strategy.
- Climate for action provides the cultural shifts needed to motivate, empower and align the workforce behind the strategy.
Activity-system
maps
Show
how a company’s strategy is delivered through a set of tailored activities such
as the one for Southwest Airlines. In companies with a clear strategy, a number
of higher - order strategic themes (in green) can be identified and implemented
through clusters of tightly linked activities.
Developing
a Manufacturing Strategy
The
main objectives of manufacturing strategy development are (1) to translate
required competitive dimensions (typically obtained from marketing) into
specific performance requirements for operations and (2) to make the plans
necessary to ensure that operations (and enterprise) capabilities are
sufficient to accomplish them. The steps for prioritizing these dimensions are
as follows:
1.
Segment the
market according to the product group.
2.
Identify the
product requirement, demand patterns, and profit margins of each group.
3.
Determine the
order winners and order qualifiers for each group.
4.
Convert order
winners into specific performance requirements.
Attacking
through operations (ex: Wal Mart)
- Wal-Mart became a public corporation in 1972, were operationg 30 discount stores in rural Arkansas. Missouri, and Oklahoma.
- 10 years later, it had about 650 stores and almost $4.7 billion in sales.
- By 1987, Wal Mart had almost 1200 stores and $16 billion in sales. Kmart soon got the wind of Wal Mart.
- Wal Mart steadily approached to large cities while Kmart tried to build an upscale image.
- By 1993 the battle was over, Wal Mart sales surpassed Kmalrts’ sales. ($67 billion)
- Kmart tried to get through but it was too late. In 1984 the company merged with Sears.
What
were the Wal Marts’ moves
- Wal Mart created significant advantage by developing improved management of warehouose and store.
- It created a location advantage, first being away from big cities. Later it developed the infastructure to compete head to head with Kmart.
- Finally by developing supporting culture, values, skills, technologies, supplier – customer relationship, human resources, motivation that were neither easily copied nor transferable to other organizations.
Productivity
Measurement
Productivity
is a common measure of how well a country, industry or business unit is using
its resources (or factors of production). Since operations management focuses
on making the best use of the resources available to a firm, productivity
measurement is fundamental to understanding operations-related performance.
Productivity
= Outputs / Inputs
- Productivity is what we call a relative measure. Can be measured in two ways:
- A company can compare itself with similar position within its industry
- To measure productivity over time within the same operation
Again,
productivity can be measured as follows:
- Partial productivity measure : The ratio of output to a single input
- Multifactor productivity measure: Ratio of all outputs to all inputs
- Total factor measure productivity : Ratio of all outputs to all inputs (ex: entire organization)
Ex:
Partial
measure : Output /
labour, Output / capital, Output / material etc.
Multifactor
measure : Output / labour + capital + energy
Total
measure : Output
/ input or Godds or services produced / all
resources used
Numerical example:
Total output : Total output / input. 13500 / 15193 = 0.89
Partial measure : Total
output / energy 13500 / 540 = 25
Total
output / capital 10,000 / 540 =
18.52
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