The strategic role of Operations and Operations Strategy

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DOM 511 Operations Management Practice

• The strategic role of Operations and Operations
  Strategy
• By Munyao Mulwa
• Dept of Management Science

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What is Strategy?

• Concerned with meeting existing market needs as
  well as exploiting opportunities for potential
  market segments
• Making the best use of resources leveraging
  these resources either alone or with partners
• Devising and implementing processes that will
  enable the enterprise to compete ideally create
  competitive advantage
• Concerned with developing capabilities within
  the firms operations that are superior to other
  competitors and that other competitors either
  cannot copy or will find it extremely difficult
  to copy

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What is Strategy?

• While a vision unifies an Organization, a mission
  states what the firm is about and strategy is
  says how the organization will achieve the
  mission
• Provides Consistency in Decisions
• Keeps an Organization moving in the right
  Direction

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What is Strategy?

• Example ( Kai-Z household Pride Ltd)
• The mission (the what element) to crush,
  squash and slaughter selling of household
  utensils and appliances in supermarkets
• (The How element , -gtgt by locating low cost,
  variety led utensils appliances outlets in all
  major cities towns in Kenya within 18 months
• Consider Operations Capabilities
• Consider capabilities outside the firm

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What is Strategy?

• An Operations Strategy must include at least the
  following
• amounts of capacity required by the organization
  to achieve its aims
• the range and locations of facilities
• technology investment to support process and
  product developments
• formation of strategic buyersupplier
  relationships as part of the organizations
  extended enterprise
• the rate of new product or service introduction
• organizational structure to reflect what the
  firm does best, often entailing outsourcing of
  other activities.

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Steps in Strategy Formulation

1. Define a Primary Task what is the firm in the
   business of doing. Defines the competitive arena
2. Define a Vision describes what the organization
   sees itself becoming
3. Assessing Core Competency what the firm does
   better than anyone else (quality, speed, possible
   choice, lower cost, faster innovation). Must
   remain sustainable
4. Determine
5. Order Qualifiers characteristics that make a
   product /service to be considered for purchase
6. Order Winners what wins the order on the
   marketplace (quality, price, availability)
7. Positioning how will the firm compete? Focus on
   one important thing (for the client) on which to
   concentrate do extremely well

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Operations Strategy
Customer Needs
Corporate Strategy
Operations Strategy
Processes, Infrastructure, and Capabilities
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What is the role of the operations function?
Operations
Operations
Operations
as effector
as follower
as leader
Strategy

Ops

Strategy

Ops

Ops

Strategy

Operations
Operations
Operations
implements strategy
supports strategy
drives strategy
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The Strategic Role of the Operations Functions
The 3 key attributes of operations
Operations Contribution
Implementing
Be Dependable Operationalise strategy Explain
Practicalities
Supporting
Be Appropriate Understand strategy Contribute to
decisions
Driving
Be Innovative Provide Foundation of
strategy Develop long-term Capabilities
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Operations Priorities

• Cost
• 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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Competing on Cost

• Eliminate all waste
• Invest in
• Updated facilities equipment
• Streamlining operations
• Training development

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Competing on Quality

• Please the customer
• Understand customer attitudes toward and
  expectations of quality
  

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Competing on Flexibility

• Produce wide variety of products
• Introduce new products
• Modify existing products quickly
• Respond to customer needs

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Competing on Speed

• Fast moves
• Fast adaptations
• Tight linkages

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Dealing with Trade-offs
Traditional Approach
Plant within a Plant (PWP)
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World-Class Manufacturing

• World-class manufacturers no longer view cost,
  quality, speed of delivery, and even flexibility
  as tradeoffs. They are order qualifiers order
  winners.
• Order qualifiers - a screening criterion that
  permits a firms products to be considered as
  possible candidates of purchase e.g on time
  delivery
• Order winners A criterion that differentiates
  the products or services of one firm from another
  e.g price, quality reliability

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Service Breakthroughs

• Service can be an order winner

Warranty
Leases
Roadside Assistance
Loan Vehicles
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A Framework for Manufacturing Strategy
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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?

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Strategy Begins with Priorities

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

Us (Core competencies)
Competition (Them)
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Hayes and Wheelwrights Four Stage model

1. Internally Neutral
2. Externally Neutral
3. Internally Supportive
4. Externally Supportive

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Manufacturings Role in Corporate Strategy

• Stage 1--Internally Neutral
• Minimize manufacturings negative potential
• Management control systems
• Stage II--Externally Neutral
• Achieve parity with competitors
• Follow industry practice
• Stage III--Internally Supportive
• Support the business strategy
• Stage IV-- Externally Supportive
• Manufacturing-based competitive advantage

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The strategic role of operations can be defined
by its aspirations (Hayes and Wheelwright)
Redefine the industrys expectations
Give an Operations Advantage
Externally supportive
Be clearly the best in the industry
Link Strategy With Operations
Internally supportive
Increasing contribution of operations
Be as good as competitors
Adopt best Practice
Externally neutral
Stop holding the organisation back
Correct the Worst Problems
Internally neutral
STAGE 1
STAGE 2
STAGE 3
STAGE 4
The ability to Drive strategy
The ability to Implement
The ability to support Strategy
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Four Stages of Service Firm Competitiveness

• Stage I. Available for Service
• Reactive, non-performance-based survival
• Stage II. Journeyman
• Firm neither sought nor avoided
• Reliable but uninspired operation

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Four Stages of Service Firm Competitiveness
(continued)

• Stage III. Distinctive Competence Achieved
• Reputation for meeting customers expectations
• Customer-focused operations--management support
• Stage IV. World Class Service Delivery
• Firm name synonymous with service
  excellence--focus on delighting rather than
  satisfying customers
• Continuous learning and improvement of operations

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Strategic Decisions in Operations
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Products Services

• Make-to-order
• Made to customer specifications after order
  received
• Make-to-stock
• Made in anticipation of demand
• Assemble-to-order
• Add options according to customer specification

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Strategic Decisions in Operations (Products
Services)

• Make to Order
• Designed, produced delivered to customer
  specifications, after an order has been received
  (custom tailored clothes, charter flights etc)
• Critical Success Factors
• meeting individual requirements
• time to delivery
• Make to Stock
• Produced according to Standard specifications in
  expectation of orders to come in (books, TV,
  airline flights)
• Critical Success Factors
• forecasting future demand
• manage properly stock levels
• Assemble to Order
• Options available according to client
  requirements (computers, executive training,
  industrial equipment)
• Critical Success Factors
• Minimizing inventory level
• Delivering on time

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Processes Technology

• Job shop
• Production of product to customer order
• Batch production
• Process many jobs at same time in batch
• Mass production
• Produce large volumes of standard product for
  mass market
• Mass customization
• Very high volume unique products
• Continuous Production
• High volume commodity products

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Strategic Decisions in Operations Process
Technology

• Batch production the system processes different
  jobs at the same time in groups ( batches)
  (printers, bakeries, education, furniture making)
• Mass production produces large volumes of a
  standard product for mass market (automobiles,
  computers, household goods)
• Continuous production used for very high volumes
  commodity products refined oil, water, chemicals,
  paper, foodstuff)
• Project one at a time production of a product to
  customer order (a ship, a building, a plant)

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Capacity Facilities

• How much capacity to provide
• Size of capacity changes
• Handling excess demand
• Hiring/firing workers
• Need for new facilities

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Facilities

• Best size for facility?
• Large or small facilities
• Facility focus
• Facility location
• Global facility

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Strategic Decisions in Operations Capacity
Facilities

• Affects ability to compete by determining
• Lead times
• Customer responsiveness
• Operating costs
• Ability to grow
• Global capacity to be spread into individual
  capacities of sub-processes
• One large or several small plants?
• Preferred geographic regions, customers, products
  to serve.
• Make, buy sell in foreign countries associated
  contracts commercial agreements

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Human Resources

• Skill levels required
• Degree of autonomy
• Policies
• Profit sharing
• Individual or team work
• Supervision methods
• Levels of management
• Training

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Quality

• Target level
• Measurement
• Employee involvement
• Training
• Systems needed to ensure quality
• Maintaining quality awareness
• Evaluating quality efforts
• Determining customer perceptions

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Sourcing

• Degree of vertical integration
• Supplier selection
• Supplier relationship
• Supplier quality
• Supplier cooperation

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Strategic Decisions in Operations Sourcing

• Vertical Integration along the value chain
• Selling, assembling, producing, extracting raw
  material by one company not always possible
  neither whished
• focus on core business
• Positioning
• costs
• Make or buy components (outsourcing)?
• Bargaining power of suppliers clients (Porter)
• Level of independence
• Protection of intellectual rights
• Competency building
• Outsourcing
• selection of partner criteria, number, location,
  profile
• Incentives protection from competitors?
• Contracts cost, duration, specifications
  quality control liabilities

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Operating Systems

• Execute strategy daily
• Information technology support
• Effective planning control systems
• Alignment of inventory levels, scheduling
  priorities, reward systems

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Strategic Decisions in Operations Operating
System

• Day to day management of the production lines
• To be designed to support competitiveness of the
  firm on the market place
• Must support client workers demand for
• Easy fast access to information storage
  retrieval
• Planning Control Systems feedback
• Inventory levels
• Scheduling priorities
• Reward systems in line with strategic goals

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Strategy Deployment
Mission Vision
Business Environment
Voice of the Customer
Corporate Strategy
Marketing Strategy
Financial Strategy
Operations Strategy
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Strategy Deployment

• From Formulating gt Making it happen
• A need for breakdown/ translation at department
  level
• A need to go from (long term) Strategic Goals to
  daily Tactics Actions
• A Strategic Planning Hierarchy is required

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Reading Assignment

• Download two articles from the e-learning portal
  read them
• Too busy to develop an operations strategy
• Operations strategy genealogy, classification
  and anatomy