Chapter 2 Operations Strategy

1
Chapter 2 -Operations Strategy

• Links long and short-term operations decisions to
  corporate strategy
• Must be customer-driven
• Helps to develop competitive priorities
• Repetitive cycle for modifications

2
Operations Strategy
Strategy Process
Example
Customer Needs
More Product
Corporate Strategy
Increase Org. Size
Operations Strategy
Increase Production Capacity
Decisions on Processes and Infrastructure
Build New Factory
3
Competitive Priorities

• Corporate strategy
• goals
• core competencies
• environmental responses
• new products/services
• global strategies

• Market analysis
• segmentation
• needs assessment

• Capabilities
• current
• needed
• plans

• Competitive priorities
• Operations Marketing
• cost
• quality Finance
• time
• flexibility Others

• Functional area strategies
• finance
• marketing
• operations
• others

Figure 2.1
4
Corporate Strategy

• Specifies the direction of the organization over
  the long run. Specify business opportunities and
  threats, identify growth objectives, how to
  develop a sustainable competitive advantage.
• Strategic Considerations
• Global Strategies

5
Strategic considerations

• Respond to pressures for flexibility.
• Monitor and adjust to changes in the business
  environment.
• Identify and develop distinctive competencies.

6
Flexibility

• Evaluate and revise corporate strategy
  continually to remain competitive.
• Develop a capability for change.
• Five ways to respond to the need for flexibility
• Scenario building
• Reality checks
• Communication
• Hires
• Shortening the budget cycle

7
Core Competencies

• Unique resources and strengths that management
  considers when formulating a strategy. Examples
• Workforce well trained and flexible (especially
  service organizations)
• Facilities well located and flexible (volume)
• Marketing and financial skill
• Systems and technology achieve competitive
  advantage through innovation

8
Environment

• Environmental scanning Monitor socioeconomic
  trends for potential opportunities or threats.
• Competition is broadening product lines,
  improving quality, or lowering costs
• Economic trends
• Technological changes
• Political conditions
• Social changes (such as ability to adapt to
  change)
• Availability of vital resources
• Collective power of customers or suppliers

9
Global Strategies

• Forms of strategic alliances
• Collaborative effort Kodak.
• Joint venture China.
• Licensing of technology Canon copiers.
• Locating operations in foreign countries some
  differences to consider
• Political environment
• Customer needs
• Customs McDonalds restaurants.
• Economic situation

10
Xerox RD explore the unknown and invent the
future
Xerox Research and Technology drives invention,
innovation and integration throughout the
corporation. Working hand in hand with Xerox's
business divisions, XRT focuses on five key
areas digital imaging, marking systems,
materials, document services, and solutions. XRT
also develops research, technology and business
concepts that enable Xerox growth opportunities
in new markets. The group creates further
customer and business value through driving
industry standards and ensuring that Xerox
products comply with coherence requirements. XRT
also oversees development and deployment of many
of the corporation's core processes in product
development through a managed Time-to-Market
program. In 2000, Xerox and Fuji Xerox spent
1.6 billion on research and development (RD),
or about 8 percent of its 18.6 billion in
revenues.
11
Market Analysis

• Market segmentation (Step 1)
• Identify customer groups having common
  characteristics that differentiate them from
  other market segments.
• Incorporate market segment needs into product or
  service design and the operations system design.
• Dimensions used to determine market segments
• Demographic factors
• Psychological factors
• Industry factors

12
Market Analysis

• Needs assessment (Step 2)
• Customer benefit package
• Core product or service
• Set of peripheral products or services
• Four categories of market needs
• Product/service
• Delivery system
• Volume
• Other

13
Competitive Priorities

• Cost 1. Low-cost operations
• Quality 2. High-performance design
• 3. Consistent quality
• Time 4. Fast, Reliable delivery
• 5. On-time delivery
• 6. New development speed
• Flexibility 7. Customization
• 8. Volume flexibility

Operating system capabilities and strengths
required to serve customers and outperform
competitors
14
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.
15
Service Strategies

• Standardized-services strategy
• Processes are designed for low variety and high
  volume.
• Flow tends to follow a linear pattern. Postal
  Service and FedEx.
• Tasks are repetitive and routine.
• Assemble-to-order strategy
• Processes are designed to produce a set of
  standardized services and to assembling
  standardized offerings for specific customer
  needs.
• Typical competitive priorities are customization
  and fast delivery time.
• Customized-services strategy
• Nested processes are typically grouped by the
  function they perform.
• Processes are designed to provide a high variety
  of customized services.
• Typical competitive priorities include
  high-performance design as well as customization.

16
Health Clinic Process
Physical exam
Flu
Physical exam
D
R
P
Broken arm
Broken arm
T
B
Flu
D Doctor (examination rooms) R Radiology
(X-ray) T Triage (assess severity of
illness) B Blood (lab test) P Pharmacy (fill
prescriptions)
17
Manufacturing Strategies

• Make-to-stock strategy
• Finished goods items held in stock for immediate
  delivery.
• High volumes, standard products, linear flow
• Production based on forecasted demand
• Supports low cost, consistent quality,
  competitive priority.
• Assemble-to-order strategy.
• Assemblies and components are held in stock.
• Final assembly is completed after customer
  selects options.
• A very large number of final configurations are
  possible.
• Forecasting the final configuration is
  impractical because of the many combinations.

18
Manufacturing Strategies

• Make-to-order strategy
• Most required materials are ordered after the
  customer places the order.
• Goods are produced to customer specifications.
• Flexible processes and flow are typical.
• Supports customization as a competitive priority

19
Mass Customization

• Use an assemble-to-order strategy, but typically
  focus on large volumes.
• Postpone the task of differentiating the product
  or service until the latest possible moment.
• Product or service implications
• Design the product or service in modular forms
  that can be easily and quickly assembled for a
  specific customer.
• Process implications
• Design processes as independent modules that can
  be easily arranged to meet a variety of needs at
  the latest possible moment.

20
Automobile Assembly Process Made-to-Stock
A
S
H
F
A Front-end body-to-chassis assembly H Hood
attachment F Fluid filling S Start-up testing
21
Operations Strategy as a Pattern of Decisions

• Operations strategy translates service or product
  plans and competitive priorities for each market
  segment into decisions affecting the processes
  that support those market segments.
• A service or manufacturing strategy must be
  selected for each process.
• These decisions must be continually reevaluated
  according to the needs of the market.
• The pattern of decisions is also a function of
  the firms core competencies.

22
Operations Strategy Across the Organization

• A firm is a system of interconnected parts, or
  functional areas.
• Management information systems help to link the
  various functional areas.
• Full collaboration among functional areas on
  decisions is a vital requirement for success.

23
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Capabilities
Operations strategy

• Process decisions
• Quality decisions
• Capacity, location, and layout decisions
• Operating decisions

Figure 2.4
24
Strategies at LFKHS and Chaparral
25
HP Operations Strategy

• In the past decade, HP has consistently taken
  measures to ensure profitability in the PC market
  through increased operational efficiency,
  expanded build-to-customer-order capabilities and
  supply chain improvements.
• Outsourcing PC manufacturing allows HP to focus
  on strategic core competencies, including supply
  chain design, new product and services
  development, supplier management and customer
  relationship management.