Description
Operations Strategy and Competitiveness
?1
Operations Strategy and Competitiveness
OBJECTIVES
? Operations Strategy ? Competitive Dimensions ? Order Qualifiers and Winners ? Strategy Design Process
? A Framework for Manufacturing
Strategy
? Service Strategy (Capacity/Capabilities)
? Productivity Measures
Operations Strategy
Strategy Process
Customer Needs
Example
More Product
Corporate Strategy
Increase Org. Size
Operations Strategy
Increase Production Capacity
Decisions on Processes and Infrastructure
Build New Factory
Competitive Dimensions
? Cost
? Product Quality and Reliability ? Delivery Speed
? Delivery Reliability
? Coping with Changes in Demand ? Flexibility and New Product Introduction
Speed ? Other Product-Specific Criteria
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 Cost service problem solving by crossFlexibility training personnel to deal with a wider-range Quality of problems, they may become less efficient at dealing with commonly occurring problems.
Time
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
?Order winners are the criteria that
differentiates the products and services of one firm from another
Service Breakthroughs
? A brand name
car can be an “order qualifier”
?
Repair services can be “order winners”
Examples: Warranty, Roadside Assistance, Leases, etc
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
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
Service Strategy based on Capacity or Capabilities
? Process-based
?
Capacities that transform material or information and provide advantages on dimensions of cost and quality Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand Capacities that are difficult to replicate and provide abilities to master new technologies
? Systems-based
?
? Organization-based
?
What is Productivity? Defined
?11
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
Total Measure Productivity
Total Measure Productivity = Outputs
Inputs
or
= Goods and services produced All resources used
Partial Measure Productivity
? Partial measures of productivity = ?
Output or Output or Output or Output
Labor Capital Materials Energy
Multifactor Measure Productivity
? Multifactor measures of productivity = ?
Labor +
Output
Capital + Energy
.
or
?
Labor +
Output
Capital +
.
Materials
Example of Productivity Measurement
? 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 week’s productivity = 480/2000 = 0.24, and this week’s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.
Outline
? Global Company Profile: Komatsu
?16
? Identifying Missions and Strategies
? ?
Mission Strategy
? Achieving Competitive Advantage Through
Operations
? ? ?
Competing on Differentiation Competing on Cost Competing on Response
Outline - continued
? Ten Strategic OM decisions
?17
? Issues in Operations Strategy
? ? ?
Research Preconditions Dynamics Identify Critical Success Factors Build and Staff the Organization Integrate OM with Other Activities
? Strategy Development and Implementation
? ? ?
Learning Objectives
When you complete this chapter, you should be able to : ? Identify or Define:
? ? ?
?18
Mission Strategy Ten Decisions of OM Specific approaches used by OM to achieve strategic concepts Differentiation Low Cost Response
? Describe or Explain:
? ?
?
?
Komatsu Strategies
? 1960s - licensed design and technology from
?19
?
? ?
?
others; improved quality 1970s - became global enterprise and built export markets aided by increasing value of yen 1980s - joint ventures with Dresser, and manufacturing outside Japan 1990s - used the latest technology to improve quality and drive down costs; focused on electronic engine controls 2000s - increased European presence through ownership and joint ventures
Komatsu Strategies
?20
Each strategy established in light of:
? threats and opportunities in the environment
? strengths and weaknesses of the organization
(related to environment)
Mission
?21
?
Mission - where are you going?
? ? ? ?
Organization’s purpose for being Provides boundaries & focus Answers ‘How can we satisfy people’s needs?’ Expressed in published statement
© 1995 Corel Corp.
Sample Mission - Circle K
?22
As a service company, our mission is to: Satisfy our customers’ immediate needs and wants by providing them with a wide variety of goods and services at multiple locations.
Sample Mission - Merck
?23
The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return
Factors Affecting Mission
?24
Philosophy & Values Environment Mission Customers Benefit to Society Public Image Profitability & Growth
Mission/Strategy
?25
? Mission - where you are going ? Strategy - how you are going to get there
Strategy
?26
? ? ?
?
Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies
© 1995 Corel Corp.
Strategy Process
?27
Company Mission Business Strategy
Functional Area Functional Area Strategies
Marketing Decisions Operations Decisions Fin./Acct. Decisions
Competitive Advantage Through:
?28
? Differentiation ? Cost leadership ? Quick response
better, cheaper, more responsive
Competing on Differentiation
?29
? Uniqueness - can go beyond both the physical
characteristics and service attributes to encompass everything that impacts customer’s perception of value
Competing on Cost
?30
? Maximum value as perceived by customer ? Does not imply low value or low quality
Competing on Response
?31
? Flexible ? Reliable ? Rapid
Requires institutionalization within the firm of the ability to respond
Competing On Any Basis
?32
? Probably requires the institutionalization within
the firm of the ability to change, to adapt
OM’s Contribution to Strategy
Operations Decisions
Quality
Examples
?33
Specific Strategy Used
FLEXIBILITY
Competitive Advantage
Product
Process Location Layout
Sony’s constant innovation of new products Compaq Computer’s ability to follow the PC market Southwest Airlines No-frills service
Design Volume
LOW COST DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time”
Speed Dependability
QUALITY
Differentiation (Better)
Human Resource Supply Chain Inventory Scheduling Maintenance
IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds Motorola’s automotive products ignition systems Motorola’s pagers
Conformance Performance
Cost leadership (Cheaper)
Response (Faster)
AFTER-SALE SERVICE
BROAD PRODUCT LINE
10 Decision Areas of OM
?34
? Goods & service design
?
? ?
?
? ?
?
? ?
Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods & services decisions Quality Process and capacity design Goods
Product is usually tangible Objective quality standards Customer not involved in most of process
Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity must match demand to avoid lost sales
?35
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Location Selection Layout Design Human Resources and Job Design Goods
May need to be near raw materials or labor force Layout can enhance production efficiency Workforce focused on technical skills. Labor standards consistent. Output-based wage system.
Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity matches demand to avoid lost sales
?36
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods Services
Supply-chain relationships Supply chain Supply-chain management relationships critical to important, not necessarily
Inventory Scheduling
final product Raw materials, workin-process, and finished goods Ability to convert inventory may allow leveling of production rates
critical Most services cannot be stored
Primarily concerned with meeting the customer's immediate schedule
?37
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods Services
Maintenance Maintenance is often
Maintenance is often preventive and takes "repair" and takes place at place at the production the customer's site site
?38
Operations Strategies for Two Drug Companies
?39
Brand Name Drugs, Inc. Competitive Advantage Product Selection and Design Quality
Generic Drug Corp.
Product Differentiation Low Cost Heavy R&D; Extensive Labs Quality is a major priority; Standards exceed regulatory requirements Little R&D
Meets regulatory requirements on a country-by-country basis as necessary
Operations Strategies for Two Drug Companies - continued
?40
Brand Name Drugs, Inc. Processes Product & modular
Generic Drug Corp.
Process focuses production processes General production processes; Long product runs in Job Shop approach, short run; specialized facilities Focus on high utilization Build capacity ahead of demand Still located in city in Recently moved to low tax, low labor cost Location which it was founded environment Many short run products complicate Scheduling Central production planning scheduling
Operations Strategies for Two Drug Companies - continued
?41
Brand Name Drugs, Inc. Human Resources Supply Chain Inventory
Hires the best; nationwide searches
Generic Drug Corp.
Very experienced top executives provide direction; other personnel paid below average Long term supplier Tends to purchase competitively relationship to find bargains Maintains high finished Process focus drives up WIP goods inventory, inventory. primarily to ensure all Finished goods inventory tends demands are met to be low
Operations Strategies for Two Drug Companies - continued
?42
Brand Name Drugs, Inc. Maintenance Highly trained staff;
Extensive parts inventory
Generic Drug Corp.
Highly trained staff to meet challenging demands
Characteristics of High ROI Firms 43
?
? High quality product
? High capacity utilization ? High operating effectiveness
? Low investment intensity
? Low direct cost per unit
From the PIMS study of the Strategic Planning Institute
Strategic Options Managers Use to Gain Competitive Advantage
?44
? 28% - Operations Management
? 18% - Marketing/distribution ? 17% - Momentum/name recognition
? 16% - Quality/service
? 14% - Good management ? 4% - Financial resources
? 3% - Other
Strategic Options Managers Use to Gain Competitive Advantage
?45
? 28% Operations Management
? Low-
cost product ? Product-line breadth ? Technical superiority ? Product characteristics/differentiation ? Continuing product innovation ? Low-price/high-value offerings ? Efficient, flexible operations adaptable to consumers ? Engineering research development ? Location ? Scheduling
Strategic Options Managers Use to Gain Competitive Advantage 46 continued
?
? 18% Marketing/Distribution ? 17% Momentum/name recognition
? 16% Quality/service
? 14% Good management ? 4% Financial resources
? 3% Other
Preconditions To Implement a Strategy
?47
One must understand: ? Strengths & weaknesses of competitors and new entrants into the market ? Current and prospective environmental, legal, and economic issues ? The notion of product life cycle ? Resources available with the firm and within the OM function ? Integration of OM strategy with company strategy and with other functions.
Impetus for Strategy Change
?48
? Changes in the organization ? Stages in the product life cycle ? Changes in the environment
Stages in the Product Life Cycle
?49
Growth rate
Introduction
Growth
Maturity
Decline
Strategy and Issues During a Product’s Life
?50
Introduction
Best period to increase market share R&D product engineering critical Company Strategy/Issues
Growth
Practical to change price or quality image Strengthen niche
Maturity
Poor time to change image, price, or quality Competitive costs become critical Defend market position
Decline
Cost control critical
Drive-thru restaurants CD-ROM
Fax machines
Sales
Color copiers HDTV Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Standardization Less rapid product changes - more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Internet
3 1/2” Floppy disks Station wagons
Little product differentiation Cost minimization Overcapacity in the industry
OM Strategy/Issues
Prune line to eliminate items not returning good margin
Reduce capacity
Strategy & Issues During Product Life 51
?
Introduction
? Company
Strategy & Issues
Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects
? OM
Strategy & Issues
Strategy & Issues During Product Life
?52
Growth
Company Strategy & Issues OM Strategy & Issues
Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution
Strategy & Issues During Product Life
?53
Maturity
Company Strategy & Issues
Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises
OM Strategy & Issues
Strategy & Issues During Product Life
?54
Decline
Company Strategy & Issues OM Strategy & Issues
Cost control critical to market share
Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity
Strategy Development and Implementation
?55
? Identify critical success factors ? Build and staff the organization
SWOT Analysis Process
?56
? Environmental Analysis
?
Determine Corporate Mission
?
Form a Strategy
Identifying Critical Success Factors
?57
Marketing
Service Distribution Promotion Channels of distribution Product positioning (image, functions)
Finance/Accounting
Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit
Production/Operations
Decisions
Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance
Sample Options
Customized, or standardized Define customer expectations and how to achieve them Facility size, technology Near supplier or customer Work cells or assembly line Specialized or enriched jobs Single or multiple source suppliers When to reorder, how much to keep on hand Stable or fluctuating productions rate Repair as required or preventive maintenance
Critical Success Factors Microsoft & Compaq
?58
? They
focus on one business ? They are global ? Their senior management is actively involved in defining and improving the product development process ? They recruit and retain the top people in their fields. ? They understand that speed to market reinforces product quality
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 59
?
Courteous, but limited passenger service Lean, productive employees High aircraft utilization
Competitive Advantage: Low Cost
Short haul, point-topoint routes, often to secondary airports Frequent, reliable schedules
Standardized fleet of Boeing 357 aircraft
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 60
?
Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 61
?
Lower gate costs at secondary airports
High number of flights, reduces employee idle time between flights
Short haul, point-topoint routes, often to secondary airports
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 62
?
High number of flights reduces employee idle time between flights Saturate a city with flights flowering administrative costs per passenger for that city
Frequent, reliable schedules
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 63
?
Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing
Standardized fleet of Boeing 357 aircraft
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 64
?
High aircraft utilization
Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 15 minute gate turnarounds
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 65
?
Lean, productive employees
High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage ?66
Courteous, but limited passenger service Lean, productive employees High aircraft utilization
Competitive Advantage: Low Cost
Short haul, point-topoint routes, often to secondary airports Frequent, reliable schedules
Standardized fleet of Boeing 357 aircraft
Vanguard’s Activity System
?67
A broad array of mutual funds excluding some fund categories Very low expenses passed on to client Strict cost control Efficient investment management approach offering good consistent performance
Direct distributions
Straightforward client communication and education
How It Works
?68
If competitive advantage, leads to achieving
Company Mission Business Strategy Functional Area Strategies
Distinctive competencies affect
Marketing Decisions
Operations Decisions
Fin./Acct. Decisions
doc_455999392.pptx
Operations Strategy and Competitiveness
?1
Operations Strategy and Competitiveness
OBJECTIVES
? Operations Strategy ? Competitive Dimensions ? Order Qualifiers and Winners ? Strategy Design Process
? A Framework for Manufacturing
Strategy
? Service Strategy (Capacity/Capabilities)
? Productivity Measures
Operations Strategy
Strategy Process
Customer Needs
Example
More Product
Corporate Strategy
Increase Org. Size
Operations Strategy
Increase Production Capacity
Decisions on Processes and Infrastructure
Build New Factory
Competitive Dimensions
? Cost
? Product Quality and Reliability ? Delivery Speed
? Delivery Reliability
? Coping with Changes in Demand ? Flexibility and New Product Introduction
Speed ? Other Product-Specific Criteria
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 Cost service problem solving by crossFlexibility training personnel to deal with a wider-range Quality of problems, they may become less efficient at dealing with commonly occurring problems.
Time
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
?Order winners are the criteria that
differentiates the products and services of one firm from another
Service Breakthroughs
? A brand name
car can be an “order qualifier”
?
Repair services can be “order winners”
Examples: Warranty, Roadside Assistance, Leases, etc
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
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
Service Strategy based on Capacity or Capabilities
? Process-based
?
Capacities that transform material or information and provide advantages on dimensions of cost and quality Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand Capacities that are difficult to replicate and provide abilities to master new technologies
? Systems-based
?
? Organization-based
?
What is Productivity? Defined
?11
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
Total Measure Productivity
Total Measure Productivity = Outputs
Inputs
or
= Goods and services produced All resources used
Partial Measure Productivity
? Partial measures of productivity = ?
Output or Output or Output or Output
Labor Capital Materials Energy
Multifactor Measure Productivity
? Multifactor measures of productivity = ?
Labor +
Output
Capital + Energy
.
or
?
Labor +
Output
Capital +
.
Materials
Example of Productivity Measurement
? 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 week’s productivity = 480/2000 = 0.24, and this week’s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.
Outline
? Global Company Profile: Komatsu
?16
? Identifying Missions and Strategies
? ?
Mission Strategy
? Achieving Competitive Advantage Through
Operations
? ? ?
Competing on Differentiation Competing on Cost Competing on Response
Outline - continued
? Ten Strategic OM decisions
?17
? Issues in Operations Strategy
? ? ?
Research Preconditions Dynamics Identify Critical Success Factors Build and Staff the Organization Integrate OM with Other Activities
? Strategy Development and Implementation
? ? ?
Learning Objectives
When you complete this chapter, you should be able to : ? Identify or Define:
? ? ?
?18
Mission Strategy Ten Decisions of OM Specific approaches used by OM to achieve strategic concepts Differentiation Low Cost Response
? Describe or Explain:
? ?
?
?
Komatsu Strategies
? 1960s - licensed design and technology from
?19
?
? ?
?
others; improved quality 1970s - became global enterprise and built export markets aided by increasing value of yen 1980s - joint ventures with Dresser, and manufacturing outside Japan 1990s - used the latest technology to improve quality and drive down costs; focused on electronic engine controls 2000s - increased European presence through ownership and joint ventures
Komatsu Strategies
?20
Each strategy established in light of:
? threats and opportunities in the environment
? strengths and weaknesses of the organization
(related to environment)
Mission
?21
?
Mission - where are you going?
? ? ? ?
Organization’s purpose for being Provides boundaries & focus Answers ‘How can we satisfy people’s needs?’ Expressed in published statement
© 1995 Corel Corp.
Sample Mission - Circle K
?22
As a service company, our mission is to: Satisfy our customers’ immediate needs and wants by providing them with a wide variety of goods and services at multiple locations.
Sample Mission - Merck
?23
The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return
Factors Affecting Mission
?24
Philosophy & Values Environment Mission Customers Benefit to Society Public Image Profitability & Growth
Mission/Strategy
?25
? Mission - where you are going ? Strategy - how you are going to get there
Strategy
?26
? ? ?
?
Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies
© 1995 Corel Corp.
Strategy Process
?27
Company Mission Business Strategy
Functional Area Functional Area Strategies
Marketing Decisions Operations Decisions Fin./Acct. Decisions
Competitive Advantage Through:
?28
? Differentiation ? Cost leadership ? Quick response
better, cheaper, more responsive
Competing on Differentiation
?29
? Uniqueness - can go beyond both the physical
characteristics and service attributes to encompass everything that impacts customer’s perception of value
Competing on Cost
?30
? Maximum value as perceived by customer ? Does not imply low value or low quality
Competing on Response
?31
? Flexible ? Reliable ? Rapid
Requires institutionalization within the firm of the ability to respond
Competing On Any Basis
?32
? Probably requires the institutionalization within
the firm of the ability to change, to adapt
OM’s Contribution to Strategy
Operations Decisions
Quality
Examples
?33
Specific Strategy Used
FLEXIBILITY
Competitive Advantage
Product
Process Location Layout
Sony’s constant innovation of new products Compaq Computer’s ability to follow the PC market Southwest Airlines No-frills service
Design Volume
LOW COST DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time”
Speed Dependability
QUALITY
Differentiation (Better)
Human Resource Supply Chain Inventory Scheduling Maintenance
IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds Motorola’s automotive products ignition systems Motorola’s pagers
Conformance Performance
Cost leadership (Cheaper)
Response (Faster)
AFTER-SALE SERVICE
BROAD PRODUCT LINE
10 Decision Areas of OM
?34
? Goods & service design
?
? ?
?
? ?
?
? ?
Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods & services decisions Quality Process and capacity design Goods
Product is usually tangible Objective quality standards Customer not involved in most of process
Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity must match demand to avoid lost sales
?35
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Location Selection Layout Design Human Resources and Job Design Goods
May need to be near raw materials or labor force Layout can enhance production efficiency Workforce focused on technical skills. Labor standards consistent. Output-based wage system.
Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity matches demand to avoid lost sales
?36
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods Services
Supply-chain relationships Supply chain Supply-chain management relationships critical to important, not necessarily
Inventory Scheduling
final product Raw materials, workin-process, and finished goods Ability to convert inventory may allow leveling of production rates
critical Most services cannot be stored
Primarily concerned with meeting the customer's immediate schedule
?37
Goods & Services and the 10 Operations Management Decisions
Operations Decisions Goods Services
Maintenance Maintenance is often
Maintenance is often preventive and takes "repair" and takes place at place at the production the customer's site site
?38
Operations Strategies for Two Drug Companies
?39
Brand Name Drugs, Inc. Competitive Advantage Product Selection and Design Quality
Generic Drug Corp.
Product Differentiation Low Cost Heavy R&D; Extensive Labs Quality is a major priority; Standards exceed regulatory requirements Little R&D
Meets regulatory requirements on a country-by-country basis as necessary
Operations Strategies for Two Drug Companies - continued
?40
Brand Name Drugs, Inc. Processes Product & modular
Generic Drug Corp.
Process focuses production processes General production processes; Long product runs in Job Shop approach, short run; specialized facilities Focus on high utilization Build capacity ahead of demand Still located in city in Recently moved to low tax, low labor cost Location which it was founded environment Many short run products complicate Scheduling Central production planning scheduling
Operations Strategies for Two Drug Companies - continued
?41
Brand Name Drugs, Inc. Human Resources Supply Chain Inventory
Hires the best; nationwide searches
Generic Drug Corp.
Very experienced top executives provide direction; other personnel paid below average Long term supplier Tends to purchase competitively relationship to find bargains Maintains high finished Process focus drives up WIP goods inventory, inventory. primarily to ensure all Finished goods inventory tends demands are met to be low
Operations Strategies for Two Drug Companies - continued
?42
Brand Name Drugs, Inc. Maintenance Highly trained staff;
Extensive parts inventory
Generic Drug Corp.
Highly trained staff to meet challenging demands
Characteristics of High ROI Firms 43
?
? High quality product
? High capacity utilization ? High operating effectiveness
? Low investment intensity
? Low direct cost per unit
From the PIMS study of the Strategic Planning Institute
Strategic Options Managers Use to Gain Competitive Advantage
?44
? 28% - Operations Management
? 18% - Marketing/distribution ? 17% - Momentum/name recognition
? 16% - Quality/service
? 14% - Good management ? 4% - Financial resources
? 3% - Other
Strategic Options Managers Use to Gain Competitive Advantage
?45
? 28% Operations Management
? Low-
cost product ? Product-line breadth ? Technical superiority ? Product characteristics/differentiation ? Continuing product innovation ? Low-price/high-value offerings ? Efficient, flexible operations adaptable to consumers ? Engineering research development ? Location ? Scheduling
Strategic Options Managers Use to Gain Competitive Advantage 46 continued
?
? 18% Marketing/Distribution ? 17% Momentum/name recognition
? 16% Quality/service
? 14% Good management ? 4% Financial resources
? 3% Other
Preconditions To Implement a Strategy
?47
One must understand: ? Strengths & weaknesses of competitors and new entrants into the market ? Current and prospective environmental, legal, and economic issues ? The notion of product life cycle ? Resources available with the firm and within the OM function ? Integration of OM strategy with company strategy and with other functions.
Impetus for Strategy Change
?48
? Changes in the organization ? Stages in the product life cycle ? Changes in the environment
Stages in the Product Life Cycle
?49
Growth rate
Introduction
Growth
Maturity
Decline
Strategy and Issues During a Product’s Life
?50
Introduction
Best period to increase market share R&D product engineering critical Company Strategy/Issues
Growth
Practical to change price or quality image Strengthen niche
Maturity
Poor time to change image, price, or quality Competitive costs become critical Defend market position
Decline
Cost control critical
Drive-thru restaurants CD-ROM
Fax machines
Sales
Color copiers HDTV Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Standardization Less rapid product changes - more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Internet
3 1/2” Floppy disks Station wagons
Little product differentiation Cost minimization Overcapacity in the industry
OM Strategy/Issues
Prune line to eliminate items not returning good margin
Reduce capacity
Strategy & Issues During Product Life 51
?
Introduction
? Company
Strategy & Issues
Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects
? OM
Strategy & Issues
Strategy & Issues During Product Life
?52
Growth
Company Strategy & Issues OM Strategy & Issues
Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution
Strategy & Issues During Product Life
?53
Maturity
Company Strategy & Issues
Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises
OM Strategy & Issues
Strategy & Issues During Product Life
?54
Decline
Company Strategy & Issues OM Strategy & Issues
Cost control critical to market share
Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity
Strategy Development and Implementation
?55
? Identify critical success factors ? Build and staff the organization
SWOT Analysis Process
?56
? Environmental Analysis
?
Determine Corporate Mission
?
Form a Strategy
Identifying Critical Success Factors
?57
Marketing
Service Distribution Promotion Channels of distribution Product positioning (image, functions)
Finance/Accounting
Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit
Production/Operations
Decisions
Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance
Sample Options
Customized, or standardized Define customer expectations and how to achieve them Facility size, technology Near supplier or customer Work cells or assembly line Specialized or enriched jobs Single or multiple source suppliers When to reorder, how much to keep on hand Stable or fluctuating productions rate Repair as required or preventive maintenance
Critical Success Factors Microsoft & Compaq
?58
? They
focus on one business ? They are global ? Their senior management is actively involved in defining and improving the product development process ? They recruit and retain the top people in their fields. ? They understand that speed to market reinforces product quality
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 59
?
Courteous, but limited passenger service Lean, productive employees High aircraft utilization
Competitive Advantage: Low Cost
Short haul, point-topoint routes, often to secondary airports Frequent, reliable schedules
Standardized fleet of Boeing 357 aircraft
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 60
?
Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 61
?
Lower gate costs at secondary airports
High number of flights, reduces employee idle time between flights
Short haul, point-topoint routes, often to secondary airports
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 62
?
High number of flights reduces employee idle time between flights Saturate a city with flights flowering administrative costs per passenger for that city
Frequent, reliable schedules
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 63
?
Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing
Standardized fleet of Boeing 357 aircraft
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 64
?
High aircraft utilization
Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 15 minute gate turnarounds
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage 65
?
Lean, productive employees
High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines
Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage ?66
Courteous, but limited passenger service Lean, productive employees High aircraft utilization
Competitive Advantage: Low Cost
Short haul, point-topoint routes, often to secondary airports Frequent, reliable schedules
Standardized fleet of Boeing 357 aircraft
Vanguard’s Activity System
?67
A broad array of mutual funds excluding some fund categories Very low expenses passed on to client Strict cost control Efficient investment management approach offering good consistent performance
Direct distributions
Straightforward client communication and education
How It Works
?68
If competitive advantage, leads to achieving
Company Mission Business Strategy Functional Area Strategies
Distinctive competencies affect
Marketing Decisions
Operations Decisions
Fin./Acct. Decisions
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