SCHOOL OF MANAGEMENT STUDIES

UNIT – I – OPERATIONS STRATEGY – SBAA7027

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Contents: Meaning of Operations Strategy - Concept - Definition - Importance and Linkage
with Corporate Strategy, Strategies, Values and Services in Operations Management. Operations
Strategy Formulation -Hill framework for Operations Strategy Formulation. Strategic Fit -
Concept - Classification - A framework for Operations Strategy in Manufacturing

Introduction

Operations strategy is only one part of overall business or corporate strategy, but it’s
crucial for competitiveness and success. Without a strong operations strategy, companies
fail to keep up with changing markets and lose out to more strategic competitors. Many
companies, big and small, have struggled with operations strategy, often lacking in
comparison with technologically savvy competitors.
For example, Amazon, while constantly advancing technology such as drones for
delivery, has pushed aside myriad brick-and-mortar retailers.
To be effective and competitive, all parts of a company must work together. All
departments should contribute to the company mission and have strategies underlying the
overall corporate/business strategy. In addition to having an operations strategy, they should
also have functional area strategies in finance, IT, sales, marketing, human resources, and
possibly other departments, depending on the type of business.
“An operations strategy should guide the structural decisions and the evolution of
operational capabilities needed to achieve the desired competitive position of the company
as a whole,” says Tim Laseter in his article "An Essential Step for Corporate Strategy
Core Operational Strategy Areas
Different sources use different terms to describe strategy areas. Here’s one way to categorize
core strategies:

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 Corporate: Overall company strategy, driving the company mission and interconnected
departments
Customer-Driven: Operational strategies to meet the needs of a targeted customer segment
Core Competencies: Strategies to develop the company’s key strengths and resources
Competitive Priorities: Strategies that differentiate the company in the market to better
provide a desired product or service
Product or Service Development: Strategies in product design, value, and innovation

A company’s key success factors (KSFs) pertain to competitiveness, such as a company’s

attributes, resources, capabilities, and competencies. By identifying these, a company can focus
on the issues that matter most and measure them with key performance indicators
(KPIs).Another way to frame strategic areas is by these “distinctive” competencies:
Price, Quality, such as performance, features, aesthetics, and durability, Service, Flexibility,
Tradeoff
Operations Strategy Examples
With the rapidly changing marketplace in recent years, some companies have excelled in
part due to their strong operations strategies. Here a few examples:

Amazon: Once known for books, Amazon is now known as the go-to platform for online
shoppers of any product. Its distribution network is widely touted and even includes
experiments with drone delivery.
Apple Computers: Apple is long recognized in operations circles for its operational excellence
and supply chain management.
Walmart: This retailing giant managed to undercut many competitors on the price and variety
of a wide range of products.
FedEx: FedEx made speed of delivery its calling card, achieving it with excellent operations.
IKEA: The world’s largest furniture retailer undercut many home good

The ‘operations’ is the part of the organization that creates and/or delivers its products and
services All operations use their resources and processes to transform inputs into outputs that
satisfy some customer need is called the ‘input-transformation-output’ model of operations. The
role of operations management is to manage the transformation of an organization's inputs into

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finished goods and services using processes. Processes are actually present in all of the areas
HRM, finance, marketing etc of the organization.
 The two main types of transforming resources are: Facilities, such as building,
equipment and process technology. Staff, all the people involved in the operations
process. In services the customer may well be involved as a transforming resource.
 The three main types of transformed resource are: Materials, these can be transformed
either physically (e.g. manufacturing), by location (e.g. transportation), by ownership
(e.g. retail) or by storage (e.g. warehousing), Information, this can be transformed by
property (e.g. accountants), by possession (e.g. market research), by storage (e.g.
libraries), or by location (e.g. telecommunications),
 Customers, they can be transformed either physically (hairdresser), by storage (e.g.
hotels), by location (e.g. airlines), by physiological state (e.g. hospitals), or by
psychological state (e.g. entertainment).

Fig-1

 Services can be classified by their tangibility, while the way they are delivered can be
classified by their simultaneity
Tangibility

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  This is the most commonly used distinction between goods and services. Goods are
tangible, they are a physical thing you can touch demand.
Simultaneity
The amount of interaction is termed the degree of customer contact.
Strategy
Is the direction and scope of an organisation over the long term: Ideally, which
matches its resources to its changing environment, and in particular its markets, customers
or clients so as to meet stakeholder expectations

Definition of Operations Strategy

Operations strategy is the total pattern of decisions which shape the long-term capabilities of any
type of operation and their contribution to overall strategy, through the reconciliation of market
requirements with operations resources

Operations strategy is concerned with the reconciliation of market requirements and operations
resources. It does this by: Satisfying market requirements (measured by competitive factors)
by setting appropriate performance objectives for operations taking decisions on the
deployment of operations resources which effect the performance objectives for operations

Using a market-based approach to operations strategy an organization makes a decision

regarding the markets and the customers within those markets that it intends to target.

The organization’s market position is one in which its performance enables it to attract
customers to its products or services in a more successful manner than its competitors. Factors
are how a product/service wins orders (for example price, quality and delivery speed).

A resource-based view of operations strategy works from the inside-out of the firm, rather than
the outside-in perspective of the market-based approach.

Here there is an assessment of the operations decisions regarding: factors are how a
product/service wins orders (for example price, quality and delivery speed).
 Structural decisions - physical arrangement and configuration of resources.

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  Infrastructural decisions - activities that take place within the operation’s
structure.
The nature and complexity of formal and informal processes and tangible and intangible
resources is central to the resource- based view of strategy; that is externally unobservable
(within firm) factors are at least as important as observable industry market (between firm)
factors in determining competitive advantage.
It has been found that not all companies pursue strategy in accordance with a pure
market-based approach and it has been found that competitiveness is not just a matter of
simply improving performance along specific competitive dimensions in response to market
needs, but incorporates the development of capabilities that provide specific operating
advantages.
Thus the resource-based view of strategy is that an operation takes a more active role in
providing long-term competitive advantage What makes the development of operation
strategy particularly challenging is that not only should the market-based and resource-
based views of strategy need to be considered at a point in time, but the changing
characteristics of markets and the need to develop operations capabilities over time means
a dynamic as well as a static view of strategy is required.

Process of operations Strategy

Fig-2

Formulation of operations strategy is the practical process of articulating the various objectives
and decisions that make up the strategy.
 It is essentially about different ways of aligning plans, activities and objectives.

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  It will be a relatively occasional activity, although operations strategy consideration may
form part of the annual planning cycle. Many detailed formulation models have been
developed.

Monitoring and control involves tracking performance, scanning the environment,

Interpreting the information that it detects, and responding appropriately.

Controlling risk through prevention strategies (where an operation seeks to prevent an event
occurring), mitigating strategies (where an operation seeks to isolate an event from possible
negative consequences) and recovery strategies (where an operation analyses and accepts the
consequences from an event but undertakes to minimize, alleviate or compensate for them).

Operations Strategy Decision Areas

Capacity Strategy

• This concerns how capacity and facilities in general should be configured.

• It includes questions such as ‘What should be the overall level of capacity?’; ‘How many
sites should the capacity be distributed across, and what size should they be?’
• ‘Should each site be engaged in a broad mixture of activities, or should they specialize
in one or two?’
• ‘Exactly where should each site be located?’; ‘When should changes be made to overall
capacity levels?’
• ‘How big should each change in capacity be?’
• ‘How fast should capacity expansion or reduction be pursued?’; and so on.

Supply Network Strategy

• This concerns how operations relate to its interconnected network of other operations,
• Including customers, customers’ customers, suppliers, suppliers’ suppliers, and so on.
Should we attempt to manage the network in different ways depending on the types of
market we are serving?’; ‘How many suppliers should we have?’
• ‘What should be the nature of our relationship with our suppliers, purely market-based
or long-term partnerships?’; ‘What are the appropriate ways of managing different types
of supplier relationships?’

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 Process Technology Strategy

• This concerns the choice and development of the systems, machines and processes that
act directly or indirectly on transformed resources to convert them into finished products
and services

Development and Organization

• This concerns the set of broad- and long-term decisions governing how the operation
• is run on a continuing basis. How do we enhance and improve the processes within the
operation over time?’; ‘How resources should be clustered together within the
business?’; ‘How reporting Relationships should be organized between these
resources?’
•

Table 1 shows Hotel and manufacturing industry (operational strategy decisions)

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Difference between operations management and operations strategy

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 Fig- 3

Four Perspectives on Operations Strategy

Fig.4

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 Operations strategy is a top-down reflection of what the whole group or business wants to
do. An operations strategy (or functional strategy) must reflect the decisions taken at the top
of the organization and which set the overall strategic direction of the organization.

This is called a ‘top-down’ approach to operations strategy. So, if the organization is a large,
diversified corporation, its corporate strategy will consist of decisions about what types of
business the group wants to be in, in what parts of the world it wants to operate, what
businesses to acquire and what to divest, how to allocate its cash between its various
businesses, and so on. Within the corporate group, each business unit will also need to put
together its own business strategy, which sets out its individual mission and objectives, as
well as defining how it intends to compete in its markets.

Operations strategy is a bottom-up activity where operations improvements cumulatively

build strategy.‘ shape the operation’s objectives and action, at least partly by the knowledge it
gains from its day-to-day activities’.
Philosophy of continual and incremental improvement that is built into the strategy-
making process.
 Operations strategy involves translating market requirements into operations decisions.
 The organization itself usually has some influence over what its markets demand, if for
no other reason than that it has chosen to be in some markets rather than others.
 Therefore, by choosing to inhabit a particular market position, the organization is, to
some extent, influencing how easy it is for the operations function to support the market
position.

 Operations strategy involves exploiting the capabilities of operations resources in

chosen markets.
 How different resources, such as processing centers, are positioned relative to each
other, how staff are organised into units and so on.
 These arrangements of resources constitute the processes of the operation that describe
the way things happen in the operation. To return to the automobile analogy, processes
are the mechanisms that power, steer and control its performance.

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The Role of Operations Strategy
The role of operations strategy is to provide a plan for the operations function so that it can
make the best use of its resources.

Operations strategy specifies the policies and plans for using the organization's resources to
support its long-term competitive strategy.

Operations function is responsible for managing the resources needed to produce the company's
goods and services.
 Operations strategy is the plan that specifies the design and use of resources to support
the business strategy.
 This includes the location, size, and type of facilities available; worker skills and talents
required; use of technology, special processes needed, special equipment; and quality
control methods.
 The operations strategy must be aligned with the company's business strategy and enable
the company to achieve its long-term plan.

Importance of operations strategy

 The number, type, size and location of operations facilities

 Type of equipment that will be utilized (focused and specific or general-purpose and
flexible, automated or principally manual)
 Decision buying or decision making
 Organizational structure (whether it is suitable to accomplish and coordinate all the
necessary efforts)
 The workforce selection, employment security, compensation methods and management
style.
 The information systems that will be used to collect, analyse and distribute information
on production, purchasing, inventory, quality, personnel, etc.
 Production planning, scheduling and control, system and inventory policy
 The quality of control and improvement methods that will be used
 machine man power

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Linkage with Corporate Strategy, Strategies, Values and Services in Operations
Management. Strategy can be seen to exist at 3 main levels

Fig -5

• Corporate level Strategy

• At the highest or corporate level the strategy provides long-range guidance for the whole
organization – What business should
• Business Level Strategy
• Here the concern is with the products and services that should be offered in the market
defined at the corporate level – How do we compete in this business?
- Functional Level Strategy

Linkage between Operations Management with Operations Strategy

• This is where the functions of the business (e.g. operations, marketing, and finance) make
long-range plans which support the competitive advantage being pursued by the
business strategy- How does the function contribute to the business strategy?

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 • The relationship of operations management with other functional areas in the overall
organizational strategy is important to consider. The cost of goods sold is not the only
area where costs controls take place. The business leaders need to consider all levels of
costs from operations, sales, administrative and distribution. Strategies must match the
overall mission and vision of the company.
• For example, if the wallet manufacture's mission is to provide higher quality handmade
wallets, then bulk automation with machines doesn't feed into this strategy. The COGS
may be more expensive because the labor costs in operations go up. If that is the case,
the company needs to consider increasing the price of the products or to reduce costs
elsewhere in the company, perhaps in administrative areas.
• Another example is that if the company is expanding and needs to increase production.
In this instance, costs will increase, but with proper operations management, double
production won't mean that the COGS pricing will not double. The organizational
strategy here is to scale up the production and sales in a way that enables a greater profit-
per-unit ratio, because production has achieved greater efficiency. Every step must
consider the effect of that strategy to the COGS; it must also consider what the effect of
that strategy is on the overall bottom line of the company. Every company's goal is to
be as profitable as possible. Having good operations management provides the
efficiency to achieve that.
Operations StrategyFormulation
There are many alternative procedures for developing an operations strategy for a
particular organization. These will generally require an analysis of market requirements
(marketing) and the operation’s resource capabilities (operations).

Hill framework for Operations Strategy Formulation

• Hill (2005) provides an iterative framework that links together the corporate objectives;
which provide the organisational direction, the marketing strategy; which defines how the
organisation will compete in its chosen markets, and the operations strategy; which
provides capability to compete in those markets.
The framework consists of five steps:

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 1. Define corporate objectives
2. Determine marketing strategies to meet these objectives
3. Assess how different products win orders against competitors
4. Establish the most appropriate mode to deliver these sets of products
5. Provide the infrastructure required to support operations
Step 1 Corporate Objectives

Involves establishing corporate objectives that provide a direction for the organisation and
performance indicators that allow progress in achieving those objectives to be measured.
The objectives will be dependent on the needs of external and internal stakeholders and so
will include financial measures such as profit and growth rates as well as employee practices
such as skills development and appropriate environmental policies.

For example

Switzerland based Rolex watch companies are facing a threat from smart watches so switz
watch companies are offering around 85 %of price value to clear unsold watches until to
generate revenue, to keep their sales volume and keep their profitability in much lower way.
These kind of strategies will evolve reduction in sales volume finalized goods industry as well
as to revive an clock watches prices at par with smart watches Analog watch incorporates digital
version along with added value features compete with smart watches
Step 2 Marketing Strategy

• This involves identifying target markets and how to compete in these markets.
For example

Adidas covers the market for youngsters sport persons are the target market so their
strategy evolves a product range pricing comfortless and value for money which attracts the

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target segment their advertisement and promotional strategies where used sport personalities
to attract the target age group .

Step 3 How Do Products Win Orders in the Market Place

This is the crucial stage in Hill’s methodology where any mismatches between the
requirements of the organization’s strategy and the operations’ capability are revealed. This
step provides the link between corporate marketing proposals and the operations processes
and infrastructure necessary to support them.

This is achieved by translating the marketing strategy into a range of competitive

factors (e.g. price, quality, delivery speed) on which the product or service wins orders. These
external competitive factors provide the most important indicator as to the relative importance
of the internal operations performance objectives.

The five basic internal operation’s performance objectives allow the organization to
measure its operation’s performance in achieving its strategic goals. The performance
objectives are Quality, Speed, Dependability, Flexibility and Cost. At this stage it is necessary
to clarify the nature of the markets that operations will serve by identifying the relative
importance of the range of competitive factors on which the product or service wins orders.
Hill distinguishes between the following types of competitive factors which relate to securing
customer orders in the marketplace.

 Order-winning factors – They are key reasons for customers purchasing the
goods or services and raising the performance of the order-winning factor may
secure more business
 Qualifying factors – Performance of qualifying factors must be at a certain
level to gain business from customers, but performance above this level will
not necessarily gain further competitive advantage.

From the descriptions above it can be seen that it is therefore essential to meet both
qualifying and order-winning criteria in order to be considered and then win customer
orders.

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Step 4 Delivery System Choice (Structural Decisions)

Process Types are ways of describing the general approach taken to designing and managing
processes. They are based on two important factors in process design: the volume and variety
of the products and services that an organisation processes.
Step 5 Provide the infrastructure required to support operations

Planning and Control in Operation is about reconciling market requirements (demand)

with the operation’s resources (supply). Planning determining the timing and nature of actions
that should take place in the future. Control is when as the operation is ongoing, determining
what action to take if there is a significant deviation from what should be happening. In reality
planning and control activities are intertwined in an ongoing organization. Competitive
strategy and customer prioritizes

Competitive Strategy and Customer Prioritizes

A company’s competitive strategy defines, relative to its competitors, the set of

customer needs that it seeks to satisfy through its products and services. For example, Wal-
Mart aims to provide high availability of a variety of products of reasonable quality at low
prices.

For example

Most products sold at Wal-Mart are commonplace (everything from home appliances
to clothing) and can be purchased elsewhere. What Wal-Mart provides is a low price and
product availability. McMaster-Carr sells maintenance, repair, and operations (MRO)
products.

It offers more than 500,000 products through both a catalog and a Web site. Its
competitive strategy is built around providing the customer with convenience, availability,
and responsiveness.

With this focus on responsiveness, McMaster does not compete based on low price.
Clearly, the competitive strategy at Wal-Mart is different from that at McMaster In each case,

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 the competitive strategy is defined based on how the customer prioritizes product cost,
delivery time, variety, and quality.

A McMaster-Carr customer places greater emphasis on product variety and response

time than on cost. A Wal-Mart customer, in contrast, places greater emphasis on cost.

Customer prioritizes product cost, delivery time, variety, and quality A McMaster-Carr
customer places greater emphasis on product variety and response time than on cost. A Wal-
Mart customer, in contrast, places greater emphasis on cost.
Strategic fit

Requires that both the competitive and supply chain strategies of a company have
aligned goals. It refers to consistency between the customer priorities that the competitive
strategy hopes to satisfy and the supply chain capabilities that the supply chain strategy aims
to build. For a company to achieve strategic fit, it must accomplish the following:

1. The competitive strategy and all functional strategies must fit together to form a
coordinated overall strategy. Each functional strategy must support other functional strategies
and help a firm reach its competitive strategy goal.

2. The different functions in a company must appropriately structure their processes

and resources to be able to execute these strategies successfully.

3. The design of the overall supply chain and the role of each stage must be aligned to
support the supply chain strategy.
How Is Strategic Fit Achieved?

To achieve strategic fit, a company must ensure that its supply chain capabilities
support its ability to satisfy the needs of the targeted customer segments. There are three basic
steps to achieving this strategic fit, which we outline here and then discuss in more detail
1. Understanding the Customer and Supply Chain Uncertainty: First, a company must
understand the customer needs for each targeted segment and the uncertainty these needs
impose on the supply chain. These needs help the company define the desired cost and service
requirements. The supply chain uncertainty helps the company identify the extent of the
unpredictability of demand, disruption, and delay that the supply chain must be prepared for.

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2. Understanding the Supply Chain Capabilities: Each of the many types of supply chains is
designed to perform different tasks well. A company must understand what its supply chain is
designed to do well.

3. Achieving Strategic Fit: If a mismatch exists between what the supply chain does particularly
well and the desired customer needs, the company will either need to restructure the supply
chain to support the competitive strategy or alter its competitive strategy.

Strategic fit could be classified into

1. Market related Fits.

2. Operating Fit

3. Management Fit.

Market related fit arises when value chains of different businesses overlap so that the products
can be used by same customers, marketed and promoted in a similar way and have a common
distribution channel (common dealers and retailers)

Market related fit could be of following types:

1. Common sales force to call on customers

2. Advertising related products together

3. Use of same brand names

4. Joint delivery & shipping

5. Joint after-sale service & repair work

6. Joint order processing & billing

7. Joint promotional tie-ins

8. Cents-off couponing, trial offers, specials

9. Joint dealer networks

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Operational Fit:

Operational Fit arises when different businesses work along in order to explore opportunities
for cost-sharing or skill transfer.

Types of Operational Fits are:

1. Procurement of purchased inputs

2. R&D/technology

3. Manufacture & assembly

4. Administrative support functions

5. Marketing & distribution

Benefits of Operating Fits.

As both businesses tend to work together they often save lot on cost. The companies are
able to tap into more economy of scale and/or economies of scope. Both the businesses often
tend to increase operation efficiency through sharing of related activities.
Management Fit:

This fit revolves around a comfort that is built among both the businesses in terms of
some comparable units like Entreasures, Administration and various administrative activities ,
operating problems. It allows accumulated managerial know-how in one business to be used in
managing another business.
It is necessary that business management should take actions to capture benefits as they
don’t just happen. Benefits with sharing potential must be recognized so that activities to be
shared are merged and coordinated. When skill transfer takes place a means must be found to
make it effective.

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A Frame Work For Operations Strategy in Manufacturing

Manufacturing strategy • Manufacturing strategy as a concept was first recognized by Skinner

(1969), referring to a manufacturing strategy as to exploit certain properties of the
manufacturing function to achieve competitive advantages.
• Hayes and Wheelwright (1984) describe manufacturing strategy as a consistent
pattern of decision making in the manufacturing function linked to the business strategy.
• Swamidass and Newell (1987) describe manufacturing strategy as a tool for effective
use of manufacturing strengths as a competitive weapon for achievement of business
and corporate goals. Competitive Priorities • Link between market requirements and
manufacturing.
• Hill (1995) presented the concept of order winners and qualifiers related to the
importance of competitive priority dimensions. • Competitive priorities defines the set
of manufacturing objectives and represents the link to market requirements .Dimensions
commonly used are; cost, quality, flexibility, and delivery
• Qualifying criteria (dimensions) are those that a company must meet for the product
to even be considered in the market place. Common criterions considered qualifiers are
conformance quality and delivery reliability.
• Order winning criteria are those that differentiate the manufacturer from its
competitors and “win” the order
Decision categories •
The operationalization of manufacturing strategy comes through a pattern of
decisions. • Decisions within the manufacturing functions determine which resources to
use, what routines to use, i.e. what practices to employ and emphasise in order to achieve
the manufacturing objectives. • The set of practices, resources, routines used ultimately
determine the operating characteristics of the manufacturing system, i.e. the
manufacturing capabilities.

Case study (Galanz)

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 The largest microwave oven manufacturer in the world. Competed based on lowest
cost through efficient utilization of capacity and process improvement. Combining OBM,
OEM and ODM to achieve economy of scale. 60%-70% of the domestic in 2002 and 50%
of the international market share in 2007.
Past Growth Strategy
 Opportunity sizing (domestic) and stable technology.
 Cost arbitrage (labour and assets).
 Transfer of production lines and 4x operating time.
 Adoption of penetration pricing strategies leveraging economies of scale.
 Actualization of R&D investments.
 Collaboration with large retailers, as K-Mart and Wal- Mart.
 Development of overseas R&D facilities.

Recent Challenges
 Low brand awareness in overseas markets.
 Antitrust (Anti-monopoly) lawsuits.
Prioritization of the business models.
 Conflicts of interest of OBM and OEM businesses (Sales and Service
networks).
 Centralized decision making body and compliance governance.
 Customization production capabilities and capacity challenges for magnetron
production.
 Inefficient production planning
Case Analysis

Galanz most important objective was cost, it only had an abundant supply of labour and land.
Delivering quality product. became the leading company of the market. The supplier refused
to supply the most important component magnetron to it. It develop its own design,
innovation. In 1997, the company initiated major invest in magnetron. By 2000, the company
was able to design and produce its own magnetron. The company was able to produce only 16
million units where the demand was 25 million units in 2003. Galanz found itself outsourcing

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part of the magnetron production to other companies. The problem was solved by outsourcing
with the Japanese company. It produced oven for the domestic market with its own brand name,
while production technology was produced from Japan. It produced microwave ovens at low
cost, combined with its enhanced R&D ability had allowed it to compete with major successful
players like Panasonic, Toshiba and LG.

Galanz’s Operation’s Strategy Introduction Identification of potential product. Blueprint

purchased from world leader (Toshiba) in microwave oven equipment and Technology
producer in early 1990’s. Factory set up with professional engineers with ample knowledge of
this technology. Advantage of abundant supply of cheap labours and land. Cost leadership
strategy to increase the market share.

Growth Cost leadership strategy.

 Strategic alliance with other big appliance companies and its suppliers.
 Full utilization of resources.
 Shift toward product oriented process.
 Increase its production scale and reduce production cost.
 Tactics of price war to dominate to competitors in domestic market.
 Focus on enhancing the distribution of product.
 Existing product’s improvement and design & development of new
product.
 Strategic partnerships with multinational companies.
OEM business in the international market

 Employing OEM method was proven to be success factor of Galanz

Reasons

 Galanz went into global market using OEM business.

 Enabled the company to use its own manufacturing equipment’s.
 Galanz exceeded other chinese manufacturers.
 OEM microwave ovens- the primary exports. No brand recognition to the end users.
 Investment in R&D and import of new technologies allowed to cost reduction and
differentiation.

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  Transfer from OEM to ODM after production of magnetrons in own company.

OBM Dilemma

Increase demand for branded products because of competition in MNCs.

Galanz’s produced products at low cost with good quality.

Exported products without any idea about brand name to the end users. Exploration of brand name
to the users can be possible through OBM business.

The company doesn’t have to change its cost leadership because price reductions increased sales
by about 100%. The purposes of this price war were to consolidate the industry by
marginalizing small, inefficient players before they had a chance to grow and discourage new
entrants. A high profit margin in the industry would encourage excessive entry.

Galanz may concentrate on a certain part in the value chain and form strategic alliance to do
sales, production, R&D and market together. the first benefit is the Cost, second is the Low
Risk and third could be merger and acquisition.

Priorities to achieve competitive advantage

High Quality Fast Delivery Reliable Delivery Flexibility

Problems and Solutions Problem Solution

Increase in demand Outsourcing of Magnetrons Retrenchment by suppliers Transfer from OEM

to ODM Handling of customer complaint Company had to invest in enhancing customer service
capabilities Difficult in handling cultural difference in overseas market should adopt global
marketing strategy

In order to lead the company to greater success execute a joint venture. Venture into
wholly-owned subsidiary types to international expansion. should try to setup a link Joint
Venture with another house appliances manufacturer such as GE or its competitors like Sharp
and/or Panasonic. forming a Joint Venture would present Galanz with various advantages.
they may also look for merger and acquisition.

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Future competitive strategy for the combination of OEM, ODM and OBM businesses.

Effective sharing of value chain activities. Effective resource allocation for competitive
advantage. Vertical relationship to adopt for magnetron production.

Conclusion

 Started with the concentration strategy at the initial stage of establishment.

 Followed a total cost leading strategy.
 Carried out a corrective diversification strategy on the precondition that it had gained
absolute competitive advantages in the original field.

 Main disadvantage is the lack of clear brand strategy. No value description and plan
for its brand.

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 SCHOOL OF MANAGEMENT STUDIES

UNIT – 2 – OPERATION STRATEGY – SBAA7027

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Contents - Value as business concept - strategic issues in manufacturing - Value Chain concept Focus,
core competence and distinctive capabilities - stake holders & strategy, Checking markets, Outcome
of Market debate - Linking manufacturing to Markets - strategic integration - why products sell in the
markets - Order Winners, Order Qualifiers.

Business value as the entire value of the business; the total sum of all tangible and intangible
elements. Examples of tangible elements include monetary assets, stockholder equity, fixtures, and
utility. Examples of intangible elements include brand, recognition, good will, public benefit, and
trademarks.
In business valuations, the value of a business or company will depend upon the concept of value,
which have been defined to enable common comparison and analysis between the different concepts
of value.
In simple terms, it simply covers both the monetary and non-monetary values of a firm. It can be
manipulated by managing the current project efficiently. All organizations run business-related
activities even if they aren’t business driven like a government agency or a nonprofit organization.
All organizations aim for attaining business value for their activities.
The concept of business value is fairly subjective and it depends on the needs of the organization. For
example, the business value for an investor aiming solely on financial benefits would be different than
of an entrepreneur aspiring personal goals and development.
• Book Value
• Book value is the amount at which an asset or liability is recorded on the entities books of
accounts.
• Depreciated Value
• Depreciated value or written down value is the net amount after deducting depreciation or
amortization.
• Going Concern Value
• Going concern value is the value of an asset to the enterprise as a going concern or the value
of an asset ‘in use’. Most business valuations will be prepared on the basis of a going
concern.

2
 • Liquidation Value
• Upon winding up, the assets of a business are realised in a shorter timeframe which results
in the assets on achieving their full value. It would generally equal the amount that could be
achieved at public auction.
• Fire Sale Value
• Fire sale value is the price at which an asset could be sold in the shortest possible time
regardless of how low a price is obtained.
• Intrinsic Value
• Intrinsic value is a concept based on the theoretical ‘true worth’ of an asset and is
determined by its past record and potential earning power. The intrinsic value of an asset
may be much higher than the market value as the market may under value the asset due to
doubts about the ability of the entity to achieve its intrinsic value.
• Fair Market Value and Market Value
The concepts of fair market value and market value have a common thread in terms of their
definition and in many situations used interchangeably.

Measure Business Value

The subjective and dynamic nature of business value may land you to the question that whether
business value can be measured or not and the answer is yes. Following factors can help you
determine the business value of a particular organization:
• Revenue
• Profitability
• Market share
• Brand recognition
• Customer loyalty
• Customer retention
• Share of wallet
• Cross-selling ratio
• Campaign response rate

3
 • Customer satisfaction
Steps to deliver Business Value
• Understand the Vision
• Be clear about the business value of the project
Evangelize the vision and business value to the project team
• Foster a team environment to effectively deliver value
• Measure the realization of the business value
Value chain analysis
• A value chain is used to describe all the business activities it takes to create a product from
start to finish (e.g., design, production, distribution, etc.). And a value chain analysis gives
businesses a visual model of these activities.
• With this analysis, you can take steps to create a competitive advantage, improve efficiency,
and increase profit margins. Let's take a deeper look into value chain analysis and learn how
you can analyze your business activities.

Fig.1
• What Is Value Chain Analysis?
Value chain analysis is a way for businesses to analyze the activities they perform to create a
product. Once the activities are analyzed a business can use the results to evaluate ways to
improve its competitive advantage.

4
•
• Competitive Advantage
• A business can gain a competitive advantage in one of the following areas.
•
• 1. Cost Leadership
• The goal of a cost leadership strategy is to become the lowest-cost provider in your industry
or market. Companies who excel with a low-cost strategy have extreme operational
efficiency and use low-cost materials and resources to reduce the overall price of their
product or service.
• Cost leadership examples: McDonald's and Walmart

• 2. Differentiation
• With a differentiation strategy, the competitive advantage is gained by offering a unique or
highly specialized product or service. The business needs to dedicate time and resources to
innovation, research, and development. A successful differentiation strategy allows the
business to set a premium price for its product or service.
• Differentiation examples: Starbucks and Apple
• It's best to pick a single competitive advantage to focus efforts on. Depending on which
competitive strategy you choose the goal of your value chain analysis will be to either
reduce costs or differentiate to improve margins. Then you'll have a clear idea of your
business' goals, how you plan to provide value, and it narrows the scope of changes that
might need to be made to improve efficiency.
• porter's Value Chain Analysis
Harvard Business School professor, Michael Porter, introduced a simple value chain model
in his book, "Competitive Advantage". He developed the steps to perform a value chain
analysis and split business activities into two categories: primary and support.

• Value Chain Analysis Steps

• Value chain analyses require research and can take time to develop. Below are the general
steps it takes to create a value chain analysis:
• 1. Determine the business' primary and support activities.

5
 • Together, the primary and support activities make up the value chain. And they include each
action required in the development of a product or service, from raw material to final
product.
• 2. Analyze the value and cost of the activities.
• The team tasked with creating the value chain analysis should brainstorm ways each activity
provides value to customers and the business as a whole. Compare the activity to the
competitive advantage you're trying to achieve (cost leadership or differentiation) and see if
it supports the goal.
• After the value analysis is complete, take a look at the cost of the activities. Is the activity
labor intensive? How much does X raw material cost? Asking questions similar to these will
help identify which activities are cost-effective and which are not.
This where areas for improvement can be identified.
• 3. Identify opportunities to gain a competitive advantage.
• Once the value chain analysis is complete, the primary stakeholders in the business can see
an overview of where the business is excelling and where improvements can be made
operationally.
• Begin with the improvements that take minor changes and provide high-impact results. After
the easy wins are identified and actioned, you and your team can tackle the bigger
challenges that might be hindering efficiency.
The value chain analysis gives businesses a clear idea of how to adjust their actions and
processes to provide the most value to their target market and increase profit margins for the
company.
• Primary and Support Activities
• Identifying the primary and support activities is the first step in creating a value chain
analysis. These are the key processes and systems a business uses to develop is product or
service.
Primary Activities
There are five primary activities and they include all the actions that go into the creation of a
business' offering.

1. Inbound Logistics

6
 This is how materials and resources are gained from suppliers before the final product or service
can be developed.
2. Operations
Operations are how the materials and resources are produced, resulting in a final product or
service.
3. Outbound Logistics
Once a product or service is finished, it needs to be distributed. Outbound logistics describes this
delivery process.

4. Marketing and Sales

This is how your product or service is presented and sold to your ideal target market.
5. Services
This is the support a business provides for the customer which can include support and training
for the product, warranties, and guarantees.
Support Activities
Support activities help the primary activities in creating an advantage over competitors, and they
include:

1. Firm Infrastructure
This entails all the management, financial, and legal systems a business has in place to make
business decisions and effectively manage resources.
2. Human Resource Management
Human resource management encompasses all the processes and systems involved in managing
employees and hiring new staff. This is especially important for companies that provide in
person service, and excellent employees can be a competitive advantage.

3. Technology Development
Technology development helps a business innovate. And technology can be used in various
steps of the value chain to gain an advantage over competitors by increasing efficiency or
decreasing production costs.

7
 4. Procurement
This is how the resources and materials for a product are sourced and suppliers are found.
The goal is to find quality supplies that fit the business' budget.
Value Chain Analysis Example
• Value chain analysis allows businesses to examine their activities and find competitive
opportunities. For example, McDonald's mission is to provide customers with lowpriced
food items. And the analysis helps McDonald's identify areas for improvement and activities
that add value to their products and services or activities
• Example of a value chain analysis for McDonald's and it's cost leadership strategy.
Inbound Logistics
McDonald's has pre-selected, low-cost suppliers for the raw materials for their food and
beverage items. It sources supplier’s for items like vegetables, meat, and coffee.
Operations
The business has is a franchise and each McDonald's location is owned by a franchisee. There are
more than 37,000 McDonald's locations worldwide.

Outbound Logistics
Instead of formal, sit-down restaurants, McDonald's has fast-casual restaurants that focus on counter
service, self-service, and drive-through service.
Marketing and Sales
Its marketing strategies focus on media and print advertising, including social media posts, magazine
advertisements, billboards, etc.
Services
McDonald's strives to achieve high-quality customer service. And it provides its thousands of
employees with in-d

8
Key’s Distinctive Capabilities Framework

Fig.2
Distinctive capabilities– they are capabilities that are unique to your business, which give you a
competitive advantage over the rest of the market. All business owners and managers understand that
they need a unique selling proposition, or USP, in order to make a dent in a competitive market.
However, that USP can be hard to find, unless you have the advantage of leveraging one or more
distinctive capabilities that are held by your company.

While a distinctive capability is not, in and of itself, a competitive advantage, it is what gives you the
opportunity to create a competitive advantage that can be taken to market. Think about distinctive
capabilities in the same way you would think about talent for an individual – it is a differentiating
factor, and it provides the opportunity to succeed down the road.

The Non-Capabilities
One of the most interesting parts of this framework is what it leaves out – in other words, the factors
that are not seen as being distinctive capabilities. While you might think of some of the points below

9
as being things that would fall into this category, the creator of the framework, Taking better products
to market than the competition
Selling products more efficiently
Using better methods to produce, market, or sell products
These points are certainly cornerstones of running a good business, so why aren’t they considered to
be distinctive capabilities? Mostly because they are not unique and will not be an advantage over
other businesses in the long run. Kay considers these parts of business to be ‘easy’ – in other words,
they can be copied quickly by the competition.
. Distinctive capabilities need to be, by definition, things that remain unique to the company over the
long haul. Only then will they truly be advantages, and only then will they be able to lead the
business to success.

Fig 3

Three Distinctive Capabilities

According to Kay, true distinctive capabilities fall into one of three categories. Those categories are
listed below, along with a quick definition.
Reputation
To build a brand reputation that evokes feelings of trust and confidence in the consumer, you have
already won the battle. It is not easy to develop a positive reputation for your brand, but when you do,
that reputation should be treated like gold because it is an incredibly valuable commodity.

10
 Fig.4
A good reputation can rise above everything else to make the buying decision easy for the consumer.
Rather than picking an item based on cost or marketing, the buyer may select your product on the
strength of your reputation alone – which is a unique competitive advantage that cannot be easily
replicated by your competition. Although they may be able to create a product that is similar, or even
identical, to what you offer, the competition cannot take your brand name, and it is that brand that
contains a great deal of your distinctive capability.

Architecture
The structure of your business is unique, and can therefore become a distinctive capability when it is
formed in such a way that it provides value to the business. The connections you have with suppliers,
the people you have working for the company, the list of customers that you have accumulated to this
point – all of those groups come together to form the architecture of your business.

Fig.5

11
Sure, there is going to be some overlap with your competition on these points, specifically with regard
to customers and suppliers, but the specific structure of your organization is still going to be unique.
Taking the time to build this part of the business with great care could lead you to having a big
competitive advantage in the marketplace.

Innovation
It is often the most innovative companies who are proven to be the most successful in the long run. Why
is that? Because they can remain one or two steps ahead of the competition on an ongoing basis. The
products that they innovate may not remain unique for long, because there will always be competition
doing what it can to copy the successful products that are on the market, but that is okay because an
innovative company is always moving on to the next big thing. By consistently innovating with new
products and ideas, you can leave your competition struggling to keep up.

Fig.6
Another benefit of innovating is building up your reputation as was mentioned in the first capability.
When consumers realize that you are consistently innovating within your field, you may build up a
degree of brand loyalty and trust that can carry you to a large market share. Even when other ‘copycat’
products hit the shelves, you may still come out on top because of your reputation as an innovator in
the industry.
Using Kay’s Distinctive Capabilities Framework will allow you to think about your business in a way
that may be new and revealing. Work through the three capabilities that are defined in this framework
to find where you might be able to stand out from the competition.

12
Stakeholder and strategy
"A stakeholder is any person or organization affected by or with the power to influence a company's
decisions and actions"
Stakeholder is any person or organization affected by or with the power to influence a company's
decisions and actions" (Blowfield and Murray, “Corporate Responsibility”)

A take holder in an organization is... “Any group or individual who can affect or is affected by the
Achievement of the organization’s objectives” (European Business Ethics Network)
From a business perspective, we’ve gone from: "A stakeholder is anyone that can screw up my
business" (2002) to: "Stakeholders are source of innovation and risk management for my
company" (2015) But most organizations still live within the first paradigm
What strategies or actions should our organization take to best manage stakeholder challenges
& opportunities?
Principles of stakeholder management
Acknowledge
Monitor
Listen
Communicate
Adopt
Recognize, Work, Avoid, and Acknowledge conflict
Principles of stakeholder management
1. Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders
2. Managers should listen to and openly communicate with stakeholders about their respective
concerns and contributions, and about risks that they assume
3. Managers should adopt processes and models of behaviour that are sensitive to the concerns and
capabilities of each stakeholder
4. Managers should recognize the interdependence of efforts and rewards among stakeholders, and
should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among
them, taking into account their respective risks and vulnerabilities
5. Managers should work cooperatively with other entities to ensure that risks from corporate
activities are minimized, and where they cannot be avoided, appropriately compensated

13
6. Managers should avoid altogether activities that might jeopardize inalienable human rights or give
rise to risks which, if clearly understood, would be unacceptable to relevant stakeholders
7.Managers should acknowledge the potential conflicts between (a) their own role as corporate
stakeholders, and (b) their legal and moral responsibilities for the interests of stakeholders, and
should address such conflicts through open communication, appropriate reporting, incentive
systems, and, where necessary, third-party review
Strategic integration
Strategic integration is the carefully controlled combination of what the student already
knows with what he or she has to learn so that the relationship between these two elements is clear
and results in new or more complete knowledge
Strategic integration involves more fully exploiting growth potential by combining resources and
competencies from business units and directing those units toward new business opportunities that
extend the existing corporate strategy
Definition “It is the process of acquiring or merging with competitors, leading to industry
consolidation.” “Horizontal integration is a strategy where a company acquires, mergers or
takes over another company in the same industry value chain.”
For example, Disney merging with Pixar (movie production)

Vertical integration
Vertical integration is a competitive strategy by which a company takes complete control over one or
more stages in the production or distribution of a product.
A company opts for vertical integration to ensure full control over the supply of the raw materials to
manufacture its products. It may also employ vertical integration to take over the reins of distribution
of its products.
A classic example is that of the Carnegie Steel Company, which not only bought iron mines to ensure
the supply of the raw material but also took over railroads to strengthen the distribution of the final
product. The strategy helped Carnegie produce cheaper steel, and empowered it in the marketplace.
Horizontal integration
Horizontal integration is another competitive strategy that companies use. An academic definition is
that horizontal integration is the acquisition of business activities that are at the same level of the
value chain in similar or different industries.

14
In simpler terms, horizontal integration is the acquisition of a related business: a fast-food restaurant
chain merging with a similar business in another country to gain a foothold in foreign markets.

Types of vertical integration strategies

As we have seen, vertical integration integrates a company with the units supplying raw materials to it
(backward integration), or with the distribution channels that carry its products to the end-consumers
(forward integration).
For example, a supermarket may acquire control of farms to ensure supply of fresh vegetables
(backward integration) or may buy vehicles to smoothen the distribution of its products (forward
integration).
A car manufacturer may acquire tyre and electrical-component factories (backward integration) or
open its own showrooms to sell its vehicle models or provide after-sales service (forward integration).
There is a third type of vertical integration, called balanced integration, which is a judicious mix of
backward and forward integration strategies.

Fig .10
When is vertical integration attractive for a business?
Several factors affect the decision-making that goes into backward and forward integration. A
company may go in for these strategies in the following scenarios:
• The current suppliers of the company’s raw materials or components, or the distributors of its end
products, are unreliable
• The prices of raw materials are unstable or the distributors charge high fees

15
• The suppliers or distributors earn big margins
• The company has the resources to manage the new business that is currently being taken care of
by the suppliers or distributors
• The industry is expected to grow significantly
• Horizontal integration, as we have seen, is a company’s acquisition of a similar or a competitive
business—it may acquire, but it may also merge with or takeover, another company to strengthen
itself—to grow in size or capacity, to achieve economies of scale or product uniqueness, to
reduce competition and risks, to increase markets, or to enter new markets.
Quick examples of horizontal expansion are Standard Oil’s acquisition of about 40 other
refineries and the acquisition of Arcelor by Mittal Steel and that of Compaq by HP.
When is horizontal integration attractive for a business?
A company can think of acquisitions and mergers for horizontal integration in the following
situations:
• When the industry is growing
• When rivals lack the expertise that the company has already achieved
• When economies of scale can be achieved
• When the company can manage the operations of the bigger organisation efficiently, after the
integration
Why products sell in the market
The marketing plan section of the business plan explains how you're going to get your customers to
buy your products or services. The marketing plan
• Products and services and your unique selling proposition (USP)
• Pricing strategy
• Sales and distribution plan
• Advertising and promotions plan
Products, Services, and Your Unique Selling Proposition
Focus on the uniqueness of your product or service and how the customer will benefit from what
you're offering. Use these questions to write a paragraph summarizing these aspects for your
marketing plan
Examples of Unique Selling Propositions

16
Unique selling propositions should be short (no more than a sentence) and concise. Here are a few
great examples:
• Domino's Pizza: "We deliver hot, fresh pizza in 30 minutes or less, or it's free."
• FedEx Corporation: "When it absolutely, positively has to be there overnight."
• M&Ms: "The milk chocolate melts in your mouth, not in your hand."
• Dollar Shave Club: “Everything you need in the bathroom—from razor blades to grooming
products—automatically delivered to your door. It doesn’t get any simpler than that.”
• Pricing and Positioning Strategy
• The pricing strategy portion of the marketing plan involves determining how you will price
your product or service. The price you charge has to be competitive but still allow you to make
a reasonable profit.

Distribution Methods
The product or service goes directly from the manufacturer to the consumer. In a one-stage
distribution channel, it goes from manufacturer to retailer to consumer. The traditional distribution
channel is from manufacturer to wholesaler to retailer to consumer. Outline all the different
companies, people and technologies that will be involved in the process of getting your product or
service to your customer.
Advertising
The best approach to advertising is to think of it in terms of media—specifically, which media will be
most effective in reaching your target market. Then you can make decisions about how much of your
annual advertising budget you're going to spend on each medium.
What percentage of your annual advertising budget will you invest in applicable methods of
advertising, such as
• The internet (including business website, email, social media campaigns, etc.)
• Direct mail
• Door-to-door flyer delivery
• Cooperative advertising with wholesalers, retailers, or other businesses
• Radio
• Newspapers

17
 • Magazines
Sales Promotion
If it's appropriate to your business, you may want to incorporate sales promotional activities into your
advertising and promotion plan, such as:
• Offering free samples
• Coupons
• Point of purchase displays
• Product demonstrations

Case analysis
Finding a suitable site for any operation can be a political as well as an economic problem. It certainly
was when Tata, the Indian company, unveiled its plans for the Nano in 2007. Named the ‘1 lakh’ car
(in India 1 lakh means 100,000), it would be the cheapest car in the World, with the basic model priced
at 100,000 rupees, or $2,500, excluding taxes. The price was about half of existing low-cost cars. And
the site chosen by Tata was equally bold. It was made at Singur, in the Indian state of West Bengal, a
populous state with Calcutta (now Called Kolkata) as its capital. Although the Communist Party had
the state for four decades, the West Bengal government was keen to encourage the Nano plant. It would
bring jobs and send a message that the state welcomed inward investment. In fact, it had won the plant
against stiff competition from rival states. Controversially, the state government had expropriated land
for the factory using an old law dating from 1894, which requires private owners to sell land for a
‘public purpose’. The government justified this action by pointing out that over 13,000 people had some
kind of claim to parts of the land required for the new plant. Tata could not be expected to negotiate,
one by one, with all of them. Also financial compensation was offered at significantly above market
rates. Unfortunately about 2,250 people refused to accept the offered compensation. The political
opposition organized mass protests in support of the farmers who did not want to move. They blocked
roads, threatened staff and even assaulted an employee of a Tata supplier. In response, Ratan Tata,
Chairman of the Tata Group, threatened to move the Nano plant from the state if the company really
was not wanted, even though the company had already invested 15 billion rupees in the project.

18
Eventually, exasperated with being caught in the ‘political crossfire’, Tata said it would abandon its
factory in the state. Instead, the company selected a location in Gujarat, one of India’s most
industrialized states, which quickly approved even more land than the West Bengal site.

19
 SCHOOL OF MANAGEMENT STUDIES

UNIT – 3 – OPERATIONS STRATEGY – SBAA7027

1
 Contents: Technology strategy Issues in New Product development Time to market -
strategic nature of process -Business implication of Process choice - Hybrid Process.
Change management and Sustainability procedure - company or plant based profiles -
decisions for product reallocation - downsizing – Capacity decisions Progression &
Regression. Evaluating various tradeoffs alternatives - Focused manufacturing - Product or
process focus - Lean concept in operation strategy.

Introduction

Barack Obama started his election campaign with a plan to renew America’s promise with the
words “Change we can believe in”. His Presidential campaign was marked by changes. He
wanted to change a nation and its way of acting. Throughout the campaign, Obama’s changes
were aimed towards bringing a rapid end to the war in Iraq, decreasing energy dependence, and
providing universal health care. In his victory speech Obama said “change has come to
America”. Up to now, not all his plans and ideas have proven successful and only the future
will reveal their full potential. The U.S. election was a change of the governmental position
which was decided by the nation. In an admittedly smaller world, every person in his or her
life as well as every manager of an organization is faced with changes or the requirement to
make changes every day
Change is an alteration of a company’s strategy, organization or culture as a result of changes
in its environment, structure, technology or people. A manager’s job would be very
straightforward and simple (not to say boring) if changes were not occurring in these areas.
Good managers have a competence to manage change in the company’s environment. These
changes can be alterations in structure (design of jobs, span of control, authority relationships
or coordinating mechanisms), in technology (equipment, work processes or work methods)
as well as in people (behaviours, perceptions, expectations or attitudes).
Reasons for Change

• Market situation or market place

• Technology
• Government laws and regulations
• Economics
 The global marketplace has created a huge need for change because of
2
 internationalization and the more dynamic situation. Some of this could not
have occurred without the various and dramatic changes in technology.
 An example of the changing marketplace is the deregulation of the
telecommunications industry in the domestic market. By deregulation, the competitive
pressure was put on telephone companies such as the German Telecom which has minimized
monopolistic emplacement. Regarding this point, advances in technology have had a big
impact on the market. Affordability of equipment and software allows greater competition
in the IT-sector.

 Government laws and regulations can have a large impact on an

organization such as with deregulation. Organizations have to change because
it is now prescribed.
 The new tobacco taxes and the legislation requiring tobacco
manufacturers to disclose the harmful effects of tobacco smoking have created
huge pressures on some large organizations. These organizations now have to
change to ensure their economic viability.
Finally, these economic ups and downs have a dramatic effect on organizations as well on
domestic markets as the worldwide economic influence continues on organizations. This
phenomenon could be seen during the last financial crisis. The effects were recognized in the
USA first; then they hit Europe, Japan and finally the rest of the world. As a consequence,
several automobile manufacturers have announced production cutbacks and reduced
employment.
• Corporate strategy

• Workforce

• Technology and equipment

• Employee attitudes

It is not unusual for an organization to change its strategy. It can lead e.g. to a large number of
changes if the organization decides to adopt a new distribution methodology or a new logistic
strategy. Also a merger will change an organization’s way of acting. (For example, a
3
company decides to enter the e-commerce business).

4
 • The introduction of new equipment or new technology is another internal force
for change which affects an organization.
• The composition of an organization’s workforce never stays static because it
changes in terms of gender, age or education. New employees join the organization
and other people leave. With these changes, managers may need to redesign work and
work groups in order to ensure the job requirements match the skills of the people.

• Lastly, employee attitudes such as the level of job satisfaction can lead to either
negative or positive forces for change. If employees are dissatisfied, then there can
be an increased level of employee absenteeism which can lead to changing practices
or management of staff.

The Change Process

A .Initiating a Top-Down Change

• Accelerated by global competition, the pressure to change business strategy is
a worldwide phenomenon. Industrial activities are shifting from manufacturing to
service, localization of markets, political realignments, technical advances in
management information systems, corporate alliances and downsizing of
organizations are changing the structures of corporations and projects.
Organizations are faced with global competition. This competition is becoming more
and more obvious in automobile manufacturing, consumer electronics, computers and
communications and household manufacturing. Increasingly, the global heavyweight
players of the world economy are large corporations involved in international or
multinational projects.
There is a global market and competition for most products and services. In order to
effectively compete in it, organizations must use creativity and transform their
cultures, structures and operations.
Technology is changing at a rate greater than at any time in history. One of the most dramatic
technological changes affecting the work environment is the rapid expansion of information
system technology.
b. initiating a Bottom-Up Change

5
 • Managing organizational change from the bottom-up will be more successful if
some simple principles are applied. Change management entails thoughtful planning
and sensitive implementation and, above all, consultation and involvement of the
people affected by those changes. If change is forced, problems will arise. Change
must be realistic, achievable and measurable. These aspects are especially relevant to
managing personal change.
• At all times involve and agree support from people within the
system (system = environment, processes, culture, relationships,
behaviours, etc., whether personal or organizational).
• Understand where you/the organization is at the moment.

• Understand where you want to be, when, why, and what the
measures will be for getting there.
• Plan development towards No. 3 above in appropriate,
achievable measurable stages.
• Communicate, involve, enable and facilitate involvement from
people, as early, openly and as fully as is possible.
Change management process

• Phase 1 – Preparing for change (Preparation, assessment and

strategy development)
• Phase 2 – Managing change (Detailed planning and change
management implementation)
•Phase 3 – Reinforcing change (Data gathering, corrective action and
recognition)

6
 Fig.1

Kurt Lewin, a prominent researcher, proposed the unfreeze/change/refreeze model.

According to his approach, firstly, staff must be convinced that change is actually necessary.
Managers need to highlight the areas of concern, or perhaps point out where things are better
in rival businesses. Next, the change itself requires a range of solutions to be acted upon as
soon as possible (before resistance builds up). Finally, refreezing involves reinforcing and
formalizing the change (written down, repeated, and disseminated).
Unfreeze

A basic tendency of people is to seek a context in which they have relative safety and feel a
sense of control. In establishing themselves, they attach their sense of identity to their
environment. This creates a comfortable stasis from which any alternatives, even those which
may offer significant benefit, will cause discomfort.

7
 Fi g.2

Talking about the future thus is seldom enough to move them from this ‘frozen’ state and
significant effort may be required to ‘unfreeze’ them and get them moving. This usually
requires Push methods to get them moving, after which Pull methods can be used to keep them
going.
The term ‘change ready’ is often used to describe people who are unfrozen and ready to take
the next step. Some people come ready for change whilst others take a long time to let go of
their comfortable current realities.
Refreeze

• At the other end of the journey, the final goal is to ‘refreeze’, to put down roots
again and to establish the new place of stability.
In practice, refreezing may be a slow process as transitions seldom stop cleanly, but
go more in fits and starts with a long tail of bits and pieces. There are good and bad
things about this.
In modern organizations, this stage is often rather tentative as the next change may well be just
around the corner. What is often encouraged, then, is more a state of ‘slushiness’, where
freezing is never really achieved (theoretically making the next unfreezing easier).
The danger with this is that many organizations have found that people fall into a state of
‘change shock’, where they work at a low level of efficiency and effectiveness as they await
the next change. ‘It’s not worth it’ is a common phrase when asked to improve what they do.

8
Technology Strategy issues in new product development

Fig.3

Idea generation – The New Product Development Process

 The new product development process starts with idea generation. Idea
generation refers to the systematic search for new-product ideas. Typically, a
company generates hundreds of ideas, maybe even thousands, to find a handful of good
ones in the end. Two sources of new ideas can be identified:
 Internal idea sources: the company finds new ideas internally. That means R&D,
but also contributions from employees.
 External idea sources: the company finds new ideas externally. This refers to all
kinds of external sources, e.g. distributors and suppliers, but also competitors. The
most important external source are customers, because the new product development
process should focus on creating customer value.

9
Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means
nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated
are screened to spot good ones and drop poor ones as soon as possible.
While the purpose of idea generation was to create a large number of ideas, the purpose of
the succeeding stages is to reduce that number. The reason is that product development costs
rise greatly in later stages. Therefore, the company would like to go ahead only with those
product ideas that will turn into profitable products. Dropping the poor ideas as soon as
possible is, consequently, of crucial importance.
Concept development and Testing – The New Product Development Process

 To go on in the new product development process, attractive ideas must be

developed into a product concept. A product concept is a detailed version of the new-
product idea stated in meaningful consumer terms. You should distinguish
 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer

terms

 A product image à the way consumers perceive an actual or potential product.

Concept development

 Imagine a car manufacturer that has developed an all-electric car. The idea has
passed the idea screening and must now be developed into a concept. The marketer’s
task is to develop this new product into alternative product concepts. Then, the
company can find out how attractive each concept is to customers and choose the best
one. Possible product concepts for this electric car could be:
 Concept 1: an affordably priced mid-size car designed as a second family car to
be used around town for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and
couples.

10
  Concept 3: a high-end midsize utility vehicle appealing to those who like the
space SUVs provide but also want an economical car

Concept testing
 New product concepts, such as those given above, need to be tested with groups
of target consumers. The concepts can be presented to consumers either symbolically
or physically. The question is always: does the particular concept have strong
consumer appeal?
 For some concept tests, a word or picture description might be sufficient.
However, to increase the reliability of the test, a more concrete and physical
presentation of the product concept may be needed. After exposing the concept to the
group of target consumers, they will be asked to answer questions in order to find out
the consumer appeal and customer value of each concept.
 The next step in the new product development process is the marketing strategy
development. When a promising concept has been developed and tested, it is time to
design an initial marketing strategy for the new product based on the product concept
for introducing this new product to the market.
 The marketing strategy statement consists of three parts and should be
formulated carefully:
 A description of the target market, the planned value proposition, and the sales,
market share and profit goals for the first few years

Business analysis – The New Product Development Process

 Once decided upon a product concept and marketing strategy,

management can evaluate the business attractiveness of the proposed new
product.
 The fifth step in the new product development process involves a review
of the sales, costs and profit projections for the new product to find out whether
these factors satisfy the company’s objectives. If they do, the product can be
moved on to the product development stage.

11
 Product development – The New Product Development Process

 The new product development process goes on with the actual product
development. Up to this point, for many new product concepts, there may exist
only a word description, a drawing or perhaps a rough prototype.
 But if the product concept passes the business test, it must be developed
into a physical product to ensure that the product idea can be turned into a
workable market offering. The problem is, though, that at this stage, R&D and
engineering costs cause a huge jump in investment

Test marketing – The New Product Development Process

The last stage before commercialization in the new product development process is
test marketing. In this stage of the new product development process, the product and
its proposed marketing programme are tested in realistic market settings.
Commercialization
 Test marketing has given management the information needed to make
the final decision: launch or do not launch the new product. The final stage in the
new product development process is commercialization.
 Commercialization means nothing else than introducing a new product
into the market. At this point, the highest costs are incurred: the company may
need to build or rent a manufacturing facility. Large amounts may be spent on
advertising, sales promotion and other marketing efforts in the first year.
A strategic process is concerned with making decisions. Decisions are made only
after data from various sources is received. This data is received from both within
the organization as well as from the environment outside the organization.

Multiple Sources of Data

A strategic process is concerned with making decisions. Decisions are made only after data from
various sources is received. This data is received from both within the organization as well as
from the environment outside the organization. To add to this, it is the job of the management to
ensure that athe data is relevant and credible. Hence strategic processes face a data overload and
also a possibility that the data may be incorrect. It is this decision making in the face of uncertainty
12
that makes designing a strategic process challenging.
 Converting Data to Information
 It is quite possible that an organization may have all the data related to the
decision at hand, but it may not have the expertise to make sense of the data. For
instance, in hindsight everyone sees the Sub-prime mortgage crisis as inevitable, but
some of the brightest managers in the world could not see it coming despite the
obvious signals in the data.
 Strategic processes therefore must also ensure that the relevant skills are present
in the system in the form of human or artificial intelligence that will help convert data
into actionable information. A big leap forward in this regard is the idea of business
intelligence systems.
 Taking Decisions
 Even when actionable information is available in front of the
management in the form of alternatives, the payoffs are unknown and uncertain.
This is what makes it difficult to create a science of decision making which is right
now an art. Converting Data to Information
 Hybrid production processes different forms of energy or forms of energy
caused in different ways are used at the same time at the same zone of impact. The
combination of processes result various advantages that often occur at the same
time: lower processes forces, higher precision, higher productivity.
Capacity is the first of the operations strategy decision areas to be treated and, for
operations managers, it is a fundamental decision. After all, the purpose of operations
strategy is to provide and manage the capacity to supply demand. Also, capacity strategy
decisions affect a large part of the business (indeed capacity decisions can create a large
part of the business), and the consequences of getting them wrong are almost always
serious and sometimes fatal to a firm’s competitive abilities.
 Capacity strategy of an operation defines its overall scale, the number and size
of different sites between which its capacity is distributed, the specific activities
allocated to each site and the location of each site. All these decisions are related.
For example, an air conditioning servicing operation will have sites with
relatively
 Small individual capacity if it chooses to have many sites located no more than 30
minutes’ travelling time from any customer. If it relaxed this ‘response time’ to 60
 Minutes, it could have fewer, larger sites. Together these decisions determine
13
 the Configuration of an operation’s capacity, its overall shape, size and deployment. An
appropriate configuration of capacity for one set of products or services, and pattern of
Demand, will not necessarily be appropriate for another. So when the nature of
 Competition shifts in some way, companies often need to reconfigure their
capacity.
 This process of changing (or reconfiguring) capacity is also part of capacity
strategy.
It usually involves deciding when capacity levels should be changed (up
or down),
How big each change step should be and overall how fast capacity
levels should change.
Table 1 shows level of strategic level

14
 Fig 4
A business decide to invest in a level of Capacity that is exactly equal

 To its expectation of future demand. However, it is a starting point in trying to

understand

 Why operations finish up the size they are. So, for example, if a leisure
business

 believes there is likely to be a demand for 500 rooms per night at a newly
developed

 Resort location, then it may build a 500-roomed hotel. If

 Even when the demand for an operation’s products or services can be

reasonably well forecast, the uncertainty inherent in all estimates of future demand may
inhibit the operation from investing to meet the most likely level of demand.
Changes in demand – long-term or short-term demand

 In addition to any uncertainty surrounding future demand, there is also the

15
 question of the time-scale over which demand is being forecast. For example, short-term
expected demand may be higher than expected long-term sustainable demand.
The availability of capital
 Operations choose to meet demand fully is their ability to afford the capacity
with which to do it. So, for example, a company may have developed a new product or
service that it is convinced will be highly attractive in the marketplace. Sales forecasts
are extremely bullish, with potential revenues being two or three times higher than the
company’s present revenue.
The cost structure of capacity increments – break-even points

One of the most basic, and yet most important, issues in capacity strategy is concerned
with the relationship between the capacity of an operation, the volume of output which it
is actually processing, and its profitability. Simple break-even analysis can illustrate the
basics of this.
Economies of scale

If the total cost of the output from an operation is its fixed costs plus its output multiplied
by its variable costs per unit, then we can calculate the average cost per unit of output
simply by dividing total costs by the output level.

Flexibility of capacity provision

Committing to an investment in a particular level of capacity may be managed

in

Such a way as to facilitate later expansion. Effective capacity requires all the
required
Resources and processes to be in place in order to produce goods and services.

Tradeoff is an exchange where you give up one thing in order to get something else that
you also desire. An example of a tradeoff is when you have to put up with a half hour
commute in order to make more money.
• The next step involves evaluating these trade-offs and making value-based
16
 choices. For example, it may be possible to deliver different levels of environmental
protection (environmental flows for example) at different levels of investment, or it
may be necessary to set priorities among different development objectives (e.g.,
irrigation versus rural electrification or drinking water provision).
• These trade-offs will be exposed and efforts will be made to gain an
understanding of how the people most affected view them. Who is consulted and who
participates in making choices may vary by the decision – with the involvement of
senior government officials and national/international civil society organizations for
strategic decisions and with their local counterparts for project-level decisions.
• Under SDM, it is not the method (SDM) or some external analysis that does the
evaluation, but those seen as legitimate stakeholders, based on their own values and
their understanding of the values of those affected.
The SDM process requires that decision makers make explicit choices about which
alternative is preferred. This can be done holistically by reviewing the trade-offs in the
consequence table and assigning ranks or preferences to the alternatives directly.
In this approach, participants implicitly think about which impacts are more or less
important, and which set of trade-offs is more or less acceptable. Alternatively, structured
methods for more explicitly weighting the evaluation criteria, making trade-offs, and
scoring and ranking the alternatives may be used.
The SDM process is designed to support, but not require, such structured preference
assessment methods. When they are used, they should be designed to provide insight and
guidance to decision makers, rather than to prescribe a formulaic answer
• They can be used to focus deliberations on productive areas and maintain a
performance- based dialogue, rather than a positional one. Structured methods can be
demanding, but participants are generally enthusiastic about exploring their own
trade-offs, learning about the values and choices of others, and knowing that (in the
case of stakeholders) their input has been systematically recorded and taken to
decision makers.
• At minimum, an emphasis on deliberative quality requires that stakeholders
and decision makers involved at this stage should be expected to
Lean is a process of eliminating waste with the goal of creating value for enterprise
stakeholders. The removal of muda
Muda- Is a Japanese word for waste
Waste- any activity that absorbs resources & creates
17
Lean manufacturing was developed by the Japanese automotive industry, with a lead from
Toyota and utilizing the Toyota Production System (TPS), following the challenge to re-
build the Japanese economy after World War II.
The concept of lean thinking was introduced to the Western world in 1991 by the book
“The Machine That Changed the World” written by Womack, Jones, and Roos. Lean is a
philosophy that seeks to eliminate waste in all aspects of a firm’s production activities:
human relations, vendor relations, technology, and the management of materials and
inventory.
• Considers an ‘end to end’ value stream that delivers competitive advantage.
Seeks fast flexible flow. Eliminates/prevents waste (Muda). Extends the Toyota
Production System (TPS).

• Lean is historically and principally associated with manufacturing industries but

can be equally applicable to both service and administration processes.
• The next Lean movement will focus on service industries where achieving waste
elimination is a priority. It’s not a new phenomenon, Japanese auto manufacturers
have been developing Lean for over 50 years

18
 Fig .5

Specify value: Value is defined by customer in terms of specific products & services
Identify the value stream: Map out all end-to-end linked actions, processes and
functions necessary for transforming inputs to outputs to identify and eliminate waste
Make value flow continuously: Having eliminated waste, make remaining value-
creating steps flow
Pull value: Customer pull cascades all the way back to the lowest level supplier,
enabling Just-in- time production
Pursue perfection Pursue continuous process of improvement striving for perfection

Visual Representation of Every Process in the a Products Path from Order to

Delivery

includes: Information and Materiel Flow Integration Product Through-Put and

Cycle Times Resources Utilized Value Added Times Location of Significant Waste
• Visualize the Entire Product Flow • Identifies the Sources of Waste •
Basis of an Lean Implementation Plan • Determine Future Operating State
Why is VSM a Useful Tool?

19
 Helps visualize interactions and flows
Helps identify not only wastes but their sources as well
Provides a common language for talking about a process
Makes decision flows apparent

Forms the basis of an implementation plan

Shows the linkages between information and material flows

Identifies the constraint - any resource whose capacity is less than customer
demand

1.Define the boundaries

2. Define the value

3. Walk the process Identify tasks and flow s of material and information
between them

4. Gather data Identify resources for each task and flow

5. Create the Current State map

6. Analyze current conditions Identify value added and waste

Reconfigure process to eliminate waste and maximize value
7. Visualize Ideal State

8. Create the Future State map

9. Develop action plans and tracking

Process

involve entire team Actually walk the process -follow the material and
20
information through the process, starting at the beginning Use post-it notes and
butcher paper Use symbols or icons that are meaningful to the process Letting the
Customer Pull Value from the Enterprise Don t Make Anything Until It Is Needed
Then Make It As Quickly As Possible
Pursue perfection

Continuous radical and incremental improvement Continuous Banishment of

muda Pursue Perfection, Not the Competition There Is No End to the Process of
Reducing Efforts, Space, Costs and Mistakes but common enough to be understood
by all involved

21
 SCHOOL OF MANAGEMENT STUDIES

UNIT – 4- OPERATIONS STRATEGY – SBAA7027

1
Contents: Strategic Resource Management - Concept - Importance, issues involved -
organizational issues operational approaches to improving, delivery system. Controlling
operations - key performance Indicators, PQCDSM (Productivity, Quality, Cost,Delivery
Time, Safety, Morale)

.Why You Need Effective Resource Allocation

Resource allocation is a process of planning, managing, and assigning resources in
a form that helps to reach your organization’s strategic goals. It can make a project
manager’s work effective and significant. Even though it sounds simple, it is vital
in delivering project efficiently.

Flexible for all size:

Large organizations might be dealing with multiple projects. Effective allocation of
resources helps project managers to plan to assign resources to project and manage
them effectively.

So whether it is about 1 project or 10 projects, if you are allocating resources

properly, then you can handle them all without any hassle.

2. Save money:
Effective resource allocation leads to no waste of money. It lets you k now the
performance of team members in a project. Hence it can be easier for you to assign
tasks to the resource according to their skills.

3. Boost productivity:
It is the first and foremost reason to choose resource allocation.
If you have finished a project or task before the deadline without compromising the
quality, then definitely it will enhance your business productivity. No more time
loss, no more extra efforts, and no more extra labor charge.

2
Resource allocation helps you to know who is overloaded and who is free at that
instant. So you can assign tasks to the available resource without much workload.

4. Improve time management:

To run a project efficiently, it is important to know how long it takes the resources
to complete the projects or tasks. Sometimes resources lag actual time. But this
deficiency can make a large difference. Proper allocation of resources can set the
actual estimate hours to complete the tasks.

5. Improve staff morale:

By allocating resources wisely, you can see who is leading and who is lagging.

In most cases, project managers can’t be able to figure out which team member is
putting his/her best effort.

But if you are allocating your resources wisely, then you can identify who is doing
what, who is lagging or leading, who is taking more time to complete a project as
compared to the estimated hour(s). By filtering these factors, you can easily get the
most deserving.

So without harming their self-confidence, you can encourage them to work better.

6. Predict the future project plan:

Proper resource allocation can help you to identify the presence of the team
member(s) or employee(s) in a particular task and it makes easier for you to assign
tasks as per their availability.

Seeing the project requirement and deadline, sometimes one resource can be assigned
to multiple tasks. By allocating resources, employees can prioritize their tasks and
execute them based on their priorities.

3
The project can be completed without much hassle and the future planning of the
project can be done flawlessly.

7. Strategic planning:
When a company sets its vision and goal, resource allocation plays a vital role.
Proper allocation of resources can help to achieve and fulfill project needs. So
ultimately vision and strategic goals can be done effectively by eliminating existing
risks.

8. Manage team workload:

Let a project is running over schedule and you need to adjust the team’s workload to
deliver the project on time without any obstacle.

Here, resource allocation can help you in managing tea m workload. It can help you
to check the task list of team members and let you know who is overloaded with
tasks and whose schedule has more capacity.

Now you can rearrange the task to balance the workload and no one will get
overloaded.
As a result, it increases the team’s effectiveness and later it leads to successful
project completion.

9. Maintain accurate time log:

Knowing exactly how long it takes team members to complete a task is a vital part
in running project efficiently. Sometimes team members ru n-out actual working
hour(s). In those cases, business growth suffers a big loss.

By allocating resources you can draw an accurate picture of actual time taken by the
team members to complete the project.

10. Eliminate risk:

Identifying the potential risks beforehand can definitely bring amazing results to the
project. By taking preventive actions, you can eliminate all the risks and complete
projects on time.

4
 Over to you:
It is cleared that resource allocation can be beneficial for your business growth.
Proper allocation of resources is vital in project management as it offers a clear
report on the amount of work has to be done. It helps to show a clear insight into the
team’s progress with allocating the right time to every team member.

Basis for Resource Allocation

While allocating the resources, an organization may take two alternative steps: (i)
resources should be allocated at a place where these have their maximum contributions, or
(ii) resources should be put according to the needs of various organizational units/subunits.
Both these alternatives may become complementary to each other if there is an objective
evaluation of the resource requirement of various units.

Budgeting is the means through which resources ‘are allocated to various organisational
units. However, the traditional budgeting which focuses just on the past resource allocation
as the basis is not useful for resource allocation in any way because of the conditions, both
external as well internal, change making the past practices of resource allocation
meaningless. Therefore, when budgeting is used as a tool for resource allocation, it has to
be oriented to the objectives of the organisation and the way each unit of the organisation
will contribute to the achievement of these objectives. From this point of view, following
types of budgeting are more relevant:

1. Capital budgeting

2. Performance budgeting

3. Zero-base budgeting

4. Strategic budgeting.

Strategic Resource Management

 Procuring the market place and having the competitive advantage is the most
intrinsic aim and objective that an organization seems to possess.
 Employees are considered to be the most vital gem for an organization in this
process of intrinsic growth of the organization.

5
  Recruitment of the efficient and skilled employees, providing training to them,
assisting with performance appraisal, all these factors are very much related and
unique for the utmost development of the organization.

 The SRM strategy is an internal document that defines our ambition for a specific
supplier relationship and the means and approach by which we propose to realize
this.
 It encapsulates all key insights and outputs from the first three stages of the SCR
process and provides a key decision point at the end of stage 3 for the business to
either agree to, or support implementing, the strategy. Developing an SRM strategy
for a supplier relationship serves several purposes:

A basis for agreement and therefore a basis to secure resources and support to
progress to develop the relationship.

• A basis for internal communication.

• A means for internal knowledge sharing.

• A catalogue of all the work done to analyse and understand the relationship and
basis for the relationship.

• A basis to demonstrate a structured, transparent and rigorous approach to a

supplier relationship.

Strategic resource management is regarded as an activity for larger corporates

delivering hundreds of projects with thousands of resources.

However, there is a place for Strategic Resource Management in any size of business,
especially those looking to bring innovative products to market, or deliver projects or
services with a profitable outcome.

Methods for Improving Strategic Resource Management

A single, central tool for managing resources across every project and every team is
essential. It allows anyone within the business to see who is scheduled to work on what
projects, where – and how long they are committed to them. Having the same information

6
available to all your users is the essential foundation of more strategic resource
management.

Plan around existing commitments

With a single central repository of future commitments, it becomes far easier to plan
around those commitments. You can see when specific resources will be available, and
either build your schedule to accommodate the current workload, find an alternative
resource or identify who best to approach regarding reallocation. Professional Services
Automation tools, simplify the scheduling and resource planning process further by
helping you learn from past projects: if team A habitually completes a week after schedule,
then you can build appropriate contingency in.

Cope with change

By taking a more strategic view of change requests, you can assess the resource impact of
agreeing to a scope change – not only on your project, but across the entire portfolio. Then
the business can judge whether to accept or even prioritize the change, or reject it, based
on clear evidence of the likely costs and benefits.

Pick projects you can deliver

Avoid pitching for – and winning – problem projects through more effective resource
analysis. By reviewing existing commitments before you invest time and effort into
bidding, you can weed out the projects which will put extra strain on already over-stretched
resources. Instead, you can focus your efforts on improving the pipeline for teams that
have gaps that are likely to be available.

Match your workforce to your workload

Workforce planning typically rests on gut instinct and budgetary constraints. Through
strategic resource management, you can identify precisely what resources you will need
over the coming months – whether to ensure you meet existing commitments or to give
you the capacity to respond to new opportunities. You can pinpoint where there are
shortfalls, where it will be critical to retain talent, and where it may be possible to build

7
up skills over the longer term. That can then inform decisions about recruitment, retention
and development.

Many orgainzations try and fail at strategic resource management, mainly because initial
efforts utilize MS Excel or Home Grown solutions which are prone to error. There are
alternatives though, like KeyedIn Projects, which provides project management software
designed specifically for professional services teams.

Top three strategies for effective resource management:

1. Better define business goals and priorities. It’s difficult to hit an invisible target. So if
the business can’t articulate a vision beyond “sell more and spend less

Resources are working toward a common goal--and they are supportive of that goal.
Transparency is key here, and the more can share with the team and gain support of the people
working toward that goal, the better chance you will have of achieving that goal.
Motivating resources starts with keeping them in the loop as to what they are working
toward and giving them say of what that goal should be. Involving key individuals in the
planning process gets them on board to achieve what you plan.
Be wary though: it is a fine line, and you do not want too many cooks in the kitchen. But early
support can make a big difference to long-term satisfaction and, ultimately, success.
Get smarter about what IT can actually accomplish. Demand and capacity is an age-old
battle as stakeholders outside of the organization seem to think the capacity is larger than
those inside the organization. Clearly defining what resources can actually accomplish--
and delivering on that promise--helps to set the stage for continued support and
acknowledgement it is also important to keep the flow of communication open both to
stakeholders and the resources deploying the projects so everyone is on the same page about
expectations. This creates a culture of trust, enables you to address problems as they arise
and avoid unnecessary escalation.
It is important for people to care about the projects they are working on, and only by
communicating can you understand what they care about--and what you can do about it.
3. Invest. Invest in your resources. Understand they are your lifeline and embrace their efforts.
Resources will always be your No. 1 asset, and the only way to leverage that is to empower
them, communicate their importance and appreciate their efforts. Projects do not get completed
on their own, and it is important to recognize the effort that went into them.

8
 Strategies for effective resource management
 using interchangeable resources
 adopting sustainable behaviours
 accessing support
 developing personal management skills
 engaging in education or training

SRM model

The SRM model was developed at the University of Oklahoma in 1980s. The tool was
developed to access the performance of a retailer, in terms of how it uses its three major inputs,
i.e., inventory, space and people.

This tool is a useful tool for benchmarking, as it aids the retailer in making many informed
decisions like, for a multi-store retailer, which store is doing the best on each of the three
parameters, namely inventory, space and people.

The less efficient stores can then be benchmarked with the efficient ones to improve their
performance. The model facilitates answering questions like, how much space should be
allocated to each merchandize category to maximize profit.

How many people should be allocated to a category to maximize sale and service? How much
inventory should be maintained to provide enough variety to the customer, which ultimately
enhances sales? The framework also supports a multi-firm comparison where one can study,
how different firms are managing their

9
 Fig1

Merchandise, space and people. This benchmarking exercise helps in focusing the company’s
strategy, toward better utilization of its input resources. Retailers who have stores at prime
locations in metro cities have to pay very high rentals and therefore it becomes very important
that they utilize the available space in such a way, as to maximize per selling feet margin, which
is called as (GMROF), i.e., GMROF.

Retailers also aim to generate substantial sales per employee and therefore the model provides
a framework to capture (GMROL), i.e., GMROL.

The higher, the sales per employee, it would be a favorable situation for the retailer. Retailers
also would aim to achieve a high (GMROI), i.e., GMROI, which measures the ability of the
retailer to hit a target margin and a target sales turnover number. Figure 2 summarizes the
calculations of the SRM model. The model is efficient as it aids in ascertaining the performance
at company level, store level, department level, category level and finally SKU level. Thus, the

10
model is a flexible tool, which can facilitate in planning and controlling in an organization
Gross Margin Return per Full Time Equivalent Labor (GMROF)

Strategy - supplier relationship

The extent and content of an SRM strategy depends upon the relationship, the supplier and
the circumstances. Every situation is unique so every strategy will be unique also
depending upon what is needed to fulfil the points above. The SRM strategy should
therefore be designed with the purpose in mind. If securing internal resources and buy-in
is of primary concern, then the strategy should sell benefits and present a clear and
compelling business case. If the need is to document work done then the document might
be structured so to do this.

Fig.2

SRM strategies require time and effort to compile and are therefore most relevant where
intervention is most needed, where we need clarity about how we need to manage a
relationship and where we need to secure buy-in and investment to do this. SRM strategies

11
are therefore most relevant for suppliers we have identified as strategic, but could equally
be used for other important suppliers as needed or appropriate.

An SRM strategy will typically deal with commercially sensitive information as well as
true intention for a relationship that we would not wish the supplier to know. SRM
strategies should therefore be considered highly confidential with a very limited
circulation internally and strictly not for sharing with the supplier. Whilst we may be
advocating a close collaborative relationship of sharing and joint working, it still remains
a commercial relationship with a degree of 'arm's length' necessary, so we should never
completely reveal our position or thinking; the supplier will be doing the very same.

The strategy is a key supplier-specific document, and forms part of a number of documents
we might need to create and maintain for each important relationship

The standard is designed to help firms avoid the pitfalls of partnership through investing
in collaborative business relationships. It provides a framework for all the things that an
organization needs to put in place, defines roles and responsibilities and maps out how to
make collaborative decision making a reality. Furthermore, companies wishing t o adopt
such a framework can also obtain certification to the standard by a recognized
accreditation body.

12
 Fig.3

It is perhaps curious that there should be the need for such a standard, after all success in
important inter-firm engagements depends upon how good the relationship is. Having a
standard for how a relationship must work feels somewhat odd and misses the point of
what a relationship is and how it should be developed. Yet it could be argued that if firms
were about to develop effective inter-organization collaboration then there would be a vast
array of knowledge and success stories out there for us all to learn from, and there are not;
these are hard to find. So perhaps an international standard can help stage manage the
process.

13
New Paradigm: Resource-Based Theory

The currently dominant view of business strategy - resource-based theory - is based on the
concept of economic rent and the view of the company as a collection of capabilities. This
view of strategy has a coherence and integrative role that places it well ahead of other
mechanisms of strategic decision making.

Traditional strategy models, such as Michael Porter's five forces model, focus on the
company's external competitive environment. Most of them do not attempt to look in side
the company. In contrast, the resource-based perspective highlights the need for a fit
between the external market context in which a company operates and its internal
capabilities.

Fig.4

In contrast to the Input / Output Model (I/O model), the resource-based view is grounded
in the perspective that a firm's internal environment, in terms of its resources and
capabilities, is more critical to the determination of strategic action than is the external
environment. "Instead of focusing on the accumulation of resources necessary to
implement the strategy dictated by conditions and constraints in the external environment

14
(I/O model), the resource-based view suggests that a firm's unique resources and
capabilities provide the basis for a strategy. The strategy chosen should allow the firm to
best exploit its core competencies relative to opportunities in the external environment".

Sustainable Competitive Advantage

According to this view, a company's competitive advantage derives from its ability to
assemble and exploit an appropriate combination of resources. Sustainable competitive
advantage is achieved by continuously developing existing and creating new resources and
capabilities in response to rapidly changing market conditions.

Creating Economic Rent

The resource based view of strategy emphasizes economic rent creation through distinctive
capabilities. Economic rent is what companies earn over and above the cost of the capital
employed in their business. It is the measure of the competitive advantage, and competitive
advantage is the only means by which companies in competitive markets can earn
economic rent.

The objective of a company is to increase its economic rent, rather than its profit a s such.
"A company which increases its profits but not its economic rent - as through investments
or acquisitions which yield less than the cost of capital - destroys value".4 The perspective
of economic rent forces the question 'why can't competitors do that?'

Resources and Capabilities

Each organization is a collection of unique resources and capabilities that provides the
basis for its strategy and the primary source of its returns. In the 21st-century hyper-
competitive landscape, a firm is a collection of evolving capabilities that is managed
dynamically in pursuit of above-average returns4. Thus, differences in firm's performances
across time are driven primarily by their unique resources and capabilities rather than by
an industry's structural characteristics.

Resources are inputs into a firm's production process, such as capital, equipment, the skills
of individual employees, patents, finance, and talented managers. Resources are either
tangible or intangible in nature. With increasing effectiveness, the set of resources

15
available to the firm tends to become larger.5 Individual resources may not yield to a
competitive advantage. It is through the synergistic combination and integration of sets of
resources that competitive advantages are formed.

A capability is the capacity for a set of resources to integratively perform a stretch

task or an activity. Through continued use, capabilities become stronger and more difficult
for competitors to understand and imitate. As a source of competitive advantage, a
capability "should be neither so simple that it is highly imitable, nor so complex that it
defies internal steering and control."

Strategic resource planning: This encompasses the long-term planning of staff

qualifications and capacities. Its aim is to master current and future projects in line with
the company’s strategic focus. In most cases, portfolio managers take on this task –
together with Projekt managers (skill-requirements) and team leaders (staffing projects).

Tactical resource planning: By this, we mean the medium-term formation of project

teams. It in-cludes the ongoing coordination between project manager and team leader for
the employment of staff in projects and operations. The team leaders commit resources
with the corresponding qualifications at project level to the project managers as requested.

Operational resource planning: This we define as the project managers’ ongoing detailed
task planning for the assigned resources. It is done in the individual projects at task level.

Capacity planning: the types of resource management

Benefits of Strategic Resource Planning

Strategic resource planning can yield multiple benefits. With capacity planning, you:

make sure you reserve the most resources for the most important projects – rather than for
unimportant ones obtain a complete overview of all resources and their assignments to
projects and basic load; this will keep you informed about the overall resource utilization
at all times

16
know which additional projects you can start and carry out identify resource bottlenecks
in good time and are able to react to them according to corporate strategy avoid resource
conflicts, as they do not even arise Inadequate planning, on the other hand,

carries numerous risks: Due to inadequate resource allocation, projects are not finished on
time Project costs rise, as there are too few appropriate resources Some business
opportunities you cannot exploit, as you are unable to obtain the required skills in good
time

Resource Planning in Project Management

4 Steps to Successful Capacity Planning in Project Management

Step 1: Establish the Necessary Processes with the Right Staff

The strategic planning of capacities depends on: Dynamics at your company

 Your industry
 Number of projects
 Number of resources
 Duration of projects
 Different companies tend to undergo the strategic capacity planning process at
different intervals:

One to four times a year for companies developing and making products

Possibly monthly for companies offering services

Only on occasion for companies planning few major projects

Those involved in the strategic planning process are:

Management with strategic targets

Team leaders and heads of department who have to provide resource information

Project managers who have to update running projects by the due date

17
PMO preparing new projects properly and controlling the overall process of c apacity
planning

Fig.5

Make sure all data are complete and up to date by the due date. For this, all involved have
to pull together in unison. To achieve this, you need a PMO that has the relevant
competencies.

The PMO:

 defines processes

 trains the people involved

 motivates them to perform their tasks in good time

The PMO may also support the project managers and team leaders in executing their tasks.
This depends on the type of PMO you have.

2: Ensure Complete and Up-to-Date Project Data

First, you register all projects with the essential information in a central database. This
requires details such as:

 name

 project manager

 sponsor

18
  start

 finish

 traffic light indicators for status and resource requirements

For running projects, the realistic remaining effort is most relevant – based on the current
situation.

For new projects, it is necessary to meet the minimum requirement for resource planning.
This means you have to plan all required skills – not necessarily persons – per month or
quarter.

It is definitely not enough to look only at the total work without the distribution over time.

This is exactly where it starts to get complex.

Find out your optimum specificity by beginning with the roughest possible but still
complete planning.

Everyone asks for detailed planning, as it appears to be the better basis. But consider that
this requires a higher planning effort. This effort will have to be made again and again in
the future.

Step 3: Identify the Actually Available Capacities

It does not make sense to analyze each person individually. While this would be desirable, it
would be too much effort. It would be confusing, too. Displaying the total capacity of all
employees in one chart is not wise either. Employees have different skills which you have to
deploy as required. A clear and sensible level of detail can be obtained by consolidation at skill
level. Some companies also form teams according to skills. In some circumstances, this permits
planning at the level of these teams. In most cases, this is easy to implement.

STEP 4: Consolidate Capacities and Requirements

Both the capacities of the skills and the requirements from the projects are at hand. Now,
you have to examine how these fit together.

IN order to control them, all skills and their utilization have to be viewable on one page
in an appropriate way. After all, a project usually involves various skills.

19
With every change you make, the effect on all skills should be visible at once. This requires
the appropriate resource diagrams showing multiple skills on one screen.

Fig.6

Then you add new projects to the portfolio, this has to be in line with the priority
and the remaining availability.

Your approach has to be similar to filling a glass with stones and sand. You add the large
stones first, then the pebbles and at last the sand. Shaking and rattling helps the sand to
fill all the gaps.

In times of ever-changing environments, this is a valuable insight – if it comes at the right

time.

A more common problem will be resource or skill overload. There are some simple and
logical ways of resolving these:

 Compensate for the missing capacities with the aid of internal or even external
resources

 Change the priority of the projects or drop some projects altogether

 Postpone the projects far enough into the future that they fit into the given resource
situation

For all three options, you will need an optimum database at any rate.

20
But always be aware that the database is based on personal estimates. And that it is exposed
to political currents.

One difficulty you will face time and again when communicating about the workload of
the teams. You have to make it clear to all involved that the glass is full and nothing new
can be taken on.

Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward
an intended result. KPIs provides a focus for strategic and operational improvement, create
an analytical basis for decision making and help focus attention on what matters most.

As Peter Drucker famously said, “What gets measured gets done.”

Managing with the use of KPIs includes setting targets (the desired level of performance)
and tracking progress against that target. Managing with KPIs often means working to
improve leading indicators that will later drive lagging benefits. Leading indicators are
precursors of future success; lagging indicators show how successful the organization was
at achieving results in the pass

Fig.7

KPI is simply” Measure your performance against key business objectives.”(KPI) is a

measurable value that demonstrates how effectively a company is achieving key business
objectives.

Organizations use key performance indicators at multiple levels to evaluate their success
at reaching targets. High-level KPIs may focus on the overall performance of the

21
enterprise, while low-level KPIs may focus on processes or employees in departments such
as sales, marketing or a call center.

Who uses KPIs?

 individuals to keep tracking health care as an example

 Organizations or businesses for tracking bigger goals
 Departments for tracking their own objectives

Types of KPIs:

Depending on your industry and the specific department you are interested in tracking,
there are a number of KPI types your business will want to monitor. Each department will
want to measure success based on specific goals and targets.

Example : Marketing ,sales, customer service, finance, HR, social media,…

How do you develop KPI using SMART KPIs?

KPIs need to be customized to your business situation and should be developed to help
you achieve your goals. One way to develop the relevance of a performance indicator is
to use the SMART criteria. The letters are typically taken to stand for Specific,
Measurable, Attainable, Relevant, Time-bound.

Strategic resource management involves creating plans to source, store, use and dispose
of the materials needed to do business. Manufacturing businesses face unique challenges
in strategic resource management, as they often use basic raw materials and natural
resources as inputs rather than finished or semi-finished components.

Understanding the unique challenges manufacturers face in this area can help you to
address strategic resource management issues in your organization or to more fully
understand the issues that your suppliers face.

Supplier and Sourcing Ethics

All companies can benefit from applying strict ethical guidelines to their supplier selection
process, but manufacturers can face additional challenges in this area. Manufacturers'
suppliers are often raw material harvesters, such as logging companies, stone quarries and
oil refineries. Sourcing materials such as lumber can have direct negative impacts on the

22
environment, regardless of how ethically a supplier treats its employees or how honest it
is in its business dealings.

Using Number as an example, a manufacturer can choose to only do business with

suppliers that replant a tree for each one they harvest, or a manufacturer can choose to
regularly donate money to tree-planting nonprofits to compensate for the lumber it
consumes.

Pricing

The price of raw materials can fluctuate more wildly than finished or semi-finished
components. Consider computer-chip manufacturers that use gold or silver in their
production processes, for example. Gold prices tend to rise as general economic conditions
worsen, making materials more expensive for chipmakers at the same time as demand
decreases.

Manufacturers can deal with this unique challenge by negotiating time-bound price
contracts with suppliers, stipulating a single purchase price in the future in return for
guaranteed purchases.

Supply Issues

Supply issues can present distinct challenges for manufacturers, as their production inputs
may not always be available in reliable quantities. Consider a processed -food
manufacturer relying on a local fishing economy, for example. Local fisherman rarely
bring in the same size catches every time they come to shore, and different years and
seasons can affect catch sizes in different ways.

If a manufacturer cannot obtain sufficient quantities of raw materials from a supplie r with
whom it has a price contract, the manufacturer may be forced to meet their excess need
through a supplier who charges a higher price or provides lower quality materials. On the
other hand, a supply shortage can lead manufacturers to discover more reliable and cost-
efficient suppliers to work with.

Human Resources

Manufacturers can realize significant financial benefits from international outsourcing or

by setting up wholly owned subsidiaries in different countries. This introduces new

23
challenges to strategic resource management decisions by forcing companies to operate
within multiple legal environments governing the employment relationship.

Spreading human resources across the globe also introduces distribution challenges for
raw-material inputs and finished-goods outputs. If a manufacturer locates a production
facility in China while sourcing lumber from Guatemala, for example, the lumber has to
be shipped across an ocean before it can be used in production, introducing additional
costs and negative environmental impacts.

seven basic tools of quality

Quality pros have many names for these seven basic tools of quality, first emphasized
by Kaoru Ishikawa, a professor of engineering at Tokyo University and the father of
"quality circles." Start your quality journey by mastering these tools, and you'll have
a name for them too: indispensable.
Cause-and-effect diagram (also called Ishikawa or fishbone diagrams): Identifies
many possible causes for an effect or problem and sorts ideas into useful categories.
Check sheet: A structured, prepared form for collecting and analyzing data; a generic
tool that can be adapted for a wide variety of purposes.
Control chart: Graph used to study how a process changes over time. Comparing
current data to historical control limits leads to conclusions about whether the
process variation is consistent (in control) or is unpredictable (out of control,
affected by special causes of variation).
Histogram: The most commonly used graph for showing frequency distributions, or
how often each different value in a set of data occurs.
Pareto chart: A bar graph that shows which factors are more significant.
Scatter diagram: Graphs pairs of numerical data, one variable on each axis, to look for
a relationship.

24
 Stratification: A technique that separates data gathered from a variety of sources so
that patterns can be seen (some lists replace stratification with flowchart or run
chart).
Cost of Quality (CoQ)

According to CIMA Official Terminology, CoQ is the difference between the actual cost
of producing, selling and supporting products or services and the equivalent costs if there
were no failures during production or usage. The cost of quality can be analysed into:

Cost of conformance – cost of achieving specified quality standards

Cost of prevention – costs incurred prior to or during production in order to prevent

substandard or defective products or services from being produced

Cost of appraisal – costs incurred in order to ensure that outputs produced meet required
quality standards

Cost of non-conformance - cost of failure to deliver the required standard of quality

Cost of internal failure – costs arising from inadequate quality which are identified before
the transfer of ownership from supplier to purchaser

Cost of external failure – costs arising from inadequate quality discovered after the transfer
of ownership from supplier to purchaser.

25
Morale. The ongoing and proven success of TQM, and in particular the participation
of employees in that success can lead to a noticeable improvement in employee
morale, which in turn reduces employee turnover, and therefore reduces the cost of
hiring and training new employees.
EMPLOYEE WELLBEING The human resources focus of performance excellence
has as its main components: work systems, employee education, training and
development, as well as employee wellbeing and satisfaction
Employee wellbeing can therefore not be ignored when discussing elements that
quality-focused companies must mobilise in order to achieve excellence. The mental
capacity to do productive work is under attack from a complicated network of social,
economic, biological and genetic forces.
Employee wellbeing is thus an important business productivity weapon. Organisations
that promote employee wellbeing enhance their own competitive position by
promoting the mental output of workers.
Emotional work hazards, like loss of control over one’s job, haphazardly altered
priorities at work, office politics, uncertainty about jobs, high performance
expectations but low rewards, are psychosocial factors which have more impact on
employee health than given credit for. Stress can have a detrimental effect not only on
the health of employees but also on their capacity for physical and mental output.
When exploring the role of employees in promoting TQM, therefore, it is imperative
that some time is spent in establishing that stress is indeed an enemy towards the
achievement of its main principles.

Employee wellbeing is thus an important business productivity weapon. Organisations

that promote employee wellbeing enhance their own competitive position by
promoting the mental output of workers.
Emotional work hazards, like loss of control over one’s job, haphazardly altered
priorities at work, office politics, uncertainty about jobs, high performance
expectations but low rewards, are psychosocial factors which have more impact on
employee health than given credit for. Stress can have a detrimental effect not only on
the health of employees but also on their capacity for physical and mental output.
When exploring the role of employees in promoting TQM, therefore, it is imperative

26
that some time is spent in establishing that stress is indeed an enemy towards the
achievement of its main principles.

27
 SCHOOL OF MANAGEMENT STUDIES

UNIT-5– – OPERATIONS STRATEGY – SBAA7027

1
Contents: Role of Technology in Operations Strategy: Automated production system with Robotic
systems. Use of IT and ITES enabling the effective strategy and resource implementation.
ERP/SAP for decision making.

Introduction
Technology and Operations Management

The scope of Technology and operation management has evolved over a period of time
and has moved from development of products into design, management and improvement
of operating system and processes.

Usage of technology in operation management has ensured that organizations are able to reduce
the cost, improve the delivery process, standardize and improve quality and focus on
customization, thereby creating value for customers.

Integration of Technology with Production System

Technology drives efficiency in organization and increases’ productivity of the

organization. However, bringing technology in the production system is highly complex
process, and it needs to following steps:

Technology Acquisition: technology acquired should align with overall objectives of the
organization and should be approved after elaborate cost-benefit analysis.

Technology Integration: technology affects all aspects of production i.e. capital, labour and
customer. Therefore, a solid technology integration plan is required.

Technology Verification: once technology integrated, it is important to check whether

technology is delivering operational effectiveness and is been used to its fullest.

Technology in Manufacturing and Design

Technology is getting extensively used in customization of design products and services. The
usage of computers and supporting electronic systems is integral part of modern industrial and
services industry. Current techniques can be broadly classified into following categories:

2
Computer-Aided Design (CAD): CAD facilitates linking of two more complex components of
design at very high level of accuracy thus delivering higher productivity.

Computer-Aided Manufacturing System (CAM): Precision is very essential in operating any

machines and therefore, Computerized Numerically Controlled machines are used, thus ensuring
highest level of accuracy.

Standard for the Exchange of Product Data: As the name suggests product design is
transmitted among CAM and CAM in three dimensions. Standard for The Exchange of Product
Data process sharing of product across all phases of product life cycle and serves as neutral file
exchange.

Software Systems in Manufacturing

There are various software systems available to integrated operations and manufacturing
functions with other business functions of organization. Some of the common software systems
are Enterprise Resource Planning (ERP), Supply-Chain Management (SCM), New-Product
Development (NPD) and Customer Relationship Management (CRM).

Enterprises Resources Planning (ERP) links all business functions like manufacturing,
marketing, human resource and finance through a common software platform. The main benefits
of the ERP solution are that it not only reduces database errors but also delivers value to customer
through faster delivery and order fulfillment.

Automation in Production and Operations

Automation reduces manual intervention in the manufacturing process. It increases productivity

and reduces margin of error thereby facilitating economies of scale. There is this-advantages of
automation also, such as unemployment, high breakdown cost and initial capital investment.
Therefore, automation may not be suitable in all situations and in the end alignment with an
overall organization objective is important.

Challenges

Technology can be facilitating factor in bringing about change in operations and production
management. But it may not be feasible to use technology in all aspects with challenge coming
through high initial cost of investment, high cost of maintenance and mismanagement.

3
How Technology Affects Operations • Traditional Tradeoffs – Low costs – Speed of delivery –
Quality of product/service – Customization • Technology’s Impact on Traditional Tradeoffs –
Tradeoffs are no longer valid—technology allows firms compete on several dimensions at once.

Technology in Manufacturing Automation Development Machining centers Operations where

tools are change automatically as part of the process. Numerically controlled (NC) machines
manufacturing equipment that is directly controlled by a computer. Industrial robots
Programmable machines that can perform multiple functions. Computer-aided (or –assisted)
design designing a product using a specially equipped computer. Computer-assisted design and
manufacturing system (CAD/CAM) Integration of design and production of a product through
use of a computer

Technology in Manufacturing (cont’d) Automation Development Flexible manufacturing system

(FMS) Manufacturing facility that is automated to some extent and produces a wide variety of
products. Computer-integrated manufacturing (CIM) Integration of all aspects of manufacturing
through computers. Islands of automation automated factories or portions which include NC
equipment, automated storage/retrieval systems, robots, and machining centers.

Information Technology Software Systems Enterprise Resource Planning (ERP) provides a

common software infrastructure and database. Supply Chain Management (SCM) Controls
interaction with suppliers in the overall supply chain. New Product Development (NPD) Links
the engineering function with the operations function. Customer Relationship Management
(CRM) manages the interface between the firm and its customer

Technology Trends in Services • Increase in Self-Service – Reduces labor costs – Speeds up

service • Decrease in the Importance of Location – Lower costs for delivery of products and
services increases remote points of access and reduces the need for specific service locations

Technology Trends in Services (cont’d) • Shift from Time-dependent (Synchronous) to Non-

time Dependent (Asynchronous) Transactions – More economical (for the firm) and efficient (for
the customer) forms of service • Increase in Disintermediation – Technology brings buyers and
sellers closer together, eliminating intermediate steps or organizations.

Integrating Technology into Services • Integration Benefits – Efficiency in operations –

Effectiveness in serving customers • Areas for Integration – Strategic planning – Improved
performance • Faster service • Improved customer knowledge • Increased product customization
24. Integrating Technology into Services (cont’d) • Areas for Integration (cont’d) – Increased

4
 efficiency • Economies of scale in consolidating operations. • Reduced labor costs through
replacement of manpower and increased labor productivity.

Categories of E-Services Category Function Internet World-wide web presence with open access
to all. Intranet Internal network providing limited access by individuals within an organization.
Extranet A resource-limited network open only to specified internal and external users Electronic
Data Interchange (EDI) A network designed to support the exchange of data between the
organization and its vendors and suppliers. Value-added network (VAN) A third party service
that is used in conjunction with EDI to provide the link to customers and suppliers.

Types of E-Services Broad Categories Specific Service Types Business-to-Consumer (B2C) E-

tailers (Goods and Services) Consumer-to-Consumer (C2C) Customer Support Business-to-
Business (B2B) Network Providers Government-to-Business (G2B) Information Providers
Government-to-Consumer (G2C) Application Service Providers (ASPs)

Challenges for E-Tailers • Infrastructure – Developing the structure to efficiently and quickly
deliver goods to customers. • Lack of tangibility – Having no physical presence to which
customers can turn with problems. • Differentiation – Creating a unique on-line presence that
sustains growth.

Technology Issues • Overcoming Barriers to Entry (Customer) – “Fear of the unknown” – Lack
of knowledge by the customer • Training and Support – Worker skill development through hands-
on training in the new technology. – Customer familiarization with technology.

Using Robotic Technology

No human could operate at the same speeds with the same amount of accuracy.

Robots are efficient; no need for toilet breaks, cigarette breaks, absences due to illness

No risk of productivity decreasing due to morale, or disputes.

Competitive advantage over rivals through capacity utilisation, quality and lower unit costs.

Basic concepts of CAD Computer Aided Design (CAD) involves the use of computer in 
Creating  Analyzing  Modifying  Optimizing  Drafting/ Documenting

A product data so as to achieve its design goal efficiently and effectively. The various phases
of CAD section are presented in the following form: As per the above figure, there are four

5
 phases of CAD process. A geometric model is generated first. It is analyzed for the desired
design conditions and is optimized before finally getting documented and drafted.

CAD tool includes the following three elements.

(i) Computer modelling and computer graphics Geometric modelling and computer graphics help
to generate and visualize models on which the analysis is done subsequently. Modelling and
designing are being used as synonyms now a day’s. The kind of analysis which can be done on
a model is controlled by the type of model used. Hence the computer aided model must be made
only after confirming the kind of analysis which is to be performed on the model. Eg. Some
model may not work for fluid dynamics and vibration analysis.
(ii) Analysis and optimization tools these are the algorithms and programs for exclusive application
which are applied on to the virtual product already modelled. This section can predict the
behaviour of the model under the loading condition when all constraints are simulated using
boundary conditions. The analysis process is iterated number of times with varying attributes to
optimize the results. The results so obtained from the model can be anticipated from the behavior
of actual model in real situation.

Drafting and documentation the model already created, analyzed and optimized guarantees a
safe model under the real conditions. This safe model drawing is to be communicated to
production floor with technical illustrations. The tool used for this application is called
Computer Aided Drafting or called Computer Aided Design and Drafting (CADD).

Computer Aided Modelling/Designing and Computer Aided Drafting represent two different
concepts. Their differences are presented in the following

6
Basic concepts of CAM (Computer Aided Manufacturing)

CAM is defined as a process of use of computers in planning, manufacturing,

inspecting and controlling the manufacturing operation directly or indirectly. CAM
includes those activities which manufacture the product with the product drawing
and technical illustration as a input from the CAD and then make the product ready
for shipment after inspection and packaging. The various phases of CAM section are
shown below.

Fig.1

CAM Processes In CAM, the basic information required is actually geometrical information
which is supplied to the CAM processes through the CAD model already generated and
analyzed. Interface algorithm extract that necessary geometrical information from the CAD
model and feed it for process planning, part programming, machining, inspection and
packaging.

7
CAM tool includes the following three elements: (i) CAD Tool: The basic geometric
information of the model is extracted from the geometric model created in the CAD phase of
the product cycle. From the model necessary information regarding the shape, contour and
sizes is extracted so as to implement in the manufacturing tool.

(ii) Manufacturing tool: The fundamental of manufacturing process which are used defines the
manufacturing tool. It describes the method in which the product can be manufactured. This
includes generation of part programming and manufacturing and computer aided process
planning (CAPP) and tool and cutter design, etc.

(iii) Networking tools: The knowledge of networking and interfaces is required for
communication capability between various machines and computers.

e.g. transferring a part program from one computer to 04 different machines, controlling a robot
from a computer etc. a communication or networking tool is a must for CAM to be operational
effectively.

CAM employs computers for basic purposes:

(a) Computer monitoring and control: Where computers are used to control and monitor the
applications. The major applications include in this category are: controlling machines and
robots.

(b) Manufacturing support application: It includes those applications which are not controlled
directly by computer but are used to support the primary and direct operation. Such applications
include numeric part programming, CAPP, generating computer aided schedules and all other
kinds of planning.

(c) Flexible Manufacturing System (FMS): A FMA integrates all major elements of
manufacturing into a highly automated system. FMS has born in the latter half of 1960’s as a
means to improve productivity of small and medium volume production.

8
The major components are:

(a) Automated m/c tools: In order to achieve the system flexibility, NC/Computer controlled
general purpose m/c tools are normally used.

(b) Work transportation device: These devices are used to carry parts between loading area
and machining station. Individual conveyors are used for high degree of flexibility.

(c) Material handling device: These devices transport work in process or tolls to assigned
positions.

(d) Loading and unloading station: The raw materials and/or finished parts are
loaded/unloaded in this area by robot.

(e) Tool room and storage: All the tools used in this system are stored in the tool room and
transported to machining centers when required.

(f) Auxiliary equipment: Besides m/c tools, an FMS can also include cleaning online
inspection, automated measurement and gauging equipment.

(g) System controller: The system controller oversees the operation of entire FMS. It
coordinates the operation of variety of equipments in the system.

Fig.2

9
 The system controller oversees the operation of entire FMS. It coordinates the
operation of variety of equipment’s in the system. M/C Tools automated Storage Auxiliary
equipment Tool room System Controller Loading and unloading station Work transportation
device Material handling equipment Material flow Information flow Structure of FMS 89
Advantages of FMS

1. There is a greater potential to make changes in terms of product, technology.

2. It reduces both direct and indirect labour cost because of automatic handling,
gauging and inspection facilities.

3. It provides reduced manufacturing lead time, reduced inventory of parts (both

stock and work in progress).

4. It improves the utilization of equipment’s. In this case, utilization is 85%

compared to 50% in conventional method.

5. It provides a better management control by integration of computers.

6. It provides better and more consistent products.

Computer Integrated Manufacturing (CIM) 

CIM is defined as a process of integration of CAD, CAM and business aspects of a

factory and it attempts to describe complete automation with all processes functioning under
computer control.

 CIM includes Management Information System (MIS), sales marketing, finance,

database management system, design, manufacturing, monitor and control and bar code
software etc., which helps to manage and control the overall factory environment. CAD, CAM
and CIM basically involve fundamental principles of these underlying branches with hardware
and software to operate and utilize them effectively.

10
 ERP is an information system that aims to manage the large amounts of data in an
organisation. ERP integrates sales, order, inventory, manufacturing and customer service
activities. ERP systems provide software, databases, procedures and job descriptions for
organisation wide processes. The characteristics of ERP are:

- Provides a cross-functional process view of the organisation.

- ERP applications include a set of inherent processes for all organisational activities. These
processes may be documented in the form of a diagram, sometimes called a process
blueprint.
- Generally organisations must adapt their processes to the blueprint, although it may be
possible to adapt ERP software to organisational procedures.
- ERP stores information in a centralised database.
-

The history of ERP is as follows:

1. Materials Requirements Planning (MRP) (1970’s)

A method of translating a statement of required output into a plan for all activities that must
take place to achieve the required output in the operations function.
2. Manufacturing Resource Planning (MRP 2) (1980’s)

Extends MRP across related departments; operations, marketing, finance

and engineering 3. ERP (1990’s)
Integrates across all parts of the organisation; operations, finance, HRM, IT etc.

4. Web Integrated ERP (2000’s)

Integrates ERP using the web platform with other business systems
Manufacturing Requirements Planning (MRP)

MRP can calculate the requirements for component materials needed to produce end
items. These components have what is called dependent demand. A dependent demand
item has a demand which is relatively predictable because it is dependent on other factors.
The components of an MRP system are the:

- Master production schedule (MPS)

- Bill of Materials (BOM)

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Inventory Status File (ISF

Master Production Schedule (MPS)

The master schedule provides a plan for the quantity and timing of when orders are
required. The MRP system will use this information and taking into account
delivery, production and supply lead times and will indicate when materials are
needed to achieve the master schedule. The MPS will usually show plans based on
time ‘buckets’ based on for example a day or a week. The MPS will usually
contain a mix of both plans for customer ordered items and plans to produce to
forecast sales.
Bill of Materials (BOM)

The Bill of Materials (BOM) identifies all the components required to produce a
scheduled quantity of an assembly and the structure of how these components fit
together to make that assembly. The BOM can be viewed as a product structure
tree, similar to an organisation chart. The accuracy of the BOM is vital in
generating the correct schedule of parts at the right time.

Inventory Status File (ISF)

The Bill of Materials (BOM) indicates the quantity of components needed from the
product structure, but this will not be directly translated into demand for
components because it is likely that some of the components will be currently held
in inventory. The inventory status file (ISF) provides information on the
identification and quantity of items in stock. The MRP system will determine if a
sufficient quantity of an item is in stock or an order must be placed. The inventory
status file will also contain the lead time, or time between order and availability,
for each component.

MRP Calculations

The following calculations are made by the MRP program.

- Gross Requirements. This is the estimated requirements for the item described.

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 - Scheduled Receipts. This indicates when the item becomes available for use, from a
previously released order.

- Projected On Hand. This is the number of units to be available at the end of each
time bucket based on the balance of requirements and receipts.
- Net Requirements. If the projected on hand is negative it is called a net requirement
and means there will not be enough of this component to produce the quantities
required to meet the master production schedule.
- Planned Order Release. The planned order release (POR) row indicates when an
order should be released to ensure that the projected-on-hand figure does not
become negative.

MRP Reports

A number of reports can be generated by the MRP program which include

information on the quantity of each item to order in the current and future time
period, indication of which due dates cannot be met and showing when they can be
met and showing changes to quantities of currently ordered items. The system can
also show the results of simulation of scenarios for planning purposes.

Limitations of MRP

The success of the system depends on the accuracy of the data but lead times and
capacities are just static estimates and do not reflect dynamic nature of the
operations system. Process times are variable so difficult to predict when work will
arrive at a particular location so lead times are variable and depend on the utilisation
of upstream resources. Therefore if lead time calculations are wrong then planning
system cannot allocate capacity correctly.

Manufacturing Resource Planning (MRP II)

Manufacturing Resource Planning (MRP II) extends the idea of MRP to other areas
in the firm such as marketing and finance. Thus central databases hold information
on product structure (i.e. the Bill of Materials (BOM) file) which can be updated
due to design changes by engineering for example. By incorporating financial
elements into item details, inventory cost information can be utilised by finance

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 departments. At a wider level information provided by the MRP II system from
simulations of business plans can be used to estimate plant investment needs and
workforce requirements. This information can then be used to co-ordinate efforts
across departments including marketing, financing, engineering and
manufacturing.

ERP

ERP extends MRP and MRPII across the organisation and takes a process
perspective, so how does ERP improve process performance? An example is given
of the procurement process which involves acquiring all the resources needed by
an organisation in the form of purchases, rentals, contracts etc.

Manual Procurement Process

1 Create Order

Physically check for stock levels

Gather forms with previous purchases and potential suppliers

2 Get Quotes

Prepare forms requesting availability and pricing

information Collate quotation letters

3 Approve Order

Transfer requisition information to purchase orders and send to selected

suppliers

4 Receive Products and Services

Match purchase order to delivery list

when delivered Generate goods receipt
form

5 Make Payment

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 Match invoice from supplier with purchase order and goods
receipt document Authorise and send payment

ERP Procurement Process

ERP supports the procurement process by:

1. Supporting the execution of the process

Documents can be quickly and easily created and stored in the system

2. Capture and store data

For example all stock levels and supplier information displayed on purchase
requisition screen All forms (goods receipt, purchase order, invoice) held on
database for checking

3. Help monitor performance

Automatically generate exception reports if problems

occur Provides a variety of reports in response to
queries

Implementing ERP

ERP ensures all processes work to a template so potentially increasing efficiency.

A centralised database increases data visibility and so improves communication
and helps decision making. However working to the standard process design
could mean some loss of flexibility.

Web-integrated ERP

This involves using the web to integrate ERP systems with outside stakeholders
such as customers and suppliers. Many ERP systems have been found to offer only
limited integration with Internet systems. The ideal is to integrate ERP with the
internal systems of other businesses (not just connecting ERP to other customer and

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suppliers). This is difficult but these web-integrated ERP (also called c-commerce)
applications are beginning to make an impact
Examples of ERP system modules include: product lifecycle management, supply
chain management (for example purchasing, manufacturing and distribution),
warehouse management, customer relationship management (CRM), sales order
processing, online sales, financials, human resources, and decision support system

Fig.3

ERP implementation is broken up into three phases: discovery, implementation, and

results. In the initial phase, we install the software, build a prototype, and train your
staff. Then we test the ERP system, create reporting templates, and run more targeted
training sessions. Finally, we finalize the model of your ERP system, conduct
readiness assessments, and go live.
COMPETITION
It’s true that ERP software requires a major investment, but there’s also an even
bigger cost in not making the investment. While some manufacturers choose to stick
to the tried and true methods of the past, others seek technology solutions.
Manufacturers cannot afford to put off an ERP implementation while their
competition invests in ERP and starts reaping the many benefits we’ll touch on
below. ·
EFFICIENCY An ERP solution eliminates repetitive processes and greatly reduces
the need to manually enter information. The system will also streamline business
processes and make it easier and more efficient for companies to collect data, no
matter what department they’re working in

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FORECASTING Enterprise resource planning software gives your users, and
especially managers, the tools they need to create more accurate forecasts. Since the
information within ERP is as accurate as possible, businesses can make realistic
estimates and more effective forecasts.
· COLLABORATION nobody wants to run business with each department
functioning separate from the other. Collaboration between departments is a crucial
and often necessary part of the business. With the data entered into ERP systems
being centralized and consistent, there’s no reason why departments can’t work
together. The software also touches on almost every aspect of a business, thus
naturally encouraging collaborative

SCALABILITY Did you know? Structured ERP systems allow the addition of new
users and functions to grow the initially implemented solution over time. When your
business is ready to grow or needs more resources, enterprise resource planning
software should be able to facilitate that growth
INFORMATION No more issues with data spread across separate databases; all
information will be housed in a single location. This means you can integrate
platforms like your CRM software with the ERP system, keeping data consistent,
accurate, and unique. Know your customer, their orders, and your inventory, all in
one place.

MOBILITY An advantage of ERP solutions like Work Wise ERP software is having
access to a centralized database from anywhere you work. Home, office, wherever,
through our mobile-friendly solution and application
. · REPORTINGERP software helps make reporting easier and more customizable.
With improved reporting capabilities, your company can respond to complex data
requests more easily. Users can also run their own reports without relying on help
from IT, saving your users time to use toward other projects.
· PRODUCTIVITY Save time and increase productivity levels. Sound too good to
be true? It’s not with ERP software. By having redundant processes automated, users
have more time to work on other pressing projects and tasks. They’ll also be able to
work easier since the solution was designed for ease-of-use.
REGULATORY COMPLIANCE A benefit of ERP software which sometimes goes
unnoticed is how it ties well into regulatory compliance in the manufacturing

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industry. Powerful ERP solutions will keep track of regulations within the industry
and monitor changes in compliance.
· FLEXIBILITY Modern ERP software systems are robust, flexible, and
configurable. They are not a onesize-fits-all proposition but can be tailored to the
unique needs of a business. ERP systems also can adapt to the ever-changing
needs of a growing business, ensuring you won’t have to buy a new solution once
your needs change or your business grows.
CUSTOMER SERVICE It’s easier to provide high-quality customer service using
an enterprise solution, especially when you’re using one as well-equipped as Work
Wise ERP. Sales and customer service people can interact with customers better and
improve relationships with them through faster, more accurate access to customers’
information and history. You’ll also have access to marketing automation and contact
center software, ensuring your customers are being interacted with consistently.
ERP Industry Applications: ·
Engineering · Manufacturing · Automobile / Automotive · Die Casting · Plot
Developers / Builders · Construction · Retail · Food and Beverage

Features of ERP

The following diagram illustrates the features of ERP −

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 Fig.4

Scope of ERP

 Finance − Financial accounting, Managerial accounting, treasury management,

asset management, budget control, costing, and enterprise control.

 Logistics − Production planning, material management, plant maintenance, project

management, events management, etc.

 Human resource − Personnel management, training and development, etc.

 Supply Chain − Inventory control, purchase and order control, supplier scheduling,
planning, etc.

 Work flow − Integrate the entire organization with the flexible assignment of tasks
and responsibility to locations, position, jobs, etc.

Disadvantage of ERP

 Expense and time in implementation

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  Difficulty in integration with other system

 Risk of implementation failure

 Difficulty in implementation change

 Risk in using one vendor

What are the emerging trends in ERP?  ERP platforms  Open source ERP  Supply
chain management  Customer relationship management  Business analytics 
Extended ERP

How the internet used in Cloud computing process? Cloud computing can be defined
in simple terms as the delivery of a software product to a user via the Internet. The
user typically accesses the cloud product through a Web browser or a lightweight
(meaning small and simple) application for a computer or mobile device. Cloud
computing is not a completely new concept, rather it simply represents the latest
stage of the development of computing and the Internet. To better understand how
cloud computing will impact ERP system development, it is useful to review the
development of SAP’s ERP systems with the advent of the Internet.

SAP and the Internet In 1996, SAP introduced its joint Internet strategy with Microsoft. The
core of SAP’s first effort to integrate the Internet with its products was the Internet Transaction
Server (ITS) a serverbased software system that enabled efficient communication between an
SAP ERP system and the Internet. To provide some context for the state of the Internet at this
time—in 1996, Amazon.com was only one year old, and the online travel agencies Expedia
and Travelocity were both just being founded. Many other Internet services we take for granted
today did not exist at this time. In May 1999, SAP announced mySAP.com, a new strategy
designed to completely realign the company and its product portfolio. The goal of this initiative
was to combine e-commerce solutions with SAP’s existing ERP applications, using cutting-
edge Web technology. In 2000, SAP began building on the mySAP.com vision by adding the
capability for electronic marketplaces and corporate portals.

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How the ERP systems enabled with internet?

E-commerce needs are driving companies to connect their business applications, such as ERP
systems, both internally and externally through the Internet. Software designed with an SOA
can be quickly deployed and reconfigured as business conditions require changes to the
applications, databases, and other infrastructure hosted in data centers owned by a company.
The combination of software tools that enables an organization’s various systems and
applications to communicate with other applications is called Web services.

What do you mean by open source ERP? Open source ERP provides the users with free versions
of software programs without license, other rules and regulations. open source erp platforms the
user is able to access the source code and know how the applications work and can change the
code as per the business needs. This has been commented as one of the main reasons for small
and medium sized orgainsations to select open source ERP platform rather than outsourcing the
developing applications that suit the business requirements.

What are the factors affecting the post implementation process of ERP?  Customization 
Post implementation training  Top management support or influence  Post implementation
benchmarking  Change management  Maintenance of ERP  Introduction of additional
features at the post implementation phase  Success of activities at pre-implementation stage.

Write down the impact on implementing ERP systems in Organization.

 Enhanced operations

 Easy upgrade

 Improved productivity

 Reporting made easier

 Improved accuracy and consistency

 Better integration

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  User friendly  Improves Communication

 Reduces cycle time

 Decreased operating costs

 Supports daily activity

 Aligned process

 Strategic planning support.

State the process of ERP Maintenance in detail?

01. Preventive Maintenance

02. Emergency Maintenance

Software updates

04. Upgrading during maintenance a. Competitive Advantage b. Global Access c.

Integration option d. Best practices e. Cost Reduction

Explain the issues of ERP Implementation? ERP implementation is expensive (with costs
ranging between $10 million and $500 million, depending on company size). The costs of an
ERP implementation include the following:

Software licensing fees—ERP software is quite expensive, and most ERP vendors charge
annual license fees based on the number of users.

 Consulting fees : ERP implementations require the use of consultants with the skills to
configure the software to support the company’s business processes. Good consultants have
extensive experience in the way ERP systems function in practice, and they can help
companies make decisions that avoid excessive data input, while capturing the information
necessary to make managerial decisions.

• Project team member time: ERP projects require key people within the company to guide
the implementation. These are team members who have detailed knowledge of the
company’s business. They work closely with the consultants to make sure the configuration

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 of the ERP software supports the company’s needs, which means these workers are
frequently taken away from their daily responsibilities.

• Employee training: Project team members need training in the ERP software so they can
work successfully with the consultants in the implementation. Those team members also
frequently work with training consultants to develop and deliver company-specific training
programs for all employees.

• Productivity losses: No matter how smoothly an ERP implementation goes, companies

normally lose productivity during the first weeks and months after switching to a new ERP
system.

To justify the costs associated with an ERP system, a company must identify a significant
financial benefit that will be generated by the use of the software, but the only way a company
can save money with an ERP system is by using it to support more efficient and effective
business processes.

This means that an implementation project should not just re-create the company’s current
processes and information systems, although that is a possibility since SAP provides the source
code with its ERP package. A company could choose to alter the package through SAP’s
internal programming language, called

Advanced Business Application Programming (ABAP)—which access to the SAP ERP source
code, it is possible for a company to spend a significant sum of money on software code
development to avoid changing a business process to the best practice process designed into
the ERP software. Many companies have difficultly handling change and prefer to continue
doing business as they always have

Other than adopting the best practices built into the ERP system. As part of the implementation,
a company must also manage the transfer of data from its old computer system to the new ERP
system. In addition to managing master data such as materials data, customer data, vendor data,
and so on, a company must also transfer transaction data, which includes sales orders and
purchase orders, many of which are likely to be in various stages of processing—a challenging
task.

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What are the limitations of ERP?

 Managers cannot generate custom reports or queries without help from a

programmer and this inhibits then from obtaining information quickly, so that they
can act on it for competitive advantage

 ERP systems provide current status only, such as open orders. Managers often need
to look past the current status, to find trends and patterns that aid better decision-
making

 The data in the ERP application is not integrated with other enterprise or division
systems and does not include external intelligence

What are the factors that are critical for the success of the ERP implementation?

 Selection of the right package

 Commitment of top management

 Participation and dedication of the system’s future users  Backing, support and
cooperation of the IS/IT personnel

 Development of interfaces with current operational systems and with those under
development

 Effort of consultants, who have respect for the company’s know-how and work
culture 

Spirit and collaboration on the part of all

What are the direct benefits of ERP systems?

 Business Integration

 Flexibility

 Better analysis and planning capabilities

 Use of latest technology

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