Operations

Management
and TQM
O U R L A D Y O F F AT I M A U N I V E R S I T Y

M O N D AY 1 0 : 2 0 A M – 1 : 2 0 P M

2ND YR. BSA AND BSAIS

O perations

M
anagement
2
Operations Strategy
Ø The set of decisions across the value chain that supports the implementation of
higher-level business strategies.
Ø It defines how an organization will execute its chosen business strategies.
Developing an operations strategy involves translating competitive priorities into
operational capabilities by making a variety of choices and trade-offs for design and
operating decisions. That is, operating decisions must be aligned with achieving the
desired competitive priorities. For example, Progressive automobile insurance has
developed a competitive advantage around superior customer service. To
accomplish this, its operating decisions have included on-the-spot claims processing
at accident sites; “Total Loss Concierge” service to help customers with unrepairable
vehicles get a replacement vehicle; and the industry’s first Web 2.0 site, with easier
navigation, customization, and video content.
How Operations Strategy can support
competitive priorities?
2 Types of Business Strategies for a Manufacturer

1. Produce a well-defined set of products in a fairly stable market

environment as a low-cost leader.
2. Provide high product variety and customization in a turbulent market that
requires innovative designs to meet customer-specific requirements.
1. Produce a well-defined set of products in a fairly
stable market environment as a low-cost leader.

Ø The firm would be best served by emphasizing quality and cost reduction
in their make-to-stock strategy. This would require a well-balanced,
synchronized supply chain approach with strong supplier involvement,
ef ficient assembly line final assembly processes, and high work
standardization.
Ø Some equipment and processes might be dedicated to a particular
product line or family of products. In this case, a highly efficient
manufacturing system is needed.
2. Provide high product variety and customization
in a turbulent market that requires innovative
designs to meet customer-specific requirements

Ø The firm would need to be able to operate at different levels of production

volume while also achieving high quality and flexibility. An operations
strategy based on mass customization would be appropriate.
Ø Product design would require constant innovation and shor ter
development cycles. Operations would need to be highly flexible in a
make-to-order environment, producing batches of unique, customer-
specified orders in low to moderate volumes, and using employees with
high skill levels and diverse capabilities.
Sustainability and Operations Strategy

Ø Sustainability is the organization’s ability to strategically address current

business needs and successfully develop a long-term strategy that
embraces opportunities and manages risk for all products, systems,
supply chains, and processes to preserve resources for future generations.
Ø Sustainability can be viewed from three (3) perspectives:
1. Environmental Sustainability
2. Social Sustainability
3. Economic Sustainability
Environmental Sustainability
ØOrganization’s commitment to the long-term quality of our
environment. Environmental sustainability is important because
environmental concerns are placing increased pressure on all
goods-producing and service-providing organizations across the
globe.
Social Sustainability
ØOrganization’s commitment to maintain healthy communities and a
society that improves the quality of life.
ØSocial sustainability is important because every organization must
protect the health and well-being of all stakeholders and their
respective communities, treat all stakeholders fairly, and provide
them with essential services.
Economic Sustainability
ØOrganization’s commitment to address current business needs and
economic vitality, and to have the agility and strategic management
to prepare successfully for future business, markets and operating
environments.
ØEconomic sustainability is important because staying in business
for the long-term, expanding markets, and providing jobs are vital to
national economies.
Sustainability as a Corporate Strategy
Ø Companies such as Apple, Kaiser Permanente, and Nike view sustainability as a
corporate strategy. A majority of global consumers believe that it is their
responsibility to contribute to a better environment and would pay more for
brands that support this aim.
Ø Retailers and manufacturers are demanding greener products and supply
chains. In 2007, Walmart Stores, Inc. announced that it would transition toward
selling only concentrated laundry detergents, which use much less water and
therefore require less packaging and space for transport and storage. Every
major supplier in the detergent industry was involved. Government actions are
also driving these initiatives.
Ø The 2009 U.S. stimulus package earmarked $70B for the development of
renewable and energy efficient technologies and manufacturing.
Hill’s Strategy Development Framework
OPERATIONS STRATEGY
How do goods and services qualify Operations Design
Corporate Objectives Marketing Strategy Infrastructure
and who orders in the marketplace? Choice
• Goods and • Safety • Type of processes • Workforce
• Growth services markets • Price and alternative
and segments designs
• Range • Range • Supply chain • Operating
• Economic Sustainability • Flexibility integration and plans and
(survival) • Demand outsourcing control
systems
• Profit • Mix • Goods and service design • Technology • Quality control
• Volumes • Quality • Capacity and • Organizational
• Return on Investment • Service facilities (size, structure
• Goods timing, location)
• Other Market and • Standardization vs. • Environment • Inventory • Compensation
financial measures Customization • Social (community) system
• Level of innovation • Brand image • Trade-off analysis • Learning and
• Social sustainability
• Delivery innovation
(welfare)
systems
• Leader vs Follower • Speed • Support
• Environmental alternatives • Variability services
sustainability • Technical Support
• Pre- and post-service support
Framework for Operations Strategy
Ø A useful framework for strategy development that ties corporate and
marketing strategy to operations strategy was proposed by Professor Terry
Hill at Templeton College, Oxford University. It was originally designed for
goods-producing organizations; however it can also be applied to service-
producing firms. This framework defines the essential elements of an
effective operations strategy in the last two columns - operations design
choices and building the right infrastructure.
Framework for Operations Strategy
ØOperations Design Choices are the decisions management must
make as to what type of process structure is best suited to produce
goods or create services.
ØIt typically addresses six key areas - types of processes, value chain
integration and outsourcing, technology, capacity and facilities,
inventory and service capacity, and tradeoffs among these decisions.
Framework for Operations Strategy
ØInfrastructure focuses on the nonprocess features and capabilities
of the organization and includes the workforce, operating plans and
control systems, quality control, organizational structure,
compensation systems, learning and innovation systems, and
support services.
ØThe infrastructure must support process choice and provide
managers with accurate and timely information to make good
decisions. These decisions lie at the core of organizational
effectiveness, and suggest that the integrative nature of operations
management is one of the most important aspects of success.
4 Key Decision Loops in Terry Hill’s Generic Strategy Framework

Corporate Marketing Qualifiers and Operations Strategy

Objectives Strategy Order Winners
(Competitive Loop #4
Priorities)

Operations Infrastructure
Design Choices

Loop # 1 Loop #3

Loop # 2
4 Key Decision Loops in Terry Hill’s Genetic Strategy Framework
(1) Decision Loop Number 1 (shown in Red) ties together corporate strategy - which
establishes the organization’s direction and boundaries - and marketing strategy - which
evaluates customer wants and needs and targets market segments.
(2) The output of Red Loop # 1 is the input for green loop #2. Decision loop #2 (green)
describes how operations evaluates the implications of competitive priorities in terms of
process choice and infrastructure. The key decisions are “Do we have the process capability
to achieve the corporate and marketing objectives per target market segment? Are our
processes capable of consistently achieving order-winner performance in each market
segment?”
(3) Decision loop #3 (blue) lies within the operations function of the organization and involves
determining if process choice decisions and capabilities are consistent with infrastructure
decisions and capabilities.
(4) The fourth decision loop (yellow loop #4) represents operations’ input into the corporate
and marketing strategy. Corporate decision makers ultimately decide how to allocate
resources to achieve corporate objectives.
Case Study
“Chris, we make the highest quality grass seed and fertilizer in the world. Our
brands are known everywhere!” stated Caroline Ebelhar, the vice president of
manufacturing for The Lawn Care Company. “Yeah! but the customer doesn’t have
a Ph.D. in organic chemistry to understand the difference between our grass seed
and fertilizer compared to those of our competitors! We need to also be in the lawn-
care application service business, and not just the manufacturer of super-perfect
products,” responded Chris Kilbourne, the vice president of marketing, as he
walked out of Caroline’s office. This ongoing debate among Lawn Care’s senior
management team had not been resolved, but the chief executive officer, Mr.
Steven Marion, had been listening very closely. Soon they would have to make a
major strategic decision.
Case Study
The Lawn Care Company, a fertilizer and grass seed manufacturer with sales of
almost $1 billion, sold some of its products directly to parks and golf courses.
Customer service in this goods-producing company was historically very narrowly
defined as providing “the right product to the right customer at the right time”.
Once these goods were delivered to the customer’s premises and the customer
signed the shipping documents, Lawn Care’s job was done. For many park and gold
course customers, a local subcontractor of the customers themselves applied the
fertilizer and seed. These application personnel often did the job incorrectly, using
inappropriate equipment and methods. The relationship among these non-lawn
care application service personnel, The Lawn Care Company, and the customer
also was not always ideal.
Case Study
When claims were made against The Lawn Care Company because of damaged
lawns or polluted lakes and streams, the question then became one of who was at
fault. Did the quality of the physical product or the way it was applied cause the
damage? Either way, the customers’ lawns or waterways were in poor shape, and in
some cases the golf courses lost substantial revenue if a green or hole was
severely damaged or not playable. One claim filed by a green advocacy group
focused on a fish kill in a stream near a golf course.
One of Lawn Care’s competitors began an application service for parks and golf
courses that routinely applied the fertilizer and grass seed for its primary
customers. This competitor bundled the application service to the primary goods,
fertilizer and grass seed, and charged a higher price for this service.
Case Study
The competitor delivered and applied the fertilizer on the same way to avoid the
liability of storing toxic fertilizer outside on the golf course or park grounds. The
competitor learned the application business in the parks and golf course target
market segment and was beginning to explore expanding into the residential lawn-
care application service target market.
The Lawn Care Company sold the “highest-quality physical products” in the
industry, but it was not currently in either the professional park and golf course or
the residential “application service” lawn-care market segments. The Lawn Care
Company considered its value chain to end once it delivered its products to the job
site or non-lawn care application service.
Case Study
The Lawn Care Company sold the “highest-quality physical products” in the
industry, but it was not currently in either the professional park and golf course or
the residential “application service” lawn-care market segments. The Lawn Care
Company considered its value chain to end once it delivered its products to the job
site or non-lawn care application service. The competitor sold the customer “a
beautiful lawn with a promise of no hassles.” To the competitor, this included an
application service bundled to grass seed and fertilizer.
Seatwork: Case Questions
In a white bond paper, write down the following requirements and provide the necessary
requirements.

1. Define Lawn Care’s current strategic mission, strategy, competitive priorities, value
chain, and how it wins customers.
2. What are the order qualifiers and winners?
3. Draw the major stages in its value chain without an application service.
4. What problems do you see with Lawn Care’s current strategy, vision, customer benefit
package, and value chain design, and pre- and post-services?
5. Redo questions 1-4, and provide a new or revised strategy and associated customer
benefit package and value chain that is more appropriate for today’s marketplace.
6. What does operations have to be good at to successfully execute your revised strategy?
7. What are your final recommendations?
THANK
YOU!