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Operations Strategy and Competitiveness

Operations Strategy as a competitive weapon

One of the key objectives of any business organization is to reach a position where it is able to attract more customers than its competitors

Shorter Product Cycle / Pioneer status advantage Production flexibility Low-cost process (e.g. Outsourcing) Convenience and Location (e.g. Courier services) Product variety and Facility size (e.g. super markets) Quality (e.g. MNCs producing cars in India for Exports)

Competitive Dimensions

Cost or Price
Make the Product or Deliver the Service Cheap

Quality
Make a Great Product or Deliver a Great Service

Delivery Speed
Make the Product or Deliver the Service Quickly

Delivery Reliability
Deliver It When Promised

Coping with Changes in Demand

Change Its Volume

Flexibility and New Product Introduction Speed

Change It

Other Product-Specific Criteria

Support It

Dealing with Trade-offs

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

Cost

Flexibility
Quality

Delivery

Order Qualifiers and Winners

Defined
Order

qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers winners are the criteria that differentiates the products and services of one firm from another

Order

Service Breakthroughs
A

brand name car can be an order qualifier

Repair services can be order winners

Examples: Warranty, Roadside Assistance, Leases, etc

Operations Strategy
Strategy Process
Customer Needs

Example
More Products

Corporate Strategy

Increase Org. Size

Operations Strategy

Increase Production Capacity

Decisions on Processes and Infrastructure

Build New Factory

Strategy Design Process

Strategy Map
Financial Perspective

What it is about!
Improve Shareholder Value

Customer Perspective

Customer Value Proposition

Internal Perspective

Build-Increase-Achieve

Learning and Growth Perspective

A Motivated and Prepared Workforce

The Balanced Scorecard

Judicious mix of financial and operational measures for measuring the performance

Customer perspective
Business process perspective Innovation and learning perspective Financial perspective

Balanced Scorecard Model for Measuring Operations Performance How do stakeholders view
Operations?
Financial Perspective Goals Measures

How do customers view the Operations?

Customer Perspective Goals Measures

At which Operations tasks must we excel

Internal / Process Perspective

Goals

measures

Innovation & Learning Perspective

Goals

Measures

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Kaplan and Nortons Generic Strategy Map

In the Kaplan and Nortons Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components:

1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital

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Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components:

1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company

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Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace:

1. Product leadership 2. Customer intimacy 3. Operational excellence

Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

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Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning:

1. Strategic competencies 2. Strategic technologies 3. Climate for action

Developing an Operations Strategy

Corporate Objectives
Business Plan Marketing Plan Budget Production Plan

Functional Areas

Operations Marketing Business Strategies Financing/Accounting Research & Dev. Strengths and Weaknesses Human Capital Operations Objectives

Other Plan
Operation Strategies

Long-range Decisions about Products, Processes and Facilities

Position the Production System Focus of Factories or Service Facilities Product / Service Design and Development Allocation of Resources to Alternatives Facility Planning : Capacity, Location and Layout

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Steps in Developing a Manufacturing Strategy

1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements

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Service Strategy Capacity Capabilities

Process-based
Capacities that transforms material or information and provide advantages on dimensions of cost and quality

Systems-based
Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand

Organization-based
Capacities that are difficult to replicate and provide abilities to master new technologies

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What is Productivity?
Defined
Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

Productivity Introduction & Definition

Productivity primarily is an attitude of mind an attitude of looking at the scope for improvement It stands for the elimination of MUDA( Japanese ) or Waste in all forms It is the function of providing more and more of everything, for more and more people with less and less consumption of Resources The essence of productivity lies in producing the same volume with less resources or producing more output with proportionately less increase in inputs

Factors affecting Productivity

External Factors

Beyond the control of individual Enterprise External Infrastructure Non- availability of Funds, Water, Power, Transportation Raw Material Supply constraints

Government Policies ( Emission Laws etc.)

Social / Political / Economic Environment

Factors affecting Productivity ( contd.)

Internal Factors

Hard Factors Products / Technology / Plant & Eqpt.

/ Raw Materials

Soft Factors People / Work Methods / Systems &

Procedures / Organisation Structure / Management Practices

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Total Measure Productivity

Total Measure Productivity = Outputs Inputs

or
= Goods and services produced All resources used

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Partial Measure Productivity

Partial

measures of productivity =

Output or Output or Output or Output

Labor Capital Materials Energy

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Multifactor Measure Productivity

Multifactor measures of productivity =

Output
Labor + Capital
or

.
+ Energy

Output
Labor + Capital +

.
Materials

Example of Productivity Measurement

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You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. Is productivity increasing or decreasing? Answer: Last weeks productivity = 480/2000 = 0.24, and this weeks productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.

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Question Bowl
An operations strategy is concerned with which of the following? a. Setting specific policies and plans b. Short-term competitive strategies c. Coordination of operational goals d. All of the above e. None of the above Answer: c. Coordination of operational goals

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Question Bowl
Typically a strategy breaks down into what major components? a. Operations effectiveness b. Customer management c. Production innovation d. All of the above e. None of the above Answer: d. All of the above

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Question Bowl
A criterion that differentiates the products and services of one firm from another can be which of the following? a. An order qualifier b. An order winner c. PWP d. KPI e. None of the above

Answer: b. An order winner

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Question Bowl
A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? An increase in productivity from Day 1 to Day 2 A decrease in productivity from Day 1 to Day 2 The same productivity from Day 1 to Day 2 Can not be computed from data above None of the above Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)

a. b.

c.
d. e.

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Question Bowl
In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer? a. How do customers see us? b. What must we excel at? c. How can we continue to improve and create value? d. All of the above e. None of the above

Answer: d. All of the above

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Solved Problems OPERATIONS MANAGEMENT (Class of 2010)

Q3. d) Various financial data for 2002 & 2003 follow. Calculate the total productivity
measure and the partial measure for labour, capital and raw materials for this company for both years. What do these measures tell you about this company?
2002 Output Input 2003

Sales Labour Raw Material Energy Capital Others

$ 2,00,000 $2,20,000 30,000 35,000 5,000 50,000 2,000 40,000 45,000 6,000 50,000 3,000

Answer :-

Total Productivity = Output Input

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Output

2002 2,00,000

2003 2,20,000

Input Labour Raw Materials Energy Capital Others Total Inputs

2002 30,000 35,000 5,000 50,000 2,000 1,22,000

2003 40,000 45,000 6,000 50,000 3,000 1,44,000

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a)

Total Productivity measure

Year 2002 Total Productivity = Output Input = 2,00,000 1,22,000 = Year 2003 Total Productivity = 2,20,000 1,44,000 = 1.53 1.66

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b)

Partial Productivity measure (Labour)

Partial Productivity measure = Total Output Cost of Labour for the year 2002 = 2,00,000 = 6.67 30,000 for the year 2003 = 2,20,000 = 5.5 40,000

c) Partial Productivity measure (Capital)

Partial Productivity measure = Total Output Capital for the year 2002 = 2,00,000 = 4 50,000 for the year 2003 = 2,20,000 = 4.4 50,000

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d) Partial Productivity measure (Raw Materials)

Partial Productivity measure = Total Output Cost of Raw Materials

for the year 2002 = 2,00,000 = 5.71 35,000

for the year 2003 = 2,20,000 = 4.88 45,000