Operations Management

Session 2

Indian Institute of Management

Lucknow

Today, well discuss.

Evolution of OM
Concept of Productivity
What are Strategies
Achieving Competitive Advantage through OM
Global Operations Strategy
New Trends and Challenges
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Evolution of OM

Division of labor (Adam Smith 1776; Charles Babbage 1852)

Standardized parts (Whitney 1800)

Scientific Management (Taylor 1881)

Coordinated assembly line (Ford/ Sorenson/Avery 1913)

Gantt charts (Gantt 1916)

Motion study (Frank and Lillian Gilbreth 1922)

Quality control (Shewhart 1924; Deming 1950)

CPM/PERT (DuPont 1957)

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)

Total Quality Management (1980s)

Computer integrated manufacturing (1990)

Internet (1995)

Global Operations leveraging ICT

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Concept of Productivity
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labour and capital)
The objective is to improve this measure of efficiency

Production is a measure of output only and not a

measure of efficiency
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How to measure Productivity

Labour productivity =

Policies processed
Employee hours

Multifactor productivity =
Quantity at standard cost
Labour cost + Materials cost + Overhead cost

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Service Productivity
Typically labour intensive
Frequently focused on unique
individual attributes or desires
Often an intellectual task performed by
professionals
Often difficult to mechanize
Often difficult to evaluate for quality
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What are Strategies?

Action plans to achieve mission

Different functional areas have

different strategies

Strategies exploit opportunities

and strengths, neutralize
threats, and avoid weaknesses

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Strategy Development Process

Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine Corporate Mission

State the reason for the firms existence and identify the value
it wishes to create.

Form a Strategy
Build a competitive advantage, such as low price, design, or volume
flexibility, quality, quick delivery, dependability, after-sale
service, broad product lines.

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Preconditions for Strategy Formulation

One must understand:
Strengths and weaknesses of competitors and
possible new entrants into the market
Current and prospective environmental,
technological, legal, and economic issues
The concept of product life cycle
Resources available within the firm and within the
OM function
Integration of OM strategy with companys strategy
and with other functional areas
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Dynamics of Strategic Change

Changes within the organization
Personnel
Finance
Technology
Stage of product life cycle

Changes in the environment

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SWOT Analysis
Mission
Internal
Strengths

External
Opportunities
Analysis

Internal
Weaknesses

External
Threats
Strategy

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Product Life Cycle

Introduction

Growth

Maturity

Decline

Practical to change
price or quality image

Poor time to change

image, price, or quality

R&D engineering is
critical

Strengthen niche

Competitive costs
become critical
Defend market position

Company Strategy/Issues

Best period to increase

market share

Sales
3D
printers

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Product Scalloping

CDCD-ROM

Internet
LED-screen
LEDmonitors

Cost control critical

Drive-through
Driverestaurants

Fax
machines

DVD
3 1/2
Floppy
disks

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Product Life Cycle

OM Strategy/Issues

Introduction

Growth

Maturity

Product design and

development
critical

Forecasting critical

Standardization

Product and process

reliability

Frequent product
and process design
changes

Competitive product
improvements and
options

Less rapid product

changes more
minor changes

Short production
runs

Increase capacity

Increasing stability
of process

Shift toward product

focus

Long production
runs

Enhance distribution

Product
improvement and
cost cutting

High production
costs
Limited models
Attention to quality

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Optimum capacity

Decline
Little product
differentiation
Cost
minimization
Overcapacity in
the industry
Prune line to
eliminate items
not returning
good margin
Reduce capacity

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Achieving Competitive Advantage Through Operations

Competing on Differentiation
Better, or at least different

Competing on Cost
Cheaper

Apple
Sony
Tata Nano
Food Bazaar

Competing on Responsiveness Amazon

Rapid response

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Bluedart
SBI Life

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Competing on Differentiation
Uniqueness can go beyond both the physical
characteristics and service attributes to encompass
everything that impacts customers perception of
value.
Intel leading edge products
Walt Disney Magic Kingdom experience
differentiation
PVR Cinemas movies experience
SOTC travel experience
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Competing on Cost
Provide the maximum value as perceived by
customer. Does not imply low quality.
Southwest Airlines secondary airports, no
frills service, efficient utilization of equipment
Wal-Mart small overheads, shrinkage,
distribution costs
Franz Colruyt no bags, low light, no music,
doors on freezers
Many Tata Products
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Competing on Response
Flexibility is matching market changes in design innovation and
volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules
German machine industry, Mumbai Sub-urban Railways
Timeliness is quickness
in design, production,
and delivery
Johnson Electric, Dell
Computers, Dominos Pizza
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Elements of Operations Management Strategy

Low-cost production
Product-line/ Service offering breadth
Technical superiority
Product characteristics/differentiation
Continuing product innovation
Low-price/high-value offerings
Efficient, flexible operations adaptable to consumers
Engineering research development
Location
Scheduling
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Reasons to Globalize
Tangible
Reasons

1. Reduce costs (labour, taxes, tariffs, etc.)

2. Improve responsiveness
3. Provide better goods and services
4. Understand markets

Intangible
Reasons 5. Attract and retain global talent
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Global Operations Strategies

Boeing sales and production are worldwide
Benetton moves inventory to stores around the world
faster than its competition by building flexibility into
design, production, and distribution
Sony purchases components from suppliers in
Thailand, Malaysia, and around the world
Haier A Chinese company, produces compact
refrigerators (it has one-third of the US market) and
wine cabinets (it has half of the US market) in South
Carolina
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Global Operations Strategy Options

1. International Strategy

2. Multidomestic Strategy

3. Global Strategy

4. Transnational Strategy
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OMs Contribution to Strategy

Operations
Decisions
Product
Quality
Process

Examples

Specific
Strategy Used

Competitive
Advantage

FLEXIBILITY:
Sonys constant innovation
of new products>>>>>>>>>>>>....Design
HPs ability to lead
the printer market>>>>>>>>>>>>Volume
Southwest Airlines No-frills service>>..>..LOW COST

Location
Layout
Human
resource
Supply chain
Inventory
Scheduling

DELIVERY:

Differentiation
Pizza Huts 5-minute guarantee
(Better)
at lunchtime>>>>>>>..>..>>>>>>>.Speed
Federal Expresss absolutely,
positively on time>>>>>>>>>..>.Dependability

QUALITY:
Motorolas HDTV converters>.>>........Conformance
Motorolas pagers>>>>>>>>>..>.Performance
Caterpillars after-sale service
on heavy equipment>>>>>....AFTER-SALE SERVICE

Response
(Faster)
Cost
leadership
(Cheaper)

Fidelity Securitys broad

line of mutual funds>>>>.BROAD PRODUCT LINE

Maintenance
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New Trends in OM
Past

Causes

Future

Local or
national
focus

Low-cost, reliable
Lowworldwide communication
and transportation
networks

Global focus

Batch (large)
shipments

Short product life cycles

and cost of capital put
pressure on reducing
inventory

Just-inJustin-time
shipments

Low-bid
Lowpurchasing

Quality emphasis requires

that suppliers be engaged
in product improvement

SupplySupplychain
partners,
Enterprise
Resource
Planning,
e-commerce

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New Trends in OM
Past
Lengthy
product
development
Standardized
products

Job
specialization

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Causes
Shorter life cycles,
Internet, rapid international
communication, computercomputeraided design, and
international collaboration
Affluence and worldwide
markets; increasingly
flexible production
processes
Changing socioculture
milieu; increasingly a
knowledge and information
society

Future
Rapid product
development,
alliances,
collaborative
designs
Mass
customization
with added
emphasis on
quality
Empowered
employees,
teams, and
lean
production

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New Trends in OM
Past
Low-cost
Lowfocus

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Causes
Environmental issues, ISO
14000, increasing disposal
costs

Future
Environmentally
sensitive
production,
green
manufacturing,
recycled
materials,
remanufacturing

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New Challenges in OM
From

To

Local or national focus

Global focus

Batch shipments

Just--inJust
in-time

Low bid purchasing

Supply chain partnering

Lengthy product development

Rapid product
development,
alliances

Standard products

Mass customization

Job specialization

Empowered employees,
teams

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