OPSM - ProcessSelection Basic Process Model, Strategic Fit

OPSM 501 Operations Management Barış Tan ©
OPSM 501 Operations Management
Basic Process Model

Process Selection
Operations Strategy
Prof. Dr. Barış Tan

btan@ku.edu.tr
Operations Management
■ Design of Operations ■ Supply Chain Management

Process Innovation (SCM)
Business Models Supply Chain Management and
Strategy
Products, Processes Supply Chain Design
Basic Process Model Planning and Control of Operations
Operation Strategy
Process Selection in
Manufacturing and Services ■ Improvement of Operations
Quality Management
Managing Business Flows Six Sigma Quality
Process Flow Analysis Push and Pull-type Production
Lean Operations
1
Basic Process Model
Operations management
is design, management, and improvement of processes that
create the firm’s primary products and services.
Systems View
INPUTS OUTPUTS
2
Systems Approach
■ Processes
■ Systems
■ Operating Units (Network of Activities)
Systems Approach
• Network of Operating Units
3
SCOR
Supply Chain Operations Reference Model
Plan
Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source
Return Return Return Return Return

Return Return Return
Your Company Customer’s

Suppliers’ Supplier Customer
Customer
Supplier
www.supply-chain.org
Apple Supply Chain
4
Supply Chain of a Computer Producer
Men’s Parka
10
5
Value Stream Map of a Supply Chain

Current-State Extended Value-Stream Map
(Lean.org)
11
11
Basic Process Model
People
Plants
Direct recepient
Resources Processes
Planning of the product
Parts
Suppliers Inputs Process Outputs Customers
Product
A process uses Products are the
operations resources to desired set of
transform inputs into process outputs.
some desired outputs
Supplier requirements Customer requirements

Supplier assessment of Customer assessment of
satisfaction/value satisfaction/value
12
6
Basic Process Model
Inputs Process Outputs
Transformation
Process Structure
Inputs and outputs

Flow units
A network of activities and buffers
Resources
Information structure
13
Basic Process Model
Inputs Process Outputs

TV Factory
Airline
Retailer
Transformation Credit application
Hospital
Warehouse
Process Structure …
Inputs and outputs

Flow units
A network of activities and buffers
Resources
Information structure
14
7
Products and Processes
Product Customer
Process
Process Attributes Product Attributes
Price
■ Process cost ■ Product cost
■ Process flow time ■ Product delivery
time Value
■ Process flexibility
■ Product flexibility Value is the
■ Process quality relationship
■ Product quality between what
customers get in
exchange for
what they give.
15
Organization Chart
16
8
Process
customer
customer
suppliers
17
Basic Process Model
People
Transformation
Plants
Resources Processes
Planning
Parts
Suppliers Inputs Process Outputs Customers

Price
Product
Process Attributes Product Attributes
■ Process cost ■ Product cost Value
■ Process flow time ■ Product delivery time
■ Process flexibility ■ Product flexibility
■ Process quality ■ Product quality
18
9
Process Performance Measures
People
Transformation
Plants
§ Cost/effort Resources Processes
Planning
§ Time Parts
§ Quality Suppliers Inputs Outputs Customers
§ Experience/ Process Price
Satisfaction Product
§ Risk/Control Process Attributes
■ Process cost
Product Attributes
■
§ Digitilization ■ Process flow time ■
Product cost
Product delivery time
Value
§ Effect on CSR ■ Process flexibility ■ Product flexibility

■ Process quality ■ Product quality
19
Operations Strategy
20
10
Operations Strategy
Operations strategy is concerned with setting broad policies and

plans for using the production resources of the firm to support
the firm’s long-term competitive strategy.
21
Operations Strategy
Core capabilities
Product Focus
Process
Setting the product and process attributes
■ Cost
■ Quality
Winners
– product quality
Qualifiers
– process quality
Losers
■ Speed of delivery
■ Flexibility
– ability to offer a wide variety of products
22
11
Operations as a Competitive Weapon
1. Product and Service Design (Apple, 3M)

2. Cost (Wal-Mart, BİM, Pegasus)
3. Quality (Lexus)
4. Speed (Domino’s)
5. Flexibility – Product Variety (Ülker)
6. Location (Restaurants, Supermarkets)
7. Inventory Management (Wal-Mart)
8. Production Management (Toyota)
9. Supply Chain Management (Zara)
10. Service (Disneyland, IBM)
23
Questions?
Doing the right thing Doing it right

What must be the business How to manage the business
model? processes?
What must be the corporate
strategy?
–Strategic fit
–The role in the value chain
–Positioning the product in
the product pyramid
–Branding vs.
subcontracting
24
12
Corporate Strategies
High-end
Basics
Raw
Material Supplier Supplier Producer Distributor Wholesaler Retailer
Producer
? ?
25
Supply Chain
Second tier suppliers Second tier

Customers
Firs tier
suppliers
Internal First tier
Value Chain Customers
Subconractors
26
13
Where to be located in the value chain?
Examples:
- Toyota
- Ford
- Li/Fung
27
Revenue Sharing in Textile and Apparel Industry
Revenue sharing of a $25 Victoria’s Secret cotton underwear that is

produced in Turkey and sold in USA
Turkey USA
Cotton Yarn Fabric Apparel

Buyer Distributor Retailer
Producer Producer Producer Producer
$2.6 $1.4 $1.5 $1.6 $0.3 $6.3 $11.3
Source: CAT
28
14
iPhone Cost Structure
29
Ensuring sustainable growth

and profitability is more
important than the role on the
value chain.
30
15
Doing the right thing right
Doing the right thing Doing it right
What must be the How to manage the

business model? business processes?
What must be the
corporate strategy?
Strategic fit
The role in the value chain
Positioning the product in the
product pyramid
Branding vs. subcontracting
31
Strategy Framework
Mission and
Core Values Vision
Vision
Strategy
Skills
Structure People Systems Management

Governance Style
32
16
Strategy
■ “Strategy is not planning — it is the making of an integrated

set of choices that collectively position the firm in its industry
so as to create sustainable advantage relative to competition
and deliver superior financial returns.”
Playing to Win, Roger Martin ve A.G. Lafley
33
Strategic Choices
§ What is our winning aspiration

§ Where will we play
§ How will we win
§ What capabilities need to be in place
§ What management systems must be
instituted?
34
17
Strategic Choices
Mission What is winning
Objectives
aspiration?
Customer segments
Where will we Product categories
play Geographical regions
Channels
Value chain
Value propositon How will
Competitive advantage we win
Sustain the strong ones
Which Develop the so-so and
capabilities? weak ones
Systems to support Which

the choices management
systems
35
Strategy: Managing Yesterday, Today, and Tomorrow
Yesterday ■ What to forget?

■ What to change?
■ What to keep?
Today ■ Better
■ Bigger
■ Wider
Tomorrow ■ Experiments
■ Big bets
36
18
Alphabet Revenue Breakdown
37
LEGO
38
19
Lego
39
Walt Disney
40
20
Strategic Fit
Product
Process
Consistency between the competitive advantage that a
firm seeks and the process capabilities and managerial
policies that it uses to achieve that advantage
Desired product and process attributes

■ Cost
■ Quality
■ Speed of delivery
■ Flexibility
41
Strategic Fit
Corporate Strategy
Operations Strategy Operations Structure
42
21
Wal-Mart’s Strategy
Corporate Strategy
Achieving competitive strategy by providing medium-quality goods
at reasonable prices to customers at any time and at any place
Operations Strategy Operations Structure

Short cycle times Cross docking, EDI, Focused
Low inventory levels operations, communication
and transportation systems
43
Strategy-Process Fit
Strategy/system
positioning Value/cost integration
Target Business Operations Systems

Market Model Strategy Implementation
Marketing Location
promotions Capacity
advertisement Processes
Operations
cost
quality
productivity
Human resources
44
22
DELL
45
45
DELL
■ 1984 Foundation
■ 1987 First company that provides next day
service at customer’s location
■ 1996 Sales on the internet
■ 2000 Daily sales: 50 Million USD
■ 2001 Leader in Global Market Share
■ 2006 Second largest PC seller
■ 2007 USA’s largest PC seller (2nd in the world)
■ 2007 Revenue > 60 Billion USD
■ 2013 Became privately owned
■ 2015 Acquired EMC for 67 Billion USD
■ 2020 Plans for returning to the stock market 46
46
23
Dell’s Business Model
Strong
suppliers:
Microsoft, Intel
Assemble to order
Parts Components based on customer Demand
demand
Strong competition:
IBM, HP, Compaq,…
Very successful:
Stock price, profitability, revenue,..
What is the source of this success?
47
Standard PC Industry Supply Chain
Direct
Distribution
Finished
Product
Parts Components
Channel Demand
Assemble to
order products
48
48
24
Strategic Fit:
Dell
Strategy/system

49
Strategic Fit:
Low-Fare Airlines
Strategy/system

50
25
Example:
Low-fare Airlines
Strategy/system

Price sensitive Offering Pricing Network

customers Low-fare airline Quality Fleet
tickets to limited In-cabin offerings Information
destinations with Service approach System
a limited schedule Procurement
HR use
Scheduling
51
Example:
Turkish Airlines
Strategy/system

52
26
A strategy that does not fit

with a firm’s reality,
resources, competencies
cannot be successful
53
Process Selection
Production and Services
54
27
Process Selection
■ Different ways of operating

– Make to Stock
– Assemble to Order
– Make to Order
– Engineer to Order
■ Different ways of organizing process flow

– Job shop
– Batch
– Assembly line
– Continuous flow
55
55
Discrete Manufacturing Typologies
■ Make to Stock
■ Assemble to Order
■ Make to Order
■ Engineer to Order
56
56
28
Customer Order Decoupling Point
Raw Material Components Semifinished Finished
Make-to-Stock
SUPPLIER
Assemble-to-Order
CLIENT
Make-to-Order
Engineer-to-Order
Forecast Order
57
Process Architectures
Classification according to
Resource type
flexible-low volume or specialized-high volume
Physical layout
Product flow, process flow
58
58
29
Product Process Matrix
Low -
Project
one-of-a-kind
Workcenter
Product Manufacturing
Standardization Cell
Assembly
Line
Continuous
High - Process
standardized
commodity
product
Low Product High
Volume
59
59
Process Flow Structures
■ Job Shop
– Production of small batches of a large number of different products
■ Batch
– Standardized job shop
■ Assembly line
– Production of specialized products in a series arrangement of resources
■ Continuous Flow
– Conversion or further processing of undifferentiated inputs
60
60
30
Project
61
61
Job Shop
62
62
31
Assembly Line
63
63
Continuous Process
64
64
32
Product-Process Matrix
Product Structure - Product life cycle

stage
Low volume Multiple products Few major products High volume

Low standardization low volume higher volume high standardization
HIGH
LOW
Job Shop
Process
Structure
Flexibility
Batch
Cost
Process
life cycle
stage
Assembly line
HIGH
LOW
Continuous flow
65
66
66
33
Designing a Production System
■ Designing the layout

– Project layout
– Workcenters
– Manufacturing cells
– Assembly line and continuous process layout
67
67
Basic Layout Types
■ Product Layout
– Layout that uses standardized processing operations
to achieve smooth, rapid, high-volume flow
■ Process Layout
– Layout that can handle varied processing
requirements
■ Fixed Position Layout

– Layout in which the product or project remains
stationary, and workers, materials, and equipment are
moved as needed
68
68
34
Process Layout
■ Low volume, high variety

■ Group workstations according to function - job shop
■ Advantages:
– Less Capital Intensive
– Flexible
69
69
Process Layout
Custom Furniture Manufacturer
Dying Fabric Cushions

§ Flexibility
§ Specialty centers
Wood Assembly Painting
Work
§ Jumbled flow of materials
Metal
Lathe Work Plastics
70
70
35
Process vs Product Layout
Product 1 Product 1
Product 2 Product 2
Process Layout Product Layout

(job shop) (flow shop)
71
A Flow Line for Production or Service
Flow Shop or Assembly Line Workflow
Raw materials Station Station Station Station Finished

1 2 3 4
or customer item
Material Material Material Material

and/or labor and/or labor and/or labor and/or labor
72
36
73
73
74
37
75
75
Marks&Spencer and Zara

Product
High Some High
Customization Customization Stardardization
High Fashion
Flexible
Job Shop
Process Batch Flow Marks &Spencer
Mass Merchants
Rigid
Line Flow
76
76
38
Marks&Spencer and Zara

Product
High Some High
Flexible High Fashion

Job Shop
Process Batch Flow Zara Marks &Spencer
Rigid Mass Merchants

Line Flow
77
77
Strategic Value Gained

Product
High Some High
Flexible High Fashion

Job Shop Out of price!
Process Batch Flow Zara Marks &Spencer

Out of Fashion
Rigid Mass Merchants

Line Flow
78
78
39
Break-Even Analysis
■ Suppose a manufacturer identified the following options for

obtaining a machined part:
– It can buy the part at $250 per unit (including the materials)
– It can make the part at $75 per unit on a numerically controlled
semiautomatic lathe that costs $80,000
– It can make the part at $15 per unit on a machining center that costs
$200,000.
■ Determine the best production option depending on demand.
79
79
Break-Even Analysis
600000
500000
400000
Total Cost
Buy
300000 Lathe
Machine Center
200000
100000
0
0 250 500 750 1000 1250 1500 1750 2000 2250 2500
Demand
80
80
40
Marginal production cost (per unit) Economies of Scale
Buy
250
Lathe
75
Machine center
15
Production volume
81
81
Economies of Scale
Per unit production cost
Production volume
82
82
41
Break-even for Additive Technologies
83
83
Learning
Per unit production time
Production volume
84
42
Process Selection in Services
85
Stages of Economic Activity
1- Extractive:
– Agriculture, Mining, Fishing, Forestry
2- Goods-producing:
– Manufacturing, Processing
3- Domestic services:
– Restaurants, hotels, barber shops, laundry, maintenance…
4- Trade and commerce:
– Transportation, retailing, communications, finance, insurance, real
estate
5- Refining and extending human capabilities
– Health, education, research, recreation, arts
86
86
43
What are services?
■ Business services
■ Trade services
■ Infrastructure services
■ Social/personal services
■ Public administration
87
87
Homeserve
88
88
44
Distinctive Characteristics of Services
Increasing importance of Opportunities for personal selling;

service sector: 60-80% of GDP interaction creates customer
in industrial countries (World Simultaneity perceptions of quality
Bank, 2016)
Customer
Perishability
participation
Attention to facility design; Storage not possible;
opportunities for co- opportunity loss of idle
production; concern for capacity; need to match
customer and employee supply with demand
behavior
Heterogeneity Intangibility
Customer involvement in delivery Creative advertising; no patent

process results in variability protection; importance of reputation
89 89
The Service Process Matrix
Degree of Interaction and Customization

Degree of Low High
Labor Intensity
Low Service Factory Service Shop
High Mass Service Professional Service
Roger SW. Schmenner, “How can service businesses survive and prosper,” Sloan Management Review
90
45
Changes in Service Positioning
Degree of Interaction and Customization

Low High
Service Factory Service Shop

Airlines No frills
Airlines Hospitals
Trucking Many common
Retailing Airlines
Degree of Labor Intensity
carriers
Low
Commercial
Banking For-profit
Hospitals Warehouses/e-commerce Hospitals
Restaurants Trucking
Fast-food Restaurants
Law firms
Mass Service restaurants
Professional Service
Retailing Back-of-the Boutiques

High
House operations
Law firms
Personal banking
Commercial
banking
91
91
Strategic Service
Structural Managerial
Delivery system Service encounter
Facility design Quality
Location Managing capacity and demand
Information Capacity planning
92
92
46
Service Designs
Production line approach

Limited discretionary action of personnel
Division of labor
Substitution of technology for people
Service standardization
Customer as coproducer
Substitution of customer labor for provider labor
Smoothing service demand
Customer Contact Approach

Degree of customer contact
Separation of high- and low- contact operations
93
93
The Service Encounter
■ During the service encounter, the customer

and the service meet and interact
■ “Moment of truth” (SAS)
■ Three attributes of service management
Service task
Service standards
The service delivery system
94
94
47
The Service Encounter
Service
Task
feedback translation
Service
Encounter
Service Service
Delivery Standards
System
translation
95
95
From Satisfaction to Obsession
JOURNEY Customer Customer Customer

PHASES
Satisfaction Centered Obsession
WHAT “Let’s hear “Let’s change how

THE “Let’s serve our
what they say” we develop and deliver
COMPANY customers by
SAYS products/services by offering unique
Truly understanding our
value and the best
customer” experience they
can get”
BIAS “We know what “We are learning what the “We are servants to
the customer customer wants”
our customers”
wants”
Company-centered Customer-centered Customer-obsessed

FOCUS
thinking thinking
thinking
96
48
Operations Management
■ Design of Operations ■ Supply Chain Management

Process Innovation (SCM)
Business Models Supply Chain Management and
Strategy
Products, Processes Supply Chain Design
Basic Process Model Planning and Control of Operations
Operation Strategy
Process Selection in
Manufacturing and Services ■ Improvement of Operations
Quality Management
Managing Business Flows Six Sigma Quality
Process Flow Analysis Push and Pull-type Production
Lean Operations
97
49

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OPSM 501 Operations Management Barış Tan ©

OPSM 501 Operations Management

Basic Process Model

Prof. Dr. Barış Tan

■ Design of Operations ■ Supply Chain Management

Basic Process Model

■ Operating Units (Network of Activities)

• Network of Operating Units

Return Return Return Return Return

Your Company Customer’s

Apple Supply Chain

Supply Chain of a Computer Producer

Value Stream Map of a Supply Chain

Basic Process Model

Suppliers Inputs Process Outputs Customers

Supplier requirements Customer requirements

Basic Process Model

Inputs Process Outputs

Inputs and outputs

Basic Process Model

Inputs Process Outputs

Inputs and outputs

Products and Processes

Basic Process Model

Suppliers Inputs Process Outputs Customers

Process Performance Measures

§ Effect on CSR ■ Process flexibility ■ Product flexibility

Operations strategy is concerned with setting broad policies and

Operations as a Competitive Weapon

1. Product and Service Design (Apple, 3M)

Doing the right thing Doing it right

Second tier suppliers Second tier

Where to be located in the value chain?

Revenue Sharing in Textile and Apparel Industry

Revenue sharing of a $25 Victoria’s Secret cotton underwear that is

Cotton Yarn Fabric Apparel

$2.6 $1.4 $1.5 $1.6 $0.3 $6.3 $11.3

iPhone Cost Structure

Ensuring sustainable growth

Doing the right thing right

Doing the right thing Doing it right

What must be the How to manage the

Structure People Systems Management

■ “Strategy is not planning — it is the making of an integrated

Playing to Win, Roger Martin ve A.G. Lafley

§ What is our winning aspiration

Systems to support Which

Strategy: Managing Yesterday, Today, and Tomorrow

Yesterday ■ What to forget?

Alphabet Revenue Breakdown

Desired product and process attributes

Operations Strategy Operations Structure

Operations Strategy Operations Structure

Target Business Operations Systems

Dell’s Business Model

What is the source of this success?

Standard PC Industry Supply Chain

Target Business Operations Systems

Target Business Operations Systems

Target Business Operations Systems

Price sensitive Offering Pricing Network

Target Business Operations Systems

A strategy that does not fit