Lec 2- Operations Strategy

Strategy is the direction and scope of an organization over the long term; which matches its
resources to its changing environment, and in particular its markets, customers so as to meet
stakeholder expectations. 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 (Slack & Lewis,
2011). Example- a market based approach to operations strategy makes an organization
make a decision regarding the markets and the customers within those markets that it intends
to target. The market position is one in which its performance enables it attract customers to
its products or services in a more successful manner than its competitors. The competitive
factors are how the product/service wins orders eg price, quality, delivery speed.
A resource based view of operations strategy on the other hand assesses structural
decisions (physical arrangement and configuration of resources) and infrastructural decision
decisions.
Strategy exists at three levels;
Corporate level strategy- highest level; sets the long term direction and scope for the whole
organization. Expressed in form of corporate mission or vision statement.
Business level- concerned with how a particular business unit should compete within its
industry and what its strategic aims and objectives should be.
Functional strategy- individual functions (operations, marketing, finance). Concerned with
how each function contributes to the business strategy, what their strategic objectives should
be and how they should manage their resources in pursuit of these objectives.
1. Types of analyses needed to design an operations strategy
There are three main areas for analyses. Firstly, the higher strategies – particularly the
business strategy – which have to be analysed from an operations perspective. Secondly, the
operations environment which is analysed using an environmental scan. Thirdly, internal
operations are analysed using an operations audit.
2. Types of information needed about the environment
Any information about the environment might be useful for designing an operations strategy.
The three most common areas of concern are:
1. the industry that the operations work in, which is defined by organisations that use – or
might start using in the future – similar resources to make equivalent products to satisfy
the same customer demand
2. the market for the operations’ products, which is defined by the customers who buy – or
might buy – a particular type of product
3. any other relevant external factors, including economic conditions, legal requirements,
market conditions, etc.
Collect data through an environmental scan
An operations environmental scan collects all relevant information about the environment that
might be useful for designing an operations strategy. It generally focuses on the three areas of
industry, market, and any other relevant external factors (including economic conditions, legal
requirements, market conditions, etc). Common methods include observation, interviews,
market surveys, literature searches, Web searches, data sampling, questionnaires, and so on.
Outline a number of analyses for environmental factors
There are many possible analyses of environmental factors. The chapter described industry
and market analysis – followed by PEST, industry attractiveness, market attractiveness, key
success factors, competitor analysis, competitor profiling, group map, driving force analysis,
and any other appropriate analysis. Within each of these, managers can do many other
detailed analyses.
Discuss the type of information needed about internal operations

-1-
Any internal information might be useful in designing an operations strategy. The most
useful types concern:
o Products, and the complete packages that are passed to customers
o Process, including details of operations, their performance, structure of the supply
chain, types of raw materials, financial support, skills of employees, etc
o Resources, which are found from a resources audit
o Management, and the skills with which they control operations.
Collect data through an operations audit
An operations audit collects all relevant information about the internal operations of an
organisation and gives a detailed view of the activities, process, resources, management
– and generally the way that things work.
Use a number of analyses for internal operations
There are many possible analyses for internal operations. Those mentioned in the chapter are
financial analysis, performance analysis, performance-importance, balanced scorecard,
benchmarking, value-chain analysis and cost analysis.
 Do a SWOT analysis
SWOT analyses bring together the two types of analysis emphasised in the chapter –
environmental scans and operations audits. In particular, they list the strengths (what the
operations do well and can be built into distinctive capabilities), weaknesses (problems within
the operations that need improvement), opportunities (that can help the organisation) and
threats (that can cause damage). The basic analysis is to lay out these factors, and use a
structured format to develop ideas for a strategy. In practice, the identification and
discussions of factors are the most important part of the analysis, rather than the presentation
of summarised results.

Hill (2005) Framework for strategy formulation

Links together the corporate objectives which provide the organizational direction, the
marketing strategy; which defines how the organization will compete in its chosen markets
and the operations strategy which provides capability to compete in those markets.

5 Steps of Hill Framework

(i)Corporate objectives- involves establishing corporate objectives that provide a direction
for the organization and performance indicators that allow progress in achieving those
objectives to be measured. The objectives will be dependent on the needs of the external and
internal stakeholders and so will include financial measures eg profits and growth rates as
well as employee practices eg skills development and appropriate environmental politics.
(ii)Marketing strategy- identifying target markets and how to compete in these markets
(iii)How do products win orders in the market place- any mismatches between the
requirements of the organization’s strategy and the operations’ capability are revealed. This
step provided 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 (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 performance objectives are – quality, speed, dependability, flexibility, cost. These
allow the organization to measure its operations performance in achieving its strategic goals.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.

-2-
Hill distinguishes between the following types of competitive factors which relate to securing
customer orders.
(i)Order winning factors- key reasons for customers purchasing goods or services and raising
the performance of the order-winning factor may secure more business.
(ii)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.
(iv)Delivery system choice (structural decisions) - concern aspects of the organizations
physical resources eg delivery systems, capacity provisions.
(v)Infrastructural choice (Infrastructural decisions)- describes systems, policies, practices,
that determines how the structural elements are managed.

Operations and strategy

Five operations performance objectives (Slack, et al 2004);- a criterion against which to
evaluate the performance of operations.
1. Cost- the ability to produce at low cost
2. Quality- ability to produce in accordance with specification and without error
3. Speed- the ability to do things quickly in response to customer demands and thereby
offer short lead times between when a customer orders a product or service and when
they receive it.
4. Dependability- the ability to deliver products and services in accordance with the
promises made to customers eg. in a quotation or other published information.
5. Flexibility- the ability to change operations. Flexibility can comprise of 4 aspects;
The ability to change to volume of production;
The ability to change to time taken to produce;
The ability to change the mix of different products or services produced;
The ability to innovate and introduce new products and services.
Trade off- it is argued that an organization may not excel simultaneously at all of the 5
operations performance objectives; an organization needs to choose which performance
objective they will give priority to. The trade off means less than excellent performance in
one objective in order to achieve excellence in another.
Hayes and Wheelwright (1984) four stage model
An organization‘s operations can provide a source of competitive advantage if the operations
function is managed strategically; organizations should aspire to reach the highest level
possible.
Stage 1- an organization finds it hard to manage its operations strategically as its operations
performance objectives are continually changing between low cost, increased flexibility,
improved quality, etc. This stage is characterized by a reactive approach to operations
management and as such the operations cannot provide competitive advantage.
Stage 2- the organization seeks to emulate its competitors. It could copy best practices eg JIT,
TQM, Business Process Outsourcing, etc. however since they adopt these practices as
followers they will never develop the same level of expertise in their application; they may
however match their competitors operations and this may not provide the basis for
competitive advantage.

-3-
Stage 3- the organization has an operations strategy linked to and derived from its business
strategy; the operations performance objectives are aligned with and supportive of its
business objectives, offering the possibility that operations can provide the means of
achieving a competitive advantage. Chances of achieving competitive advantage will be
considerably increased if the organization has adopted industry best practice in its operations.
Stage 4- organization is radically different; uses its operations excellence as the basis for its
business strategy- An Operations-based-strategy. The organizations operations enable it to
retain its existing customers and attract new ones. To remain at this stage an organization
needs to learn how to make the most of its existing resources and competences to learn how to
develop new capabilities.

Operations strategy Process

Might come in a top down or bottom up process with regard to business and corporate
strategies. Slack and Lewis (2002), 4 perspectives;

(i)Top-down- strategy: is derived from and is supported by the business strategy of the
organization. The task for operations are determined logically from the business strategy. Eg
if the business strategy is low prices; then the operations strategy would be to achieve low
cost in production.
In multi-business the operation strategy would flow from the corporate strategy via the
business strategy of each unit.

(ii)Bottom –up strategy: operations strategy emerges through a series of actions and decision
s taken over time within the operations as operations managers respond to customers’ needs,
seek to solve specific problems, copy good practices in other organizations. These help form a
coherent pattern recognizable as an operation strategy. These actions are likely to lead to
continuous improvement rather than the large one-off technologically led changes that require
large capital investment in new plant and machinery. The organization learns from its
experiences, developing and enhancing its operational capabilities as operational managers try
out new things in an almost experimental fashion using the workplace as a learning
laboratory, eg JIT, TQM.

(v)Order winning- factors on which customers ultimately make their purchasing decisions,
eg for Airline customers the order winning criteria is price with criteria such as destination,
time of flight, convenience of travel being market qualifying criteria.

(iv)Operations-Led Market-led strategy: Operations strategy is developed in response to

the market environment in which the organization operates. An organization’s strategy could
be linked to its marketing strategy by considering how its products and services win orders in
the market place;
Market qualifying criteria- those factors that must be satisfied before customers will
consider making a purchase in the first place.
Strategy: Excellence in operations is used to drive the organizations strategy. It fits with the
Resource Based View (RBV) which is premised on superior performance coming from the
way that an organization acquires develops and deploys its resources, and builds its
capabilities rather than the way it positions itself in the market place.
Strategy development should be based on understanding of current operational capabilities
and an analysis of how these could be developed in the future.

-4-
LEAN OPERATIONS
Aims to meet demand instantly; lean operations are waste elimination, involvement of
everyone, and continuous improvement.

Lean Production characteristics.

LP use small production batch sizes.
LP use lower amounts of inventory.
Technical experts are still used, but more as consultants rather than substitutes for workers.
LP use teamwork; workers play important role in operating and improving the system
(individual creativity is inferior to team success).
Worker responsibility is much greater than in traditional production.
Organizational structure is flat (and carrier paths not steep).
Workers tend to become generalists rather than specialists.

(i)Waste elimination- waste is an activity which does not add value to the operation; 7
wastes include overproduction (making too much too early); waiting (Need to keep a flow of
material/customers); unnecessary motions (ergonomics/layout); transporting (unnecessary
movement/handling); processing (too much capacity in one machine instead of a number of
smaller ones); defects (cost of defects tend to escalate the longer they remain undetected).

Service customer wastes- delay on the part of the customer waiting for service, for delivery,
in queues, for response, not arriving as promised;
Duplication: having to re-enter data, repeat details on forms and answering queries from
several sources within the same organization;
Unnecessary movements: queuing several times, poor ergonomics in the service counter;
Unclear communication and the waste of seeking clarification;
Incorrect inventory: out of stock, unable to get exactly what is required, substitute product or
service;
Opportunity lost to retain or win customers, failure to establish rapport, ignoring customers,
unfriendliness and rudeness;
Errors in service transaction, product defects in the product-service bundle, lost or damaged
goods.

(ii) Involvement of everyone- effective waste elimination is achieved through staff behaviour
change so a new culture in which all employees are encouraged to contribute to improvement
efforts through generating ideas. Training of staff is required for this to be achieved.

(iii)Continuous improvement (Kaizen) philosophy that believes it is possible to get to the

ideals of lean by continuous stream of improvement over time. This is because customer
views are continuously changing and standards are rising and so tacit knowledge (know-how
based) must be moved to explicit knowledge (written down in principles and procedures).
CI is implemented through creating a mindset for improvement; try and try again; think; work
in teams and recognize that improvement knows no limits.

Implementing Lean
(i)Push-production systems- a schedule pushes work onto machines which is then passed
through to the next work centre. At each production stage a buffer stock is kept to ensure that
if any production stage fails then the subsequent production stage will not be starved of

-5-
material. The higher the buffer stocks kept at each stage of the line, the more disruption can
occur without the production line being halted by lack of material.
Advantages- buffers insulate stages against disruption in other stages
Disadvantages- because buffers insulate system from problems, the problems are not visible
so no one takes responsibility for fixing them
Buffer stock leads to high inventory and slower lead times
Production is not connected to demand.

2. Set up reduction- In order to operate with small batch sizes required by lean it is necessary
to reduce set up time (taken to adjust equipment to work on a different component) drastically
because of the increased number of set ups needed with small batches.
3. Total preventive maintenance(TPM)- this anticipates equipment failures through a
program of routine maintenance which not only help to reduce breakdowns, but also to reduce
downtime and lengthen life of equipment.
TPM includes;
Regular maintenance activities eg lubricating, painting, cleaning, and inspection to prevent
equipment deterioration.
Periodic inspection- to assess the condition of equipment in order to avoid breakdowns.
Preventive repairs- due to deterioration but before breakdown has occurred.

Challenges of implementing lean

1. Resource management-
(i)Holistic approach- implementation of as many lean tools and techniques as possible
because all the lean tools reinforce each other; applying the tools without changing the
company culture will almost never bring optimal results;
Right steps in the right order-Tendency to skip essential steps in the process, problems will
arise sooner or later. The first thing to do is to redesign and simplify processes before trying
to reduce resources, because otherwise implementations often result in failure (before results
can be improved, the process must be improved)
Inventory leanness-There seems to be an optimal level of inventory leanness. This optimal
level depends on multiple factors like the cost of carrying inventory, the costs of shortages
and the technology of production.
Getting suppliers to cooperate- For lean and especially Just-in-time to work in the whole
product value chain, supplier involvement is crucial in the process of a lean implementation;
(ii)Industry specific resource management challenges- in mass production- synchronize the
processes to a take time;
Processing- may be done in either batch or continuous mode; firms could reduce the batch
size in order to make JIT function more properly. When the batch sizes are lowered, the setup
time needs to be lowered to compensate for the need to change the setup of the machinery
more often;
Service - firms that want to apply lean have the problem of demand instability; service
companies should cross-train their workforce in order to being able to distribute people to the
department within the company where extra capacity is needed.

-6-
2. People management -The second of the three lean components is people management
It takes at least five years for a company to become truly lean; getting rid of short term
philosophy
Establishing, maintaining and showing management commitment; commitment and
involvement to the lean initiative; added responsibilities of lean, cause a struggle with the
time needed to implement lean;
Establishing clarity, purpose and priorities- lacking an implementation plan is an important
reason for lean implementation failures; clear and specific goal setting;
Showing people how they are going to benefit; Be clear from the beginning why your
company is going to implement lean and also tell people how they are going to benefit from
it; employees that have fear of infringements and job losses are prepared to cause sabotage
which cause the process to slow down;
Blame culture has a negative influence on lean implementation effort. Turn the blame culture
into a positivity culture; companies often have a blame culture where managers always look
which employee is to blame for a mistake or problem.
Avoiding employee resistance -Major change within a company almost always creates
resistance. Certain people will start to show a critical attitude; other people will become
scared to lose their hard won position within the firm;
Creating employee commitment -When employees of all levels are involved into the lean
implementation decision making and information sharing, that creates trust;
Insufficient supervisory skills to implement lean, as a result of lack of training is an important
barrier to lean implementation success. Train all employees for sufficient lean skills -
Employees must not only be committed to the lean implementation but also need to receive
sufficient training to execute their tasks in the new lean environment.
Give the workforce authority for continuous improvement Continuous improvement can be
realized by the use of Kaizen events.
Keeping track of the lean implementation results- If continuous improvement is applied, it can
be useful to check if the planned or expected improvements in results are realized. When
workers receive information about their own results this increases the commitment and belief
in the lean systems
Fitting the compensation plan with lean -When improvements are being made and the lean
implementation is being a success it is time to make the workforce profit from efforts as well;
Avoid sliding back to the old ways of doing things -An often formulated lean challenge is
sliding back to the old ways of doing things
Training these employees the new skills is important. Mass production workers are not used
to solving problems, let alone communicating them with other departments. So involving
everyone in the problem-solving process is needed.
Craft workers need to adapt their existing knowledge to new standardized applications;
Organization size- found that small firms seem to experience less resistance from employees,
but that resistance still was an important issue in small companies. Because of the higher
resistance in medium and large organizations, these firms mainly need to concentrate on
culture, training and widening the implementation focus;
Unionization - lean practices were less likely to be implemented in a unionized company due
to union resistance.
3. Standardization The third of the three lean components is standardization;
Training the workforce for standardization practices- Defects control, standardization and
bundled techniques all prevent mistakes, variability and inefficiency. To make defects control
work effectively the culture has to change and the workers have to be trained.
Laying the foundation for lean implementation there need to be stable and standard processes
and production levelling. After that the pillars JIT and Jidoka can start to be build. Toyota

-7-
practices three categories of standardization, being design standardization (modularity, shared
components), process standardization and standardized skill sets.
Convincing people of the benefits of standardization -Some people think that the
standardization of work processes will take away all responsibility and joy in their work and
will only make it boring
Discrete parts industries have a higher likelihood of implementing JIT (Just In Time) and that
plants in process industries are more likely to implement TPM (Total Productive
Maintenance);
Craft workers are generally not used to standardized processes; therefore a challenge for the
craft production industry is to make people work in a standardized environment, following
standardized procedures;
Service- The problem with applying lean to service provision e.g. hospitals is that demand
and activities are not as predictable and routinely as in the case of a production environment.

MANAGEMENT OF QUALITY STRATEGIES

Quality refers to the ability of a product or service to consistently meet or exceed customer
requirements or expectations. Different customers will have different expectations, so a
working definition of quality is customer-dependent. When discussing quality one must
consider design, production, and service. In a culmination of efforts, it begins with careful
assessment of what the customers want, then translating this information into technical
specifications to which goods or services must conform. The specifications guide product and
service design, process design, production of goods and delivery of services, and service after
the sale or delivery.
Some of these consequences of poor quality include loss of business, liability, decreased
productivity, and increased costs. However, good quality has its own costs, including
prevention, appraisal, and failure. A recent and more effective approach is discovering ways
to prevent problems, instead of trying to fix them once they occur. This will ultimately
decrease the cost of good quality in the long run.

There are several costs associated with quality:

Appraisal costs - costs of activities designed to ensure quality or uncover defects
Prevention costs - costs of prevention defects from occurring
Failure costs - Costs caused by defective parts or products or by faulty services
Internal failures - failures discovered during production
External failures - failures discovered after delivery to the customer
Return on quality (ROQ) - an approach that evaluates the financial return of investments in
quality

Total quality management (TQM) as a philosophy that involves everyone in the organization
in a continual effort to improve quality and achieve customer satisfaction. This philosophy
concentrates on continuous improvement and quality at the source. Six sigma is a concept that
stresses improving quality, reducing costs, and increasing customer satisfaction.
Successful management of quality requires that managers have insights on various aspects of
quality. These include defining quality in operational terms, understanding the costs and
benefits of quality, recognizing the consequences of poor quality and recognizing the need for
ethical behaviour.
Understanding dimensions that customers use to judge the quality of a product or service
helps organizations meet customer expectations.

-8-
Dimensions of Product Quality 
• Performance– main characteristics of the product
• Aesthetics– appearance, feel, smell, taste
• Special features– extra characteristics
• Conformance– how well the product conforms to design specifications
• Reliability– consistency of performance
• Durability– the useful life of the product
• Perceived quality– indirect evaluation of quality
• Service-ability– handling of complaints or repairs

Dimensions of Service Quality 

• Convenience– the availability and accessibility of the service
• Reliability– ability to perform a service dependably, consistently, and accurately
• Responsiveness– willingness to help customers in unusual situations and to deal with
problems
• Time– the speed with which the service is delivered
• Assurance– knowledge exhibited by personnel and their ability to convey trust and
confidence
• Courtesy– the way customers are treated by employees
• Tangibles– the physical appearance of facilities, equipment, personnel, and communication
materials
• Consistency– the ability to provide the same level of good quality repeatedly

The Determinants of Quality

Quality of Design – intention of designers to include or exclude features in a product or
service. The starting point of producing quality in products begins in the “design phase”.
Designing decisions may involve product or service size, shape and location. When making
designs, designers must keep in mind customer wants, production or service capabilities,
safety and liability, costs, and other similar considerations.
Quality of conformance- refers to the degree to which goods and services conform to the
intent of the designer. Quality of conformance can easily be affected by factors like:
capability of equipment used, skills, training, and motivation of workers, extent to which the
design lends itself to production, the monitoring process to assess conformance, and the
taking of corrective action.
Ease of use - refers to the ease of usage of the product or services for the customers. The
term “ease of use” refers to user instructions. Designing a product with “ease of use”
increases the chances that the product will be used in its intended design and it will continue
to function properly and safely. Without ease of use, companies may lose customers, face
sales returns, or legal problems from product injuries. Ease of use also applies to services.
Manufacturers must make sure that directions for unpacking, assembling, using, maintaining,
and adjusting the product are included. Directions for “What to do when something goes
wrong” should also be included. Ease of use makes a consumer very happy and can help
retain customers.
Services offered to the customer after delivery. There will be times when products may fail
or problems with usage may occur. This is when “Service after delivery” is important through
recall and repairs of the product, adjustment, replacement or buys back, or reevaluation of a
service.

In addition, good quality can:

-9-
 Raise Company's Reputation
 Rationalize Premium Prices
 Decrease Liability Costs
 Increase Productivity
 Increase Customer Loyalty
 Increase Customer Satisfaction

Consequence's include:
 loss of business and existing market share
 legal liability
 lack of productivity
 increased costs

Failure to meet quality standards can damage a company's image, reputation or lead to
external criticism. In the manufacturing field, the quality of raw materials or equipment can
affect the whole manufacturing process. If defects or poor quality are not detected on time,
companies may face various costs to solve problems. Discovering and fixing problems on
time reduces costs. Quality costs include prevention (prevent defects from occurring by
planning system, training and control procedures), appraisal (ensure quality or uncover
defects by inspections, testings and audits), and failure (caused by defective parts, products or
by faulty services discovered during the production process - internal or after delivery to the
customer - external).

Total quality management (TQM) is a constant pursuit of quality that involves everyone in
an organization. The driving force is customer satisfaction; a key philosophy is continuous
improvement. The Japanese use the term kaizen to refer to continuous improvement. Training
of managers and workers in quality concepts, tools, and procedures is an important aspect of
TQM. Teams are an integral part of TQM. Two major aspects of the TQM approach
are problem solving and process improvement. Six-sigma programs are a form of TQM.
A six-sigma improvement project typically has one or more objectives such as: reducing
delivery time, increasing productivity, or improving customer satisfaction. They emphasize
the use of statistical and management science tools on selected projects to achieve business
results. There are seven basic quality tools that an organization can use for problem solving
and process improvements. A flowchart is a visual representation of a process. As a problem-
solving tool, a flowchart can help investigators in identifying possible points in a process
where problems occur. The diamond shapes in the flowchart represent decision points in the
process, and the rectangular shapes represent procedures. They show the direction of “flow”
of the steps in the process.

- 10 -
A check sheet is a simple tool frequently used for problem identification. Check sheets
provide a format that enables users to record and organize data in a way that facilitates
collection and analysis. 
A histogram can be useful in getting a sense of the distribution of observed values. It is a
chart of an empirical frequency distribution.
Pareto analysis is a technique for focusing attention on the most important problem areas.
The idea is to classify the cases according to degree of importance, and focus on resolving the
most important, leaving the less important.

TIME-BASED STRATEGIES
Time reduction is achieved in the following areas:
- Planning time (time needed to react, to develop strategies and tactics, to approve changes
to facilities, to adopt new technologies, etc.)
- Product/service design time.
- Processing time (time needed to produce goods and provide services; this can involve
scheduling, repairing equipment, wasted efforts, inventories, quality, training, etc.).
- Changeover time (time needed to change from producing one product to another; may
involve new equipment settings and attachments, different methods, equipment,
schedules, or materials).
- Delivery time.
- Response time for complaints (from customers, employees).

ANALYSE THE OPERATIONS STRATEGY OF TOYOTA PRODUCTION SYSTEM

- 11 -