Summary of the topics covered

 Operations management – definition

 Examples of operation at bank, hospital, hotel, cable TV etc.
 Difference between Operations, trabsformation and OM
 Operations as transformation process
 Major functions of OM
 Organizing work
 Selecting processes
 Arranging layouts
 Locating facilities
 Designing jobs
 Measuring performance
 Controlling quality
 Scheduling work
 Managing inventory
 Planning production
 Summary of topics covered

 Skills possessed by operations manager – strategic and tactical

 Transformation process – physical, locational, exchange,
physiological, psychological, informational.
 Products and services – definitions
 Common strategies used in products and services
 Differences in products and services
 Operations managers decisions – strategic and tactical
 History of OM
 Competitiveness and productivity measures
 E-businesses and their impact on operations
COMSATS Institute of Information
Technology

Operations Strategy

Dr. M. Imran Malik

 Lecture 8

Copyright 2006 John Wiley & Sons, Inc. 2-4

 The Role of Operations
Strategy
 Provide a plan that makes best use of
resources which;
 Specifies the policies and plans for using
organizational resources
 Supports Business Strategy as shown on
next slide

5
© Wiley 2007
Business/Functional Strategy

6
© Wiley 2007
 Developing a Business Strategy

 A business strategy is developed after

taking into account many factors and
following are some strategic decisions
such as;
 What business is the company in (mission)
 Analyzing and understanding the market (environmental
scanning)
 Identifying the companies strengths (core competencies)

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© Wiley 2007
Three Inputs to a Business Strategy

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© Wiley 2007
Define Mission, Vission and
Strategy
 Examples from Strategies

 Mission: Dell Computer- “to be the most

successful computer company in the world”
 Environmental Scanning: Internal and
external scanning
 Core Competencies: customer satisfaction
via mass customization, strength of workers,
modern facilities, market understanding, best
technologies, financial know-how, logistics
 Strategy

It is a common vision that unites an organization,

provides consistency in decisions, and keep
the organization moving in the right direction.

It is managerial actions and plan.

Plan of action to achieve organizational goals.

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Understanding few terms…
Strategies
 Plans for achieving organizational goals
Mission
 The reason for existence for an organization
Mission Statement
 Description of the mission
Goals
 Provide detail and scope of mission
Tactics
 The methods and actions taken to accomplish
strategies
2-13
 Strategy Example
Rabia is a university student. She would like to
have a career in business, have a good job, and
earn enough income to live comfortably

Mission: Live a good life

Goal: Successful career, good income
Strategy: Obtain a university education
Tactics: Select a university and a major
Operations: Register, buy books, take
courses, study, graduate, get job
 Corporate strategy and Operations
Strategy

 Corporate strategy views the organization

as a system of interconnected parts, each
working with the others to achieve desired
goals.
 Operations Strategy supports the
corporate strategy and requires continuous
cross-functional interaction.
 Lecture 9

Copyright 2006 John Wiley & Sons, Inc. 2-16

Steps in Corporate Strategy
Formulation

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 Four Steps for Strategy Formulation

 Defining a primary task

 What is the firm in the business of doing? The purpose of a firm –
e.g. Pepsi is in the business of drink colas. The broader aspect
covered by Pepsi is to be in consumer product.
 Assessing core competencies
 What does a firm do better than anyone else? e.g. higher quality,
faster delivery or lower cost, technology. The ability to transform
technology rapidly into new products and processes.
 Determining order winners and order qualifiers.
 What wins the order?

 What qualifies an item to be considered for purchase?

 Positioning the firm

 How will the firm compete? Choosing one or two important things
on which to concentrate and doing them extremely well.
(Strengths)

2-18
 Core Competencies

 Core competencies include…

 A well-trained and flexible Workforce
 Having well-located & flexible Facilities
 Having Market and Financial Know-How.
 Expertise in Systems and Technology.
Strategy Formulation

 Order winners (manufacturer side)

 Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competitor
 Order qualifiers (customer side)
 Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
 Competitive Priorities

 Cost
 Quality
 Flexibility
 Speed/time
 Competitive Priorities- The Edge

 Four Important Operations Questions:

Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
 Competitive Priorities

Cost 1. Low-cost operations

Quality 2. Top quality
3. Consistent quality
Time 4. Delivery speed
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Variety
9. Volume flexibility
 Cost

 Any financial value attached to a product

or service.

2-24
 Competing on Cost?

 Offering product at a low price relative to competition

 Typically high volume products
 Often limit product range & offer little customization
 May invest in automation to reduce unit costs
 Can use lower-skill labor
 Probably use product focused layouts
 Low cost does not mean low quality
 Competitive Priorities: Cost
 Companies that compete on cost relentlessly pursue
the elimination of all wastes.
 Lincoln Electric
 Reduced costs by $10 million a year for 10 years
 Skilled machine operators save the company millions that
would have been spent on automated equipment
 Southwest Airlines
 One type of airplane facilitates crew changes, record-
keeping, maintenance, and inventory costs
 Direct flights mean no baggage transfers
 $30 million annual savings in travel agent commissions by
requiring customers to contact the airline directly
2-26
 Quality

 Error free products

 High consistency
 Reliability – degree of consistency
 Durability – degree of toughness
 Provide more satisfaction

Copyright 2006 John Wiley & Sons, Inc. 2-27

 Competing on Quality?
 Quality is defined differently depending on who is defining it
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent customer service

 Product & service consistency:

 Meets design specifications
 Error free delivery

 Quality needs to address

 Product design quality – product/service meets requirements
 Process quality – error free production

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© Wiley 2007
 Competitive Priorities: Quality

 Most companies approach quality in a defensive or

reactive mode; quality is confined to minimizing
defect rates or conforming to design specifications.
 Ritz-Carlton - one customer at a time
 Every employee is empowered to satisfy a guest’s wish
 Teams at all levels set objectives and devise quality action
plans
 Each hotel has a quality leader
 Quality reports tracks
 guest room preventive maintenance cycles

 percentage of check-ins with no waiting

 time spent to achieve industry-best clean room

appearance
 Guest Preference Reports are recorded in a database
2-29
 Time

 Time to market
 Idea generation to finished product

Copyright 2006 John Wiley & Sons, Inc. 2-30

 Competing on Time?

 Time/speed one of most important competition

priorities
 First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:
 Focused on shorter time between order placement and delivery
 On-time delivery:
 Deliver product exactly when needed every time

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© Wiley 2007
 Competitive Priorities: Speed
More than ever before, speed has become a source of
competitive advantage. The internet has conditioned
customers to expect immediate response and rapid
product shipment.
 Wal-Mart
 refill its stock twice a week
 Hewlett-Packard
 produces electronic testing equipment in five days
 General Electric
 reduces time to manufacture circuit-breaker boxes into three
days and dishwashers into 18 hours
 Dell
 ships custom-built computers in two days
 Motorola/Nokia/Samsung
 needs less than 30 minutes to build to order mobile phones.

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 Flexibility

 Accommodating/ responding to changes

quickly
 Volume flexibility (variation in quantity)
 Expansion flexibility (variation in machinery/location)
 Product flexibility (variation in products)
 Production flexibility (producing new products)

2-33
 Competing on Flexibility?

 Company environment changes rapidly

 Company must accommodate change by being
flexible
 Production flexibility:
 Easily switch production from one item to another
 Easily customize product/service to meet specific requirements of
a customer

 Volume flexibility:
 Ability to ramp production up and down to match market demands

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© Wiley 2007
 Competitive Priorities: Flexibility

 It is the ability to adjust to change in product mix,

production volume, or design.
 Custom Foot Shoe Store:
 Customer’s feet are scanned electronically to capture
measurements
 custom shoes are mailed to the customer’s home in weeks
 prices are comparable to off-the-shelf shoes
 National Bicycle Industrial Company
 offers 11,231,862 variations
 delivers within two weeks at costs only 10% above standard
models

2-35
 Strategy and the Internet
 Internet can be used to create a unique business strategy,
to support a company’s existing competitive advantages,
and to bring new and traditional activities into a more
tightly integrated systems.
 eBay

 unlimited capacity and a huge market

 all work is done by buyers and sellers and there
is no marginal cost
 Cisco

 integrated value chain is its competitive

advantage

2-36
 Strategy and the Internet
(cont.)
 GE’s Trading Process Network: an automated Web-based
purchasing system
 cut average purchasing cost in half
 enabled a much larger group of suppliers to bid on jobs
 customers were able to track their orders through shop in real
time
 Intel
 sells $2 billion a month over the Internet
 purchases 80% of its direct materials online
 replaced 19,000 sales-order faxes received daily

2-37
 Benefits of using internet

 Costs
 Reach
 Flexibility
 Reliability
 Global access
 Less paper waste

2-38
Lecture 10
Strategic Decisions in
Operations

2-40
Customization
vs.
Standardization

2-41
Strategic Decisions in Operations

Services Process
and
Products
Technology

Human
Resources Quality
Capacity

Facilities Sourcing Operating

Systems

2-42
 Operations Strategy:
Products and Services
The kinds of products and services offered by a company drive
operations strategy.
 Make-to-Order
 products and services are made to customer specifications

after an order has been received i.e. custom-built homes,

custom-tailored clothes, etc.
 Make-to-Stock
 products and services are made in anticipation of demand

i.e. books, television, airline-flights, vacation packages, etc.

 Assemble-to-Order
 products and services add options according to customer

specifications i.e. computer system, corporate training, etc.

2-43
 Operations Strategy: Products and Services
Criteria

 Volume
 Delivery time
 Type of inventory
 Degree of customization

2-44
 Operations Strategy:
Products and Services
 Make to order
 Volume is low
 Delivery time is long
 Type of inventory is unknown (any type)
 Degree of customization is very high

2-45
 Operations Strategy: Products
and Services Criteria
 Make to stock
 Volume is very high
 Delivery time is very short (fast delivery)
 Type of inventory is known (finished goods)
 Degree of customization is Low

2-46
 Operations Strategy: Products
and Services Criteria
 Assemble to order
 Volume is Moderate
 Delivery time is Moderate
 Type of inventory is Work in Process
 Degree of customization is very high

2-47
 Production Strategy:
Processes and technology
 Project
 one-at-a-time production of a product to customer order,
long time to complete i.e. construction projects, bridges,
ship building, Terbela Dam Project, Ghazi Brotha
Project etc.
 Batch Production
 Systems process many different jobs at the same time
in groups (or batches) i.e. printers, bakeries, cars
(having different models), etc.
 Mass Production
 Large volumes of a standard product for a mass market
i.e. televisions, pc, soft drinks, etc.
 Continuous Production
 used for very high volume commodity products e.g.
refined oil, paints, chemicals, cloth, etc.
2-48
 Operations Strategy: Processes
used w.r.t. products/services
 Make to order
 project
 Make to stock
 line or continuous
 Assemble to Order
 batch

2-49
Product-Process Matrix

Source: Adapted from Robert

Hayes and Steven Wheelwright,
Restoring the Competitive
Edge: Competing Through
Manufacturing (New York: John
Wiley & Sons, 1984), p. 209

2-50
 Continuous Production
A paper manufacturer produces a
continuous sheet paper from wood
pulp slurry, which is mixed, pressed,
dried, and wound onto reels.

Mass Production
Here in a clean room a worker performs
quality checks on a computer assembly line.

Batch Production
At Martin Guitars bindings on the guitar frame are
installed by hand and are wrapped with a cloth
webbing until glue is dried.

Project
Construction of the aircraft carrier USS Nimitz was a huge
project that took almost 10 years to complete.

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 Service Strategy:
Processes and Technology
 Professional Service
 Service Shop
 Mass Service
 Service Factory

2-52
 Service-Process Matrix

Source: Adapted from Roger Schmenner, “How Can Service Businesses Survive and Prosper?” Sloan
Management Review 27(3):29 2-53
 Service Strategy: Processes and
Technology - Examples

 Professional Service
 highly customized and high labor intensive (lawyer, tuition etc)
 Service Shop
 customized and comparatively low labor intensive (schools,
hospitals etc.)
 Mass Service
 less customized and less labor intensive (retailing, banking
etc.)
 Service Factory
 least customized and least labor intensive (airlines, trucking
etc.)

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 Operations Strategy:
Capacity and Facility
 Pertains to quantity and location.
 Capacity decisions affect product lead times, customer
responsiveness, operating costs, and a firm’s ability to
compete.
 Capacity strategic decisions include:
 When, how much, and in what form to alter capacity

 Facility strategic decisions include:

 Whether demand should be met with a few large facilities
or with several smaller ones
 Whether facilities should focus on serving certain
geographic regions, product lines, or customers

2-55
 Operations strategy: Human
Resources

 Recruitment and selection

 P-J fit
 Training
 Motivation – engagement, enlargement, rotation
 Performance evaluation
 Making performance measurable
 Skills inventory
2-56
 Operations Strategy:
Human Resources
 What are the skill levels and degree of autonomy
required to operate production system?
 What are the training requirements and selection
criteria?
 What are the policies on performance
evaluations, compensation, and incentives?
 Will workers be salaried, paid an hourly rate, or
paid a piece rate?
 One has to develop HR Inventory.

2-57
 Operations Strategy:
Human Resources (cont.)
 Will they have supervisors or work in self-
managed work groups?
 How many levels of management will be
required?
 Will extensive worker training be necessary?
 Should workforce be cross-trained?
 What efforts will be made in terms of
retention?

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 Operations strategy: Quality

1. Intense focus on the customer.

2. “Kaizen” Improvement in the quality of everything the
organization does.
3. Accurate measurement (attendance, absenteeism, performance).

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 Operations Strategy: Quality

 Concern for reliability and durability

 What is the target level of quality for our
products and services?
 How will it be measured?
 What will the responsibilities of the
quality department be?

2-60
 Operations Strategy:
Quality (cont.)
 What types of systems will be set up to
ensure quality?
 How will quality efforts be evaluated?
 How will customer perceptions of quality be
determined?

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 Operations Strategy:
Sourcing
 Vertical Integration
 degree to which a firm produces parts that go
into its products
 Strategic Decisions
 How much work should be done outside the
firm?
 On what basis should particular items be
made in-house?
 When should items be outsourced?
 How should suppliers be selected?

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 Operations Strategy: Sourcing

 Buy vs. Build decisions

2-63
Operations Strategy:
Sourcing (cont.)
 What is expected from suppliers?
 How many suppliers should be used?
 How can suppliers be encouraged to
collaborate?

2-64
 Operations Strategy:
Operating Systems
 How will operating systems execute strategic
decisions?
 How does one align information technology and
operations strategic goals?
 How does information technology support both
customer and worker demands for rapid access,
storage, and retrieval of information?
 How does information technology support
decisions making process related to inventory
levels, scheduling priorities, and reward
systems?

2-65
 Issues and Trends in Operations

Copyright 2006 John Wiley & Sons, Inc. 2-66

 Issues and Trends in
Operations

 Global Markets, Global Sourcing, and

Global Operations
 Greater Choice, More Individualism
 Emphasis on service speed and
flexibility

2-67
Thank You

2-68