Operational effectiveness - ability to perform similar

operational activities better than competitors.

 It is very difficult for a company to compete successfully

in the long run based just on operational effectiveness.

 A firm must also determine how operational

effectiveness can be used to achieve a sustainable
competitive advantage.

 An effective competitive strategy is critical.

 Corporate Mission
Distinctive
Assessment
Competencies
of Global Business Strategy
or
Business
Weaknesses
Conditions Product/Service Strategy

Competitive Priorities

Operations Strategy
long-range game plan for the production of a
company’s products/services

provides a road map for the production function in

helping to achieve the business strategy.
• Low production Costs
• High-Quality Products / Services

• Delivery Performance

• Customer Service & Flexibility

 5
 Low Production Costs
 Make the product or Deliver the service cheap
 Unit cost (labor, material, and overhead) of each
product/service

 Enablers:
 Increase in production rates

 Reduction of scrap/waste

 Reduction of inventory

 Redesign of product/service

 New technology
 High quality products/services
 Make a great product or service
 Customer’s perception of excellence

 Enablers:
 Improve Design (performance) Quality
 Process (conformance) Quality
 Appearance/usability
 Functions/features
 After sales service
 Customer service and flexibility
 Flexibility & new product introduction speed
 Ability to quickly change production as per requirements or
being highly customer responsiveness.

 Enablers:
 Change process type / flexible manufacturing
 Use advanced technologies (CAD, CAM, CNC Machines)
 Reduction in WIP using lean manufacturing
 Increase capacity / spare capacity
 Intelligent, adaptive workforce
 Delivery Performance
 Delivery Speed & Delivery Reliability
 Make the product or deliver the service quickly
 Ability to deliver the products on time across markets.

 Enablers:
 Larger finished goods / Semi finished goods inventory
 Taking facilities / process closer to markets
 More faster processing technology / production
 Quicker shipping methods
 1. Positioning the product system
 2. Product/service plans
 3. Outsourcing plans
 4. Process and technology plans
 5. Facility planning
 6. Resource planning etc
 1. Positioning the Production System –
is about selecting the product design,
type of production processing system,
and type of finished goods inventory
policy for each product group in
business strategy.

 Custom-built products
 Two basic types of product designs …..  Standard products

 Classic types of production process …  Product focused production

 Process focused

 Produce-to-stock (McDonald)
 Basic finished goods policies ....  Produce-to-order (Burger King)
 2. Product / Service Plans - an important part of business
strategy is to design develop & introduce new products

 Product / Service plans affect operations strategy as:

 1. As products are designed all the detailed characteristics are
getting established.
 2. Each product characteristic directly affects how the product can
be produced – the process.
 3. How the product is made determines the design of the production
system

 Shortened PLCs have an impact on Opns. Strategy – Flexibility

 12
 3. Outsourcing Plans
 How much of the work will be outsourced? This
refers to hiring out or subcontracting some of the
work that a company needs to do.

 4. Process & Technology Plans

 Determination of how products and services will
be produced. This involves planning every detail
of production process and facilities.
 13
 5. Strategic Allocation Of Resources
 Cash, capital, capacity, operators, engineers,
machines, materials and other resources are
scarce. They have to be judiciously allotted between
products, business units, projects or profit
opportunities of company.

 6. Facility Plans: Capacity, Location & Layout

 How to provide the long range capacity to produce
the products/services for a firm. These decisions
have long range implications and hence have higher
risk factors. 14

With manufactured product , customers do not have an
interface with the manufacturing system.

In Service operations, however customers are routinely

involved in the production of services.

 15
 Manufacturing
 Tangible product
 Product can be inventoried
 Low customer contact
 Longer response time
 Capital intensive
 Services
 Intangible product
 Product cannot be
inventoried
 High customer contact
 Short response time
 Labor intensive
16
 Low production costs, high quality product & services,
fast & on-time delivery and good customer service can
be priorities for service firms also.

 Trade off between cost and service is more obvious here.

 A small retailer that emphasizes close personal contact with

customers may have high quality services, but its costs will be
higher than that of high-volume discount competitors.

 17
 Strategies adopted for manufacturing goods may not be adoptable
with services.

 Positioning strategy for services include

 1. Type of Service Design: looks at standard or custom
services, amount of customer contact and the mix of
intangible services.

 2. Type of Production Process: quasi manufacturing,

customer-as-participant and customer-as-product.

 18
 McDonalds has a very successful positioning
strategy as evidenced by its long-term
profitability. ……….. It has chosen to provide
customers with a service design that is highly
standardized, with low amount of customer
contact and with physical goods dominating
intangible services.

 An example for quasi manufacturing  19

•The core of operations strategy is the formation of positioning
strategies (custom or standard; product focused or process focused;
produced to stock or produced to order)

•It is crucial that the structure of operations determined by the

positioning strategy be linked to product service plans and competitive
priorities.
 20
 Robert Hayes & Steven Wheelwright suggested
that characteristics of production system tend to
evolve as products move through their PLCs. (see
the PLC stages and operation strategies)

 The concept illustrated applies precisely to new

traditional products with long PLCs.

 Products with comparatively shorter PLCs may

behave differently.
 21
 Introduction
 i-pods, internet radios, hybrid cars, Navigators /GPRS
 Growth
 Colour copiers, note pads, automatic cars, LCD TV’s
 Maturity
 Cell-phones, laptops, CD Music devices
 Decline
 Dot matrix printers, B&W TV’s, Kerosene Stoves

 22
 Introduction
 Custom products / Very low volumes
 Process Focused, to-order, very small batches
 Growth
 Slightly standardized products / Low volumes
 Process focused, to-order, small batches
 Early Maturity
 Standardized products, high volume
 Product focused, production lines, to-stock, large batches
 Late Maturity
 Highly standardized products, very high volumes
 Product focused, to-stock, continuous production  23
 Operations strategies must include plans for modifying
production systems to a changing set of competitive
priorities and positioning of production process, as
products mature …..

 Some time these stage changes can happen faster and

firms should gear up to provide capital and production
technology required to support these changes must be
provided.
 Motorola's cellular telephone reached maturity stage very fast, that
the production system had to be scaled up for maturity stage soon
after introduction.
 24
 Two positioning strategies that are combinations of type
of product, type of production process and finished
goods inventory are pure positioning strategies – (custom
product/ process focused process / produce to order) & (standard product / product
focused process / produce to stock).

 Other combinations are mixed positioning strategies.

 Most mass produced consumer durables follow

standardized product – pure strategies which went well
with their marketing strategies of low cost, fast product
delivery and of good quality.
 25
 Other firms went for custom made, process
focused … strategy which was focused on very
high quality and innovation.

 Combination Strategies
 Product focused/standardized product (low vol) / produce to
order ………… Volvo low floor buses, aircrafts
 Process focused/custom product (high vol)/produced to stock
………………. Medical instruments,
 Process focused/custom product (low vol)/produced to order
……………………… yachts, Armani Suits
 26
 Operations strategy must be based on an assessment of
global business conditions, the competitive priorities
required to capture market segments and distinctive
strengths or weakness of company.

 Two companies with different competencies can opt for

different operations strategies in the same market and
both can be successful.

 Small firms & start-ups use unusual combination

strategies.
 27
 28
 Production sharing (Peter Drucker) means that a product
may be designed and financed by one country,
 Raw material may be produced in many countries and
shipped to other countries for further processing ,
 Parts may be shipped to yet another country for assembly
and the product may be sold throughout the world
markets.

 Strategic Alliances are joint venture that international

companies get into to exploit global business
opportunities.
 Put customers first

 Get new products/service to market FAST

 Come up with high quality products

 High labour productivity

 Low production costs

 Maintain optimum inventory

 Think more globally in purchasing and selling

 Adopt/develop new technologies quickly

 Become lean and flexible organisation

 Less resistant to strategic alliances/JV

 Socially conscious

 High ethical standards

 Changing nature of world business

 International companies

 Strategic alliances and production sharing

 Fluctuation of international financial conditions

 International financial conditions are complex due to:
 inflation
 fluctuating currency exchange rates
 turbulent interest rates
 volatility of international stock markets
 huge national debts of some countries
 enormous trade imbalances between countries
 From adequate quality to perfect quality
 Continuous improvement
 Innovative products, sense and respond strategy
 Flexibility in operations
 Pressure to reduce cost ( direct and overhead)
 Cost cutting measures incli\uding outsourcong
 Automating labour intesive processes
 Environmental Impact
 Product-Safety Impact
 Employee Impact
Concerns about:-

 Landfill
 waste reduction
 Recycling
 Energy conservation
 Chemical spills
 Acid rain
 Radioactive waste disposal
Harm to people/animals. Can result in:-
 Bad reputation

 Expensive remedial measures

 Cause Govt to impose more regulations

Benefits and policies:-

 Safety and health programs

 Fair policies for hiring, promotions
 Health care
 Retirement benefits
 Day care facility
 Education assistance