02.

The Operations Strategy and Competitiveness

By Prof. N. Narayanan

In OPERATIONS MANAGEMENT (PGP, Term II, Pre-Mid Term, 2011)

Reference: Ch. 2: Operations Strategy in a Global Environment (pp 29 58) In: J. Heizer, B. Render and J. Rajashekhar, Operations Management,
8th Edition, Pearson Education, 2009

Sessions Plan Pre-Mid Term (Continued)

Sn. Nos.
2

Date
22 Sep (Thu)

Topic

Text ; Exercise/ Case

Operations Ch. 2: Operations Strategy in a Global Environment (pp 29 Strategy and 58) Competitiveness 1. Global Co. Profile: Boeings Global Strategy Yields Competitive Advantage (pp 30 31) [4] 2. OM in Action: Going Global to Compete (pp 34) [40] * 3. OM in Action: VideoconA True Indian Multinational Company (pp 35) [41] * 4. OM in Action: IndiaA Major Destination for Outsourcing (pp 36) [42]* 5. Figure 2.3: Sample Missions for a Company, OM Function, and Major OM Departments (pp 38) [43]* 6. OM in Action: Low Cost Strategy Wins at Franz Colruyt (pp 40) [30 31] 7. OM in Action: Response Strategy at Hong Kongs Johnson Electric (pp 41) [35] 8. OM in Action: US Cartoons Production at Home in Manila (pp 33) [39] 9. Example 1: Strategy Development at Pierre Alexander (pp 43) [54]* 10. Strategy at Pirelli SpA (pp 53) [55 56]

Overview
Global Co. Profile: Boeings Global Strategy Yields Competitive Advantage 1. Why Operations Strategy? 2. Options for Strategic Decision in Operations 3. Strategies to Securing Competitive Advantage 4. Strategies for Global Operations 5. Operations Excellence: Performance Measures

Global Co. Profile:

Boeings Global Strategy Yields Competitive Advantage (pp30 31)

Strategy for Boeings new product line: 787 Dreamlliner:
1. Incorporates the latest of aerospace technologies for airframe, engine, superlightweight titanium graphite laminate, carbon fiber and epoxy and composites. 2. Innovation in electronic monitoring system that allows the airplane to report maintenance requirements to ground-based computer systems 3. More efficient engines in collaboration with GE and Rolls Royce (contributing to 8% of increased fuel/ payload efficiency). 4. 70 to 80% of plane is built by other suppliers. 35% of the project (whole composite fuselage sections) produced by Japanese companies. Italys Alenia building 10% of the plane. Even of the portion built by Boeing, part of it is produced at facilities outside US. 5. High levels of innovation made possible by global participation in the project.

1. Why Operations Strategy

Manufacturing as Source of Competitive Advantage

During 1970s and earlier, few thought of Operations as a source of competitive advantage. Decisions in Manufacturing were not considered at strategic level, and were left to be taken solely on narrow, technical, tactical grounds. The potential of Manufacturing as source of competitive advantage was most dramatically demonstrated as a result of attention paid to the Japanese Just-in Time techniques, during the late 1970s and early 1980s.

Operations Strategy
It is important to understand the difference between
Operations Strategy, and

Operations as a Strategic Function

When Operations is viewed as a strategic function,

it is included as a key decision maker and participant in the firms strategy processby participating in strategy formulationand proposes ways that the function can help support and enhance the firms business and corporate strategies.

Operations Strategy
Strategic planning exercise (Corporate and Business strategy)
Enables an organization to respond to the market needs in the most effective manner By aligning various resources and activities in the organization To deliver products & services that are likely to succeed in the market

Operations Strategy
Is a process by which key operations decisions are made that are consistent with the overall strategic objectives of a firm (the business strategy) Decisions in the operations function are made on the basis of the inputs from the overall corporate/business strategy

Need for Operations Strategy

Competitive dynamics & expectations of customers change with time Due to the changes in market place, competitive priorities for an organization is likely to change
While it was customary for people to book for a passenger car and wait for a few months to get delivery of the car, today a manufacturer of passenger cars cannot afford to make customers wait that long ABB Ltd. reported that the price of a 33 KV circuit braker dropped from Rs. 275,000 in 1990 to Rs. 180,000 in 1999. Triveni Engineering, a manufacturer of Turbines faced a 40% reduction in the price of turbines in the less than 3.5 million watts category over the last six years

Need a mechanism to systematically respond to these changes in the most effective way Need to tune their operations to match with the competitive priorities

The Roles of Operations Strategy

Operations Strategy serves as a crucial functional component of business and corporate strategies, in conjunction with the other functional strategies, to both
1. Execute or implement the Operations part of the higher level strategies, and also 2. Contribute to formulating the higher level strategies (and the Operations Strategies as their constituent part). This can happen mainly by virtue of the strengths that the Operations have to offer in terms of
a. The order winning criteria such as quality, cost, delivery, etc., and b. The various strategic flexibilities that have been built up within Operations over time, which have potentials to contribute to innovations in manufacturing and business.

Integrating Operations into the Strategy of the Organization Major role OM must play in the strategic management of any company:
1.Execution of the OM part of the business strategy or Corporate strategy, along with the other functions, particularly the major ones such as FM, MM and HRM, and also, 2.Contributing something new and innovative to the core of the business strategy, in terms of new product, new process (with advantages of low cost, more features, higher quality, etc. often called, the QCDSQuality Cost Delivery Servicecriteria).

The Roles of Operations Strategy

1. Operations Strategy serves as a crucial functional component of business and corporate strategies, in conjunction with the other functional strategies. 2. Operations can often take the lead role in higher level strategies through the, truly strategic, second role mentioned in the previous slide, namely Contributing something new and innovative to the core of the business strategy.

Order Qualifiers & Order Winners

Order qualifying attributes are the set of attributes that customers expect in the product or service they consider for buying Order winning attributes are other attributes that have the potential to sufficiently motivate the customer to buy the product or service What constitutes order winning and order qualifying might change from time to time
During the early 1980s providing superior quality products was an order winning attribute. However, in the 1990s quality became an order qualifying attribute as customers began to expect high levels of quality Order winning attributes include efficient consumer response, speed, variety and convenience

2. Options for Strategic Decision in Operations

Options for Strategic Decision in Operations

Operations System Strategic Options

Operation Strategy Options

Product Portfolio
Product portfolio pertains to decisions on
what products the organization wants to produce the number of variations in each product line the extent of customization offered to customers

Product portfolio as a strategic option

Wide product portfolio: Overall strategic objective is to provide highly differentiated set of products and services to the customer Narrow product portfolio: Overall strategic objective is one of cost leadership (even if product portfolio narrows, as a fresult)

Examples in Services & Manufacturing

Air travel from Bangalore to Delhi: Air Deccan and Jet Airways differ vastly in terms of the service offered Computer manufacturers, Dell and IBM (Lenovo): Overall strategic objective of Dell appears to be one of providing highly differentiated products, IBM appears to emphasize on robust and reliable computing power

Operation Strategy Options Process Choices

Three types of flow happen on account of process choices:
Continuous streamlined flow Intermittent or batch flow (Can be small batch or Large batch) Jumbled flow (Job shop)

Choice of process will be consistent with product portfolio decisions

A manufacturer emphasizing on production volumes, fewer varieties and less cost will make process choices pertaining to continuous streamlined flow. An organization wishing to satisfy an objective of providing wide range of products to the customers will adopt batch/intermittent flow type. The need to provide a very large variety, and practically a production volume of one or few, will adopt jumbled flow.

Operation Strategy Options - Technology Choices

Technological advancements in recent years have given new opportunities for creating competitive advantage for firms
Case of Asian Paints utilizing technological advancements for mixing of basic pigments to distribute paints in large varieties of colors and in large assortment of sizes

Using new technology options for manufacturing processes, organizations can

react faster to customer needs manage a wide portfolio of product offerings and yet maintain high levels of productivity

Organizations making a strategic choice to operate in the manufacture of mid-volume, mid-variety products could utilize new technology such as Flexible Manufacturing Systems to improve productivity and responsiveness.

New Technology Options Strategic Advantages

Increased machine utilization Scheduling flexibility: Permits an organization to have flexibility in scheduling thereby enabling the organization to react to changes fast Ease of engineering challenges: Changes in engineering design and process plans can be easily accommodated by use of technology based manufacturing and process design. Ease of expansion: Provides volume flexibility to the organisation, making it much easier to expand in response to a growing market Reduced manufacturing lead time Lower in-process inventory: Several of the above benefits directly translate to lower work in process inventory and reduced cost of manufacturing

Operation Strategy Options Capacity

Capacity is defined as
maximum number of units of goods that can be produced per unit time in the case of manufacturing system the maximum number of service offerings that can be made per unit time in the case of a service system

Capacity decision influences the cost of goods and services offered in three ways:
accrued cost advantage due to economies of scale Ability to spread fixed costs over a larger capacity additional cost advantages in procuring other factors of production

Operation Strategy Options

Supply Chain issues
Supply chain refers to the network of entities supplying components and raw material to an organization as well as those distributing the finished goods of an organization to the customers through alternative channels Designing an appropriate supply chain calls for a better understanding of the product profile for which the supply chain is configured Two types of supply chains can be configured:
Efficient supply chain: objective is cost optimization and better utilization of resources employed in supply chain operations; typically used in the case of functional products Responsive supply chain: the key objective is to develop a capability to respond fast to the market requirements; typically used in the case of innovative products

3. Strategies to Securing Competitive Advantage

Ways to Attaining

Market Leadership
1. Through Operational Excellence, as Way to Attaining Competitive Advantage 2. Through Product Leadership 3. Customer Intimacy
Typical direction of evolution of Operations Focus, toward maintaining market leadership

If the foundation of Market Leadership, namely, Operational Excellence is not attained, further pursuits of Product Leadership and Customer Intimacy will not be possible.

The Strengths that Operations Strategy must pursue and attain

In contributing to Business and Corporate Strategies, Operations must show strengths in terms of
a. The order winning criteria such as quality, cost, delivery, etc., and b. The various strategic flexibilities that have been built up within Operations over time, which have potentials to contribute to change and innovations in manufacturing and business.

Relevance of

Operations Management and Operations Strategy,

Even in Service Industries

What drives bottom-line performance in almost every industrybe it manufacturing or serviceis Competitive Advantages through
Quality, Cost, Delivery, and Service.

All these are issues that the Operations function is concerned with.

Competitive Advantage Through:

1. Cost leadership 2. Differentiation 3. Responsiveness ( Flexible Reliable Rapid)

Truly, competing on Cost, Differentiation, and Responsiveness are not mutually exclusive. In the long run, it is necessary to aim for:
<<< better, cheaper, and more responsive >>>

However, at any given time, one of them may emerge as a dominant theme. These, however, require the institutionalization within the firm of the ability to change, to adapt1.

Competing on Cost
1. Low-cost leadership entails achieving maximum value as defined by the customer. 2. It entails examining each of the 10 Operations Management decisions, in a relentless effort to drive down costs, while meeting customer expectations of value. 3. A low-cost strategy does not imply low value or low quality.

Strategy formulation process

Competitive Dynamics at the marketplace Order Qualifiers Order winners

Strategic options for Sustaining competitive advantage

Generic Competitive Priorities Quality, Cost, Delivery, Flexibility

Firm level Strengths & Weaknesses

Corporate Strategy

Strategic decisions for Operations System

Operations Strategy

Measures for Operational Excellence

Some Examples
(in Cost Leadership)

of Operations Strategy

Case:

Loading on Southwest Airlines

The best way to get people on and off the planes? Airlines have tried a variety of techniques.
o The simple and back-to-front approach thats still used by most airlines, o The more complicated approaches such as
The reverse pyramid system, The outside-in technique, and The non-system system pioneered by Southwest Airlines, in which passengers board with no assigned seats.

Low Cost Competitive Advantage

Activity Map: Southwest Airlines Courteous, but limited passenger service Lean, productive employees Short haul, point-topoint routes, often to secondary airports

Competitive Advantage: Low Cost

High aircraft utilization

Standardized fleet of Boeing 357 aircraft

Frequent, reliable schedules

Low Cost Strategy Low Cost as the order winners, and as the
competitive strategy for securing competitive advantage. Are there risks of loss in customer value; if yes, how should the company guard against them? Can low cost as order winner continue to be so always? What else can become order winners? Can this strategy work for all time?

OM in Action:

Low Cost Strategy at Franz Colruyt Food (groceries) retailer (pp 40)

1. Numerous measures taken over a period of time, all aimed at cutting costs (Do these measures lead to any loss of value for the employees, for the customers?):
a. No shopping bags at the checkout counters (estimated annual savings: 5 million euros). b. Dimmed lighting at the stores, to save on electricity. c. Employees clock-out when they go on 5-minute coffee breaks. d. No voice mail on the phones. Instead, messages taken by two receptionists for staff, and then announced through loudspeakers e. Shopping outlets are converted warehouses, movie theatres and garages, with black concrete floors, exposed electrical wires, metal shelves and discarded boxes strewn about. f. No background music (estimated annual savings: 2 million euros) g. All freezers have doors (estimated annual savings on electricity: 3 million euros)

OM in Action:

Low Cost Strategy at Franz Colruyt Food (groceries) retailer (Continued).

2. A team of 30 work simplifiersto come up with new ways to improve productivity.

a. An example of such improvement: Saving of 5 seconds from every minute taken for a customer checkout, by customers paying at a separate station from where the goods are scanned. b. They have helped cut costs at every turn, and undersell competitors in an industry where margins of 1% to 2% are typical. This has helped Colruyt obtain margins of 6.5%. CEO, Rene DeWit

3. Franz Colruyt, like Wal-Mart, have made low cost strategy work.

Competing on Response
1. Responsiveness may be in terms of flexible response, and/or reliable and quick response, in relation to
a. Timely product development and delivery, and also b. Reliable scheduling and flexible performance.

2. Examples of firms employing this strategy option are:

a. Hewlett Packard have demonstrated flexibility in both design and volume changes in the volatile world of personal computers b. Johnson Electric have demonstrated speed in design, production and delivery.

Competing through Differentiation

(pp 34 in Heizer and Render, 8th Edition)

1. Safeskin Corporation:
a. Produced gloves that were designed to prevent allergic reactions, about which doctors were complaining. When other glove makers caught up, b. Developed hypoallergenic gloves; Then c. Added texture to its gloves; Then d. Developed a synthetic disposable glove for those allergic to latex;

thus always staying ahead of competition. Safeskins strategy was to develop a reputation for producing reliable state of the art gloves, thus differentiating itself.

2. Differentiation is concerned with providing uniqueness.

Competing through Differentiation

(Continued)

3. Differentiation involves going beyond physical characteristics and service attributes to encompass everything about the product or service that will influence the value that customers derive from it. 4. In the service sector, an additional possible way to differentiation is through an experience, thus always staying ahead of competition. 5. The idea of experience differentiation is to engage is to engage the customerusing his five sensesso that he becomes immersed and even an active participant in the product.

OM in Action:

Response Strategy at Hong Kongs Johnson Electric (pp 41)

1. Worlds leading producer of micro-motors for chord-less tools, household appliances (such as coffee grinders and food processors), personal care items (such as hair dryers and electric shavers), and cars. 2. A luxury Mercedes, with its headlight wipers, power windows, power seat adjustments, and power side mirrors, may use 50 Johnson micro-motors. 3. As global business, Johnson spends liberally on communications to tie together its global network of factories, R&D facilities, and design centers.
a. For example, Johnson Electric installed a $20 million videoconferencing system that allows engineers in Cleveland, Ohio and Stuttgart, Germany to monitor trial production of their micro-motors in China.

4. Johnsons strengths:
a. Speed in product development, speed in production, and speed in delivering13 million motors a month, mostly assembled in China but delivered throughout the world. b. Ability to stay close to the customers, as a result of its design and technical centers scattered across (the world) Us, Europe and Japan: Customers talk to us where they feel most comfortable, but products are made where they are most competitive.

4. Strategies for Global Operations

Strategies for Global Operations

1. Cheap, fast communication & information
technologies have made possible the management of integrated, globally dispersed operations.

2. Global operations provide an increase in both the

challenges and opportunities for operations managers.

3. With globalization, new standards for competitiveness

are emerging all the time. To effectively meet these challenges, managing operations needs necessarily to be seen in a global perspective.

4. Globalized operations are in a position to exploit the

significant opportunities for improvement of productivity in a dynamic, global economy.

Reasons to Globalize Operations

Tangible

Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chain Provide better goods and services Attract new markets Learn to improve operations Attract and retain global talent
Intangible

OM in Action:
(pp 33)

US Cartoon Production at Home in Manila

1. More than 90% of American television cartoons are

produced in Asia and India, with Philippines leading the way.

2. Similarities in culture enables the artists understand the

humor meant for the American audience.

3. Major studios send storyboardscartoon action

outlinesand voice tracks to the Philippines.

4. The Filipino artists draw, paint, and film about 20,000

sketches for a 30-minute episode.

5. The cost to produce an episode in Philippines is

$130,000, as compared to $160,000 in Korea and $500,000 in the US.

OM in Action:

Going Global to Compete (pp 34)

1. Wachovia Corp., North Carolina:
Its focus on becoming a Great customer relations company in its core banking
business led it to outsourcing deals for
a. b. Finance and accounting jobs (worth $1.1 billion), with Genpact of India Administration of human resource programmes, with Hewitt Associates of Illinois

Expect to invest the savings of $600 million to $1 billion over the next three years in
its core banking business. (in new ATMs, branches and personnel).

2. Dana Corp., Ohio

Established a joint venture with Cardanes SA to produce truck transmissions in
Queretaro, Mexico.

Switched 288 US employees in its Jonesboro, Arkansas, plant from producing truck
transmissions at breakeven to axle production at profit. Profit is up at Jonesboro, and Queretaro is making money.

Dano is also moving operations to China, India, Eastern Europe and South America.

Resourceful Organizations like Wachovia and Dana use a global perspective to become more efficient, which allows them to develop new products, retrain employees, and invest in new plant and equipment.

OM in Action:

VideoconA True Indian Multinational Company (pp 35)

1. Took the global approach with the acquisition of Frances Thomson SAs color
picture tube (COT) business. It also acquired a glass shell plant in Poland.

2. Through the Thomson acquisition, Videocon acquired Thomsons plants in

Mexico and Italy, which manufactured around 3 million and 6 million CPTs per year respectively. The deal has made Videocon the third largest manufacturer of CPTs, with a global manufacturing capacity of 19 million CPTs.

3. With plants in China, Poland, Italy and Mexico, and 17 manufacturing units in
India, the company aims to provide better service to markets in America and Europe.

4. Bagged the licensing rights to sell global brands such as Electrolux, Kelvinator,
and Allwyn after its takeover of the loss-making Indian unit of the Electrolux Kelvinator Limited (EKL).

5. Videocon diversified into the oil and gas sector in 1994. The group owns oil
exploration sites at Sudan, Jordan, Australia, Oman and the Timor sea. Its Ravva oil field in the Bay of Bengal has the lowest operating costs in the world and generates nearly $100 million a year.

Videocon with its diverse businesses and global acquisitions has invested in existing infrastructure to become a global Indian multinational company.

OM in Action:

IndiaA Major Destination for Outsourcing (pp 36)

1. Increase in employment opportunities in India in the last two decades, particularly
in the IT and IT-enabled service sector.

2. Many multinationals across the globe have outsourced their requirements to India. 3. Initial demand were for mainly software engineers, but soon the outsourcing also
covered jobs in the financial, insurance, technical and banking sectors.

4. The outsourced jobs included back office and research and development jobs such
as call centers, transaction processing, payroll processing, software development, financial research, medical transcription, IT consulting, product design and manufacture, and tax processing.

5. Aerospace industry, as a major player in the outsourcing segment, has availed of

design and manufacturing capabilities from India.

6. Many multinational companies such as Honeywell, GE, Pratt & Whitney, Rolls
Royce, Hamilton Sunstrand have set up their own R&D centers in India.

7. India is a preferred outsourcing destination because of its day-night polarity with

western countries, low wages, availability of skilled workers, large English speaking population.

8. Other factors favoring India as outsourcing destination include: technological

promptness,

6A Company, the OM Function, and Major OM Departments (38)

Sample Company Mission To manufacture and service an innovative, growing and profitable worldwide microwave communications business that exceeds our customers expectations Sample Operations Management Mission To produce products consistent with the companys mission as the worldwide low-cost manufacturer. Sample OM Department Missions
Product Design Quality management Process Design Location Layout Design Human resources To design and produce products and services with outstanding quality and inherent customer value. To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service opportunities. To determine and design or produce the production process and equipment that will be compatible with low-cost product, high quality, and a good quality of work at economical cost. To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees and the community. To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life. To provide a good quality of work life, with well designed, safe, rewarding jobs, stable employment, and equitable pay in exchange for outstanding individual contribution from employees at all levels. To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply. To achieve low investment in inventory consistent with high customer service levels and high facility utilization. To achieve high levels of throughput and timely customer delivery through effective scheduling. To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.

Developing Missions and Strategies: Sample Missions for:

Supply-chain management Inventory Scheduling Maintenance

Defining Global Operations

n Domestic business - all operations within

one country

n International business - engages in cross-

border transactions
n Multinational Corporation - has extensive

involvement in international business, owning or controlling facilities in more than one country

Four International Operations Strategies

International Strategy: uses exports and licenses to penetrate the global area Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization

Four International Operations Strategies

High

Global Strategy
Standardized product Economies of scale Cross-cultural learning Caterpillar / Otis Elevator

Transnational Strategy
Move material, people, ideas, across national boundaries Cross-cultural learning Coca-Cola / Nestls

Cost Reductions

International Strategy

Multi-domestic Strategy

Low

Import.export or license Use existing domestic existing product model globally U.S. Steel / Harley Davidson Franchise, joint ventures, subsidiaries Heinz / McDonalds Low Local Responsiveness High

Four Global Operations Strategy Options

Cost Reduction Considerations High

Global strategy International strategy

Low

Transnational strategy Multidomesticstrategy

High

Low

Quick Responsiveness Considerations

1. 2. 3. 4.

International Strategy: Global markets are penetrated using exports and licenses. Multi-domestic Strategy: Operating decisions are decentralized to each country to enhance local responsiveness. Global Strategy: Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities. Transnational Strategy: Combines the benefits of global scale efficiencies with the benefits of local responsiveness.
Possible migration paths, beginning from International strategy and ending with Transnational strategy.

Transnational Strategy

1. Exploits the economies of scale and learning, as well as

pressure for responsiveness (by recognizing that core competence does not reside in just the home country but can exist anywhere in the organization).
Think global, act local, or Be glocal, which can also be expressed as: [Pursue scale economy in global operation be locally responsive] [Centralize all global concerns decentralize all local concerns]

2. Materials, people, and ideas crossor transgress

national boundaries.

3. Makes possible simultaneous pursuit of all three

operations strategies, viz., differentiation, low cost, and response.

Transnational Strategy

(Continued)

4. Firms pursuing such integrative strategies can

be thought of world companies whose country identity is not as important as their interdependent network of worldwide operations.

5. Key activities in a transnational company are

neither centralized in a parent company or decentralized, so that each subsidiary can carryout its own tasks on a local basis.

6. The resources and activities are dispersed, but

specialized, so as to be both efficient and flexible in an interdependent network.

Transnational Strategy (Continued)

7. Nestle is a good example of such a company:
Although it is legally Swiss, 95% of its assets are held and 98% of its sales are made outside Switzerland. Less than 10% of its workers are Swiss.

8. Other examples are:

Asea Brown Bovery (an engineering service firm that is Swedish but headquartered in Switzerland) , Bertlesmann (a publisher), Citicorp (a banking corporation)

9. We can expect the national boundaries of these

transnational companies to continue to fade.

5. Operations Excellence: Performance Measures

Operational Excellence
Performance measures
Quality First Pass Yield Quality Costs Defects (Parts per Million) Number of suggestions per employee Process Capability Indices Delivery Lead time for order fulfillment Procurement and Manufacturing Lead time On time delivery for supplies Schedule adherence Indirect Measures Direct labour to Indirect labour ratio Lead time to work content Process rate to sales rate ratio Average training time per employee Cost Average days of inventory (No. of inventory turns) Manufacturing cost as percent of sales Procurement costs Value of import substitution, cost reduction Target cost reduction efforts Flexibility Number of models introduced New product development time Breadth and depth of the product offerings Process & Manufacturing flexibility Number of suggestions per employee Non-value added content in processes No. of certified deliveries Delivery quote for customised products

Example 1:

Strategy Development at Pierre Alexander (pp 43)

Considering differentiation as strategy and process design as an area of decision making, the issues involved can be seen as follows:
High
Process-focused JOB SHOPS (Print shop, emergency room, machine shop, finedining restaurant) Mass Customization Customization at high Volume1 (Dell Computers PC, cafeteria)

Variety of Products

Moderate

Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants)

Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen, canteen)

Low Low Moderate Volume High

10

Problem:

SWOT analysis to establish strategy at Pirelli SpA (pp 53)

1. Strategy considerations at Pirelli SpA:
Tire industry is characterized by high, tough competitiveness that rewards high market share and long production runs. Global tire industry continues to consolidate: Three aggressive firms have come to dominate world market, with a total market share of about 60%:
Michelin buys Goodrich and Uniroyal and buys plants throughout the world. Bridgestone buys Firestone , expands research budget, and focuses on world markets. Goodyear spends almost 4% of its sales revenue on research.

German firm, Continental AG has assumed the fourth position in the world, with dominant presence in Germany. Pirelli SpA is an old-line Italian tire company that still had 5% market share. While the competition was getting stronger, Pirelli SpA was losing millions a year. Some of the strengths of Pirelli are:
An outstanding reputation for excellent, high performance, and Innovative manufacturing function.

10

Problem:

SWOT analysis to establish strategy at Pirelli SpA (pp 53)

2. Solution: SWOT analysis, instead of being seen as an one-shot process done
occasionally, can be seen as a continuous ongoing process as follows:
2. Recognize, determine and exploit matching Opportunities in the environment 1. Recognize the organizations Strengths and look for ways to exploit them

4. Anticipate, determine and take action to resolve the matching Threats in the environment

3. Determine relevant, still un-circumvented Weaknesses in the organization, and ways to address to them

1. See strengths in Pirellis strong brand name and innovative capabilities of the operations function, applicable to high margin performance tires (as against no special strengths as against competitors applicable to the low-margin standard tires). 2. See opportunities in high-margin performance tires business (as against threats in low-margin standard tires) and make strategic shift towards them. 3. See weakness in the present low-margin standard tires business, in the presence of the few giants controlling a disproportionate market share. 4. Circumvent the threat-prone low-margin standard tires business by exiting/ strategically shifting out of it.

The End: Any Questions?