Operations Strategy

Today’s competitive market

• Buyer’s market
• Buyer wants it faster,
better, and
cheaper/customised
• Competitors are global
• Increasing short Life-
cycles
Car choices in 1980

• Ambassador
• Premier
• Standard-Herald
 In 2009 what are the choices?
• Maruti
• Ford
• Fiat- Punto
• GM
• Mitsubishi
• Hyundai
• TATA- Indica
• Honda
• Ambassador
• Mercedes
• Nissan
• Volvo
• BMW
• Toyota
• Audi
• VW
What is the impact of this global
competition?
• Operations must
achieve simultaneous
improvement of
price, quality, and
delivery speed.
 What is a Strategy?

• “Strategy is the determination of

the basic long-term goals and the
objectives of an enterprise, and
the adoption of courses of action
and the allocation of resources
necessary for carrying out these
goals.”
 Strategy
 Strategic goals are common throughout an
organization

 What set of business should we be in ?

How should we compete in XYZ business ?
 How can a specific area contribute to the competitive advantage
of a business ?

(order qualifying and order winning attributes -AC’s from Japan))

An organization therefore, requires a strategy

 Operations Strategy

An operations strategy is defined by a pattern

of decisions , both structural and infra-structural, which
determine the capability of a Manufacturing / Service
system and specify how it will operate in order to meet a
set of operations objectives which are consistent with
overall business objectives.
 Operations Role In Corporate Strategy

• Provide support for overall strategy of a

firm
• Serve as firm’s distinctive competence
• Must be consistent with overall strategy
 Operations Strategy
Customer Needs Corporate Strategy

Alignment

Operations Strategy Core

Competencies

Decisions

Processes, Infrastructure, and Capabilities

 Linking the Strategic Role & Process View

Business Strategy

Desired Capabilities compatible

?

Marketing Strategy Operations Strategy ... Financial Strategy

Operations Structure: p, Q, t,
Processes & Resources flexibility
 Operations Strategy
Strategy Process Example

Customer Needs More Product

Corporate Strategy
Increase Org.
Size

Operations Strategy Increase Production Capacity

Decisions on Processes
and Infrastructure Build New Factory
 Dealing with Trade-Offs

Cost (Value)

Flexibility Delivery (Speed)

Quality

WCM -companies adopt TQM, Pull systems, JIT,TPM

 Steps in Developing a Manufacturing Strategy
• 1. Segment the market according to the product group.
• 2. Identify product requirements, demand patterns, and profit
margins of each group.
• 3. Determine order qualifiers and winners for each group.
(criterion for purchase by customer e.g. Japanese or American)
• 4. Convert order winners into specific performance
requirements.(differentiation, e.g. warranty,quick response,
Lease)
STRATEGIC OPTIONS FOR
OPERATIONS
 Product portfolio – Jet vs Air Deccan
 Process – Hero Honda vs BHEL

 Technology – Asian Paints

 Capacity - Economies of scale

 Supply Chain Issues – Annapurna vs Tanishq

 Service Strategy Capacity Capabilities
• Process-based
– Capacities that transforms material or information and provide
advantages on dimensions of cost and quality.
• Systems (co-ordination) -based
– Capacities that are broad-based involving the entire operating
system and provide advantages of short lead times and
customize on demand.
• Organization-based
– Capacities that are difficult to replicate and provide abilities to
master new technologies.
 Operations Strategy - Wal-Mart(USA)

Corporate Strategy
(Gain competitive advantage by) providing customers access to
quality goods, when and where needed, at competitive prices

Operations Structure
Operations Strategy Cross docking
– Short flow times EDI
– Low inventory levels Fast transportation system
Focused locations
Communication between
retail stores
 Wal-Mart – Operations Strategy

• Inventory at retail stores turned over twice a week

(Industry averages once every two weeks)
• Improved targeting of products to markets
• Sourcing of Products – World-wide
• Sales per square foot increased from $140 in 1991
to $250 in 2004 (Industry average increased from
$110 to $150). Sales revenue:$250bn
 Core Competence
• Competitiveness derives from an ability to build, at lower cost
and more speedily than competitors, the core competencies
that spawn unanticipated products.
– Core competencies are the collective learning in the
organization, especially how to coordinate diverse
production skills and integrate multiple streams of
technologies.
– Core competence is about harmonizing streams of
technology.
technology
– Core competence is about the organization of work and the
delivery of value.
value
– Core competence is communication,
communication involvement and a
deep commitment to working across organizational
boundaries.
boundaries
• Companies need to do a better job of leveraging technologies
and offering a wider variety of products on the same
technology platform.
.
 CORE COMPETANCE….

• HOW TO IDENTIFY ?

• WHAT IT DOES BEST

• WHAT IT CAN DO.. OTHERSCAN NOT DO
• WHAT WILL PERMIT IT TO ACHIEVE THE
BEST IN THE WORLD
• STATUS(GAP) W.R.T . WHAT IT CAN NOT DO
• DEVELOP PLANS TO FULLY EXPLOIT
CAPABILITIES
 CORE COMPETANCY…. EXAMPLES

• SONY • MINIATURISATION
• HONDA • MOTORS
• MOTOROLA • WIRELESS
COMMUNICATION
• MCDONALD • LOCALISATION/
HYGIENE

RELIANCE
AMUL
HLL
Infosys
 OM Decisions
• Strategic Decisions
• Design Decisions
• Operating Decisions
 Strategic Decisions
• Product and Service plans
– What products and services?
• Competitive priorities
• Excel on cost or flexibility?
• Positioning strategy
• Organize around products and processes?
• Quality management
• How to get everyone involved?
• Quality control
• How to best achieve quality goals?
 Design Decisions
• Process Design
– What transformation processes?
• Technology management
– Should we automate?
• Job design
– Should our jobs be specialized or enlarged?
• Capacity
– Is our facility too large or small?
• Location
– Where is a good store location?
• Layout
– What departments should be close?
 Operating Decisions
• Forecasting
– How do we design the best forecasting system?
• Materials management
– Who should be our suppliers?
• Inventory
– How should we control our inventory?
• Aggregate plans
– How big should our workforce be?
• Master production scheduling
– Should we make to stock?
• Production control systems
– When should we release new orders?
• Yamaha announces plans for a new factory, making it the worlds
largest motorcycle manufacturer (1981)
– Honda responds “Yamaha wo tsubusu!”

– (“We will crush, squash, slaughter Yamaha”)

• Honda cut prices, increased advertising, flooded distribution
channels
• Both firms started with about 60 models
– Yamaha introduced 37 product line changes during next 18
months
– Honda introduced 113 new products, including new styles and
new technologies (4-valve engines, composite materials, ...)
• Yamaha decimated, despite drastic price cuts, has 12 month
inventory of unsold motor cycles
• Yamaha capitulates, Pres. Eguchi publicly apologizes
• Honda wins war with superior design, cycle times
Effective Key Success Measures of OM
• Quality as felt by the customer
– Warranty
• Flexibility as felt by the customer
– Customized Product that exceeds need
• Speed as felt by the customer
– On Time Delivery
• Price as felt by the Customer
– Internal Profit Margin (Price minus Costs)
supported by the market
 Current POM Challenges
• Speeding product development time

• Developing production systems to enable mass

customization of products and services

• Managing global production networks

• Developing and integrating new process

technologies into existing production systems .
 Current POM Challenges

• Achieving high quality quickly and maintaining

it in the face of restructuring

• Managing an increasingly diverse workforce

• Conforming to environmental constraints,

ethical standards, and government regulations.
GOALS FOR OM EXCELLENCE

 OPERATIONAL EXCELLENCE
 ON-TIME DELIVERY PERFORMANCE

 ZERO ERROR

 INVENTORY REDUCTION(IN-BOUND)
 Questioning The Process

``It is always amazing how many of the

things we do will never be missed. And
nothing is less productive than to make
more efficient what should not be done at
all.”

Peter Drucker