OPERATIONS STRATEGY AND

PLANNING
 Operations Management

 The management of processes taking place

while converting/transforming inputs into outputs
 Concerned with planning, designing and
controlling the process of production of goods
and/or services
 Ensures that business processes are efficient
and effective
Operations Management (contd.)
 Definition

 Conversion of land, labour, capital and

management inputs into desired outputs (goods
and services)
 The systematic design, direction and control of
processes that transform inputs into services and
products for internal, as well as, external
customers
 Process And Operation

 Process: Any activity or a group of activities

that takes one or more inputs, transforms
them, and provides one or more outputs for
its customers
 Operation: A group of resources performing
all or a part of one or more processes
 Manufacturing vs. Service
Organizations

 Tangibility
 Perishability
 Heterogeneity
 Inseparability
 Examples of services may include insurance,
banking, healthcare, etc.
 Functions Of
Operations Management

 Policy Formulation
 Planning
 Controlling Resources
 Communication
 Operations Strategy

 Addresses how the major resources available

to a firm should be configured so as to achieve
the desired corporate objectives
 An organization’s operations strategy provides
a framework for determining how it prioritizes
and utilizes its resources to gain a competitive
advantage in the marketplace
 Operations Strategy-Definition

 Development of a long-term plan for using the

major resources of the firm for a high degree of
compatibility between these resources and the
firm’s long-term corporate strategy
 Operations Strategy (contd.)

 Some of the major long-term issues addressed

in operations strategy include:
• How large do we make our facilities?
• What type of process(es) do we install to make the products
or provide services?
• How will our supply chain look like?
• What will be the nature of our workforce?
• How do we ensure quality?
 Operations Strategy (contd.)

 Vision: A statement that provides long-term

direction and motivation for the organization
 Mission: A statement about the organization’s
business scope and methods of competing
 Corporate Strategy: Overall strategy adopted
by the parent corporation
 Operations Strategy (contd.)

 Strategic Business Unit: Stand-alone

business within a conglomerate that operates
like an independent company
 Business Strategy: How a strategic
business unit (SBU) addresses the specific
markets it serves and products it provides
Operations Strategy Process
 Business Strategy

 Market Requirements
• Customers’ needs and success criteria
 Environment
• Competition, technological advances, government regulations
 Organizational Competencies
• Core capabilities, organizational culture, strengths and
weaknesses
 Mission and Vision
 Three Generic Strategies

 Suggested by Michael Porter

 Cost Leadership
 Differentiation
 Market Segmentation
 Functional Strategies

 Production
 Marketing
 Human Resource
 Information Technology
 Finance
 Some Other Strategies

 Competitiveness
 Competitive Priorities
• Low cost
• High quality
• Fast delivery
• Flexibility
• Service
Operational Decision Making
 Operations Strategy Adds Value

 Customers want their money’s worth

 From a manager’s point of view, customers
actually want more than their money’s worth
 The more customers receive for their money,
the more value they perceive in the products or
services they are purchasing
 Perceived customer value=Total benefits-total
costs
Value Addition (contd.)
 Trends Affecting
Operations Strategy Decisions

 Globalization
• Lowering of trade barriers
• Decreasing transportation costs
• Emergence of high growth markets
 Technology
• Connectivity
• Speed
• Intangibility
 Competitive Priorities

 Cost
 Quality
 Delivery
 Flexibility
 Service
 Core Capabilities

 Specific strengths that allow a company to

achieve its competitive priorities
 Firms now tend to focus only on their core
capabilities
 Sub-contracting
 Forecasting

 The art and science of predicting future events

 May involve taking historical data and projecting
them into the future
 May be subjective, intuitive or a combination of
the two
 Forecasting Time Horizons

 Short-range forecast: < 3 months

• Purchase planning, job scheduling, job assignments, etc.
 Medium-range forecast: 3 months > 3 years
• Sales planning, production planning, budgeting, etc.
 Long-range forecast: > 3 years
• New product planning, facility location or expansion, R&D,
etc.
 Types Of Forecasts

 Economic Forecasts
• Predicting inflation rates, money supplies and other
planning indicators
 Technological Forecasts
• Rates of technological progress (resulting in new product
development that require new plants & equipment)
 Demand Forecasts
• Projections of demand for a company’s products or services
 Forecasting Approaches

 Qualitative Methods
• Jury of executive opinion
• Delphi method
• Sales force composite
• Consumer market survey
 Quantitative Methods
• Naïve approach
• Moving averages method
• Exponential smoothing
• Trend projection
• Linear regression
 Jury Of Executive Opinion

 Group of high level experts or managers

 E.g., Bristol-Meyers Squibb Company uses
220 well-known research scientists as its jury
of expert opinion to get a grasp on future
trends in the world of medical research
 Delphi Method

 Decision makers, staff personnel and

respondents
 Decision makers usually consist of a group of
5-10 experts who make the actual forecast
 Staff personnel prepare, distribute, collect and
summarize a series of questionnaires and
survey results
 Sales Force Composite

 Sales forecasts in different regions

 Review of forecasts
 Combination of forecasts of different regions
 Consumer Market Survey

 Inputs from customers or potential customers

 Helps in forecasting as well as improving
product design and planning for new
products
 Data can be unrealistic giving rise to
incorrect predictions
 Quantitative Methods

 Time-series Models
• Naïve approach
• Moving averages method
• Exponential smoothing
• Trend projection
 Associative Model
• Linear regression
 Naïve Approach

 Simplest way of forecasting

 This approach is the most cost-effective
forecasting model
 Assumes that demand in the next period will
be equal to the demand in the most recent
period
 Moving Averages Method

 Uses a number of actual historical data values to

generate a forecast
 Useful if it is assumed that market demands will
stay fairly steady over time
 Moving Avg. = Σ Demand in previous n periods
n
where, n is the number of periods in the moving
average
 Weighted Moving Average

 Wt. Moving Avg.

= Σ(Wt. for period n)*(Demand in period n)
Σ Weights
 Exponential Smoothing

 A sophisticated weighted moving average

method
 New forecast = Last period’s forecast +
α(Last period’s actual demand –
Last period’s forecast)
 Exponential Smoothing (contd.)

 Ft = Ft-1 + α(At-1-Ft-1)
where Ft = new forecast
Ft-1 = previous forecast
α = smoothing constant (or weight)
At-1 = previous period’s actual demand
 Exponential Smoothing (contd.)

 In January, a car dealer predicted February

demand for 142 Ford Mustangs. Actual
February demand was 153 autos. Using a
smoothing constant of α = 0.20, calculate the
demand forecast for the month of March.
 Trend Projections

 Fits a trend line to a series of historical data

points and then projects the line into the
future
 Least squares method
 Results in a straight line
 Trend Projections (contd.)

 ŷ = a + bx
where ŷ = computed value of the variable to
be predicted (dependent variable)
a = y-axis intercept
b = slope of the regression line
x = independent variable (time)
 Linear Regression

 Sale of a product may just not be a factor of time

 Several other factors may also influence the
sales of a particular product/service
 ŷ = a + bx
where ŷ = computed value of the variable to
be predicted (dependent variable)
a = y-axis intercept
b = slope of the regression line
x = independent variable