operations management
Class 3: Operations Strategy
Instructor: Mani Lakshmanan
P300 Introduction to Operations Management
Class 2 Review
Process types and layout
Process flow diagram
Process capacity
Cycle time
Capacity rate
Flow time
Bottleneck
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B
C
D
Product 1
Product 2
Job shop:
high variety, low volume
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Outline
Levels of strategic planning
Develop operations strategy
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Levels of Strategic Planning
Environment
Corporate Culture
Corporate Strategy
Business Strategies
SBU
SBU
SBU
Operations Strategy
Finance, Marketing, etc. Strategies
Strategic Questions
What business(es) should we be in?
How do we compete?
How do we best support the SBU (Strategic Business Unit) strategy?
Structure
Infrastructure
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Example: Southwest Airline
What business should we be in? -Airline
How do we compete? Low price and high convenience
How do we best support the strategy?
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| Full-Service Airlines | Southwest | |
| Route Structure | ||
| First-Class Service | ||
| Meal Service | ||
| Seat Assignment | ||
| Fleet of Aircrafts |
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Levels of Strategic Planning
Environment
Corporate Culture
Corporate Strategy
Business Strategies
SBU
SBU
SBU
Operations Strategy
Finance, Marketing, etc. Strategies
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Business Model:
An integrative, systematic view of how the SBU generates value
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Outline
Levels of strategic planning
Develop operations strategy
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Developing an Operations Strategy
Critical Customer: critical to firm’s success and receives firm’s focus
Value Proposition: tangible and intangible “benefits” that customers expect to obtain from a firm
Capabilities: operational
activities a firm does well
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Value
Proposition
Capabilities
Critical
Customer
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Developing an Operations Strategy
Develop an operations strategy to maximize the value creation for the company
Assess critical customer wants and needs
Decide value proposition and communicate it with OM managers
Use and develop the required operational capabilities
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Critical Customer
Critical Customer: Critical to firm’s success and receives firm’s focus.
Is it the end user?
Which customers’ needs should be addressed/ignored?
How to identify?
Largest current or future sales.
The one with highest prestige.
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Identify Critical Customer
Products: Inexpensive, durable bicycles.
The end customers are non-professional bicycle riders.
Sold through mass merchandising channels.
Who determines availability?
Probably Not… At least for me, I will take Target’s choice
When you walk into to buy a bicycle, are you looking for a specific brand?
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Identify Critical Customer
Do they have the same critical customers?
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Assessing Customer Wants and Needs
Product traits
Order Winners: why customers choose your firm
Order Qualifiers: minimum standards to be met
Order Losers: why customers avoid your firm
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Value Proposition
Value Proposition: firm’s offerings that are valued by critical customers and different from competitors.
Customers will pay for
Difficult to imitate by competitor
Satisfies financial and strategic firm objectives
Deliverable using the firm’s capabilities and supply chain
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Competitive Priorities
Product-related: outcome of customer experience
Quality
Timeliness
Cost
Process-related: supply chain operations’ abilities
Innovation
Flexibility
Sustainability and Risk Management
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Product Related Competitive Priorities
Quality: fitness for consumption in terms of meeting customer needs & desires
Features (unique attributes)
Conformance (no defects)
Reliability (long time to failure)
Aesthetics (appeal)
Service/support (intangibles)
…
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Product Related Competitive Priorities
Timeliness: delivery or availability when customer wants
On-time delivery
Product/service availability
New product: time-to-market lead time*
Existing product: order-to-delivery lead time*
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* Lead Time: The amount of time that passes between the beginning and ending of a set of activities
*Time-to-market lead time: the total time that a company takes to conceive, design, test, produce, and deliver a new or revised product for the marketplace
*Order-to-delivery lead time: time interval starting at the moment of order to the moment that the customer receives the product.
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Product Related Competitive Priorities
Cost: expenses incurred in acquiring or using the product
Purchase cost (price)
Maintenance and operating cost
Disposal cost
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Process Related Competitive Priorities
Innovation: radical and incremental changes in products and processes
Radical vs. Incremental
Process innovation
Technological vs. Organizational
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Process Related Competitive Priorities
Flexibility: operation’s ability to respond efficiently to changes in products, processes and competitive environment
a means for coping with uncertainty
Short-term: operational ( i.e. labor flexibility)
Long-term: strategic (i.e. new product)
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Process Related Competitive Priorities
Sustainability: operations that are profitable and non-damaging to society or the environment
Socially responsible: pressure from government, social groups, consumers
Less: energy, input and waste
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Cayuga coal-fired plants, Indiana
Equipment that reduces sulfur dioxide and nitrogen oxides emissions
Purchase
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Process Related Competitive Priorities
Risk Management: anticipating and dealing with unexpected events
- Disruption: natural, social, economic, quality
- Safety and security: growing concern
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Strike Forces Honda to Shut Plants in China, 2010
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Capabilities
Unique and superior operational abilities that stem from the routines, skills, and processes that the firm develops and uses.
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Quality
Timeliness
Cost
Innovation
Flexibility
Sustainability
Risk management
Competitive priorities
Process Design
High Quality Process (Quality Control)
Low Cost Process (Line Balancing)
“Fast” Process (Flow Time, Capacity Rate)
Flexible Process
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The Notion of FIT
The PRIORITY on value propositions
Quality
Timeliness
Cost
Innovation
Flexibility
Sustainability and Risk management
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Product Related
Process Related
Value
Proposition
Capabilities
Critical
Customer
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“Which of the following discount stores do you most closely associate as being the best at each of the following aspects of the shopping experience?”
Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003
| Wal-Mart | K-Mart | Target | |
| Price | 84% | 6% | 11% |
| Selection of products | 70% | 5% | 25% |
| In-stock merchandise | 66% | 5% | 28% |
| Parking | 48% | 14% | 38% |
| Quality of products | 44% | 5% | 51% |
| Cleanliness | 30% | 3% | 67% |
| Checkout | 40% | 10% | 50% |
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Operational Strategy
Providing customers access to quality goods, when and where needed, at competitive prices
- Low costs
-Short flow times
-Oversea Purchasing
-Focused locations
-Cross docking
-Electronic Data Interface
-Communication between retail stores
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Operations Frontier and Tradeoffs
Low price
Responsiveness
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