Business Finance - Operations Management OPMT 620: Operations Management - Case Study McDonalds Assignment
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Stevenson7ce_PPT_Ch02.pptx
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Competitiveness
Strategic Planning
Productivity
Sam Lampropoulos George Brown College
Chapter
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IKEA
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IKEA is the world’s largest furniture retailer. It has close to 1,800 suppliers in 50 countries, 42 trading service (purchasing) offices around the world, 43 manufacturing plants in 9 countries, and 422 franchised stores in 50 countries. It employs 208,000 people.
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List and discuss the primary ways that organizations compete.
Describe mission/vision; goals, strategies, and tactics; operations strategy and its formulation; and generic operations strategies, supply chain strategy, global strategy, sustainability strategy, and strategic planning.
Define and measure productivity, explain several factors that affect productivity, and describe why it is important to manufacturing and service organizations.
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Learning Objectives
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Competitiveness
Strategic Planning
Mission, Vision, and Values
Goals, Objectives, Strategy,
Tactics, and Action Plans
Strategy Formulation
Productivity
Productivity Measurement of Services
Factors that Affect Productivity
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Chapter Outline
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Competitiveness:
The ability and performance of an organization in the marketplace compared to other organizations that offer similar goods or services.
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Competitiveness: Key Purchasing Criteria
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Figure 2-1
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Competitiveness: Key Purchasing Criteria
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| Factors | Description |
| Price | The amount a customer must pay for the good or service. |
| Quality | The characteristics of a good or service that are determined by its design, material, workmanship, performance, consistency, etc. |
| Variety | The choice of models and options available to customers. |
| On-Time Delivery (Timeliness) | The availability of goods or services when they are needed by the customer. |
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Order qualifiers
Minimum standards of acceptability for purchase
Allow product to be considered
Order winners
Create perception of being better than the competition
Allow product to be purchased
Order Qualifiers and Order Winners
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Order qualifiers are those purchasing criteria that customers perceive as minimum standards of acceptability for purchase. However, these may
not be sufficient to get a customer to purchase from the organization. Order winners are those purchasing criteria that cause the organization to be perceived as better than the competition.
Businesses Compete Using Operations: Competitive Priorities
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Figure 2-3
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Cost is the unit production of a good or performance of a service to the organization. Organizations
that compete based on cost (i.e., price from a customer’s perspective) emphasize
lowering their operating costs.
Quality from an organization’s perspective means determining customers’ quality requirements,
translating these into specifications for goods or services, and consistently producing
goods or performing services to these specifications.
Flexibility refers to being able to produce a variety of goods or performing a variety of
services in the same facility. This also includes customization, which is modifying goods
or services to meet the requirements of individual customers. It may also refer to being able
to easily increase or decrease the production quantity of goods or performance quantity of
services (quantity flexibility). Flexibility is usually achieved by having general-purpose
equipment, excess capacity, and multiskilled workers, resulting in easy changeover between
production of goods and performance of services.
Delivery flexibility and speed refers to being able to consistently meet promised due dates by producing
goods or performing services on time or quickly. Delivery is achieved by using faster and more reliable resources/processes.
Competitive Priorities
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Examples of competitive priorities used by companies.
Table 2-1
| Competitive Priority | Emphasis | Company Examples |
| Cost | Low Cost | The Great Canadian Superstore (Loblaw), WestJet, Walmart, Amazon, IKEA |
| Quality | Meeting customer requirements Innovation Customer Service | Sony, Sobeys, Toyota, Honda, Apples, 3M, IKEA, GE, Boeing, Disney, Amazon, Costco |
| Flexibility | Variety Quality, flexibility | Dell Computer, Walmart, Potash Corp, Air Canada |
| Delivery | Rapid delivery On-time delivery | McDonald’s, UPS, Domino’s Pizza, WestJet, Shopper Drug Mart, Magna International (just-in-time supplier) |
Table 2-1
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Table 2-1 Page #32
Mission/Vision/Values
Mission
Where the organization is going now, products and markets
Vision
Where the organization desires to be in the future
Values
Shared beliefs of the organization’s stakeholders
Goals and Objectives
Provide detail and scope of mission
Strategies
Plans that determine direction for achieving organizational goals
Tactics and Action Plans
The specific methods and actions taken to accomplish strategies
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Some organizations determine and use a mission, vision, and values statement during their strategic planning process. This may help build consensus within the organization as well. An organization’s mission is where the organization is going now, its products, and its markets. Vision is where the organization desires to be in the future. Vision has to be realistic. Values are the shared beliefs of the organization’s stakeholders that should drive everything else such as culture, mission/vision, and strategy.
Selected Company Mission Statements
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| Company | Mission Statement |
| Starbucks | To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. |
| WestJet | To enrich the lives of everyone in WestJet’s world. We’re proud to have won awards that show us you think we do. |
| Food Banks Canada | To provide national leadership to relieve hunger today and prevent hunger tomorrow in collaboration with the food bank network in Canada. |
Table 2-2
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Hierarchical Strategic Planning
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Figure 2-4
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Figure 2-3 Page#36
Hierarchical Strategy Example
Lily is a high school student. She would like to live comfortably. A possible scenario for achieving her mission/vision might look something like this:
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Operations Strategy
Operations strategy – set of coordinated policies, objectives, and action plans, directly affecting the operations function
Consistent with organization strategy
Support competitive priorities
Aimed at securing a long-term sustainable advantage over the competition
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The operations function can play a proactive role in strategic planning by helping shape the operations strategy (as opposed to the reactive role of just fixing operations problems). Operations strategy comprises a set of well coordinated policies, objectives, and action plans, directly affecting the operations function, which is aimed at securing a long-term sustainable advantage over the competition.5
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Strategic Decision Categories
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Facility. specialize or focus by market, product group, or production process type?
Capacity. size of plants and major equipment. how to change to meet future demand.
Vertical Integration/Outsourcing. Cost, coordination, and control of the supply chain
Supplier Relationship/partnership. competitive arm’s-length or cooperative close relationships (e.g., strategic alliance). Partner with supplier or inspect incoming parts.
Product Mix and New Products. challenges increase as variety increases
Process Types and Technology. job shop, batch, assembly line, and continuous flow. Appropriate technologies and degree of process automation.
Human Resources. workers/staff are appraised, selected, developed, motivated, promoted, and rewarded
Quality. Conformance to specification quality assurance, control, and improvement.
Operations Infrastructure and Systems. choosing a computerized planning and control system (including forecasting, material requirements planning, and scheduling), whether to use just-in-time production, operations policies, and the type of production/delivery system used (make-to-stock or make-to-order).
Facility
Capacity
Vertical Integration/Sourcing
Supplier Relations/partnerships
Product Mix and New Products
Production Process Types and Technology
Human Resources
Quality
Operations Infrastructure and Systems
Formulation of an Operations Strategy
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1. Link the organizational goals (e.g., becoming a leader in an industry) to the operations strategy: determine operations requirements of the organizational goals.
2. Categorize/segment the customers into types: for example, major customers (with whom a closer relationship is desirable) and others (with whom a transactional arm’s length relationship is adequate). For each category, determine which of the four competitive priorities (cost, quality, delivery, and flexibility) should be emphasized.
3. Group product lines into types: for example, classify the product lines into low volume and high volume.
4. Conduct an operations audit to determine the strengths/weaknesses of the current operations strategy in each of the nine strategic decision categories. Also, for each customer category/segment, assess the relative standing of products (relative to desired competitive priorities) against those of the most relevant competitors.
5. For a multi-plant corporation, assess the degree of focus at each plant (a focused plant is more efficient). Use the product–process matrix (described in Chapter 6) to detect the degree of congruence between a product line and its production process. For example, a low volume–high variety product line should be produced using a job shop process.
6. Develop an operations strategy and reallocate product lines to plants if necessary. For each of the nine strategic decision categories, state the objectives, policies, and action plans. Deploy these policies and action plans.
1. Link organizational goals to the operations strategy
2. Categorize/segment customers into types and choose competitive priority emphasis
3. Group product lines into types
4. Conduct an operations audit to assess strengths/weakness and competitive position
5. Assess degree of plant focus
6. Develop and deploy strategy for each decision category
objectives, policies, action plans
( high/low volume)
Generic Operations Strategies:
Generic Operations Strategies
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used by some Japanese manufacturers since WWII
Low labour-cost strategy. Immediately after the war, they exploited the (then) inexpensive labour pool.
Scale-based strategy. During the 1960s, they used capital-intensive methods to achieve higher labour productivity and lower unit costs.
Focused factories strategy. During the 1970s, they used smaller factories that focused on narrow product lines to take advantage of specialization and achieve higher quality.
Flexible factories strategy. During the 1980s, they reduced the time needed to add new product and process designs. They used flexible equipment that allowed volume and design changes, as well as product variety. They also continued to stress quality.
Continuous improvement strategy. In the 1990s, they introduced new product features and continuous improvement of both products and processes.
Continuous Improvement
Large scale-base
Focused factories
Flexible factories
Low labour cost
Quality and Time-based Strategies
Time-based strategies
Focuses on reduction of time needed to accomplish tasks
Quality-based strategies
Maintain or improve quality
May use initiatives such as 6-sigma or process re-engineering
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more recently popular generic strategies
Supply Chain Strategy
A supply chain strategy specifies how to cooperate with the organization’s supply chain (including suppliers, distributors, and customers) to achieve supply chain goals and to be competitive.
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Global Strategy
As globalization increased, many companies realized that strategic decisions with respect to globalization must be made. Two global strategies:
One relates to where parts or products are made, or where services such as customer support are performed.
The other relates to where products or services are sold.
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Sustainability Strategy
Sustainability strategy refers to the plans developing a sustainability vision to the level of organizational governance, which includes formulating goals for products and services, processes, and the entire supply chain; measuring achievements; and striving for improvements to achieve sustainability goals.
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Strategic Planning
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Figure 2-5
Balanced Scorecard
Framework
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Figure 2-2 Page #32
Strategic planning is the process of determining a strategy—that is, a long-term plan that will set a new direction for an organization—and implementing it through allocation of resources and action plans.
The analysis usually concerns the competitiveness of the organization. A well known decision aid is the strengths, weaknesses, opportunities, and threats (SWOT) analysis. The organization will try to identify these and to use/build up its strengths (relative to its competitors) to take advantage of market opportunities, and to avoid/neutralize its weaknesses (relative to its competitors) to defend against the threats.
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Productivity
A measure of the effective use of resources, usually expressed as the ratio of output to input
One of the primary responsibilities of an operations manager is to achieve productive use of an organization’s resources
Productivity ratios can be computed for:
A worker
A department
An organization
A country
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=
Outputs
Inputs
Productivity
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Productivity Growth
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
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Key factor in a country’s standard of living. Adds value while keeping inflation in check. Labour, capital and management are three components of productivity improvement. This is further displayed on slide #26
Labour
Capital
Management
Measures of Productivity
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Table 2-3
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Table 2-3 Page #43
Partial Productivity Measures
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| Labour Productivity | Units of output per labour hour Units of output per shift Value-added per labour hour Dollar value of output per labour hour |
| Machine Productivity | Units of output per machine hour Dollar value of output per machine hour |
| Material Productivity | Units of output per unit material input Litres per 100 km is the inverse of the productivity measure but it is still used to measure productivity. Dollar value of output per unit material input |
| Energy Productivity | Units of output per kilowatt-hour Dollar value of output per kilowatt-hour |
Table 2-4
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Example: Multifactor Productivity
Ans. 2.0 units per dollar of input
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Productivity Example: Solution
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Productivity Measures are Useful
Productivity efficiency
Used to:
Track performance over time
Determine areas for improvement
Compare competitiveness
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Productivity measures can also be used to judge the performance of an entire industry or a country as a whole. These productivity measures are aggregate measures.
In essence, productivity measurements serve as scorecards of the efficient use of resources. Business leaders are concerned with productivity as it relates to competitiveness:
If two companies both have the same level of output, but one requires less input because of higher productivity, that one will be able to charge a lower price and consequently increase its share of the market, or it might elect to charge the same price, thereby reaping a greater profit.
Productivity Measurement of Services
Measurement of service productivity is problematic because services :
Are intangible
Involve intellectual activities
Have output with a high degree of variability
How do you measure an improved state of a customer?
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Factors Affecting Productivity
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Methods
Management
Technology
Labour
A company’s competitive priorities might be cost, quality, flexibility, and/or delivery reliability.
Identify order qualifiers and order winners
Strategies are plans for directing the organization to achieve its mission/vision/goals.
An operations strategy is a coordinated set of policies, objectives, and action plans related to the operations function in nine strategic decision categories.
Productivity is a measure of efficient use of resources that is:
Affected by methods & management, equipment & technology, and labour
Difficult to measure for highly variable, intangible output of services
Chapter Summary
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Identify major competitive priorities.
Define strategic planning, mission/vision/values, and operations strategy.
Identify nine strategic decision categories.
List steps involved in formulating an operations strategy.
Define productivity and discuss how it is measured.
Describe factors affecting productivity.
Explain why measuring productivity of services is difficult.
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Learning Checklist
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