Introduction to Course and Concept and Principles of Operations Strategy

Principles of Operations Strategy How operations can be used for competitive advantage in today’s world 1 The course focuses on four key issues • • • • Basic Principles Decision Category Framework Means of Competition New Imperatives of the 21st Century – globalization and outsourcing 2 A COMPANY’S MANUFACTURING FUNCTION TYPICALLY IS EITHER A COMPETITIVE WEAPON OR A CORPORATE MILLSTONE. IT IS SELDOM NEUTRAL. YET, THE CONNECTION BETWEEN MANUFACTURING AND CORPORATE SUCCESS IS RARELY SEEN AS MORE THAN THE ACHIEVEMENT OF HIGH EFFICIENCY AND LOW COSTS. …WHAT APPEARS TO BE ROUTINE MANUFACTURING DECISIONS FREQUENTLY COME TO LIMIT THE CORPORATION’S STRATEGIC OPTIONS, BINDING IT WITH FACILITIES, EQUIPMENT, PERSONNEL, AND BASIC CONTROLS AND POLICIES TO A NONCOMPETITIVE POSTURE WHICH MAY TAKE YEARS TO TURN AROUND. 3 SHIP IT 4 Problem one: conflicts • • • • More capacity Variety Cost Meeting targets • • • • Better forecasts Economical operations Other strategic criteria Maintaining quality 5 Problem two: role in strategy Marketing Finance Sales Strategic Planning R&D Corporate Plans Manufacturing 6 The Corporate Strategic Planning Process Less Frequent than Annual Review Corporate Business Functional 1 3 Annual Review Strategy Formulation 2 Strategic Programming 6 4 5 Strategic and Operational Budgeting 9 7 12 Interactions Hierarchical Levels of Structural Planning Conditions 10 8 11 7 The Business Strategy Literature Proposes Two Conflicting Modes of Strategy Development: • Positioning (e.g., Porter) – Choose an explicit position in the marketplace – Identify the appropriate activities that must be executed to take that position – Operations excellence can be achieved by anyone, and is therefore not a source of competitive advantage • Capabilities exploitation (e.g., Teece, Pisano) – Capabilities are the strategic consequence of functional execution – Capabilities cannot be easily bought or copied – New capabilities can form the basis of a new strategy 8 Capabilities Positioning Configuration Business Strategy Capabilities Cross-Functional Integration (Fit) Functional Strategies Manufacturing Strategy • Capabilities: Strategic Consequence of Functional Execution • New capabilities can form basis of new manufacturing strategy. • Cannot buy or easily copy capabilities that take a long time to develop. 9 External Influences Industry Forces -Industry Attractiveness External Influences - Competitive Structure: Opportunities & Threats Goals Objectives Strategic Plan: Organization’s Gaining & Maintaining “Culture” Competitive Advantage - Capabilities: Sources of - Competitive strengths/weaknesses priorities Functional Strategies Mktg. Mfg. Finance Key Success Factors: Logistics - Internal Coherence - Inter-functional Coordination - Strategic Fit 10 Companies vary considerably on this ideal approach • • • • • Use of both capabilities and positioning Formality of process Type of formal method Input of operations Focus on all decision categories 11 The Similar Approach of Hoshin Management Environmental Change Long-term vision & plan Diagnosis by president Company’s mid-term plan Plan Do Hoshin & measurement plan deployment Annual hoshins Act Control by measurement Check 12 Reasons for Inconsistent Manufacturing Structures 1. Manufacturing cannot modify the old manufacturing policies and structure. 2. Managers in manufacturing have no clear, consistent definition of the manufacturing task facing the organization. 3. The manufacturing policies and the infrastructure being employed are inconsistent. 4. The organization lacks a focus. It is attempting to cover too many technologies or too many products and markets, too wide a range volume, and more than one manufacturing task. 13 Reasons for Inconsistent Manufacturing Structures (cont.) 5. The organization has the wrong equipment & process technology for the present manufacturing task. 6. Selection of products and processes for each plant in a multi-plant setup have no consistent focus. 14 The decision category approach examines manufacturing decision categories for consistency with strategic vision • Structural decisions – bricks and mortar – machinery • Infrastructure – people – systems – procedures • Fit with business, corporation and other functions 15 Major Manufacturing Decision Categories 1. FACILITIES • size • location • focus 2. CAPACITY • amount • timing • type 3. VERTICAL INTEGRATION AND SUPPLIER MANAGEMENT • direction • extent • interfaces • collaboration 4. PRODUCTION TECHNOLOGIES AND PROCESSES • equipment • automation • interconnectedness • scale • flexibility 5. WORK FORCE AND MANAGEMENT • wage policies • security • skill levels 6. INFORMATION TECHNOLOGIES • Use and level of investment • Parity or differentiation 7. SUPPLY CHAIN AND MATERIALS • logistics facilities and methods • inventory policies • vendor relations • production planning 8. ORGANIZATION AND INCENTIVES • structure • reporting levels • degree of centralization • role of staff • control/reward systems • costing systems 9. BUSINESS PROCESSES Product Development • interfaces • responsibilities • vendor development Quality Programs • monitoring • intervention • responsibilities Other 16 Facilities and Capacities Capacity Issues: - Does Capacity lead or follow Demand: - Capacity Decisions have long lead times and involve large increments - Capacity needs to address short-term needs Facility Issues: - Pure Space Needs - Geographic & Distribution Issues - Focus Issues - Functional Needs - Scale Issues - Means of Evaluation 17 Technology Technology and the Manufacturing Process is a fundamental determinant of how a company competes - Processes have specific attributes that are appropriate for different products and life cycles - Any new process or technology will have a major effect on a business - No technology meets all needs - Products and businesses have life cycles that change process needs - Multiple sites involve issues of management and focus 18 Process Productivity is Best Understood Through the Process-Product Matrix Products One of Kind Jumbled High Volume Job Not Productive Not Flexible Continuous Process Rigid 19 BASIC INFRASTRUCTUAL QUESTIONS • • • • • • Levels and strengths of Hierarchy Orientation and form of organization Class culture Information and control systems Role of materials and logistics Outsourcing and vertical integration (the most fundamental question of the day 20 The strategic mission matches the organization’s strengths to a limited set of external measures of performance Measures of Performance • • OPERATIONS COSTS –unit costs –total (volume) costs • –lifetime costs • AVAILABILITY –percentage of on-time shipments –response to results for info or changes • –product and volume flexibility –delivery time QUALITY – return rate – product reliability and durability – cost and rate of field repairs INNOVATIVENESS AND FEATURES – product innovativeness – time to market and development cycle ENVIRONMENTAL PERFORMANCE – Ease of disassembly and recycling – Use of resources 21 The Classic Strategies Strategy Low Unit Cost Technology Specialized equipment Infrastructure Marketing & Sales Materials planning Narrow line Price and control High service Level Reserve capacity Inventory Dependability Wide line and custom products Flexible machines Reserve capacity Worker skills Scheduling Customer needs Product innovation General purpose Development Team skills Market leadership New segments 22 Present Operations Policies Operations Unit Decision Category Description of Past Policy Strengths Weaknesses Production Technologies & Processes Capacity Workforce and Management 23 Present Operations Policies (cont’d.) Operations Unit Decision Category Description of Past Policy Strengths Weaknesses Business Processes Facilities Vertical Integration 24