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  1. Topic-3 Operations Strategy

  2. Operations Strategy • Definition: Strategy is a set of plans and policies by which a company whishes to gain advantages over its competitors in the marketplace. • Three levels of strategy: 1.Corporate Strategy: overall plan of company— Company level. (What Market segment do we want to go?)

  3. Operations Strategy • 2. Business Strategy: General plan of Strategy Business Unit (SBU) (How do we compete in the selected market?) • 3. Functional Strategy: Specific Plan of a functional unit. • Operations strategy: How does the production system provide the desired competitive advantages in marketplace?

  4. Corporate strategy • environmental scanning • core competencies • core processes • global strategies • Market analysis • segmentation • needs analysis • Competitive priorities • cost • quality • time • flexibility • New Service/ • Product Design • design • analysis • development • full launch • Functional area strategies • finance • operations • marketing • others Competitive Priorities • Capabilities • current • needed • planned

  5. Operational effectiveness is the ability to perform similar operations activities better than competitors. • It is very difficult for a company to compete successfully in the long run based just on operational effectiveness. • A firm must also determine how operational effectiveness can be used to achieve a sustainable competitive advantage. • An effective competitive strategy is critical.

  6. Operations performance criteria • 1. Productivity • 2.Quality • 3.Flexiblity • 4.Reliability • 5.Low price/cost • 6.Consistency • 7.Delivery speed • 8.Delivery reliability • 9.Stisfaction of workers • 10. ………………………

  7. Order-winning criteria • 1.Cost leader • 2.Unique feature/value of products/service • 3.Variety of products/service • 4.High quality • 5.New product leader • 6.Flexibility to market changes • 7.Customerization

  8. Competitive Priorities • Low Production Costs • Definition • Unit cost (labor, material, and overhead) of each product/service • Some Ways of Creating • Redesign of product/service • New technology • Increase in production rates • Reduction of scrap/waste • Reduction of inventory

  9. Competitive Priorities • Delivery Performance • Definition • a) Fast delivery b) On-time delivery • Some Ways of Creating • a) larger finished-goods inventory b) faster production rates c) quicker shipping methods d) more-realistic promises e) better control of production of orders f) better information systems

  10. Competitive Priorities • High-Quality Products/Services • Definition • Customers’ perception of degree ofexcellence exhibited by products/services • Some Ways of Creating • Improve product/service’s • Appearance • Performance and function • Wear, endurance ability • After-sales service

  11. Competitive Priorities • Service and Flexibility • Definition • Ability to quickly change production to other products/services. Customer responsiveness. • Some Ways of Creating • Change in type of processes used • Use of advanced technologies • Reduction in WIP through lean manufacturing • Increase in capacity

  12. No Single Best Strategy • Start-up and Small Manufacturers • Usually prefer positioning strategies with: • Custom products • Job shop or batch Shop focused production • Produce-to-order policies • -- more flexible and require less capital. -- can Successfully compete with large corporations by: • Carving out a specialty niche • Emphasizing close, personal customer service • Developing a loyal customer base

  13. A higher quality, 100% fresh beef burger (and associated products) sold to an older (over 25) market on an “as you want it basis”. A uniform, economical, mass produced burger (and associated products) sold to younger market on a standardized basis. Wendy’s McDonald’s Mission & Purpose

  14. Wendy’s Operations McDonald’s Operations

  15. Wendy’s Operations McDonald’s Operations

  16. TI vs. HPDifferentiation: Hand Calculators

  17. TI vs. HP (Cont.)

  18. TIMEX –(Its early Success) Not taken seriously at first by U.S. and Swiss watch manufacturers, Timex introduced its line of inexpensive watches in 1950. By 1970, half of the watches sold in the U.S. (and lots of foreign countries) were made by Timex. The success of Timex depended upon a careful matching of production and marketing strategies. The Timex formula through the early years: Mass Production and Mass Marketing.

  19. TIMEX: Mass Production • Single, simple product focus • Simple process technology • Unskilled labor • Economies of Scale • Product durability stressed • High degree of standardization

  20. TIMEX: Mass Marketing • Mass distribution through drug stores • Changed consumer’s views towards watches: No longer a “heirloom”, but functional • T.V. Ads used to reach masses • Now consumer challenged that relationship

  21. TIMEX: (follow-up story) • In the 1960’s Timex upgraded its product lines partly as a competitive weapon and partly as an attempt to expand its market. The plan: moved to 17 and 21 jeweled watches, electronic watches, multiple technologies, expanded retail outlets. Timex expanded its focus from the single product, single technology company it was in 1950’s. Pros: Upper end of their line made lower portion of line look good. Cons: Image problem, customers confused. Increased competition. Multi product line increased inventory holdings, operating costs.

  22. Operations Strategy Model Structure: Capacity Facility Technology Competitive Priorities: Cost Quality Flexibility Delivery Infrastructure: Workforce Quality Production Planning Organization

  23. Time line for Operations Strategies

  24. Characteristics of a good operations strategy • 1. Is the operations adaptive and flexible? (Ready for changing in operations when necessary?) • 2. Dose the operations unit provide a real competitive advantage? (An advantage in facility may not be an advantage in the marketplace.)

  25. “Thanks, but I really have no use for a Stairmaster.” “A unique competence may not give you a real competitive advantage”- a lesson for Operations managers.

  26. Characteristics of a good operations strategy • 3. Are operations decisions internally consistent? • 4. Are operations decisions compatible with and supportive if the firm’s strategy? • 5. Is the operation unit focused on a limited dimensions?

  27. Strategic vs Tactical Decision

  28. Strategic vs Tactical Decision (II)

  29. Examples of strategic decisions in operations management • 1.Product and process design • 2.Technology selection • 3.Inventory level determination • 4.Work force size and composition • 5.Facility location • 6.Facility size and layout (capacity planning)

  30. Examples of strategic decisions in operations management (II) • 7.Integration degree • 8.span of process (e.g. make of buy decision) • 9. quality assurance planning • 10. organizational structure • 11. management information system design for production planning and control

  31. Strategy Formulation Process • Analysis of business environment External factors: customers/competitors/market segment social/political/technological/……… Internal factors: Finance/marketing/supplier/capacity of production/work force/………

  32. Strategy Formulation Process • Specification of overall business strategy How firm’s capabilities best match current (potential) market opportunities? • Determination of operations performance criteria Price leader/quality/reliability/customization /………

  33. Strategy Formulation Process • Strategic operations decisions Capacity planning/facility location selection/span of process facility size and layout/product and process design/………

  34. Product’s Life Cycle • Introduction- Sales begin, production and marketing are developing, profits are negative. • Growth - sales grow dramatically, marketing efforts intensify, capacity is expanded, profits begin. • Maturity - production focuses on high-volume, efficiency, low costs; marketing focuses on competitive sales promotion; profits are at peak. • Decline - declining sales and profit; product might be dropped or replaced.

  35. Automobile Dot-Matrix Printer Fax Machine Cell Phone Video Recorder Internet Radio Color Copier CD Player B&W TV Introduction Growth Maturity Decline Stages of a Product’s Life Cycle

  36. National competitive advantages • 1.Factor conditions: a nation’s ability to turn its basic resources into a specialized advantage. • 2.Demand conditions: number and sophistication of domestic customers, and the strength of media exposure to customers. • 3.Related and supporting industries: High integration and corporation within the industry and among related industries. (e.g. • A supplier industrial “cluster” or “chain”

  37. National competitive advantages • 4. Company strategy, structure and rivalry: An effective strategy with matching organizational structure and strong domestic competition. (combination of all 4 points above is desirable for a nation to gain competitive advantages.)

  38. National competitive advantages • 5.Chance and opportunity: (e.g. wars, oil crisis, etc.) • 6.Government support: (e.g. favorable policies and regulations)

  39. International Companies • International companies are those whose scope of operations spans the globe as they buy, produce, and sell. • International firms search out opportunities for profits relatively unencumbered by national boundaries. • Operations managers must coordinate geopraphically dispersed operations.

  40. International Companies • World’s Largest Corporations • 1. General Motors US 2. Wal-Mart Stores US 3. Exxon Mobil US 4. Ford Motor US 5. DaimlerChrysler Germany 6. Mitsui Japan 7. Mitsubishi Japan 8. Toyota Japan 9. General Electric US 10. Itochu Japan

  41. Global operations strategy Between two extremes: • Domestic operations with exporting orientation (e.g. Diamond cutting) • Localized operations by licensing & joint ventures: (e.g. fast food industry) • ………………………

  42. Global operations strategy • Multi-national operations through subsidiary structure. (e.g. Professional service. Public accounting, etc.) • Global operations with cross-nation integrated manufacturing (e.g. Auto and electronics industries)

  43. Global operations strategy • Two important strategy determinants: 1.capacity rationalization: required by the scale and efficiency of operations, productivity oriented. 2.Localization of operations: required by different local technical standards, demand specifications and local governmental regulations.

  44. Cont.

  45. Ranking of Preferred Competitive Strategies: North America, Japan, and Europe Note: 1 is the highest ranking and 8 is the lowest

  46. Strategic alliance • Strategic alliances are joint ventures among international companies to exploit global business opportunities • Alliances are often motivated by 1.Product or production technology 2.Market access 3.Production capability 4.pooling of capital

  47. Strategic Alliances Kia might help sell and market GM cars in South Korea General Motors (US) & Kia Motor Corp. (S.K.) Manufacture 100,000 vehicles annually near Moscow Renault (France) & City of Moscow Forming Texas-based Sino Swearingen Aircraft Co. Sino Aerospace Invest- ment Corp. (Taiwan) & Swearingen Aircraft (US)

  48. E-Shoe Retailer - Zappos ”Amazon”of Shoe Retail