BIZ2121-04 Production & Operations Management

Operations Strategy

Sung Joo Bae, Assistant Professor

Yonsei UniversitySchool of Business

Disclaimer: Many slides in this presentation file are from the copyrighted material in 2010 by Pearson Education, Inc. Publishing as Prentice Hall.

A few operational issues for this class

For HW 1, submit the hard copy by 9/8 (before the class begins)

There are deadlines set up for the HWs Office hours by appointment (any time)

My expectation

I want you….◦ to be◦ to think◦ to relate◦ to work ◦ to learn◦ to feel

Operations Management The systematic design, direction, and control of

processes that transform inputs into services and products for internals, as well as external, customers

Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers

From here

To here

Source: http://www.trendbird.co.kr/2440

Who’s in charge of this? Who is he?

Let’s find out who he is and what he does in Apple. (wiki)

How about this face? Familiar?

Product Design and Development vs. Operations Management Fancy new product is not the end of the

game Think about the quality control, logistical

challenge of this type of product

Across the Organization

Material & Service Inputs

Sales Revenue

Product & Service Outputs

FinanceAcquires financial

resources and capital for inputs

MarketingGenerates sales

of outputs

OperationsTranslates

materials and service into

outputs

Support Functions• Accounting• Information Systems• Human Resources• Engineering

Figure 1.1 in our textbook

iPhone 4 Bumper Program

A Process View

External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs• Workers• Managers• Equipment• Facilities• Materials• Land• Energy

Outputs• Goods• Services

Figure 1.2

Departments have their own objectives and resources to achieve them. Processes may cross different department boundaries, and require resources from several departments.

A Process View – Mfr vs. Svc

• Physical, durable output• Output can be inventoried• Low customer contact• Long response time• Capital intensive• Quality easily measured

• Intangible, perishable output• Output cannot be inventoried• High customer contact• Short response time• Labor intensive• Quality not easily measured

More like a manufacturing

process

More like a service process

Figure 1.3

Q. Is McDonald a service provider or manufacturer? Samsung Electronics? Hyundai Motors?

Manufacturing: Transformation of materials on following dimensions –physical properties, shape, size, surface finish, joining parts and materials

An Extended Process View (supplier included)

External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs• Workers• Managers• Equipment• Facilities• Materials• Land• Energy

Outputs• Goods• Services

Figure 1.2 modified

Internal and externalsuppliers

The Supply Chain View

Support Processes

Ext

erna

l sup

plie

rs

External custom

ers

Supplier relationship process

New service/ product development

Order fulfillment process

Customer relationship management

Figure 1.4

Strategic insight: Processes must add value for customers throughout the supply chain.

The Supply Chain View Core processes are sets of activities that

deliver value to external customers1. Supplier relationship process Negotiating fair prices Scheduling on-time deliveries Gaining ideas from critical suppliers

2. New service/product development process3. Order fulfillment process (e.g. Tesco Homeplus)4. Customer relationship process

Support processes provide vital resources and inputs to the core processes

Support ProcessesTABLE 1.1 | EXAMPLES OF SUPPORT PROCESSESCapital acquisition The provision of financial resources for

the organization to do its work and to execute its strategy

Budgeting The process of deciding how funds will be allocated over a period of time

Recruitment and hiring The acquisition of people to do the work of the organization

Evaluation and compensation The assessment and payment of people for the work and value they provide to the company

Human resource support and development

The preparation of people for their current jobs and future skills and knowledge needs

Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations

Information systems The movement and processing of data and information to expedite business operations and decisions

Enterprise and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business

Managerial Practice 1.1 (p.29) - Group Discussion

Progressive Insurance Case

What are the operational innovation (i.e. process innovation) that Progressive achieved?

How can you measure the success of this operational innovation?

Operations Strategy

Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm

Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions

Operations Strategy

Figure 1.5

Corporate Strategy• Environmental scanning• Core competencies• Core processes• Global strategies

Market Analysis• Market segmentation• Needs assessment

Competitive Priorities• Cost• Quality• Time• Flexibility

New Service/Product Development• Design• Analysis• Development• Full launch

Operations Strategy

Decisions• Managing processes• Managing supply chains

Competitive Capabilities• Current• Needed• Planned

Performance Gap?

No

Yes

Corporate Strategy

Environmental scanning: monitoring trends in the environment

Developing core competencies: unique resources and strengths

◦ Workforce◦ Facilities – location, flexibility◦ Market and financial know-how◦ Systems and technologies

Developing core processes (Hyundai Card vs. KB Star) Global strategies ◦ Procurement, competition – global vs. local standard (McDonald

vs. Jollibee, Burger King’s Bulgogi Burger)◦ Expansion – make/buy/alliance

Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization’s function

Market Analysis Market segmentation◦ The process of identifying groups of customers with

enough in common to be the target for a specific product or service

Needs assessment◦ Service or product needs (price, quality, degree of

customization)◦ Delivery system needs (convenience, safety, reliability,

speed, etc.)◦ Volume needs (volume, variability and predictability in

volume)◦ Other needs

Competitive Priorities are…

The critical operational dimensions a process or supply chain must possess to satisfy internal or external customer

Competitive PrioritiesTABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES

COST Definition Process Considerations Example1. Low-cost

operationsDelivering a service or a product at the lowest possible cost

Processes must be designed and operated to make them efficient

Costco – products on pallets, negotiations with suppliers

QUALITY2. Top quality Delivering an outstanding

service or productMay require a high level of customer contact and may require superior product features

Ferrari – superior product features and high performance

3. Consistent quality

Producing services or products that meet design specifications on a consistent basis

Processes designed and monitored to reduce errors and prevent defects

McDonald’s –standardization, training, procurement

TIME4. Delivery speed Quickly filling a

customer’s orderDesign processes to reduce lead time

Dell – superior order fulfillment

5. On-time delivery

Meeting delivery-time promises

Planning processes to increase percent of customer orders shipped when promised

United Parcel Service (UPS) –efficient logistics and warehousing processes

6. Development speed

Quickly introducing a new science or a product

Cross-functional integration and involvement of critical external suppliers

Li & Fung, Zara –fast NPD and delivery

Competitive Priorities

TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

FLEXIBILITY Definition Process Considerations Example7. Customization Satisfying the unique

needs of each customer by changing service or products designs

Low volume, close customer contact, and easily reconfigured

Ritz Carlton –highly individualized service

8. Variety Handling a wide assortment of services or products efficiently

Capable of larger volumes than processes supporting customization

Amazon.com – IT in delivering the variety of products

9. Volume flexibility

Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand

Processes must be designed for excess capacity

The United States Postal Service (USPS) – handling Christmas volume!!!

Competitive Priorities - FedEx

Are CPs Stable or Dynamic? (Managerial Practice 1.2, p.35)◦ FedEx – CP switched from on-time delivery

(speed) to low-cost and zero error-rate (dependability)

Order Winners and Qualifiers

Sale

s ($

)

Achievement of competitive priority

Low High

Order Winner

Figure 1.6

A criterion customers use to differentiate the services or products of one firm from those of another

Sale

s ($

)

Achievement of competitive priority

Low High

Order Qualifier

Threshold

A demonstrated level of performance of an order winner that is required for a firm to do business in a particular market segment

Using Competitive Priorities along the Core Processes

Customer relationship◦ Top quality – lounge svc◦ Consistent quality – error free svc◦ Delivery speed – flight info, ticket◦ Variety – economy, business, first class

New service development◦ Development speed – faster than the competitors◦ Customization – unique to everyone◦ Top quality – best service available

Airline Example

Using Competitive Priorities

Order fulfillment◦ Low-cost operations◦ Top quality – svc by trained crew members◦ Consistent quality – standards to keep ◦ On-time delivery – arrival in schedule◦ Variety – maintenance svc for various aircrafts

Airline Example

Using Competitive Priorities

Supplier relationship◦ Low-cost operations ◦ Consistent quality ◦ On-time delivery◦ Variety◦ Volume flexibility

Airline Example

Operations Strategy

A Bank’s Credit Card Division

Credit Card HoldersMerchants

1. Receivetransactions

2. Pay

3. Assembles and sends the bill

4. Process payments

Operations StrategyTABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS

Competitive Priority Measure Capability Gap Action

Low-cost operations

Cost per billing statement

$0.0813 Target is $0.06

Eliminate microfilming and storage of billing statements

Weekly postage $17,000 Target is $14,000

Develop Web-base process for posting bills

Consistent quality

Percent errors in bill information

0.90% Acceptable No action

Percent errors in posting payments

0.74% Acceptable No action

Delivery speed Lead time to process merchant payments

48 hours

Acceptable No action

Volume flexibility

Utilization 98% Too high to support rapid increase in volumes

Acquire temporary employees Improve work methods

Operations Strategy: Toyota case?

Figure 1.5

Corporate Strategy• Environmental scanning• Core competencies• Core processes• Global strategies

Market Analysis• Market segmentation• Needs assessment

Competitive Priorities• Cost• Quality• Time• Flexibility

New Service/Product Development• Design• Analysis• Development• Full launch

Operations Strategy

Decisions• Managing processes• Managing supply chains

Competitive Capabilities• Current• Needed• Planned

Performance Gap?

No

Yes

Trends in Operations Management

Productivity improvement Global competition Ethical, workforce, and environmental issues

Productivity Improvement

Productivity Improvement

Productivity Improvement

Case: Starwood’s new program

OM as a Set of Decisions

In practice, managers make strategic and tactical decisions1. Each part of the

organization designs and operates processes

2. Each function is connected through shared resources

Part 1: Designing & building operation systems

Part 2: Managing Operation systems

Part 3: Managing beyond boundaries: supply chain management

Operations Strategy – Big picture

Figure 1.5

Corporate Strategy• Environmental scanning• Core competencies• Core processes• Global strategies

Market Analysis• Market segmentation• Needs assessment

Competitive Priorities• Cost• Quality• Time• Flexibility

New Service/Product Development• Design• Analysis• Development• Full launch

Operations Strategy

Decisions• Managing processes• Managing supply chains

Competitive Capabilities• Current• Needed• Planned

Performance Gap?

No

Yes

Challenges in OM

Part 1: Designing & building operation systemsPart 2: Managing Operation systemsPart 3: Managing beyond boundaries: supply

chain management