Chapter 2 -Operations Strategy

1. Chapter 2 -Operations Strategy • Links long and short-term operations decisions to corporate strategy • Must be customer-driven • Helps to develop competitive priorities • Repetitive cycle for modifications

2. Operations Strategy Strategy Process Example Customer Needs More Product Corporate Strategy Increase Org. Size Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory

3. Competitive Priorities • Corporate strategy • goals • core competencies • environmental responses • new products/services • global strategies • Market analysis • segmentation • needs assessment • Competitive priorities • Operations Marketing • cost • quality Finance • time • flexibility Others • Capabilities • current • needed • plans • Functional area strategies • finance • marketing • operations • others Figure 2.1

4. Corporate Strategy • Specifies the direction of the organization over the long run. Specify business opportunities and threats, identify growth objectives, how to develop a sustainable competitive advantage. • Strategic Considerations • Global Strategies

5. Strategic considerations • Respond to pressures for flexibility. • Monitor and adjust to changes in the business environment. • Identify and develop distinctive competencies.

6. Flexibility • Evaluate and revise corporate strategy continually to remain competitive. • Develop a capability for change. • Five ways to respond to the need for flexibility • Scenario building • Reality checks • Communication • Hires • Shortening the budget cycle

7. Core Competencies • Unique resources and strengths that management considers when formulating a strategy. Examples: • Workforce: well trained and flexible (especially service organizations) • Facilities: well located and flexible (volume) • Marketing and financial skill • Systems and technology: achieve competitive advantage through innovation

8. Environment • Environmental scanning: Monitor socioeconomic trends for potential opportunities or threats. • Competition is broadening product lines, improving quality, or lowering costs • Economic trends • Technological changes • Political conditions • Social changes (such as ability to adapt to change) • Availability of vital resources • Collective power of customers or suppliers

9. Global Strategies • Forms of strategic alliances • Collaborative effort [ Kodak.] • Joint venture [China.] • Licensing of technology [Canon copiers.] • Locating operations in foreign countries: some differences to consider • Political environment • Customer needs • Customs [McDonald’s restaurants.] • Economic situation

10. Xerox R&D – explore the unknown and invent the future Xerox Research and Technology drives invention, innovation and integration throughout the corporation. Working hand in hand with Xerox's business divisions, XR&T focuses on five key areas: digital imaging, marking systems, materials, document services, and solutions. XR&T also develops research, technology and business concepts that enable Xerox growth opportunities in new markets. The group creates further customer and business value through driving industry standards and ensuring that Xerox products comply with coherence requirements. XR&T also oversees development and deployment of many of the corporation's core processes in product development through a managed Time-to-Market program. In 2000, Xerox and Fuji Xerox spent $1.6 billion on research and development (R&D), or about 8 percent of its $18.6 billion in revenues.

11. Market Analysis • Market segmentation (Step 1) • Identify customer groups having common characteristics that differentiate them from other market segments. • Incorporate market segment needs into product or service design and the operations system design. • Dimensions used to determine market segments • Demographic factors • Psychological factors • Industry factors

12. Market Analysis • Needs assessment (Step 2) • Customer benefit package • Core product or service • Set of peripheral products or services • Four categories of market needs • Product/service • Delivery system • Volume • Other

13. Competitive Priorities Cost 1. Low-cost operations Quality 2. High-performance design 3. Consistent quality Time 4. Fast, Reliable delivery 5. On-time delivery 6. New development speed Flexibility 7. Customization 8. Volume flexibility Operating system capabilities and strengths required to serve customers and outperform competitors

14. Cost Flexibility Delivery Quality Dealing with Trade-offs For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

15. Service Strategies • Standardized-services strategy • Processes are designed for low variety and high volume. • Flow tends to follow a linear pattern. [Postal Service and FedEx.] • Tasks are repetitive and routine. • Assemble-to-order strategy • Processes are designed to produce a set of standardized services and to assembling standardized offerings for specific customer needs. • Typical competitive priorities are customization and fast delivery time. • Customized-services strategy • Nested processes are typically grouped by the function they perform. • Processes are designed to provide a high variety of customized services. • Typical competitive priorities include high-performance design as well as customization.

16. Health Clinic Process Physical exam Flu Physical exam D R P Broken arm Broken arm B T Flu D: Doctor (examination rooms) R: Radiology (X-ray) T: Triage (assess severity of illness) B: Blood (lab test) P: Pharmacy (fill prescriptions)

17. Manufacturing Strategies • Make-to-stock strategy • Finished goods items held in stock for immediate delivery. • High volumes, standard products, linear flow • Production based on forecasted demand • Supports low cost, consistent quality, competitive priority. • Assemble-to-order strategy. • Assemblies and components are held in stock. • Final assembly is completed after customer selects options. • A very large number of final configurations are possible. • Forecasting the final configuration is impractical because of the many combinations.

18. Manufacturing Strategies • Make-to-order strategy • Most required materials are ordered after the customer places the order. • Goods are produced to customer specifications. • Flexible processes and flow are typical. • Supports customization as a competitive priority

19. Mass Customization • Use an assemble-to-order strategy, but typically focus on large volumes. • Postpone the task of differentiating the product or service until the latest possible moment. • Product or service implications • Design the product or service in modular forms that can be easily and quickly assembled for a specific customer. • Process implications • Design processes as independent modules that can be easily arranged to meet a variety of needs at the latest possible moment.

20. Midsized 6 cylinder Midsized 6 cylinder Compact 4 cylinder Compact 4 cylinder Automobile Assembly Process Made-to-Stock A H F S A: Front-end body-to-chassis assembly H: Hood attachment F: Fluid filling S: Start-up testing

21. Operations Strategy as a Pattern of Decisions • Operations strategy translates service or product plans and competitive priorities for each market segment into decisions affecting the processes that support those market segments. • A service or manufacturing strategy must be selected for each process. • These decisions must be continually reevaluated according to the needs of the market. • The pattern of decisions is also a function of the firm’s core competencies.

22. Operations Strategy Across the Organization • A firm is a system of interconnected parts, or functional areas. • Management information systems help to link the various functional areas. • Full collaboration among functional areas on decisions is a vital requirement for success.

23. Services Manufacturing • Standardized services • Assemble-to-order • Customized services • Make-to-stock • Assemble-to-order • Make-to-order Strategy and Decisions Corporate strategy Market analysis Competitive priorities Capabilities Operations strategy • Process decisions • Quality decisions • Capacity, location, and layout decisions • Operating decisions Figure 2.4

24. Decision Area LFKHS Chaparral Business Low-volume, High-volume strategy customized services standardized products made to stock Competitive Customized services, Low-cost, fast delivery, priorities consistent quality, and consistent quality and volume flexibility Process Labor intensive Capital intensive design Strategies at LFKHS and Chaparral

25. HP Operations Strategy • In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements. • Outsourcing PC manufacturing allows HP to focus on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.