Operations Strategy/

Competitive Advantage
N.K.Agarwal
Operation/Production function essential to every
business
Operations create wealth in a global economy
Operation function responsible to make four key
decisions
Process
Quality
Capacity
nventory
!roduction Function
Production function in manufacturing involves
Transforming a set of inputs through a process into a
predetermined set of outputs
!roduction Function
Production / operations manager is the wealth
creator in the company
Operations managers make
Decisions regarding the operations function,
ts interaction with other functions within the organisation
and the external environment, and
Plan and control the production process
n an efficient and effective manner
!roduction Manager
Major Decisions at !izza USA
A Framework for OM
Process
How to produce & deliver
Quality
Criteria, measurement & process for achieving
Capacity
Physical facilities & labor
nventory
What, when & how much?
!roductive System
eans by which
nput resources
Are transformed to create
Useful goods (products) & services
As outputs.
Production process
(Converter)
Material
Labour
Energy
Capital
InIormation
Products
Services
InIormation
InIormation Processor
(controller)
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Control (Feedback)
subsystem
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Inputs TransIormation
Output
AN OPERATING SYSTEM
Products
Tangible things that can be carried away with the person
Services
ntangible and perishable and are consumed in the process
of their production.
!roducts and Services
Characteristics of !roducts Vs Services
!roducts Services
TangibIe
IntangibIe & perishabIe; consumed in the
process of their production
Can be produced to inventory for off-the-
sheIf avaiIabiIity
AvaiIabiIity achieved by keeping the
productive system open for services
MinimaI contact with uItimate consumer High contact with cIients/customers
Demand on system varies on weekIy,
monthIy or seasonaI basis
Demand commonIy variabIe on hourIy,
daiIy and weekIy basis
Markets served by productive systems
are regionaI,nationaI or internationaI
Markets served are usuaIIy IocaI
Large units that can take advantage of
economies of scaIe
ReIativeIy smaII units to serve IocaI
markets
Location of system is in reIation to
regionaI, nationaI and internationaI
markets
Location dependent on Iocation of IocaI
customers, cIients & users
CompIex and interreIated processing SimpIe processing
Defined as
Decision making in the operations function
ntegration of these decisions with other functions
A transformation system that converts inputs into outputs
n an efficient and effective manner
!roduction / Operation
Management (!OM)
Interfacing with other systems
Basic functional groups:
arketing
Generates demand
Finance
Generates the capital
Production
Generates the supply of outputs.
Marketing and !OM
arketing system
Discovers and transmits the need of consumers to the total
organisation including the PO system
Which supplies these needs.
Translates the demand for future into units of production &
desired delivery schedules.
!OM-Marketing interface
arketing furnishes data on:
Size of market
Volume of production needed to meet anticipated market
needs
Desired inventories
Anticipated changes in production of other products
Anticipated delivery schedules: amount,location,timing
Packaging needs
Unreasonable commitment to customers regarding
Customisation
DeIivery scheduIe
Order quantity
ConfIicts between Marketing and
!OM
!roduction/Operation
Management
PO system generally consists of:
Forecasting facility requirement
Designing total production facility
Planning output levels
Planning inventory levels
Controlling work input
Controlling work output
Feedback
Replanning
PO
Provides production facilities-plants,equipment and
personnel.
Provides statistical quality control
Sustains technological growth and improvement & economic
viability.
!roduction/ Operation
Management
!OM- Finance & Accounting
interface
F&A Function
Responsible for all cash flows between the organisation and
external environment.
nterfaces from the inception of the idea of product through
its development stages till it is sold
!OM-F&A Interfacing
mportant areas
Accumulation of operating data to form a starting point for
standards
Accumulation of cost data of a job, a time period or a
process
Assignment of general costs to profit centres
Determination of profit/loss of profit centres
Determination of value of work-in-process (w-i-p)
Determination of financial value of raw material & finished
goods inventories
Providing status of jobs or w-i-p
!OM- Information system
nformation function
ncorporates policy information flow from management
Feedback information to management
nformation from external environment, as well as
nternal systems within the organisation
!OM-Information interfacing
nformation function interfaces in respect of
nventory control
Cost control
Reporting status on orders
Production schedules
Forecasting & scheduling material requirement
Control of w-i-p
Quality control
Preventive maintenance planning
ake or buy decision
Labour efficiency records
Operations Strategy
Strategy formulation a process by which a firm
determines how it will compete in its industry
t involves goal determination and the development of
policies for achieving these goals
Some of these functional areas to define key
operating policies are
arketing
Sales
Target markets
Product line
Finance & control
Engineering and R&D
Labour
Purchasing
Production
Distribution
Purchasing, Production and Distribution must be
carefully related for the operation function
Production stand alone can not work
Purchasing provides the material inputs
Physical distribution system actually involves additional
processing steps in the product flow
Engineering, R&D and labour provide key inputs to the
operations function
Product design and key process technology comes from
R&D function
Labour provides a crucial input to the production
Operations Strategy
All the activities in the line of material flow from
suppliers through fabrication and assembly and
culminating in product distribution must be integrated
for a sensible operational strategy formulation
There are six major components to operations
strategy
Strategic implications of operating decisions
atching the productive system design to market needs
Capacity and location
Technological choices
The work force and job design
Suppliers and vertical integration
Operations Strategy
nterprise Competitiveness and
the Operations Function
Four dimensions of competitiveness that measure the
effectiveness of the operations function
Cost
Quality
Dependability as a supplier
Flexibility/ service
Cost
Profitability is related to the difference between price and
cost
To compete on the basis of price requires an operations
function capable of manufacturing at low cost
The effects of location, product design, equipment
use and replacement, labour productivity, good
inventory management, employment of process
technology etc.,all contribute to the resulting costs
Unit costs are usually reduced as experience is
gained through production
However, a number of additional sources contribute
to this
mproved production methods and tools, improved product
design, standardisation, improved material utilisation,
reduction of system inventories, improved layout and flow,
economics of scale and improved organisation
nterprise Competitiveness and
the Operations Function
"uaIity
Product quality has often been cited as a reason for
preferring the products purchased by the customers
Dominance by Japanese products
Customers are often willing to pay more for or wait for
delivery of superior quality products
DependabiIity of a SuppIier
Reputation for dependability of supply or even off-the-shelf
availability is often strong competitive weapon
Customers may compromise on cost or even quality in order
to obtain on-time delivery when they need an item
The scheduling and coordination of all elements of the
productive system determine its ability to produce on time
nterprise Competitiveness and
the Operations Function
FIexibiIity / Service
Ability to be flexible will depend upon the design of
the productive system and the process technology
employed
For large volume production of a standardised item,
perhaps it is not worthwhile
A competitor could offer such flexibility and there may
a substantial market for him
Ready availability of good service facility, spare parts
can be winners in the competitive market
nterprise Competitiveness and
the Operations Function
Reference
Production & Operations anagement:
Aswathappa / Bhat
odern Production/Operations anagement:
Buffa / Sarin
Operations anagement: Roger G. Schroeder
Thank You