02 - Operations Strategy

OPERATIONS MANAGEMENT -1
Term 2, B2014-16, Oct-Dec 2014
Operations Strategy
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Session 02 Operations Strategy
Prof. Kedar P. Joshi
MISSION & STRATEGY

OPM 1 Term 2, B2014-16, Oct-Dec 2014
Developing Missions and Strategies

Mission statements tell an organization where it is going
The Strategy tells the organization how to get there
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Mission
Mission - where are you going?
Organizations purpose for being
Answers What do we provide

society?
Provides boundaries and focus
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Strategic Process
Organizations
Mission
Functional Area
Missions
Marketing
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations
Finance/
Accounting
Sample Missions
Sample Company Mission

To manufacture and service an innovative, growing, and
profitable worldwide microwave communications business that
exceeds our customers expectations.
Sample Operations Management Mission

To produce products consistent with the companys mission as
the worldwide low-cost manufacturer.
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Sample Missions
Sample OM Department Missions

Inventory
To achieve low investment in inventory consistent with

high customer service levels and high facility utilization.
Scheduling To achieve high levels of throughput and timely
customer delivery through effective scheduling.
Maintenance To achieve high utilization of facilities and equipment by
effective preventive maintenance and prompt repair of
facilities and equipment.
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Strategy
Action plan to achieve mission
Functional areas have strategies
Strategies exploit opportunities

and strengths, neutralize threats,
and avoid weaknesses
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations strategy is ..
the decisions which shape the long-term
capabilities of the companys operations and their
contribution to overall strategy through the ongoing reconciliation of market requirements and
operations resources
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations strategy is different to operations management

Operations management
Operations strategy
Short-term
for example, capacity
decisions
Demand
Demand
Time scale
Long-term
for example, capacity
decisions
1-12 months
Micro
level of the process
Level of
analysis
1-10 years
Macro
level of the total operation
Detailed
Level of
aggregation
Level of
abstraction
For example
Can we give tax services to the

small business market in Mumbai?
For example
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Aggregated
For example
What is our overall business advice

capability compared with other
capabilities?
Philosophical
Concrete
How do we improve our

purchasing procedures?
For example
Should we develop strategic

alliances with suppliers?
4 PERSPECTIVES ON OPERATIONS STRATEGY

OPM 1 Term 2, B2014-16, Oct-Dec 2014
11
Top-down and bottom-up perspectives of strategy

Corporate strategy
Group building corporate capability in

High tech products and services
Metrology division competes on fast
to market innovations
Business strategy
Operations
strategy
Operations must have fast and flexible technology,

supply relationships, process and staff. Modular strategy
provides flexibility and innovation at relatively low cost
Emergent sense of what

the strategy should be
Operational
experience
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Experiment with modular design of

key products and components
Customers are confused with continuous

product innovation and costs are increasing up.
Operations strategy reconciles the requirements of

the market with the capabilities of operations
resources
Strategic
Reconciliation
Operations
Resources
OPM 1 Term 2, B2014-16, Oct-Dec 2014
OPERATIONS
STRATEGY
Market
Requirements
Operations strategy is the strategic reconciliation of market requirements

with operations resources
Tangible and
Intangible
Resources
Operations
Capabilities
Customer Needs
Operations Strategy
Decision Areas
Performance
Objectives
Operations
Processes
Understanding resources
and processes
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Market Positioning
Competitors Actions
Strategic decisions
Required
performance
Understanding
markets
Operations has to cope with the clash between the nature of

external markets and the nature of internal resources
Operations Resources
are.
Market Requirements
are.
Difficult to change
Dynamic
Technically
constrained
Heterogeneous
Ambiguous
Complex
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations strategy is the strategic reconciliation of market

requirements with operations resources
Strategic
Reconciliation
Operations Resources
Market Requirements
Market
Segmentation
Operations
Resources
Operations
Strategy
Decisions
Operations
Competences
Performance
Objectives
Market
Positioning
Competitor
Activity
Operations
Processes
Understanding
Resources and
Processes
Strategic
Decisions
Capacity
Supply networks
Process technology
Development and
organization
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Required
Performance
Understanding
Markets
Quality
Speed
Dependability
Flexibility
Cost
Market
Requirements
Operations
Resources
What you
HAVE
What you
DO
What you
WANT
in terms of
operations
capabilities
to maintain
your
capabilities
and satisfy
markets
from your
operations
to help you
compete
What you
NEED
to
compete
In the
market
Strategic
Reconciliation
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations can kick-start two virtuous cycles

Internal
and
External
Understanding of
the processes
Strong
marketing
Competitiveness
Competencies
embedded in the
operation
World Class
Operations
High
margin
Capabilities enhance
innovation and improvement
Developing the resources which

let the operations performance
stay ahead of the competition
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Investment
Developing customers
competitors and stockholders;
perceptions and expectations
The priority of performance objectives is influenced by what is

regarded as important by customers and how the operation
performs against competitors
Customer Needs
Importance to
customers
Priority of
performance
objectives
Performance against
competitors
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Competitors
Actions
Profit
Output
Total assets = Total assets
Profit
Output
Decomposing the ratio

profit/total assets
Profit
Revenue
Output = Output
Average
revenue
Output
Total assets =
Output
Capacity
Utilization
Operations strategy Capacity

decision areas
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Cost
- Output
Average
cost
Fixed assets
Capacity
x Total assets x Fixed assets
Working capital
Productivity of
fixed assets
Supply
network
Process
technology
Development and
organization
Operations strategy decision areas are partly structural and

partly infrastructural
Capacity
Supply Network
Process
Technology
Development and
Organization
Structural issues
Infrastructural
issues
OPM 1 Term 2, B2014-16, Oct-Dec 2014
The Elements of an International Operations Strategy

Resource Deployment
Capacity
Structure
ISSUES -
Capacity
Location
Focus &
segmentation
L/T forecasts
Supply
Network
ISSUES Do it yourself or
buy-in?
Customer and
supplier
relationships
Supply chain
dynamics and
integration
Process
Technology
Development and
Organization
ISSUES -
ISSUES -
New
product/service
Development rate
development
Automation
Organization
structure
Size
Performance
Integration
measurement
In our out-house Improvement
development
strategy
Operations Decisions are shaped by

COMPETENCIES and CONSTRAINTS
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Resource Usage
Issues include:
Issues include:
Total capacity
Vertical integration
Number, size of sites Network behaviour
Allocation of tasks to Supplier
sites
relationships
Location
Supplier
development
Capacity
Supply Network
Issues include:
Issues include:
Responsibility
Rate of development relationships
Automation
Performance and
Integration
control
Implementation
Process development
Subcontracted
Product and service
development
development
Process Technology
Development and
Organization
The four categories of operations strategy decision areas

OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations strategy is defined by the intersections of performance

objectives and Operations decisions
Quality
Market
Competitiveness
Competitive Objectives
are prioritized by
CUSTOMERS and
COMPETITORS
Resource Usage
Speed
Dependabilit
y
Flexibility
Cost
Capacity
Supply
Network
Development
Process
&
Technology Organization
Operations Decisions shape

COMPETENCIES and CONSTRAINTS
OPM 1 Term 2, B2014-16, Oct-Dec 2014
The operations strategy matrix
Quality
Speed
Market
Competitiveness
Performance objectives
Resource Usage
Operations
strategy
Dependability
Flexibility
Cost
Capacity
Supply
Network
Process
Technology
Development
and
Organization
Decision areas
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Strategic
Reconciliation
Operations
Resources
OPERATIONS
STRATEGY
Performance
objectives
Resource
Usage
Operations strategy process

Market
competitiveness
Operations strategy content
Market
Requirements
Level 1 - Fit
Level 2 - Sustainability
Level 3 - Risk
Decision areas
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Align resources with

requirements
Develop sustainable
competitive advantage
Include impact of
uncertainty
Align resources with

requirements
Level 1 - Fit
Develop sustainable
competitive advantage
Level 2 - Sustainability
Include impact of
uncertainty
Level 3 - Risk
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Increasing complexity
The practice of operations strategy involves

considering fit, sustainability and risk
Market requirements
In operations strategy fit is the alignment between market

and operations capability
Alignment
between market
and operations
capability
Y
Level of operations resource capability
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Extension of market
requirements
Market requirements
Sustainable
improvement
implies
simultaneous
extension/improvement of market requirements and operations
capabilities
Improvements in
operations capabilities

OPM 1 Term 2, B2014-16, Oct-Dec 2014
Market requirements
Virgin Trains and Nissan positioned in relation to market

requirements and operations capabilities
Virgin Trains
Nissan

OPM 1 Term 2, B2014-16, Oct-Dec 2014
OPERATIONS PERFORMANCE
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Relative
importance of
the
Operations
Resource
perspective
Performance objective B
The relative importance of the market requirements and operations

resource perspectives change over time,
how performance objectives trade-offs between each other and
operations focus can lead to exceptional performance
?
TRADE-OFFS
Relative
importance of
the Market
Requirements
perspective
Performance objective A
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Broad strategic objectives for a parcel delivery operation

applied to stakeholder groups
Society
Increase employment
Enhance community well-being
Produce sustainable products
Ensure clean environment
Suppliers
Continue business
Develop supplier
capability
Provide transparent
information
Shareholders
Economic value
from
investment
Ethical value from
investment
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Parcel delivery
Customers
Appropriate product or
service specification
Consistent quality
Fast delivery
Dependable delivery
Acceptable price
Employees
Continuous employment
Fair pay
Good working conditions
Personal development
COMPETITIVE ADVANTAGE
OPM 1 Term 2, B2014-16, Oct-Dec 2014
34
Strategies for Competitive Advantage

Differentiation
better, or at
least different
Response
rapid
response
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Cost
leadership
cheaper
Competing on Differentiation
Uniqueness can go beyond both the physical characteristics
and service attributes to encompass everything that impacts
customers perception of value
Safeskin gloves leading edge products
Walt Disney Magic Kingdom experience differentiation
Hard Rock Cafe dining experience
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Competing on Cost
Provide the maximum value as perceived by customer.
Does not imply low quality.
Southwest Airlines secondary airports, no frills service, efficient
utilization of equipment
Wal-Mart small overheads, shrinkage, distribution costs
Franz Colruyt no bags, low light, no music, doors on freezers
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Competing on Response
Flexibility is matching market changes in design innovation
and volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules

German machine industry
Timeliness is quickness
in design, production,
and delivery
Johnson Electric, Motorola
OPM 1 Term 2, B2014-16, Oct-Dec 2014
The operations function can provide a competitive advantage

through its performance at the 5 competitive objectives
Quality
Speed
Dependability
Flexibility
Cost
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Being RIGHT
Being FAST
Being ON TIME
Being ABLE TO CHANGE
Being PRODUCTIVE
First/Business class
Economy class
Services
First/Business-class cabin,
airport lounges, pick-up service
Economy cabin
Customers
Wealthy people, business

people, VIPs
Service range
Wide range, may need to be

customised
Travellers (friends and family),

vacation takers, cost-sensitive
business travel
Standardised cabin
Rate of service
innovation
Relatively high
Relatively low
Volume of activity
Relatively low volume
Relatively high volume
Profit margins
Medium to high
Low to medium
Main competitive
factors
Customisation, extra service, comfort

features, convenience
Price, acceptable service
Performance objectives Quality (specification and

conformance), Flexibility, Speed
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Cost, Quality (conformance)
Polar diagram for Newspaper Collection

(NC) and General Recycling (GR) services
Newspaper
collection service
Speed
General recycling
service
Dependability
Quality
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Cost
Flexibility
Polar diagram for a proposed police

performance method
Required
performance
Reassurance
Crime
reduction
Efficiency
Working with
criminal
justice
agencies
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Actual
performance
Crime
detection
Order Winners and Qualifiers

Qualifiers are the givens of doing business
Order Winners gain more business the better you are
Adding Delights
Delights become Order winners and Order winners become Qualifiers
Competitive benefit
Positive
Delights
Order winners
Neutral
Qualifiers
Negative
Low
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Achieved performance
High
The effects of the product/service life cycle on

operations performance objectives
Sales
volume
Growth in market
acceptance
Maturity of market,
sales level off
Introduction into
market
Decline as market
become saturated
Customers
Innovators
Early adopters
Bulk of market
Laggard
Competitors
Few /none
Increasing numbers
Stable numbers
Declining numbers
Availability
Low price
Dependable supply
Low price
Quality
Range
Price
Range
Range
Quality
Dependable supply
Flexibility
Quality
Speed
Dependability
Quality
Cost
Dependability
Cost
Likely order Product/service

winners specification
Likely order
qualifiers
Dominant operations
performance
objectives
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Sales
volume
The effects of the product/service life cycle on the organisatio
Introduction
Likely order
winners
Likely qualifiers
Dominant
operations
performance
objectives
Decline
Maturity
Growth
Product/service
characteristics,
performance or novelty
Availability of quality
products/services
Low price
Dependable supply
Low price
Quality
Range
Price Range
Quality
Range
Dependable supply
Flexibility
Quality
Speed
Dependability
Quality
Cost
Dependability
Cost
OPM 1 Term 2, B2014-16, Oct-Dec 2014
ARE TRADE OFFS CONSTANT?

OPM 1 Term 2, B2014-16, Oct-Dec 2014
The VW Group operates 45 production plants in

eleven European countries and a further seven
countries in the Americas, Asia and Africa.
Around the world, more than 336,000 employees
produce over 21,500 vehicles or are involved in
vehicle-related services on every working day.
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Operations strategy of volkswagenwerk

19202004
Before 1939
Ferdinand Porshe - Peoples Car 1920s
Government support 1934 plant on stream
1939
1939 War plant turned to production of war vehicles
1948 Nordhoff put in charge
1948
Nordhoff takes half a strategy peoples car
Adds emphasis on quality, technical, export, service standards
19491958
Intended strategy realised
Car ideal for post-war conditions
Rapid expansion in volume
No new models (work on new model halted in 1954)
OPM 1 Term 2, B2014-16, Oct-Dec 2014
19591964
Increased competition and changes in tastes
Response - increased advertising
- design started for 1500
Original strategy unchanged in essentials 19601964
1500 model introduced
Sales increased but profits squeezed
19651975
Pressures of competition become severe
New strategy from audi - front wheeled drive, stylish, watercooled
Other lines dropped
Production rationalised on world basis
Marketing emphasised performance, reliability and service
19761989
Golf established as market leader
Continued emphasis on technical excellence
Old designs periodically fashionable
Main European competitor seen as Fiat
Some pressure from Japanese manufacturing
OPM 1 Term 2, B2014-16, Oct-Dec 2014
19901996
Increasing pressure on costs from Japanese manufacturers
German labour costs and exchange rate are disadvantageous
Latterly European recession increases pressure
Cost cutting measures East European plant aggressive purchasing
19972000
Developing separate branding strategies to occupy different market segments
Develop separate products from common platforms to reduce cost
Continue aggressive cost reduction and process improvement
2001
Modify common platform policy to ease brand erosion
2002/5
Renewed cost pressures focus attention on input costs also hit by scandals!!
2006
Sales recovering, speculation over Russian plant
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Market requirements, operations resources and

strategic reconciliation at VW over 70 years
Strategic
reconciliation
Operations
resources
19461951
Implementing
strategy
Building up capacity and

capability
19521958
Continuity of
strategy
Systemisation of
resources and
process
19591964
Minor
Minor change and reconfiguration for
new model
continuity
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Simple design
Standardised design
New 1500
model
Market
requirements
Emerging,
any working
vehicle
Maturing, simple
robust vehicle
Maturing, sophisticated
performance, quality

19651970
Search for
viable
strategy
Strategic
reconciliation
Operations
resources
Fragmented
acquisition of new
resources
19711975
Emergent
strategy
Adapt best practices

from enlarged group
19761979
Continuing
with minor
changes
Accommodate
new models and
acquisitions
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Multiple new
designs
Defined range
Product
development
paths
Market
requirements
Uncertain rejection
of VW traditional
products
Clarifying around
style, quality and
variety
Segmentation around
performance, style and
variety

Strategic
reconciliation
Operations
resources
19901996
Major change
(internal)
Drastic reconfiguration
to increase efficiency,
reduce costs
19972000
Implementing
strategy
Continuous process
improvement and cost
reduction
20012007 Lean process

Implementing improvement and more
low-cost locations
strategy
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Market
requirements
Design for low- cost

manufacture
Common product
platforms
Modular design
Increasingly
competitive
around price
Branding with
price, quality, and
style
Increasingly competitive
around price and
innovation
Trade-offs
Do you want it good, or do you want it on Tuesday?
No such thing as a free lunch.

You cant have an aircraft which flies at the speed of sound, carries
400 passengers and lands on an aircraft carrier. Operations are just
the same. (Skinner)
Trade-offs in operations are the way we are willing to sacrifice
one performance objective to achieve excellence in another.
OPM 1 Term 2, B2014-16, Oct-Dec 2014
Trade offs ..are as real as ever but they are alive

and dynamic.
-Skinner
OPM 1 Term 2, B2014-16, Oct-Dec 2014
The efficient frontier view

The efficient frontier
A
Variety
Variety
The new efficient frontier

A
B1
B
Cost efficiency
Cost efficiency
OPM 1 Term 2, B2014-16, Oct-Dec 2014

02 - Operations Strategy

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OPERATIONS MANAGEMENT -1

Term 2, B2014-16, Oct-Dec 2014

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

MISSION & STRATEGY

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Developing Missions and Strategies

The Strategy tells the organization how to get there

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Answers What do we provide

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Sample Company Mission

Sample Operations Management Mission

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Sample OM Department Missions

To achieve low investment in inventory consistent with

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Strategies exploit opportunities

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Operations strategy is different to operations management

level of the total operation

Can we give tax services to the

OPM 1 Term 2, B2014-16, Oct-Dec 2014

What is our overall business advice

How do we improve our

Should we develop strategic

Session 02 Operations Strategy

Prof. Kedar P. Joshi

4 PERSPECTIVES ON OPERATIONS STRATEGY

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Top-down and bottom-up perspectives of strategy

Group building corporate capability in

Operations must have fast and flexible technology,

Emergent sense of what

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Experiment with modular design of

Customers are confused with continuous

Prof. Kedar P. Joshi

Operations strategy reconciles the requirements of

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Operations strategy is the strategic reconciliation of market requirements

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Session 02 Operations Strategy

Prof. Kedar P. Joshi