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Introduction to Operations Management

Operation Strategy

Mission/strategy
Mission - where you are going
Strategy - how you are going to get
there; an action plan

Strategy
Action plan to achieve
mission
Shows how mission will
be achieved
Company has a business
strategy
Functional areas have
strategies

1995 Corel Corp.

Operation strategy
It is the process of making an appropriate
decisions in the operations function on the
basis of the inputs from the overall corporate
strategy.
It is concerned with setting broad policies
and plans for using the production resources
of the firm to best support the firms long
term competitive strategy.

Operations Strategy Strategic Alignment

Customer Needs

Corporate Strategy
Alignment

Operations Strategy

Core
Competencies

Decisions
Processes, Infrastructure, and Capabilities
Irwin/McGraw-Hill

TheMcGraw-Hill Companies, Inc., 2006

Relevance of operations
strategy
When the no. of players increases and a
particular sector has excess capacity ,
competing firms promise quick delivery
and greater options in products and
services at a lower cost in order to win
customer orders then there is need to
introduce a good operation strategy to
differentiate them from others.

Strategies for Competitive

Advantage
Differentiation
Cost leadership
Quick response

Competing on Differentiation
Uniqueness can go beyond both the

physical characteristics and service

attributes to encompass everything
that impacts customers perception of
value
Proliferation of variety

Examples- cars, clothes,electronic

appliances

Competing on Cost
Provide the maximum value as perceived
by customer
Does not imply low value or low quality
Example- cars, mobiles,computers etc.

Competing on Response
Flexibility
Reliability
Timeliness
Requires institutionalization within the
firm of the ability to respond
Example- Cars,Machines,Turbines etc.

Strategy formulation process

Competitive
Dynamics at
the marketplace

Order winners
Order Qualifiers

Strategic options for

Sustaining
competitive advantage

Firm level
Strengths &
Weaknesses

Corporate Strategy

Strategic decisions for

Operations System

Operations Strategy

Generic Competitive Priorities

Quality, Cost,
Delivery, Flexibility

Measures for
Operational Excellence

Three steps in the process

To identify the strategic options for
sustaining the competitive advantage.
The overall corporate strategy is devised on
the basis of firms strengths and weakness.
Arriving at appropriate operation strategy on
the basis of corporate strategy.

Order Qualifying Attribute

These are the set of attributes that
customers expect in the product
or service they consider to purchase.
It only indicates the minimum,
or threshold levels of
requirements for considering
the product

Order Winning Attribute

The other attributes that have the potential
to sufficiently motivate the customer to buy
the product.
The product must have the potential to
provide better value for money
It helps the customer to differentiate the
product from competitors offerings.

Operational Excellence

Performance Measures
Provide critical linkage between order winning
and order qualifying attributes and choices
made in operations.
Help organisations evaluate how well the
operations system is responding to the
requirements at the marketplace.
Serve a useful purpose in comparing
performances amongst competitors and for
benchmarking .
Four generic options are useful for developing
measures for operational excellence; this
includes Quality, Cost, Delivery and
Flexibility

Comparison of operations on basis of

some operational measures
Performance criteria (1987)
Production of vehicles(million)
No. of employees
Parts on which detailed
Engineering is done
No. of suppliers
Design to customer
delivery time(million hrs.)
(months)

Japan

USA

4
37,000

8
850,000

30
1

81
25

1.7
46

3
60

Operational Excellence
Performance measures

Quality
First Pass Yield
Quality Costs
Defects (Parts per Million)
Number of suggestions per employee
Process Capability Indices
Delivery
Lead time for order fulfillment
Procurement and Manufacturing Lead time
On time delivery for supplies
Schedule adherence
Indirect Measures
Direct labour to Indirect labour ratio
Lead time to work content
Process rate to sales rate ratio
Average training time per employee

Cost
Average days of inventory (No. of inventory turns)
Manufacturing cost as percent of sales
Procurement costs
Value of import substitution, cost reduction
Target cost reduction efforts
Flexibility
Number of models introduced
New product development time
Breadth and depth of the product offerings
Process & Manufacturing flexibility
Number of suggestions per employee
Non-value added content in processes
No. of certified deliveries
Delivery quote for customised products

Options for Strategic

Decision in Operations

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Operations System
Strategic Options

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Product portfolio pertains to decisions

on what are the products that the
organization wants to produce, the no.
of variations in each product line and
the extent of customization that it can
offer to its customers.
Process design refers to the overall
configuration of operations system that
the various production activities happen
in a particular fashion consistent to the
process choice.

Technology- By using new technology

options for manufacturing processes,
Organizations can react faster to
customer needs, manage a wide portfolio
of product offerings and maintain high
levels of productivity.
Capacity- The maximum no. of units of
goods that can be produced per unit
time.

Supply chain management

It refers to the network of the entities
supplying components and raw material
to an organization as well as those
distributing the finished goods to the
customers through alternative channels.
Two types of supply chainEfficient supply chain
Responsive supply chain