Operations Management Modules 2 3 Operations Strategy Competitiveness

Operations Management Modules 2 & 3 Operations Strategy & Competitiveness and Performance Measures S. Balachandran December 2007 © S. Balachandran 1

In this session. . . • • Strategy – Role of Operations Competitiveness – Dimensions, Tradeoffs Order Qualifiers & Winners OM Strategy – Decisions Strategy – Process Linkage Strategic Map : Four Perspectives Service Operations : Capabilities Operational Performance Measures December 2007 © S. Balachandran 2

Strategy – Role of Operations Business strategy • • • Goals Core Competencies Environmental responses New products/services New Markets Global strategies Market analysis • Segmentation • Needs assessment Competitive priorities Operations • Cost • Quality • Delivery • Reliability • Flexibility • Responsiveness December 2007 Marketing Finance Others © S. Balachandran 3

Strategy – Role of Operations Business strategy Cost Quality • • • Goals Core Competencies Environmental responses New products/services New Markets Global strategies 1. Low-cost operations 2. High-performance design 3. Consistent quality Delivery 4. Fast delivery Market analysis 5. Development speed • segmentation • needs assessment Reliability 6. Of Delivery, Prod. Performance Flexibility 7. Customization & Variety Competitive priorities Operations Marketingflexibility 8. Volume • Cost • Quality 9. Pre-sales Finance Responsiveness Info • Delivery • Reliability 10. After-sales Service • Flexibility • Responsiveness December 2007 Others © S. Balachandran 4

Strategy – Role of Operations Business strategy • • • Goals Core Competencies Environmental responses New products/services New Markets Global strategies Market analysis • Segmentation • Needs assessment Competitive priorities Operations • Cost • Quality • Delivery • Reliability • Flexibility • Responsiveness Marketing Finance Capabilities • Current • Needed • Plans Others Functional area strategies • • December 2007 Finance Marketing Operations Others © S. Balachandran 5

Competitiveness - Dimensions • Cost or Price – Make the Product or Deliver the Service Cheap • Quality – Make a Great Product or Deliver a Great Service • Delivery Speed – Make the Product or Deliver the Service Quickly • Delivery Reliability – Deliver It When Promised • Coping with Changes in Demand – Change Its Volume • Flexibility and New Product Introduction Speed – Change It • Other Product-Specific Criteria – Support It December 2007 © S. Balachandran 6

Tradeoffs Cost Flexibility Delivery Quality December 2007 © S. Balachandran 7

Order Qualifiers & Winners • Order qualifiers : basic criteria that permit the firms’ products to be considered as candidates for purchase by customers – Necessary but not Sufficient Condition • Order winners : criteria that differentiate the products and services of firm from competitors December 2007 © S. Balachandran 8

Operations Strategy - Decisions Corporate strategy Market analysis Competitive priorities Operations strategy December 2007 © S. Balachandran 9

Operations Strategy - Decisions Corporate strategy Market analysis Competitive priorities Operations strategy Services • Standardized services • Assemble-to-order • Customized services December 2007 Manufacturing • Make-to-stock • Assemble-to-order • Make-to-order © S. Balachandran 10

Operations Strategy - Decisions Corporate strategy Market analysis Competitive priorities Operations strategy Services Manufacturing • Standardized services • Make-to-stock • Standardized • Make-to-stock • Assemble-to-order services • Assemble-to-order • Customized services • Make-to-order December 2007 © S. Balachandran 11

Operations Strategy - Decisions Corporate strategy Market analysis Competitive priorities Operations strategy Services Manufacturing • Process decisions • Standardized services • Make-to-stock • Assemble-to-order • Quality decisions • Customized services • Make-to-order • Capacity, location, and layout decisions • Operating decisions– Sourcing, Order Placement: Party, Qty. , Frequency, Inventory Level, No. of Shifts, Manning December 2007 © S. Balachandran 12

Operations Strategy - Decisions Corporate strategy Market analysis Competitive priorities Operations strategy Services Manufacturing • Process decisions • Standardized services • Make-to-stock • Assemble-to-order • Quality decisions • Customized services • Make-to-order • Capacity, location, and layout decisions • Operating decisions – Sourcing, Order • Process decisions • Quality decisions Placement: Party, Qty. , Frequency, Inventory • Capacity, location, and layout decisions • Operating decisions Level, No. of Shifts, Manning December 2007 © S. Balachandran 13

Strategy & Process Design - Example Decision Area Hospital 1 Hospital 2 Business strategy Low-volume, customized services High-volume standardized products made to stock Competitive priorities Customized services, consistent quality, and volume flexibility Low-cost, fast delivery, and consistent quality Process design Labor intensive Capital intensive December 2007 © S. Balachandran 14

Strategic Map – Four Perspectives Financial Perspective Improve Shareholder Value Revenue Growth Strategy Build the Franchise Increase Customer Value New Revenue Sources Productivity Strategy ROCE Improve Cost Structure Customer Profitability Improve Asset Utilization Cost per Unit Product Leadership Customer Intimacy Customer Value Proposition Product/Service Attributes Customer Perspective Price Internal Perspective Learning & Growth Perspective Quality “Build the Frnchise” (Innovation Processes) Time Functionality “Increase Customer Value” (Customer Management Processes) Operational Excellence Relationship Service Relationships “Achieve Operational Excellence” (Operational Processes) Image Brand “Be a Good Corporate Citizen” (Regulatory and Environmental Processes) A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action Source: Kaplan & Norton, The Strategy Focused Organization December 2007 © S. Balachandran 15

Rockwater Strategy Map A : Operational Excellence B : Customer Management December 2007 © S. Balachandran 16

Activity Map – Southwest Strategy December 2007 © S. Balachandran 17

Operations Strategy Framework Customer Needs New product : Old product Competitive dimensions & requirements Cost, Quality, Delivery, Flexibility, Reliability, Responsiveness Enterprise capabilities Operations Supplier Capabilities Operations and & Supplier capabilities R&D Technology Systems Technology People Distribution Support Platforms Financial management December 2007 Human resource management © S. Balachandran Information management 18

Operations Capabilities for Services • Process-based – Transform material or information and provide advantages on dimensions of cost and quality • Systems-based – Broad-based - involving the entire operating system and provide advantages of short lead times and customize on demand • Organization-based – Difficult to replicate and provide abilities to master new technologies December 2007 © S. Balachandran 19

Productivity Measures • Productivity : a common measure on how well resources are being used. In the broadest sense, it can be defined as the ratio: Outputs Inputs • Total Measure Productivity = Goods and services produced All resources used • Partial measures of productivity = Output or Output Labor Capital Materials Energy • Multifactor measures of productivity = Output Labor + Capital Labor December 2007 Output + Capital © S. Balachandran . + Energy or. + Materials 20