01-an overview of operations management

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An Overview of

Operations Management

Manuel C. Manuel IIIUniversity of the Philippines


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Operations include all those activitiesrequired to create and deliver a product

or service, from procurement throughconversion to distribution.

Operations management is the

management of these activities and theorganizations productive resources.

Manuel C. Manuel III ... University of

the Philippines 2


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Operations strategy

An operations strategy is a set of goals,policies, and approaches that together

describe how the organization proposes todirect and develop all the resourcesinvested in operations so as to best fulfill,and possibly redefine, its vision andmission.


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VISION

MISSION

Management PolicyGuiding Princip le

GOAL GOAL GOAL

Strategy Strategy Strategy

Project:

Specific

Action/

Activity

Project:

Specific

Action/

Activity

Project:

Specific

Action/

Activity

SWOT Analysis

STRATEGIC PLANNING FRAMEWORK


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Operations strategy

In the case of a business organization,this mission usually is expressed in terms

of survival, profitability, and growth, andis pursued by trying to differentiate itselffrom its competitors in some desirableway.

A companys operations strategy ,therefore, has to begin by specifying howit proposes to support that chosen form ofcompetitive differentiation.


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SWOT

The performance of a firm is influenced bya combination of internal and external

factors. These factors can be characterized as the

firms internal strengths and weaknessesand its opportunities and threats.

Systematically analyzing these factors asan aid in strategic planning and decision-making represents a form of situationalanalysis known commonly by the acronymSWOT.


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Strengths

A companys strengths are its resourcesand capabilities that can be used as bases

for developing competitive advantage.


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Strengths: examples

Patents

Strong brand names

Good reputation among customers

Cost advantages from proprietary knowhow

Exclusive access to high grade naturalresources

Favorable access to distribution networks

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Weaknesses

The absence of certain strengths may beviewed as a weakness.



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Weaknesses: examples

Lack of intellectual property protection

Weak brands

Poor reputation among customers

High cost structure

Lack of access to quality raw materials

Lack of access to key distributionchannels



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Weaknesses

In some cases, a weakness may be theflip side of a strength.

For example, take the case of a companythat has a large amount of productioncapacity.



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Opportunities

The external environment analysis mayreveal certain opportunities for profit and

growth.



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Opportunities: examples

Unfulfilled customer needs

Arrival of new technologies

Loosening of government regulations

Removal of internal trade barriers



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Threats

Changes in the external environment mayalso present threats to the firm.



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Threats: examples

Shifts in consumer tastes away from thecompanys products and services

Emergence of substitute products New regulations

Increased trade barriers



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Importance of SWOT analysis

A scan of the internal and externalenvironment is an important part of the

strategic planning process. The SWOT analysis provides information

that is helpful in matching the firmsresources and capabilities to the

competitive environment in which itoperates. As such, it is instrumental in strategy

formulation and selection.



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EXTERNAL ASPECTS

INTERNAL ASPECTS

Strengths (S) Weaknesses (W)

List major company

strengths

(e.g. quality products)

List major company

weaknesses

(e.g. poor distribution)

Opportunities (O)

List major company

opportunities

(e.g. new markets)

SOstrategies WO strategies

Threats (T)

List major company

threats

(e.g. competition

ST strategies WT strategies

SWOT MATRIX

SO strategies pursue opportunitiesthat are a good fit to thecompanys strengths.


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EXTERNAL ASPECTS

INTERNAL ASPECTS


List major company

strengths


List major company

weaknesses


Opportunities (O)

List major company

opportunities

(e.g. new markets)


Threats (T)

List major company

threats

(e.g. competition


SWOT MATRIX

WO strategies overcomeweaknesses to pursueopportunities.


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EXTERNAL ASPECTS

INTERNAL ASPECTS


List major company

strengths


List major company

weaknesses


Opportunities (O)

List major company

opportunities

(e.g. new markets)


Threats (T)

List major company

threats

(e.g. competition


SWOT MATRIX

ST strategies identify ways thatallow the company to use itsstrengths to reduce itsvulnerability to external threats.


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EXTERNAL ASPECTS

INTERNAL ASPECTS


List major company

strengths


List major company

weaknesses


Opportunities (O)

List major company

opportunities

(e.g. new markets)


Threats (T)

List major company

threats

(e.g. competition


SWOT MATRIX

WT strategies establish a

defensive plan to prevent thecompanys weaknesses frommaking it highly susceptibleto external threats.


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The goal of business strategy

The goal business strategy is to achieve asustainable competitive advantage.

Michael Porter identified two basic typesof competitive advantage: Cost advantage

Differentiation advantage



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Competitive advantage

A competitive advantage exists when thecompany is able to deliver the same

benefits as competitors but at a lowercost (cost advantage), or deliver benefitsthat exceed those of competing products(differentiation advantage).

Thus, a competitive advantage enablesthe company to create superior value forits customers and superior profits foritself.



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Resources

DistinctiveCompetencies

Capabilities

COST ADVANTAGEOR

DIFFERENTIATIONADVANTAGE

ValueCreation

The Concept of Competitive Advantage

Resourcesare the firm-specificassets useful for creating a cost ordifferentiation advantage, whichfew competitors can acquire easily.


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Resources


Capabilities

COST ADVANTAGEOR


ValueCreation


Capabilitiesrefer to the firms

ability to utilize its resourceseffectively.


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Resources


Capabilities

COST ADVANTAGEOR


ValueCreation


The firms resources and

capabilities together form itsdistinctive or corecompetencies.


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Resources


Capabilities

COST ADVANTAGEOR


ValueCreation


These competencies enable

innovation, efficiency, quality, andcustomer responsiveness, all ofwhich can be leveraged to create acost advantage or a differentiationadvantage.


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Resources


Capabilities

COST ADVANTAGEOR


ValueCreation


The firm creates valuebyperforming a series of activities

that Porter identified as the valuechain.


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MARGIN

Inbound

Logistics

Production Outbound

Logistics

Marketing &

Sales

Service

Firm Infrastructure

HR Management

Technology Development

Procurement

PORTERS GENERIC VALUE CHAIN MODEL

Primary Activities

SupportActivities


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Primary value chain activities

Inbound logistics: receiving andwarehousing of raw materials and their

distribution Production: transforming inputs into finished

products and services Outbound logistics: warehousing and

distribution of finished goods Marketing & sales: identification of customer

needs and generation of sales Service: support of customers after the

products and services are sold to them



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Support activities

Infrastructure: company structure, controlsystems, and culture

Human resource management: manpowerrecruitment, training, development, andcompensation

Technology development: technologies to

support value-creating activities Procurement: acquisition of inputs such as

materials, supplies, and equipment



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The value chain & profits

The resulting profit margins depend on the

effectiveness of performing both primaryand support activities, so that the amountthe customers are willing to pay for thefirms products and services exceed the

cost of the activities in the value chain. Competitive advantage can be achieved by

configuring the value chain to providelower cost or better differentiation.



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Operations competitivedimensions

Cost: Make it cheap

Quality: Make it good Delivery speed: Make it fast

Delivery reliability: Deliver it whenpromised

Flexibility: Change the volume Innovativeness: Change it



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Operations strategy &competitive advantage

By helping weld together the resourcesinvested in the operations function into a

cohesive, goal-oriented whole, such astrategy can enable operations to becomea powerful source of competitiveadvantage.



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Three levels of strategy

Corporate strategy

Strategic business unit (SBU) strategy

Functional strategy



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Corporate strategy

Encompasses decisions regardingindustries and markets in which the firm

participates, how it structures itself inorder to attack those markets, and how itacquires and allocates key corporateresources to various activities and

business groups.



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SBU strategy

SBUs may be subsidiaries, divisions, orproduct lines.

Each SBU is expected to have its ownbusiness strategy which specifies thescope of that business and its relationshipto the corporation as a whole.



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Functional strategy

Functional strategies, which includeoperations strategy, support the type of

competitive advantage being pursued bythe firm and its SBUs. In other words, they back up and

reinforce the corporate and SBU

strategies. Functional strategies must also be

consistent and congruent with eachother



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A contingency theory ofoperations strategy: fit &focus

Different companies and business unitshave different strengths and weaknesses

and so may choose to compete ordifferentiate themselves from competitorsin different ways, requiring them to adoptdifferent standards of success.



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Different ways of configuring, equipping,and managing an operations function

result in different operatingcharacteristics, making it easier or harderfor a company to achieve a given form ofdifferentiation.



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Therefore, rather than adopting a onebest way or even an industry-standard

approach, the task for an operationsorganization is to seek congruence (fit)between its business units chosenapproach to competition and the way the

operations function is designed,organized, and managed.



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Operations strategy framework

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Corporate Vision

Customer needs

New products Current products

New productdevelopment

Competitive dimensions &requirements

Order fulfillmentafter sales service

Cost Quality Speed Reliability Flexibility Innovativeness

Operations strategy decisions

Structural decisions: Capacity, Sourcing, Facilities,Information & Process technology

Infrastructural policies & systems: Resource Allocation,Human Resource Systems, Planning & Control, QualitySystems, Measurement & Reward Systems, Product &

Process Development, Organization


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Management decisions within theoperations function

Strategic decisions

Tactical decisions



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Tactical versus strategic

Operations Activity: Capacity Planning

Tactical: Day to day scheduling

Strategic: Capacity expansion



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Operations Activity: QualityManagement

Tactical: Use of statistical processcontrol (SPC) charts

Strategic: Implementation of a TQMprogram



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Operations Activity: ProcessManagement

Tactical: Regular maintenance ofequipment

Strategic: Investment in a new processtechnology or system to increase speedand flexibility



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Operations Activity: Inventory

Management Tactical: Regular ordering and

purchasing of materials

Strategic: Entering into a long-term

relationship with suppliers



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Building operationscompetitive dimensions


PRODUCTION

LEVERS

PRODUCTION

SYSTEM

PRODUCTION

CAPABILITY

PRODUCTION

OUTPUTS



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Production outputs

Cost

Quality

Delivery speed Delivery reliability

Flexibility

Innovativeness



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PRODUCTION

LEVERS

PRODUCTION

SYSTEM

PRODUCTION

CAPABILITY

PRODUCTION

OUTPUTS



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Production levers

Human Resources

Organization Structure & Controls

Sourcing Production Planning & Control

Process Technology

Facilities



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Why levers?

The production subsystems are calledlevers to reflect the fact that each of

them can be adjusted. Adjustments, which are usually made in

response to changes in the externalenvironment, are of many types.



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Human resources

The skill level, wages, training andpromotion policies, employment security,

and so on, for all groups of employees.



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Organization structure & controls

The formal relationships between groups(line and staff) in the production system.

How are decisions made? What is theunderlying culture? What systems areused to measure performance and provideincentives?



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Sourcing

The amount of vertical integration. Howdoes the production system manage those

parts of the production and distributionsystem that it does not own? What is itsrelationship with suppliers?



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Production planning & control

The rules and systems that plan andcontrol the flow of materials, the activities

of line personnel, the production supportoperations,and the introduction of newproducts.



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Process technology

The nature of the production processes,the types of equipment, the amount of

automation, and the linkages between theparts of the production process.



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Facilities

The location, size, and focus of individualplants. The types and timing of changes

to these plants.


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PRODUCTION

LEVERS

PRODUCTIONSYSTEM

PRODUCTION

CAPABILITY

PRODUCTION

OUTPUTS



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Traditional production systems

Job shop

Batch flow

Operator-paced line flow

Equipment-paced line flow

Continuous flow


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PRODUCTION

LEVERS

PRODUCTIONSYSTEM

PRODUCTION

CAPABILITY

PRODUCTION

OUTPUTS



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Production capability level 1:infant

The production system makes littlecontribution to the organizations success.

Production is low tech and unskilled.



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Production capability level 2:average

Production is satisfied to keep up with itscompetitors and maintain the status quo.

Production consists of standard, routineactivities.



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Production capability level 3: adult

The production system provides marketqualifying and order winning outputs at

target levels. All production decisions are consistent

with the production/operations strategy.



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Production capability level 4:world class

The production system strives to be thebest in the world in all activities in all

production levers. The production system is a major source

of competitive advantage.



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Thank you!


01-an overview of operations management

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