operations management in management engineering - … - 30_09_11... · in management engineering...
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http://cels.unibg.it 1
Operations Strategy
Operations Management
Master Degree Course
In Management Engineering
Prof. Sergio Cavalieri
Università degli Studi di Bergamo – 2011 – Riproduzione riservata
Prof.Sergio Cavalieri 2
Course objectives
Understand the relationship between corporate mission, business strategy and operations strategy
Identify possible strategies in operations
Define competitive priorities concepts and decision categories
Define some measure for choosing the most suitable strategy
Debate strategic choices on some companies through the description of industrial cases
Università degli Studi di Bergamo – 2011 – Riproduzione riservata
Prof: Sergio Cavalieri 3
Some definitions of Operations Strategy
“… the decisions which shape the long-term capabilities of the
company’s operations and their contribution to overall strategy through
the on-going reconciliation of market requirements and operations
resources …” (Slack and Lewis, 2003)
“… a set of goals, policies, and self-imposed restrictions that together
describe how the organization proposes to direct and develop all the
resources invested in operations so as to best fulfill its mission” (Hayes,
et al., 2005)
“….a series of decisions concerning process and infrastructure
investment, which, over time, provide the necessary support for the
relevant order-winners and qualifiers of the different market segments
of a company.” (Hill, 1995, p. 57)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata
4
Operations Strategy and
Operations Management
Micro level of the process
Macro level of the total operation
Level of
analysis
Time scale
Short-term for example, capacity
decisions
1-12 months
De
ma
nd
1-10 years
De
ma
nd
Long-term for example, capacity
decisions
Level of
aggregation
Detailed
For example
“Can we give tax services to
the small business market in
Antwerp?”
Aggregated
For example
“What is our overall business
advice capability compared
with other capabilities?”
Level of
abstraction
Concrete For example
“How do we improve our
purchasing procedures?”
Philosophical For example “Should we develop strategic
alliances with suppliers?”
Operations management Operations strategy
Fonte: Slack e Lewis, 2003
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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“Three Yards and a Cloud of Dust”
Historical «fundamental» of operations manager:
Planning, Scheduling, Production Control
with the aim to improve .... ... Productivity and efficiency of production processes ... The quality of processes and products
But exist the risk to generate a productivity paradox:
Wickham Skinner (1996)
To be less competitive
Università degli Studi di Bergamo – 2011 – Riproduzione riservata
To improve efficiency
Prof: Sergio Cavalieri
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The end justifies the means
“The reason to invest in a factory is not to have an efficient
production facility or even a “world-class” plant. It is to create
competitive advantage”
(Skinner, 1996)
Need to design a production system that is totally
consistent with corporate business strategies.
“Manufacturing in the corporate strategy”
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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How to reconcile business demands
with their internal capacities
Performance
Objectives
Market
Positioning
Customer
Needs
Competitors’
Actions
Required
performance
Understanding
markets
Operations
Strategy
Decision Areas
Tangible and
Intangible
Resources
Operations
Capabilities
Operations
Processes
Understanding
resources and
processes
Strategic
decisions
Fonte: Slack e Lewis, 2003
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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The strategic process
Decisions
Marketing
Decisions Operations Financial
Decisions
Corporate
Mission
Business
Strategy
Functional Area Functional Areas
Strategy
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Corporate Mission: where are we going?
Set of technical and economic functions
establishing the institution's business
Answers the following questions:
Why do we exist?
What needs do we meet?
What products / services do we offer?
Where do we operate?
What kind of values do we bring to society? © 1995 Corel Corp.
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Some missions slogans
1. «To make people happy»
2. “ To organize the world's information and make it universally accessible and useful”
3. "Providing safe convenient and direct air services to our customers. To make and to offer a guaranteed and reliable product with attractive rates for leisure travel and work on a wide range of European destinations. Achieve these objectives through the improvement of our people and establishing lasting relationships of cooperation with our suppliers. "
4. “We create the safest most exciting car experience for modern families”
5. “We work to help people and businesses throughout the world realize their full potential”
6. “To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience”
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Factors influencing organizational
structure
Mission
Values and Business
Philosophy
Profitability and
Sustainable
Development Environment
Customers Social
Immage Benefit to
Society
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Strategy: how to achieve the mission
Specifies a plan of action
Provides a set of consistent and integrated
business decisions
Focus on:
Critical Success Factors
Long-term goals
Investment priorities and resource
allocations
Target business areas © 1995 Corel Corp.
“The essence of strategy is choosing to perform activities differently
than competitors do.” (Michael E. Porter “What is Strategy?” HBR, 1996, p. 68)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Critical Success Factors
Critical success factors are the main factors on which a company
can improve satisfaction of their stakeholders
Some examples of FCS:
Profitability
Product Supremacy
Price
Quality
Timeliness and punctuality
Social Responsibility
Customization
Sustainability
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Mission and Strategy - Nokia
Missione – “Connecting People”
“By connecting people, Nokia helps fulfill a fundamental human
need for social connections and contact. Nokia builds network
between people both when they are far apart and face-to-face and
also fills the gap between them and the information they need.”
Strategy:
“The Nokia strategy continues to focus on three activities to expand
mobile communications in terms of volume and value:
Expand mobile voice
Drive consumer multimedia
Bring extended mobility to enterprises”
(from official website Nokia - http://www.nokia.it)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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The strategic models
The models have two origins:
Theoretical, derived from deductive speculation and / or inductive
analysis of successful cases
Operational, proposed and applied by the major consulting firms.
There is no perfect model, and in general a model is not a priori
better than the others because:
The exogenous conditions change over time and therefore the
successful models may become obsolete
The diffusion of these models drive everybody to compete with the
same weapons making them less effective
A valid theoretical model can be badly implemented and vice
versa
Often a successful company has implemented a new model not
previously described.
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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The Porter model
Developed in mature competitive environments where the client has the
ability to purchase primary and interchangeable products/services (=
commodity raw materials, commodities) both from different
manufacturers, and products/services, diversified (brands) from
different manufacturers.
Different perception of
the customer
Lower cost than the
competitors
Covering the whole
sector
Differentiation
Overall/total cost
leadership
Limited to a particular
segment
Focus
(niche market)
(Porter, M. (1985) Competitive advantage: creating and sustaining superior performance,
New York: The Free Press )
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Cost Leadership
A firm has a cost advantage if its cumulative cost for all of the value-
generating activities are lower than those of its competitors
With the increase of production volume costs may decrease due to:
Full utilization of capacity;
Exploitation of economies of scale;
Exploitation of economies of learning;
Greater use of technology;
Reduction in procurement costs.
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Differentiation
A firm differentiates itself from its competitors when it provides something unique, something that has value for
its customers beyond the simple offer of a low price
Uniqueness does not lead to differentiation unless it creates some value for the buyer.
The differentiation allows the firm to:
Ask for a price premium (or obtain a preference for the same price);
acquire equivalent benefits (ex increased loyalty from customers.)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Focus
Focus can be oriented to costs or differentiation.
1. In the first case, a company with this strategy aims to
achieve a cost advantage limited to a few segments of
the market.
2. In the second case, the focus is directed to
differentiation, that is identifying a group of customer
particularly susceptible to quality.
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Strategy and product life cycle
Heizer/Render – Principles of Operations Management
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Operations Strategy in
a global context
Heizer/Render – Principles of Operations Management
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Strategic choices in Operations
Choices Operations
Corporate
Mission
Business
Strategy
Competitive Priorities Decision Categories
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Competitive priorities
Priority Emphasize Implications for operations
Cost Cost of unit production
Production capacity
Productivity
Keep track of costs and their impact on
individual products
Quality Quality components from supplier
% product defects
Cost of waste or rework
Warranty costs
Ensure that the product and its process
are implemented and managed in
specific accordance
Punctuality Delivery time to the customer
Level of service
Lean production and distribution
processes
Availability of products in stock
Flexibility Product mix
Medium size of batches
Scheduling “frozen” horizon
Ability to produce with low cost and time
burden of product mix and different
volumes
Innovativeness Time-To-Market new products or variant
products
Processes of design, production and
engineering, and integrated competitors
Leong et al. (1990), Miltenburg (1995)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
Università degli Studi di Bergamo – 2009 – Riproduzione riservata 24
Time Line for Operations Strategies
Prof: Sergio Cavalieri
Università degli Studi di Bergamo – 2009 – Riproduzione riservata 25
Example of Trade-Offs on
Superior Performance Curves
Prof: Sergio Cavalieri
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Order of priorities Order Winner
The characteristics of a firm that
distinguish it from its competition so
that it is selected as the source of
purchase.
Order Qualifier The minimum characteristics of a firm or
its products that a firm must have to be
considered as a source of purchase.
These characteristics enable a
company to obtain orders from the
customer
Order Qualifier are the “key” ,
they’re considered critical and
basic for the customer
“To provide qualifiers, companies need only to be as good as competitors;
to provide order-winners, they need to be better than competitors”
T. Hill (1995, p. 46)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
Università degli Studi di Bergamo – 2011 – Riproduzione riservata 27
Distinguishing between
Order Qualifiers and Order Winners
Prof: Sergio Cavalieri
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The steps to prioritize
Divide the market into groups
Identify the product requirements, the development
of demand and profit margins for each group
Delineate order winner and order qualifier for each
groups
Convert order winner in specific performance
requirements
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Decision categories
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Relationship between process
technology and competitive priorities
source: Miltenburg (1995)
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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Honda Case
(Taken from: The future of Honda Manufacturing – strategy and planning)
Order Winner
Punctuality and Costs
Order Qualifier
Quality
Until the end
of 90s
Afterward… Order Winner
Flexibility
Order Qualifier
Quality, punctuality, costs
Action has been taken in terms of:
- Process standardization and lay-out
- Assembly processes
- Replacement of hydraulic robots with
programmable units
- Adoption of multi-site planning systems for
plant capacity
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
Docente: Sergio Cavalieri 32
Other support articles
Brands that stop at the border – Financial
Times
Three yards and a cloud of dust:industrial
management at century end – Wickham
Skinner
Università degli Studi di Bergamo – 2011 – Riproduzione riservata
33
Course objectives
Understand the relationship between corporate mission, business strategy and operations strategy
Identify possible strategies in operations
Define competitive priorities concepts and decision categories
Define some measure for choosing the most suitable strategy
Debate strategic choices made by some companies through the description of industrial cases
Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri
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