BIZ2121 Production & Operations Management

Operations Strategy

Sung Joo Bae, Assistant Professor

Yonsei University School of Business

Disclaimer: Many slides in this presentation file are from the copyrighted material in 2010 by Pearson

Education, Inc. Publishing as Prentice Hall.

A few operational issues for this

class For HW 1, submit the hard copy (before the

class begins)

There are deadlines set up for the HWs

Office hours by appointment (any time)

My expectation

I want you….

◦ to be

◦ to think

◦ to relate

◦ to work

◦ to learn

◦ to feel

Operations Management

The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers

Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers

From here

To here

Source: http://www.trendbird.co.kr/2440

Who’s in charge of this? Who is he?

Let’s find out who he is and what he does in Apple. (wiki)

How about this face? Familiar?

Product Design and Development

vs. Operations Management Fancy new product is not the end of the

game

Think about the quality control, logistical

challenge of this type of product

Why is OM critical?

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Apple; AirTran; American Standard Companies;

Amgen; Adobe Systems, Inc.; Autodesk, Inc; eBay;

Heidrick & Struggles; InBev; Kohlberg Kravis

Roberts & Company; Mattel, Inc; Motorola;

PepsiCo; Raytheon Company; Starbucks

Across the Organization

Material & Service Inputs

Sales Revenue

Product & Service Outputs

Finance

Acquires financial resources and capital

for inputs

Marketing

Generates sales of outputs

Operations

Translates materials and service into

outputs

Support Functions

• Accounting • Information Systems • Human Resources • Engineering

Figure 1.1 in our textbook

iPhone 4 Bumper Program

A Process View

External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs

• Workers

• Managers

• Equipment

• Facilities

• Materials

• Land

• Energy

Outputs

• Goods

• Services

Figure 1.2

Departments have their own objectives and resources to achieve them.

Processes may cross different department boundaries, and require resources

from several departments.

A Process View – Mfr vs. Svc

• Physical, durable output

• Output can be inventoried

• Low customer contact

• Long response time

• Capital intensive

• Quality easily measured

• Intangible, perishable output

• Output cannot be inventoried

• High customer contact

• Short response time

• Labor intensive

• Quality not easily measured

More like a manufacturing

process

More like a service process

Figure 1.3

Q. Is McDonald a service provider or manufacturer? Samsung

Electronics? Hyundai Motors?

Manufacturing: Transformation of materials on following dimensions –

physical properties, shape, size, surface finish, joining parts and materials

An Extended Process View (supplier

included) External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs

• Workers

• Managers

• Equipment

• Facilities

• Materials

• Land

• Energy

Outputs

• Goods

• Services

Figure 1.2 modified

Internal and external suppliers

The Supply Chain View

Support Processes

Exte

rnal su

pp

liers

Exte

rnal c

usto

mers

Supplier relationship process

New service/ product development

Order fulfillment process

Customer relationship management

Figure 1.4

Strategic insight: Processes must add value for customers throughout the supply

chain.

The Supply Chain View

Core processes are sets of activities that deliver value to external customers

1. Supplier relationship process

Negotiating fair prices

Scheduling on-time deliveries

Gaining ideas from critical suppliers

2. New service/product development process

3. Order fulfillment process (e.g. Tesco Homeplus)

4. Customer relationship process

Support processes provide vital resources and inputs to the core processes

Support Processes TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES

Capital acquisition The provision of financial resources for the organization to do its work and to execute its strategy

Budgeting The process of deciding how funds will be allocated over a period of time

Recruitment and hiring The acquisition of people to do the work of the organization

Evaluation and compensation The assessment and payment of people for the work and value they provide to the company

Human resource support and development

The preparation of people for their current jobs and future skills and knowledge needs

Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations

Information systems The movement and processing of data and information to expedite business operations and decisions

Enterprise and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business

Managerial Practice 1.2 (p.42) - Group Discussion

Zara Case

What are the operational innovation (i.e.

process innovation) that Zara achieved?

How can you measure the success of this

operational innovation?

Operations Strategy

Specifies the means by which operations

implements corporate strategy and helps

build a customer-driven firm

Corporate strategy provides an overall

direction that serves as the framework for

carrying out all the organization's functions

Operations Strategy

Figure 1.5

Corporate Strategy

• Environmental scanning

• Core competencies

• Core processes

• Global strategies

Market Analysis

• Market segmentation

• Needs assessment

Competitive Priorities

• Cost

• Quality

• Time

• Flexibility

New Service/

Product Development

• Design

• Analysis

• Development

• Full launch

Operations Strategy

Decisions

• Managing processes

• Managing supply chains

Competitive Capabilities

• Current

• Needed

• Planned

Performance

Gap?

No

Yes

Corporate Strategy

Environmental scanning: monitoring trends in the environment

Developing core competencies: unique resources and strengths

◦ Workforce

◦ Facilities – location, flexibility

◦ Market and financial know-how

◦ Systems and technologies

Developing core processes (Hyundai Card vs. KB Star)

Global strategies

◦ Procurement, competition – global vs. local standard (McDonald vs. Jollibee, Burger King’s Bulgogi Burger)

◦ Expansion – make/buy/alliance

Corporate strategy provides an overall direction that serves as the

framework for carrying out all the organization’s function

Market Analysis

Market segmentation ◦ The process of identifying groups of customers with

enough in common to be the target for a specific product or service

Needs assessment ◦ Service or product needs (price, quality, degree of

customization)

◦ Delivery system needs (convenience, safety, reliability, speed, etc.)

◦ Volume needs (volume, variability and predictability in volume)

◦ Other needs

Competitive Priorities are…

The critical operational dimensions a

process or supply chain must possess to

satisfy internal or external customer

Forming teams for team projects

4-5 students (no less than 4, no more

than 5)

Competitive Priorities

TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES

COST Definition Process Considerations Example

1. Low-cost operations

Delivering a service or a product at the lowest possible cost

Processes must be designed and operated to make them efficient

Costco – products on pallets, negotiations with suppliers

QUALITY

2. Top quality Delivering an outstanding service or product

May require a high level of customer contact and may require superior product features

Ferrari – superior product features and high performance

3. Consistent quality

Producing services or products that meet design specifications on a consistent basis

Processes designed and monitored to reduce errors and prevent defects

McDonald’s – standardization, training, procurement

TIME

4. Delivery speed Quickly filling a customer’s order

Design processes to reduce lead time

Dell – superior order fulfillment

5. On-time delivery

Meeting delivery-time promises

Planning processes to increase percent of customer orders shipped when promised

United Parcel Service (UPS) – efficient logistics and warehousing processes

6. Development speed

Quickly introducing a new science or a product

Cross-functional integration and involvement of critical external suppliers

Li & Fung, Zara – fast NPD and delivery

Competitive Priorities

TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

FLEXIBILITY Definition Process Considerations Example

7. Customization Satisfying the unique needs of each customer by changing service or products designs

Low volume, close customer contact, and easily reconfigured

Ritz Carlton –highly individualized service

8. Variety Handling a wide assortment of services or products efficiently

Capable of larger volumes than processes supporting customization

Amazon.com – IT in delivering the variety of products

9. Volume flexibility

Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand

Processes must be designed for excess capacity

The United States Postal Service (USPS) – handling Christmas volume!!!

Competitive Priorities - Fedex

What is the CP for Fedex?

How did it change over time?

Are CPs Stable or Dynamic?

Competitive Priorities - Fedex

Are CPs Stable or Dynamic?

Competitive Priorities - Fedex

Are CPs Stable or Dynamic?

◦ FedEx – CP switched from on-time delivery

(speed) to low-cost and zero error-rate

(dependability)

Order Winners and Qualifiers

Sale

s ($

)

Achievement of competitive priority

Low High

Order Winner

Figure 1.6

A criterion customers use to differentiate the

services or products of one firm from those

of another

Sale

s ($

)

Achievement of competitive priority

Low High

Order Qualifier

Threshold

A demonstrated level of performance of an

order winner that is required for a firm to do

business in a particular market segment

Operations Strategy: Toyota case?

Figure 1.5

Corporate Strategy

• Environmental scanning

• Core competencies

• Core processes

• Global strategies

Market Analysis

• Market segmentation

• Needs assessment

Competitive Priorities

• Cost

• Quality

• Time

• Flexibility

New Service/

Product Development

• Design

• Analysis

• Development

• Full launch

Operations Strategy

Decisions

• Managing processes

• Managing supply chains

Competitive Capabilities

• Current

• Needed

• Planned

Performance

Gap?

No

Yes

Operations Strategy: Toyota case?

Corporate Strategy

• Environmental scanning

• Core competencies

• Core processes

• Global strategies

Market Analysis

• Market segmentation

• Needs assessment

Competitive Priorities

• Cost ($1000/car in 3-4 yr)

• Quality

New Service/

Product Development

• New design that reduces the

number of parts

Operations Strategy

Decisions

• Managing processes – rethinking “Lean System”

• “Simple and slim” equipment

• Shortening the paint time

• Managing supply chains – 30% cut in procurement

Competitive Capabilities

• Current

• Needed

• Planned

Performance

Gap?

No

Yes

Operations Strategy

A Bank’s

Credit Card

Division

Credit Card Holders Merchants

1. Receive

transactions

2. Pay

3. Assembles and

sends the bill

4. Process payments

Operations Strategy TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS

Competitive Priority

Measure Capability Gap Action

Low-cost operations

Cost per billing statement

$0.0813 Target is $0.06

Eliminate microfilming and storage of billing statements

Weekly postage $17,000 Target is $14,000

Develop Web-based process for posting bills

Consistent quality

Percent errors in bill information

0.90% Acceptable No action

Percent errors in posting payments

0.74% Acceptable No action

Delivery speed Lead time to process merchant payments

48 hours

Acceptable No action

Volume flexibility

Utilization 98% Too high to support rapid increase in volumes

Acquire temporary employees

Improve work methods

Trends in Operations Management

Productivity improvement

Global competition

Ethical, workforce, and environmental issues

Productivity Improvement

Productivity Improvement

Case: Starwood’s new program

1. What are the key inputs and outputs associated with Starwood’s new meeting planning process

2. How does the meeting planning process at Starwood interact with the following core processes in their hotels

◦ Customer relationship (internal & external)

◦ New service or product development

◦ Order fulfillment

◦ Supplier relationship

OM as a Set of Decisions

In practice, managers make strategic and tactical decisions

1. Each part of the organization designs and operates processes

2. Each function is connected through shared resources

Part 1: Designing & building operation systems

Part 2: Managing Operation systems

Part 3: Managing beyond boundaries: supply chain management

Operations Strategy – Big picture

Figure 1.5

Corporate Strategy

• Environmental scanning

• Core competencies

• Core processes

• Global strategies

Market Analysis

• Market segmentation

• Needs assessment

Competitive Priorities

• Cost

• Quality

• Time

• Flexibility

New Service/

Product Development

• Design

• Analysis

• Development

• Full launch

Operations Strategy

Decisions

• Managing processes

• Managing supply chains

Competitive Capabilities

• Current

• Needed

• Planned

Performance

Gap?

No

Yes

Challenges in OM

Part 1: Designing & building operation systems

Part 2: Managing Operation systems

Part 3: Managing beyond boundaries: supply

chain management

Solved Problem 1

Solved Problem 1

Solved Problem 2

Natalie Attire makes fashionable garments. During a particular week

employees worked 360 hours to produce a batch of 132 garments, of

which 52 were “seconds” (meaning that they were flawed). Seconds are

sold for $90 each at Attire’s Factory Outlet Store. The remaining 80

garments are sold to retail distribution at $200 each. What is the labor

productivity ratio of this manufacturing process?

Solved Problem 2

SOLUTION

Labor productivity = = $20,680

360 hours

Output

Input

Labor hours of input = 360 hours

Value of output = (52 defective 90/garment)

+ (80 defective 200/garment)

= $20,680

= $57.44 in sales per hour