lecture_1_additional_reading__operations_management_&_operations_stratergy[1].doc

7/27/2019 lecture_1_Additional_reading__Operations_Management_&_operations_Stratergy[1].doc

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OPERATIONS MANAGEMENT-

Operations Management is defined as the design, operation and improvement of thesystems that create and deliver the firms primary product and service.

Operations Management is a functional field of business with a clear line

management responsibility. It is not only about manufacturing and relevant to peopleworking in the shop floor, but it is about getting the day to day work done quickly,

efficiently without errors and at low cost.

It is not Operations Research (OR) of (IE) Industrial Engineering.Operations Research is the application of quantitative methods to decision making.

Industrial Engineering is an engineering discipline.

Operations Management uses the decision-making tools of Operations

Research/Industrial Engineering like critical path scheduling and factory automation for the benefit of the organization. Operation Management uses analytical thinking to deal

with real world problems.

Operations Management encompasses work planning, control of quality,

improving productivity and effectiveness of performance of individuals on the job withinthe operations function, management decisions can be divided into three broad areas.

Strategic long term decision.

Tactical intermediate term decisions.

Operational planning and control (short term) decisions.

Strategic issues address questions such as:

--- How will we make this product?---Where do we locate the facility.

---How much capacity do we need.

---When do we add more capacity.

Decisions here affect the company’s long-term effectiveness in terms of how it

can satisfy customer needs. The decision here must be in alignment with

corporate strategy and become operating constraints under which theorganizations must operate in the short and medium term time frames.

Tactical planning primarily addresses how to effectively schedule material and labour,

e.g.,---How many workers do we need?

---When do we need them?

---When should material be delivered?

---How much finished goods inventory is needed?These tactical decisions in turn become the operating constraints under

operational planning and control.

Operational planning and control management decisions within are narrow and shortterm.

At this level they include:

--What job do we do today.--When do we assign what tasks.



--What jobs have priority.

Operational Management hence is a dynamic field, which encompasses manyaspects of a transformation process - -i.e.: one that uses resources to convert inputs into

desired outputs. The inputs may be raw materials, a customer or a finished product of

another system. In general, transformation processes can be categorized as follows:Physical : as in manufacturing.

Locational: as in transportation.

Exchange: as in retailingStorage: as in warehousing

Physiological: as in health care.

Informational: as in telecommunication.

These transformations are not mutually exclusive but interactive.

Input Output Transformation Relationships

System PrimaryInputs Resources PrimaryTransformationfunction

TypicalDesiredOutput.

Restaurant Hungry

customer

Food, cook,

waiter,

environment

well prepared,

well served

Agreeable

environment.

Satisfied

customer

AutomobileFactory

Steel Plastic Tools,Equipment

workmen

Fabrication andAssembly

Quality Cars

Airline Travelers Airplanes,

Crew

Schedules

Move to

destination

on time

safe delivery.

The challenges of Operations Management will hence be:

Coordinating the relationship between mutually supportative but separateorganization e.g. a contract manufacturing.

Optimizing global supplies, production and distribution networks

E.g. reverse auctions

Increased co-production of goods and services.

Use of Internet for order booking etc.

Managing customer touch points.

Customer support



OPERATIONS STRATEGY.

An operations strategy involves decisions that relate to the design of a process andthe infrastructure needed to support the process.

Process design includes the selection of appropriate technology, sizing the processover time, the roll of inventory in the process and locating the process.

Infrastructure decisions involve the logic associated with the planning and control

system, quality assurance and control approaches, work payment structures andorganizing of the operations function.

Typically a strategy breaks down into three major components

Operations effectiveness

Customer management

Product innovation.

Operations effectiveness relates to the core business process needed to run the

business. These processes span all the business functions for taking customer orders,

handling returns manufacturing, shipping etc.

Customer management relates to better understanding and leveraging customer

relationship.

Product innovation involves the development of new products, markets,

relationships to sustain growth.

Operations strategy is concerned with setting broad policies and plans for using

the resources of a firm to best support its long term competitive strategy.

Operations strategy can be viewed as part of a planning process that coordinatesoperaational goals with those of a larger organisatrion.

Since the goals of the larger organization change over time the operation strategymust be designed to anticipate future needs.

The operating strategy must build in capabilities to adopt to the changing productand/or service needs of the firm’s customers.

Operations strategy cannot be designed in a vacuum. It must be linked vertically

to the customer and horizontally to other parts of the enterprise. Overlying the



framework in Senior managements strategic vision of the firm. This Vision identifies

in general terms, the target market the firms product line, its core enterprise and

operations capabilities.

Selection of the target market is difficult as you cannot serve all customers given

the core capabilities or compitencies which are the skills which differentiate theservice or manufacturing firm from its competitors.

STRATEGIC VISION

Customer needs

New products Existing products

Competitive Dimensions

And requirements

New product Order fulfillment after salesService

Quality Dependability FlexibilityPrice speed

_________________________________________________________

Enterprise Capabilities

Core capabilities Operation capabilities Supplies Capabilities

_____________________________________________________________________

R&D Technology Systems People Distribution

Financial HR IT

_________________________________________________

Developing a Manufacturing Strategy.

The main objective of manufacturing strategy development are:

To translate required competitive dimensions obtained from marketing into specific performance requirements for operations.

To make plans necessary to ensure that operations and enterprise capabilitiesAre sufficient to accomplish them.



The steps for prioritizing these dimensions are :

1.Segment the market according to the product group.

2.Identify the product requirements, demand patterns a profit margins of each group.

3. Determine the order winners and order qualifiers for each group.

4. Convert order winners into specific performance requirements.

Comparision of how two Product Groups differ in their manufacturing

requirements:

Manufacturing requirement Pr group 1 Pr group 2

Differences

Product Std med equipment Electronic meaning devices

Customer Hospital/Clinics Med & other CEM

Product Specs Not high tech but Varies some high specsPeriodic update & other less so

Product Range Narrow 4 variants Wide many types & variants

Some customerisation

Design changes Infrequent Continuous process

Delivery Customer lead On time delivery important

Important

ship directly fromStock

Quality Conformance/Reliability Performance/Conformance

Demand Financial year related Lumpy & unpredictable

Variation but predictable

Volume/line High Medium/low

Margins Low Low to very high

External Performance Dimensions



Order Winners Price Product Specs

Product Reliability Product RangeDelivery lead time Delivery dependability

Product Specification Dependability

Quality Conference Delivery lead timePrice

Main Operations

Performance Cost quality New product flexibility

Range flexibility

Dependability

The above table shows how two product groups manufactured by the same

manufacturer differ in their manufacturing requirements.

The first product group is a range of standard electronic medical equipment solddirectly off the shelf to clinics.

The second product group is a wider range of medical equipment sold to OEMand are customized to individual requirement.

The two groups exhibit very different market competitive characteristics.

Therefore different external preference objectives are required for the manufacturingoprns.

Each product group also different priorities for its internal performance objective.

Product Gr 1 needs to concentrate on Cost and Quality – All Internal performance

objectives should be bent to achieving this.

Product Gr 2. needs the flexibility to cope with a wide product range and considerable

product design turbulance . Such diverse competitive needs will definitely require twosepr focused manufacturing processes , each devoted to providing the things that are

important in their separate markets .



Operations Strategy in Services.

Operations strategy in service firms is generally inseparable from the Corporate Strategy.For Medical Service Organizations, the service delivery system is the business, and hence

any strategic decision must include operations consideration. The customer is the focal

point of all decisions and actions of the service organization.

In the Service Triangle

Service Strategy

The Customer

Support Systems Employees

The Customer is the center of things.

This Organization, - the airlines, the banks, the hospitals – exist to serve the customer,

and the systems and the employees exist to facilitate he process of service.Service organizations also exist to serve the workforce, because they generally determine

how the service is perceived by the customer. The customer gets the kind of service that

the management deserves – in other words, how management treats the worker, is how

the worker will treat the public. If the workforce is well trained and well motivated bymanagement they will do a good job for their customers.

The roll of operations is a major one .It is responsible for procedures ,equipmentand facilities ,it is also responsible for managing the work of the service workforce.

Most services contain a mix of tangible and untangible attributes, and hence there is a

need for different approach based on the strategy..

Eg a fast food joint needs different training to the waiters than an exclusive Frenchrestaurant. Hence service organizations are generally classified according to who the

customer is and to the service they provide.

In service as opposed to manufacturing high contact services are “Experienced” where asGoods are “Consumed”. Customer contact and extent of contact define the degree of

interaction of all in the system.

Service High contact Low contact

eg A Bank Branch Office RBI clearing house

Facility Location Operations near Customer Operations ear supply or

Transport head

Facility Layout Size should accommodate

the customers physical and

Focus on production

efficiency



psychological needs

Product design Environment as well as the

physical product define the

nature of service

The product is defined by

fewer attributes

Process design Stages of production

process have a directimmediate effect on the

customer

The customer is concerned

only with the completiondates

Planning Production Orders cannot be stored

Smooth production flow is

needed or the result is loss

of business

Both backlogging and

smooth flow are acceptable

Worker skills The direct workforce

constitutes a major part of the service product and

must be able to interact with

the public

The direct workforce need

only have the right technicalskills

Quality Control Quality standards are often

in the eye of the beholder

and thus variable

Quality standards are

generally measured and thus

fixed

Time standards Service time depends on

customer needs so timestandards are loose

Time standards are tight as

operations are ondocuments

Capacity Planning To avoid loss of salesCapacity must be set to

match peak demand

Storable output permitscapacity to some average

demand level

Service strategy hence begins by selecting operations focus i.e.the performance priorities by which the service firm will compete.

These include:

1. Treatment of the customer in terms of friendliness and helpfulness.2. Speed and convenience of service delivery.

3. Price of the service.

4. Variety of service (one stop philosophy)5. Quality of the tangible goods that are central or accompanying the service.

6. Unique skills that constitute the service offering – Piano lessons, brain surgery,

hair styling..



Comparisons in Operations Strategy Planning.

Manufacturing Services

1. Business definition::

Who is the customer? Who is the customer.What customer function do we serve What customer functions do we erve

How do we meet them What is the nature of customer

interaction

How do we deliver it

2. Basis of computation:

Cost Cost

Quality physical Service quality-Conference Conference

-Performance Performance

Delivery Perceived QualitySpeed Information content

Reliability Expertise

Flexibility Image/tangable

Product Design Capacity

Features and range Capacity & size

Capacity schedulingAfter Market service Delivery

- Speed

- Reliability- Location

- Flexibility

- Service designs

- Feature and range- Customer contact

- After Market Service

Interfunctional strategic planning

Front office activities

Procedures and scriptingPersonnel selection training

And supervision.

Internal Marketing

Client resources



Facilities design

Backroom interface

Functional Strategies:Operation Back room operations

Marketing Traditional marketing

Human Resources Traditional human resourcesR&D R&D

Finance Finance

Definitions

Alfred Chandler defined strategy as the determination of the basic long term goals

and objectives of an enterprise, and the adoption of coarse of action and the allocation of resources necessary for carrying out these goals.

William Glueck defined strategy as a unified comprehensive and integrated plan

designed to ensure that the basic objectives of the enterprise are achieved.Henry Mintzberg defines strategy as a pattern in a stream of decisions and

action.

Eg the introduction of the Honda Cub in the US. The intended strategy was tointroduce the 200 and 300 cc motorbikes in the mobike enthusiasts segment - it failed –

but executives used cub 50 cc to move all around. Sears Roebeck – asked if they could

sell the cub in their malls for the non-motorcycle enthusiast - today every 2nd

motorcycle sold is a Honda.

After deciding on the mission, objectives and the target market, the company

has to choose between the fundamental strategic competitive option of

Meaningful differentiation and Cost leadership.

Meaningful differentiation

means different and superior in some aspects of the business that has value

to the customer. The fundamental objective in to make the product better

byBetter design with customer use in view.

Better delivery of existing or quicker delivery of improvement

Better flexibility of changing needs of the customer and environment.

Cost leadership

in offering the product and service at the lowest price in the industry.



remove non value added items from product.

Reduce OverHeads of inventory carrying etc.

Successful strategies are those which have –

Improved Responsiveness in terms of = minimizing time to respond0

=timely response

=accessibility thru better locations ,better geographical proximity, better logistics and communication.

=wider product/service choice thru reduced cycle time/setup time.

=increased productivity.=Reduced prices through

Overall improvement in production – delivery value chain.

better design of product/service.

Improved Quality through=better skills/knowledge attitude orientation of all in organization.

= improved technology.=Reduced complexity, confusion.

ms from product-> .

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