operational strategies
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OPERATIONAL
STRATEGIES
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Operations strategy is ..
.thetotal patternofdecisions whichshapethe
long-termcapabilitiesofanytypeofoperationsandtheircontributiontotheoverallstrategy,throughthe
reconciliationofmarketrequirements withoperations
resources.
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Operations Strategy Designingthe
Operations Function
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Competitive Priorities- The
Edge FourImportant Operations Questions: Willyou
competeon
Cost?Quality?
Time?
Flexibility?
Alloftheabove? Some? Tradeoffs?
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CompetingonCost?
Typicallyhighvolume products
Oftenlimit productrange & offerlittle
customization
Mayinvestinautomationtoreduceunit
costs
Canuselowerskilllabor
Probablyuse productfocused layouts
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CompetingonQuality?
High performance design:
Superiorfeatures,high durability, & excellent
customerservice
Product & service consistency:
Meets designspecifications
Closetolerances
Errorfree delivery
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CompetingonTime?
Fast delivery:
Focused onshortertimebetweenorder
placementand delivery
On-time delivery:
Deliverproductexactly whenneeded every
time
Rapid development speed Usingconcurrent processestoshorten product
developmenttime
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CompetingonFlexibility?
Product flexibility:
Easilyswitch productionfromoneitemto
another
Easilycustomize product/servicetomeet
specificrequirementsofacustomer
Volume flexibility:
Abilitytoramp productionup and downto
matchmarket demands
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Are There Priority Tradeoffs?
Which prioritiesareOrder Qualifiers?
e.g. Must have excellent quality sinceeveryoneexpectsit
Which prioritiesareOrder Winners?e.g. Dellcompetesonallfourpriorities
Southwest Airlinescompetesoncost
McDonaldscompetesonconsistency
FedExcompetesonspeed
Customtailorscompeteonflexibility
Canyouhavebothhigh quality and low cost?
e.g. Yes,Cokeand Pepsiaregood examples
Canyouofferdesign flexibility and short delivery?
e.g. Yes,modularhousingmanufacturers doit
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SUPPLY CHAIN
A supplychainisthealignmentoffirmsthat
bring productsorservicestomarket.
A supplychainconsistsofallstagesinvolved, directlyorindirectly,infulfillinga
customerrequest. Thesupplychainnotonly
includesthemanufacturerand suppliers,but
alsotransporters, warehouses,retailers,andcustomersthemselves.
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A supplychainisanetworkoffacilitiesand
distributionoptionsthat performsthe
functionsofprocurementofmaterials,
transformationofthesematerialsinto
intermediateand finished products,and the
distributionofthesefinished productsto
customers.
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A generalized SCModel
Manufacturer
Distributor Retailer Customer
Distributor Retailer Customer
Retailer Customer
Retailer Customer
Supplier
Tier1
Supplier
Tier2
Supplier
Tier1
Supplier
Tier2
Raw Materials
Components
Distribution Tier1Distribution Tier2
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A SupplyChain Example
Did youeverwonderwhereatelevisioncomesfrom?
A varietyofcompaniesin differentcountries playaroleinbuilding
thecomponents,assemblingthe product,and movingitthrough
thesupplychain. Thegoalofthesupplychainistohavethe
televisionavailable whenyourereadyto purchaseitfromyour
favoritestoreorwebsite.
Display System
TV Control System
Internal + Remote
Signal Reception
System
Television
PowerSupply
System
Sound System
Sub-component
Manufacturers
Component
Manufacturers
Consumer
Electronics
Manufacturers
Circuit City
Bob's Wholesale TVs
Consumers
US ElectronicsDistributors LTD
BestBuy
TV Town
Distributors Retailers
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Whoarethe SC participants?
Suppliers arethesourceofraw materials,component parts,semi-manufactured products,and otheritems.
Manufacturers arethemakersofproducts.Manyconsiderthemtobethedriverorleaderdriverorleader ofthesupplychain.
Distributors areresponsibleforthe packaging,storing,and handlingofmaterialsatreceiving docks, warehouses,and retailoutlets.
Retailers arethemanufacturer'scustomers- thestoresand eCommercecompaniesthatbuytheactual products.
Consumers aretheultimate productusers- the people whobuytheproduct.
Manufacturing Distribution Retailer ConsumerSuppliers
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Importance/BenefitsofSCM
Toachieveeconomiesofscaleand scope Costs
aresignificant
Toimprovebusinessfocusand expertise
CustomerExpectationsareincreasing
Supplyand Distribution Linesarelengthening with
complexity
Adds SignificantC
ustomervalueCustomers Increasingly Want Quick & Customised
Response
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Importance/BenefitsofSCM
Toachieveeconomiesofscaleand scope Costsaresignificant
Internal SCfunctionslack economiesofscale whencompared with
the potentialcapacityofanindependent providerofthesame product/
service.
Eg:ComputerMonitor/Chip / Hard drive
Attractive pricing volumeleverage.
Toimprovebusinessfocusand expertise
Verticalintegrationmultipliesthecomplexitiesofmanaging
disparatebusinesses. Anindependentcompanythatfocusesentirelyona particularbusinesscan develop moreexpertisethananin-house
department
Ford divested theirIron Orecompany, SteelMilletc
HigherQuality, Attractive Pricingorboth
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Importance/BenefitsofSCM
C
ustomerExpectationsareincreasing
- Rapid processingofCustomerRequest
- Quick delivery (shorterOrderCycle Time)
- High degreeofProduct Availability
- LowerPrices
Supplyand Distributionlinesarelengthening withgreater
complexity
- Cutcostsand expand markets
- Trend towardsanintegrated world market- Designing productsforworld market & producingthem wherever
raw material,labour,components,overhead etcarelower
- Politicalarrangements: EuropeanUnion, ASEAN, SAARCetc
- Globalizationofindustries dependsonlogistic performanceand
cvosts
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Importance/BenefitsofSCM
AddssignificantC
ustomerValue-A productorserviceisofnovaluetothecustomer,ifnotavailablewhenrequired
Goodscustomers wantarenot produced wherethey wanttoconsume
OR goodsarenotaccessible whencustomers wanttoconsume
Value Through Responsibility
Form Convertingraw materials
and componentstothe
required Form, Fit &
Function
Engineering &
Manufacturing
Time Productionscheduling &
moving
Manufacturing & Logistics
Place Moving & making
transportable
Engineering & Logistics
Possession Advertising, Pricing,
Technical Support
Marketing, Finance &
Engineering
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Importance/BenefitsofSCM
Customers Increasingly want QuickCustomised Response
- Customersexpectthat products/servicescanbemadeavailable
inshortertimes. Guided by Fast Food, ATM, E-Mailetc.
- Improved IS and flexiblemanufacturing processeshaveled tomasscustomisation
- One Size Fit all philosophyisnotappreciated always
- Manufacturers/ Suppliersareoffering productsthatmeet
individualneeds
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Process View ofSupply Chain Management:Cyclic View
SCisasequenceofprocessesand flowsthattake place withinand between different SC
stagesand combinetofulfilacustomerneed fora product/service. These processesaredivided intoaseriesofcycles (cyclicview),each performed attheinterfacebetweentwo
successivestages/entitiesofSC.
Customer Order
Cycle
Replenishment
Cycle
Manufacturing
Cycle
Procurement
Cycle
Customer Arrival Customer Order Receiving
Customer Order FulfilmentCustomer Order Entry
Retail Order Trigger Retail Order Receiving
Retail Order FulfilmentRetail Order Entry
Order Arrival from D/R/C Receiving by D/R/C
Manufacturing & ShippingProductionScheduling
Order from Manufacturer Receiving at Manufacturer
RM /Comp. Mfg & ShippingSupplier Prodn Scheduling
Cycles Stage/EntityCustomer
Retailer
Distributor
Manufacturer
Supplier
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Push/Pull View ofSupplyChains
Procurement,Manufacturing andReplenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES PULL PROCESSES
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CustomerOrder
Cycle
Repl & Mfrg
Cycle
Procurement
Cycle
PUSH
Process
PULL
Process
LL Bean
Cust Order& MfrgCycle
Procurement
Cycle
PUSH
Process
PULL
Process
DELL
Customer order arrives
Customer order arrives
Process View of a Supply Chain: Push Pull View
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Supply Chain Drivers
Production
Inventory
Location Transportation
Information
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Production
referstothecapacityofasupplychaintomake
and store products.
fundamental decisionthatmanagersface when
making production decisionsishow toresolvethetrade-offbetweenresponsivenessand
efficiency
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Factoriescanbebuilttoaccommodate
oneoftwoapproachestomanufacturing:
Product focus
Functional focus
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Inventory
includeseverything fromraw materialto workin
processtofinished goodsthatareheld bythe
manufacturers, distributors,and retailersina
supplychain. Holdinglargeamountsofinventoryallowsa
companyoranentiresupplychaintobevery
responsivetofluctuationsincustomerdemand
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Componentsof Inventory Decisions Cycleinventory
Averageamountofinventoryused tosatisfy demand between
shipments
Dependsonlotsize
Safetyinventory
inventoryheld incase demand exceedsexpectations
costsofcarryingtoomuchinventoryversuscostoflosingsales
Seasonalinventory
inventorybuiltup tocounterpredictablevariabilityin demand
costofcarryingadditionalinventoryversuscostofflexibleproduction
Overalltrade-off: Responsivenessversusefficiency
moreinventory: greaterresponsivenessbutgreatercost
lessinventory: lowercostbutlowerresponsiveness
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Location
referstothegeographicalsitingofsupplychain
facilities.
Italsoincludesthe decisionsrelated to which
activitiesshould be performed ineachfacility
Location decisionshavestrongimpactsonthe
costand performancecharacteristicsofasupplychain
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Oncethesize,number,and locationof
facilitiesis determined,thatalso definesthe
numberofpossible pathsthrough which
productscanflow onthe waytothefinal
customer.
Location decisionsreflectacompanysbasic
strategyforbuildingand deliveringitsproductstomarket.
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Transportation
referstothemovementofeverythingfromraw
materialtofinished goodsbetween different
facilitiesinasupplychain
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Transportation: Rolein
the SupplyChain
Movesthe productbetweenstagesinthesupplychain
Impactonresponsivenessand efficiency
Fastertransportationallowsgreaterresponsivenessbutlowerefficiency
Alsoaffectsinventoryand facilities
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Transportation:
RoleintheCompetitive Strategy
Ifresponsivenessisastrategiccompetitive
priority,thenfastertransportationmodes
can providegreaterresponsivenessto
customers whoare willingto payforit Canalsouseslowertransportationmodes
forcustomers whose priorityis price (cost)
Canalsoconsiderbothinventoryand
transportationtofind therightbalance
Example 3.3: Laura Ashley
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Componentsof
Transportation Decisions
Modeoftransportation: air,truck,rail,ship, pipeline,electronic
transportation
varyincost,speed,sizeofshipment,flexibility
Routeand networkselection route: pathalong whicha productisshipped
network:collectionoflocationsand routes
In-houseoroutsource Overalltrade-off: Responsivenessversus
efficiency
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Information
Informationisthebasisupon whichtomake
decisionsregardingtheotherfoursupply
chain drivers
Itistheconnectionbetweenalloftheactivitiesand operationsinasupplychain
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Information
Roleinthesupplychain
Roleinthecompetitivestrategy
Componentsofinformation decisions
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Componentsof Information Decisions
Push (MRP)versus pull (demand informationtransmitted quicklythroughoutthesupplychain)
Coordinationand informationsharing Forecastingand aggregate planning
Enablingtechnologies EDI
Internet ERP systems
SupplyChainManagementsoftware
Overalltrade-off: Responsivenessversusefficiency
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Logistics Management
'Logistics is the process of strategically managingthe procurement, movement and storage of materials
(and related information flows) through the
organisation and its marketing channels
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Logistics is the support element of the enterprise. It
helps in managing the movement and storage of:
Material into the enterprise.
Goods in the enterprise.
Finished goods from the enterprise.
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FUNCTIONS OF LOGISTICS
Facility of location & Network design
Information management
Transportation management
Inventory management
Warehousing management
Material Handling system
Packaging
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THREE CATEGORIES OF LOGISTICS
1. Subsistence logistics
2. Operation logistics
3. System logistics.
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VALUE-ADDED ROLE OF LOGISTICS
Form Utility
Place Utility
Time Utility
Possession Utility
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LOGISTICS FOR COMPETITIVE
ADVANTAGE
Three Cs
company,
customers
competitors
PRODUCTIVITY ADVANTAGE
VALUE ADVANTAGE
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Thank you