02 - Operations Strategy

OPERATIONS MANAGEMENT -1
Term 2, B2016-18, Oct-Dec 2016
Operations Strategy
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Session 02 Operations Strategy
Prof. Kedar P. Joshi
Learning objectives
Identify importance of Strategy, Strategic decisions and Operations
strategy
Brainstorm on perspectives on operations strategy and operations
objectives
Learn how to link strategies and generate set of order qualifiers and order
winners
Identify an appropriate flow unit for a process
Distinguish among the three key process metrics
How to draw process flow diagram (Handout)
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Strategy
Action plan to achieve mission
Functional areas have strategies

Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Operations strategy
A consistent pattern of business decisions for the transformation
system and associated supply chain that are linked to the
business strategy and other functional strategies, leading to a
competitive advantage for the firm
OPM 1 Term 2, B2016-18, Oct-Dec 2016
McDonalds Operations Strategy

Mission
To provide food and service quickly to customers with consistent
quality and low cost in clean and friendly environment
Objectives
McDonalds track the cost, quality, and service performance of each
restaurant and frequently compares the results with those of
competitors
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Strategic decisions
Process
Appropriate quantity and quickly
Quality
QC checks>2000
Capacity
To minimize waiting time
Inventory
JIT approach to ensure timely supply of food and packaging material
OPM 1 Term 2, B2016-18, Oct-Dec 2016
McDonalds operations strategy

Distinctive competence
4th element of operations strategy
Unique to the firm
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Macdonald's operations strategy
Mission
Quick
Quality
Low cost
Objectives
cost
quality
Service
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Strategic
decisions
Process
Quality
Capacity
Inventory
Distinctive
competence
Continues
improvement
of the
transformation
process
Brand
PERSPECTIVES ON OPERATIONS STRATEGY

OPM 1 Term 2, B2016-18, Oct-Dec 2016
Top-down and bottom-up perspectives of strategy

Corporate strategy
Group building corporate capability in

High tech products and services
Metrology division competes on fast
to market innovations
Business strategy
Operations
strategy
Operations must have fast and flexible technology,

supply relationships, process and staff. Modular strategy
provides flexibility and innovation at relatively low cost
Emergent sense of what

the strategy should be
Operational
experience
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Experiment with modular design of

key products and components
Customers are confused with continuous

product innovation and costs are increasing up.
Corporate strategy
Business strategy
Operations Strategy
Internal
analysis
Mission
Distinctive
Competence
External
analysis
Functional strategies in
marketing, finance,
engineering, human
resources, and
information systems
Objectives
(cost, quality, flexibility, delivery)
Policies
(process, quality,
capacity, and inventory)
Consistent pattern of decisions
Results
OPM 1 Term 2, B2016-18, Oct-Dec 2016
11
Corporate & business strategy

Corporate strategy
Business strategy
Walt Disney corporation considers

itself in the business of making
people happy
The Disney Corporation includes
theme parks, production of cartoons,
movie production, merchandising
and variety of entertainment related
business around the world
OPM 1 Term 2, B2016-18, Oct-Dec 2016
How each particular business will

compete
Most large corporations have several
different businesses each competing
different market segments
E.g. Porter (1980) describes three
generic business strategies viz.
differentiation, low cost and focus
12
Strategies for Competitive Advantage

Differentiation
better, or at
least different
Response
rapid
response
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Cost
leadership
cheaper
Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service
attributes to encompass everything that impacts customers perception of
value
Safeskin gloves leading edge products
Walt Disney Magic Kingdom experience differentiation

Hard Rock Cafe dining experience
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Competing on Cost
Provide the maximum value as perceived by customer
Does not imply low quality
Southwest Airlines secondary airports, no frills service, efficient
utilization of equipment
Wal-Mart small overheads, shrinkage, distribution costs
Franz Colruyt no bags, low light, no music, doors on freezers
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Competing on Response
Flexibility is matching market changes in design innovation and volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules
German machine industry
Timeliness is quickness in design, production, and delivery
Johnson Electric, Motorola
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Reconciliation process
Operations strategy reconciles the requirements of the market with the
capabilities of operations resources
Strategic
Reconciliation
Operations
Resources
OPM 1 Term 2, B2016-18, Oct-Dec 2016
OPERATIONS
STRATEGY
Market
Requirements
Operations has to cope with the clash between the nature of

external markets and the nature of internal resources
Operations Resources
are.
Market Requirements
are.
Difficult to change
Dynamic
Technically
constrained
Heterogeneous
Ambiguous
Complex
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Operations strategy objectives

Cost
Quality
Delivery
Time
Reliability
Flexibility
Schedule
Product change
How does a firm use them to gain a competitive advantage, and how do
they trade-off?
OPM 1 Term 2, B2016-18, Oct-Dec 2016
19
Typical operations objectives
OPM 1 Term 2, B2016-18, Oct-Dec 2016
20
Examples of Important Strategic Decisions in Operations
OPM 1 Term 2, B2016-18, Oct-Dec 2016
21
Operations strategy is the strategic reconciliation of market

requirements with operations resources
Strategic
Reconciliation
Operations Resources
Market Requirements
Market
Segmentation
Operations
Resources
Operations
Strategy
Decisions
Operations
Competences
Performance
Objectives
Market
Positioning
Competitor
Activity
Operations
Processes
Understanding
Resources and
Processes
Strategic
Decisions
Capacity
Quality
Process technology
Inventory
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Required
Performance
Understanding
Markets
Quality
Speed
Flexibility
Cost
Market
Requirements
Operations
Resources
What you
HAVE
What you
DO
What you
WANT
in terms of
operations
capabilities
to maintain
your
capabilities
and satisfy
markets
from your
operations
to help you
compete
What you
NEED
to
compete
In the
market
Strategic
Reconciliation
OPM 1 Term 2, B2016-18, Oct-Dec 2016
The priority of performance objectives is influenced by what is

regarded as important by customers and how the operation
performs against competitors
Customer Needs
Importance to
customers
Priority of
performance
objectives
Performance against
competitors
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Competitors
Actions
Relative
importance of
the
Operations
Resource
perspective
Performance objective B
The relative importance of the market requirements and operations

resource perspectives change over time,
how performance objectives trade-offs between each other and
operations focus can lead to exceptional performance
?
TRADE-OFFS
Relative
importance of
the Market
Requirements
perspective
Performance objective A
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Strategic alternatives
OPM 1 Term 2, B2016-18, Oct-Dec 2016
26
Linking operations to business strategies

Business strategy alternatives
Product imitator
Focus on keeping costs low
Product innovator
Maintain flexibility in process, labor and suppliers
Order qualifiers and order winners
Qualifiers : why do you consider the product/service
Winners : why do you choose the product/service
OPM 1 Term 2, B2016-18, Oct-Dec 2016
27
Order Winners and Qualifiers

Qualifiers are the givens of doing business
Order Winners gain more business the better you are
Adding Delights
Delights become Order winners and Order winners become Qualifiers
Competitive benefit
Positive
Delights
Order winners
Neutral
Qualifiers
Negative
Low
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Achieved performance
High
Linking operations to business strategies

Product imitator
Order Qualifiers : flexibility, quality, delivery
Winners : price (low cost approach)

Product innovator
Order Qualifiers : cost, delivery and quality

Order winner : flexibility (rapid introduction of new products)
OPM 1 Term 2, B2016-18, Oct-Dec 2016
29
Summary
McDonalds Operations Strategy
Operations Strategy Model

Emphasis on Operations Objectives
Linking Strategies
Order winners and qualifiers
OPM 1 Term 2, B2016-18, Oct-Dec 2016
30
OPERATIONS MANAGEMENT -1
Term 2, B2016-18, Oct-Dec 2016
Process view of organization
OPM 1 Term 2, B2016-18, Oct-Dec 2016
31
Introduction
You cannot manage what you cannot measure

If you do not know how to measure a process then it is
difficult to know how to improve a process
2-3
OPM 1 TermMcGraw-Hill/Irwin
2, B2016-18, Oct-Dec 2016
Process Definition, Scope, and Flow Units

What should the manager measure to determine if the process is
performing well?
Process
A set of activities that take a collection of inputs, perform some
work or activities with those inputs, and then yield a set of output
2-4
2, B2016-18, Oct-Dec 2016
Examples of processes
wood
metal
students
Factory
guitars
University
alumni
bulk items
Distribution
center
small parcels
mortgage
applications
Calculate
credit risk
approved loans
rejected loans
Processes can involve both goods and services.

Processes can have multiple inputs and/or multiple outputs
OPM 1 Term 2, B2016-18, Oct-Dec 2016
34

Managers face the same question everyday
Is the process performing well?
How can we make the process better?
The first step measure the performance of the employees
Need a plan for making those employees better at what they do
2-5
2, B2016-18, Oct-Dec 2016

Process flow diagram
A graphical way to describe the process. It uses boxes to depict resources, arrows
to depict flows, and triangles to depict inventory location.
Process Scope
The set of activities and processes included in the process
Flow Unit
The basic unit that moves through a process
2-7
2, B2016-18, Oct-Dec 2016
Defining a process scope

A process is a set of activities that accepts inputs and produces outputs
A process can be defined at an aggregate level:
mortgage
applications
approved loans
Calculate
credit risk
rejected loans
A process can be defined on micro level with multiple sub-processes:

mortgage
applications
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Collect data
from client
Evaluate
loan metrics
approved loans
Underwriting
decision
Communicate
decision to sales
rejected loans
37
Defining a process flow unit

The flow unit is what is tracked through the process and generally defines
the process output of interest
OPM 1 Term 2, B2016-18, Oct-Dec 2016
38
Rules to Define Flow Unit

1. Choose flow unit that corresponds to what you want to track and
measure (with respect to the process).
2. Stick with the flow unit you define.
3. Choose a flow unit that can be used to measure and describe all of the
activities within the process.
2-11
2, B2016-18, Oct-Dec 2016
Handout Circored plant
OPM 1 Term 2, B2016-18, Oct-Dec 2016
42
converts iron ores into iron briquettes to supply steel plants
Figure 1
West
OPM 1 Term 2, B2016-18, Oct-Dec 2016
To Create a Process Flow Chart (Diagram) Figure 2

2nd Stage
FB Reactor
CFB
Preheater
1st Stage
CFB Reactor
~ 110 m
Inclined
Bucket Elevator
Briquetting
Plant
Process
Gas
Heat
Exchanger
Iron
Ore
Fines
Electrical
Substation&
Control
Room
Process Gas
Compressor
Fired Gas Heaters
HBI Product
~ 160 m
Engineering drawing
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Elements of a Process
Figure 3
Activities
Carried out by resources
Add value and are required
for completion of the flow unit
May or may not carry inventory
Have a capacity (maximum number
of flow units that can flow through
the activity within a unit of time)
Arrows
Indicate the flow of the flow unit
Multiple flow unit types possible
Inventory / Buffers
Do NOT have a capacity; however,
there might be a limited number of
flow units that can be put in this
inventory space at any moment of time
Multiple flow unit types possible
OPM 1 Term 2, B2016-18, Oct-Dec 2016
Figure 4
Pre-Heater
Pile of Iron ore fines
Process flow diagram, first step

OPM 1 Term 2, B2016-18, Oct-Dec 2016
Figure 5
Pre-Heater
Lock
Hoppers
1st Reactor
2nd Reactor
Process flow diagram, to be continued

OPM 1 Term 2, B2016-18, Oct-Dec 2016
Figure 6
Pre-Heater
Lock
Hoppers
1st Reactor
2nd Reactor
Briquetting
Discharge
Flash
Heater
Finished Goods
Completed process flow Process flow diagram

OPM 1 Term 2, B2016-18, Oct-Dec 2016
Figure 7
Pre-Heater
Lock
Hoppers
1st
2nd
Reactor
Reactor
Discharge
Flash
heater
Briquetting
Pile of Iron
ore fines
Finished
goods
Completed PFD for the Circored process

OPM 1 Term 2, B2016-18, Oct-Dec 2016

02 - Operations Strategy

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OPERATIONS MANAGEMENT -1

Term 2, B2016-18, Oct-Dec 2016

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Functional areas have strategies

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

McDonalds Operations Strategy

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

McDonalds operations strategy

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Macdonald's operations strategy

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

PERSPECTIVES ON OPERATIONS STRATEGY

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Top-down and bottom-up perspectives of strategy

Group building corporate capability in

Operations must have fast and flexible technology,

Emergent sense of what

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Experiment with modular design of

Customers are confused with continuous

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Consistent pattern of decisions

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Corporate & business strategy

Walt Disney corporation considers

OPM 1 Term 2, B2016-18, Oct-Dec 2016

How each particular business will

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Strategies for Competitive Advantage

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Walt Disney Magic Kingdom experience differentiation

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy

Prof. Kedar P. Joshi

Session 02 Operations Strategy

Prof. Kedar P. Joshi

OPM 1 Term 2, B2016-18, Oct-Dec 2016

Session 02 Operations Strategy