Operations Strategy/ Competitive Advantage

N.K.Agarwal

Production Function
Operation/Production function essential to every business Operations create wealth in a global economy Operation function responsible to make four key decisions
Process Quality Capacity Inventory

Production Function
Production function in manufacturing involves
Transforming a set of inputs through a process into a predetermined set of outputs

Production Manager
Production / operations manager is the wealth creator in the company Operations managers make
Decisions regarding the operations function, Its interaction with other functions within the organisation and the external environment, and Plan and control the production process In an efficient and effective manner

Major Decisions at Pizza USA A Framework for OM

Process
How to produce & deliver

Quality
Criteria, measurement & process for achieving

Capacity
Physical facilities & labor

Inventory
What, when & how much?

Productive System
Means by which Input resources Are transformed to create Useful goods (products) & services As outputs.

AN OPERATING SYSTEM

Inputs Conversion subsystem Material Labour Energy

Transformation

Output Products

Capital
Information

Production process (Converter)

Services Information

Control (Feedback) subsystem

Information Processor (controller)

Environment

Products and Services

Products
Tangible things that can be carried away with the person

Services
Intangible and perishable are consumed in the process of their production.

Characteristics of Products Vs Services Products Services

Intangible & perishable; consumed in the process of their production Can be produced to inventory for off-the- Availability achieved by keeping the shelf availability productive system open for services Complex and interrelated processing Simple processing Tangible

Minimal contact with ultimate consumer High contact with clients/customers

Demand on system varies on weekly, monthly or seasonal basis Markets served by productive systems are regional,national or international Large units that can take advantage of economies of scale Location of system is in relation to regional, national and international markets Demand commonly variable on hourly, daily and weekly basis Markets served are usually local Relatively small units to serve local markets

Location dependent on location of local customers, clients & users

Production / Operation Management (POM)

Defined as
Decision making in the operations function Integration of these decisions with other functions A transformation system that converts inputs into outputs In an efficient and effective manner

Interfacing with other systems

Basic functional groups:
Marketing Generates demand Finance Generates the capital Production Generates the supply of outputs.

Marketing and POM

Marketing system
Discovers and transmits the need of consumers to the total organisation including the POM system Which supplies these needs. Translates the demand for future into units of production & desired delivery schedules.

POM-Marketing interface
Marketing furnishes data on:
Size of market Volume of production needed to meet anticipated market needs Desired inventories Anticipated changes in production of other products Anticipated delivery schedules: amount,location,timing Packaging needs

Conflicts between Marketing and POM

Unreasonable commitment to customers regarding
Customisation Delivery schedule Order quantity

Production/Operation Management
POM system generally consists of:
Forecasting facility requirement Designing total production facility Planning output levels Planning inventory levels Controlling work input Controlling work output Feedback Replanning

Production/ Operation Management

POM
Provides production facilities-plants,equipment and personnel. Provides statistical quality control Sustains technological growth and improvement & economic viability.

POM- Finance & Accounting interface

F&A Function
Responsible for all cash flows between the organisation and external environment. Interfaces from the inception of the idea of product through its development stages till it is sold

POM-F&A Interfacing
Important areas
Accumulation of operating data to form a starting point for standards Accumulation of cost data of a job, a time period or a process Assignment of general costs to profit centres Determination of profit/loss of profit centres Determination of value of work-in-process (w-i-p) Determination of financial value of raw material & finished goods inventories Providing status of jobs or w-i-p

POM- Information system

Information function
Incorporates policy information flow from management Feedback information to management Information from external environment, as well as Internal systems within the organisation

POM-Information interfacing
Information function interfaces in respect of
Inventory control Cost control Reporting status on orders Production schedules Forecasting & scheduling material requirement Control of w-i-p Quality control Preventive maintenance planning Make or buy decision Labour efficiency records

Operations Strategy
Strategy formulation a process by which a firm determines how it will compete in its industry It involves goal determination and the development of policies for achieving these goals Some of these functional areas to define key operating policies are
Marketing Sales Target markets Product line Finance & control Engineering and R&D

Operations Strategy
Labour Purchasing Production Distribution

Purchasing, Production and Distribution must be carefully related for the operation function Production stand alone can not work
Purchasing provides the material inputs Physical distribution system actually involves additional processing steps in the product flow Engineering, R&D and labour provide key inputs to the operations function Product design and key process technology comes from R&D function Labour provides a crucial input to the production

Operations Strategy
All the activities in the line of material flow from suppliers through fabrication and assembly and culminating in product distribution must be integrated for a sensible operational strategy formulation There are six major components to operations strategy
Strategic implications of operating decisions Matching the productive system design to market needs Capacity and location Technological choices The work force and job design Suppliers and vertical integration

Enterprise Competitiveness and the Operations Function

Four dimensions of competitiveness that measure the effectiveness of the operations function
Cost Quality Dependability as a supplier Flexibility/ service

Cost
Profitability is related to the difference between price and cost To compete on the basis of price requires an operations function capable of manufacturing at low cost

Enterprise Competitiveness and the Operations Function

The effects of location, product design, equipment use and replacement, labour productivity, good inventory management, employment of process technology etc.,all contribute to the resulting costs Unit costs are usually reduced as experience is gained through production However, a number of additional sources contribute to this
Improved production methods and tools, improved product design, standardisation, improved material utilisation, reduction of system inventories, improved layout and flow, economics of scale and improved organisation

Enterprise Competitiveness and the Operations Function

Quality Product quality has often been cited as a reason for preferring the products purchased by the customers
Dominance by Japanese products

Customers are often willing to pay more for or wait for delivery of superior quality products Dependability of a Supplier
Reputation for dependability of supply or even off-the-shelf availability is often strong competitive weapon Customers may compromise on cost or even quality in order to obtain on-time delivery when they need an item The scheduling and coordination of all elements of the productive system determine its ability to produce on time

Enterprise Competitiveness and the Operations Function

Flexibility / Service Ability to be flexible will depend upon the design of the productive system and the process technology employed For large volume production of a standardised item, perhaps it is not worthwhile A competitor could offer such flexibility and there may a substantial market for him Ready availability of good service facility, spare parts can be winners in the competitive market

Reference
Production & Operations Management: Aswathappa / Bhat Modern Production/Operations Management: Buffa / Sarin

Thank You