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Session 2 : Operations Strategy

Learning Objectives
By the end of this Unit, you should be able to: Understand the concept of business strategy. Explain the strategic planning process and the differences between strategic, tactical and operations planning. Appreciate operations from a systems perspective. Recognize the importance of operations strategy. Describe the key criteria of distinctive competencies. Distinguish between order qualifiers and order winners. Appreciate the concept of the balanced scorecard when formulating strategies.
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What is a System?
A set of interconnected elements that must function together in unison within a certain environment

E
al b n lo G atio iz

S THIC

OIL Price

CSR
W ar oba m l in g Gl

Ta

xe s

Banks
Suppliers

Transport Modes

Uni o

ns

Exch ang Rate e s

-M ITC

LS

KYOTO

Te c

Competi tors

Train

hn ol o

Sh ho arelde rs

Your organization

Customers
ss ine s s Bu ycle C
gy

ld or e W rad T

i ng

Kyoto Protocol

Competing Supply Chains

Banks Suppliers Competitors Taxes

Inputs
Shareholders

Transformation

Outputs
Trade Unions

Customers

Government Regulations
Globalization
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Action Point
Using the template below, illustrate your organization from a systems perspective i.e. your organization interacting with its environment:

Your Organization from a Systems Perspective

Suppliers

Inputs

Transformation

Outputs

Customers

Corporate / business strategies are...

how an organization plans to accomplish its mission and goals needed to survive in a changing world implemented through the process of strategic planning

Vision/Mission

Corporate / Business Strategy

Operations Strategy

Financial Strategy

Marketing Strategy

Strategic Planning Tactical Planning Operational Planning

Strategic Planning Tactical Planning Operational Planning

Strategic Planning Tactical Planning Operational Planning

Planning levels:
Strategic planning Tactical planning
is the preparation of long-term plans by top management aimed at achieving organizational goals and objectives. is the preparation of medium- term plans by middle management aimed at supporting the strategic plan by achieving functional goals and tactical objectives.

Operational planning

is the preparation of short-term plans by first-line management aimed at supporting tactical plans and achieving operational goals and objectives. 8

Types of Planning
Strategic Planning: long-range decisions (typically 1 to 5 years)

Examples of Decisions

Tactical Planning: medium-term decisions (Typically one month and less than 1 year)
Operational Planning & Control (OPC): short-term decisions (daily, weekly, monthly)

Where do we locate a new factory? Top What new products do we introduce? Manage- How do we increase market share? Should we implement ISO 9001? ment Do we need additional capacity? When? What layout do we need for the new product? When ? What new Senior quality checks are required? or Middle What equipment do we Management replace? Do we need an extra shifts?

First Line Management

What orders have priority? When can we schedule maintenance? How do we increase productivity?
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Developing a winning strategy:

Order Qualifiers vs. Order Winners
Order Qualifiers: the six competencies needed for a business to be considered as a potential supplier: quality, delivery, flexibility, time, cost and service.

Order Winners: the criteria that differentiate the goods and/or services of one business from those of another, and which result in it being awarded the order.

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Action Point

Order Qualifiers and Order Winners

To achieve a winning strategy, it is important for organizations to convert from being order qualifiers to become order winners. Using your organization, how would you develop your package of key competencies/criteria to be distinctive competencies in order to win repeat orders?

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What is the Balanced Scorecard

A holistic strategic planning system that aligns the various business activities of an organization with its overall vision and mission using balanced performance measures in four areas: financial, customers, internal processes and learning & growth.

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From an operations management strategic viewpoint, these four performance measures could include the following:
Financial Perspective Customer Perspective How do we add value for our customers but also reduce our operating and material costs? How do we create value for our customers? How do we change to meet our customers present and future demands? What are our training needs? How do we improve our processes to meet the present and future demands of our customers?
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Learning & Growth Perspective

Internal Process Perspective

Strategic Operations Objectives The BIG SIX Key Competencies

SERVICE

QUALITY

FLEXIBILITY

DELIVERY

TIME

COST

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The BIG SIX Key Competencies:

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QUALITY

High and consistent quality is essential to prosper in a competitive environment It is the easiest of the key criteria for a customer to judge

Continuously improving quality results in higher productivity and lower costs

High quality attracts customers; improving

quality retains customers

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The BIG SIX Key Competencies:

2

DELIVERY

Relates to the delivery of the product or the performance of the service

Sometimes called the Reliability / Dependability competency

Late delivery can have serious consequences

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The BIG SIX Key Competencies:

3

COST

Higher productivity leads to lower costs Lower costs allow a business to offer lower prices This helps to increase its market share

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The BIG SIX Key Competencies:

4

TIME

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6 3

In

recent decades, competition has changed: from price to price & quality to price & quality & delivery to price & quality & delivery & TIME

Time (& speed) provide a sustainable competitive advantage

Reducing time serves to gain an advantage
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The BIG SIX Key Competencies:

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FLEXIBILITY

It means being able to adapt rapidly to changing business conditions respond quickly to evolving customer needs Three types of flexibility: Volume flexibility responding to changes in demand Variety (or mix) flexibility providing the range of products that customers ask for Product flexibility developing new products when needed
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The BIG SIX Key Competencies:

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SERVICE

It is the fusion of the other five competencies a blend of quality, delivery, cost, time & flexibility It also means agility how quickly a business responds to both market and customer needs Agility is increasingly important with the growing focus on supply chains
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Trade-offs between Key Competencies

Often, one key competency may conflict with another An organization may thus take a strategic decision to excel in one or more key competencies at the expense of others

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Productivity
Agility in servicing customers enables organizations along a supply chain to obtain a competitive advantage One way of achieving this is to improve productivity Productivity is probably the performance measure most used in operations management
It measures the amount of output (goods and / or services) achieved per unit of input (labour, materials, capital & energy)
Productivity = Output Input It measures how efficiently resources have been used
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