Definition of Strategy

Strategy
A comprehensive master plan stating
HOW the corporation will achieve its
mission and objectives
 Definition of Corporate Strategy

Corporation’s overall direction and the

management of its businesses to align
corporation with its environment.
 Business Strategy
Emphasizes improving the competitive
position of a corporation’s products or units

Functional Strategy

Maximizes resource productivity

 The Role of Business Strategy

 Defines the long-range plan to compete in the

marketplace

 Helps to differentiate the firm from competitors

 Game plan upon which functional strategies are

developed
Business/Functional Strategy
Operations Strategy – Designing the Operations
Function
 Order Qualifiers and Winners

Order qualifiers:
They are the basic criteria that permit the firms
products to be considered as candidates for purchase
by customers.

Order winners:
They are the criteria that differentiates the products
and services of one firm from another;
Or Characteristics that win orders in the marketplace
 Competitive Priorities- The Edge

 Four Important Operations Questions: Will you

compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
 Theory of Slack Ropes

Time

Quality
By pulling on one priority,
the others tend to get
pulled along with it. Price

Flexibility
Source: Duncan McDougall
 Productivity Growth Rate

 Can be used to compare a process’s productivity at

a given time (P2) to the same process’ productivity
at an earlier time (P1)

P2  P1
Growth Rate 
P1
 Productivity

Outputs
P
Inputs
 Measuring Productivity

 Productivity is a measure of how efficiently inputs are

converted to outputs
Productivity = output/input

 Total Productivity Measure

Productivity relative to all inputs
 Partial Productivity Measure
Productivity relative to a single input (e.g., labor hours)
 Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g.,
labor and materials)
 Example

Osborne Industries is compiling the monthly productivity report for its board of
directors. From the following data, calculate
a) Labor Productivity
b) Machine Productivity
c) The multifactor productivity of dollars spent on labor, machine, materials
and energy.
The average labor rate is $ 15 an hour, and the average machine usage rate is $10
an hour.

Unit Produced 100,000

Labor hours 10,000
Machine hours 5,000
Cost of materials $35,000
Cost of energy $15,000
 Answer

a) Labor productivity = output/ labor hours =

100,000/ 10,000 = 10 units/hours
b) Machine productivity = output/ machine hours =
100,000/5,000 = 20 units/hours
c) Multifactor productivity = output/ (LC+ MC+ Mat
C + EC) = 100,000/ 250,000 = 0.4 unit per dollar
spent.
 Life Cycles of Products / Services

Saturation

Maturity
Demand

Decline
Growth

Incubation

Time
 Strategy & Issues During Product Life
Introduction
Best period to increase market share
 Company R&D engineering are critical
Strategy & Issues
Product design and development are critical
Frequent product and process design changes

Over-capacity
 OM Strategy & Short production runs
Issues High skilled-labor content
High production costs
Limited number of models
Utmost attentions to quality
Quick elimination of market-revealed design
defects
Strategy & Issues During Product Life
Growth

Practical to change prices or quality image

Company
Marketing is critical
Strategy
Strengthen niche
& Issues

Forecasting is critical
Product and process reliability
Competitive product improvements and options
OM Strategy Enhance distribution
& Issues
Strategy & Issues During Product Life

Maturity

Company Poor time to increase market share

Competitive costs become critical
Strategy Poor time to change price, image, or quality
& Issues Defend position via fresh promotional and distribution
approaches

Standardization
Less rapid product changes and more minor annual model
OM Strategy changes
& Issues Optimum capacity
Increasing stability of manufacturing process
Lower labor skills
Long production runs
Attention to product improvement and cost cutting
Strategy & Issues During Product Life
Decline

Company Strategy Cost control critical to market share

& Issues

Little product differentiation

Cost minimization
OM Strategy Overcapacity in the industry
& Issues Prune line to eliminate items not returning
Good margin
Reduce capacity
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting Standardization Little product
and critical Less rapid differentiation
development Product and product changes Cost
critical – more minor minimization
OM Strategy/Issues

process
Frequent reliability changes Overcapacity
product and Competitive Optimum in the
process design product capacity industry
changes improvements Increasing Prune line to
Short production and options stability of eliminate
runs Increase capacity process items not
High production Long production returning
Shift toward good margin
costs product focus runs
Limited models Product Reduce
Enhance capacity
Attention to distribution improvement
quality and cost cutting
 Product-Process Matrix
Flexibility (Low)
Unit Cost (Low)
High Continuous
production

Mass
Volume

production

Batch
production

Projects Flexibility (High)

Unit Cost (High)
Low
Low High
Standardization
 Products

 Make-to-order

 Made to customer specs

 Make-to-stock

 Made to “standard” customers

 Assemble-to-order

 Standard modules are added to customer spec

 Chapter 7 Process Types

 Four Types of Processes

1. Projects are large-scale, customized initiatives

that consist of many smaller tasks and activities
that must be coordinated and completed to finish
on time and within budget.
 Characteristics: one-of-a-kind, large scale,
complex, resources brought to site, wide
variation in specs and tasks.
 Examples of projects: legal defense preparation,
construction, customer jewelry, consulting, and
software development.
Operations Management, 2e/Ch. 7
Process Selection, Design, and
 Chapter 7 Process Types

 Four Types of Processes

2. Job shop processes are organized around
particular types of general-purpose equipment
that are flexible and capable of customizing work
for individual customers.
 Characteristics: Significant setup and/or
changeover time, batching, low to moderate
volume, many routes, many different products,
high work force skills, and customized to
customer’s specs.
 Examples: Many small manufacturing companies
are set up as job shops, as are hospitals, legal
services, and some restaurants.
Operations Management, 2e/Ch. 7
Process Selection, Design, and
 Chapter 7 Process Types

 Four Types of Processes

3. Flow shop processes are organized around a

fixed sequence of activities and process steps
such as an assembly line to produce a limited
variety of similar goods or services.

 Characteristics: Little or no setup time,
dedicated to small range of goods or services
that are similar, similar sequence of process
steps, moderate to high volume.

Operations Management, 2e/Ch. 7

Process Selection, Design, and
 Chapter 7 Process Types

 Four Types of Processes

3.Flowshops continued

An assembly line is a common example of

a flow shop process. Many option-oriented
and standard goods and services are
produced in flow-shop settings.

Examples: automobiles, appliances,

insurance policies, checking account
statements, and hospital laboratory work.
Operations Management, 2e/Ch. 7
Process Selection, Design, and
 Chapter 7 Process Types

 Four Types of Processes

4. A continuous flow process creates highly standardized

goods or services, usually around the clock in very high
volumes.

 Characteristics: not made from discrete parts, very high

volumes in a fixed processing sequence, high investment in
system, 24hour/7day continuous operation, automated,
dedicated to a small range of goods or services.

 Examples: chemical, gasoline, paint, toy, steel factories;

electronic funds transfer, credit card authorizations, and
automated car wash.

Operations Management, 2e/Ch. 7

Process Selection, Design, and
 Types of Processes
PROJECT BATCH MASS CONT.

Made-to- Made-to-
Type of
Unique order stock Commodity
product
(customized) (standardized )

One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers

Product
demand Infrequent Fluctuates Stable Very stable
 Types of Processes (cont.)

PROJECT BATCH MASS CONT.

Demand Very low Low to

High Very high
volume medium

No. of Infinite Many,

different Few Very few
products variety varied

Repetitive, Continuous,
Production Long-term Discrete,
system assembly process
project job shops
lines industries
 Types of Processes (cont.)

PROJECT
PROJECT BATCH
BATCH MASS CONT.

Equipment Varied General- Special- Highly

purpose purpose automated

Primary Mixing,
type of Specialize
Fabrication Assembly treating,
work d contracts
refining

Experts, Limited
Worker Wide range Equipment
skills crafts- range of
of skills monitors
persons skills
 Types of Processes (cont.)
PROJECT BATCH MASS CONT.

Custom work, Efficiency, Highly efficient,

Flexibility,
Advantages latest speed, large capacity,
technology quality
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness

Machine shops, Automobiles,

Construction, televisions,
print shops, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
fast food
 Service-Process Matrix

Source “How Can Service Businesses Survive and

Prosper?” by Roger W. Schmenner, Sloan
Management Review, vol. 27, no. 3, Spring 1986, p.
25.
 Service-Process Matrix

Low
Service
Factory
Labor Intensity

Mass
Service

Service
Shop
Professional
Service
High
High Customization Low
Service Process Matrix (Schmenner, 1986)
34

Degree of Interaction and Customization

Low High
Service Factory Service Shop
•Airlines •Hospitals
Low
•Trucking •Auto Repair
Degree of •Hotels •Other Repair Services
Labor Mass Service Professional Service
Intensity
•Retailing •Doctors
High •Wholesaling •Lawyers
•Schools •Accountants
•Retail Aspects of •Architects
Commercial Banking
Steps in Developing New Products
1. Technical and economic feasibility studies
2. Prototype design
3. Performance testing of prototype
4. Market sensing/evaluation and economic
evaluation of the prototype
5. Design of production model
6. Market/performance/process testing and
economic evaluation of production model
7. Continuous modification of production model
Steps in Developing New Products

1. Technical and Economic Feasibility Studies

 Determine the advisability of establishing a project for
developing the product
 If initial feasibility studies are favorable, engineers prepare an
initial prototype design
Steps in Developing New Products

2. Prototype Design
 This design should exhibit the basic form, fit, and function of
the final product
 It will not necessarily be identical to the production model
Steps in Developing New Products

3. Performance Testing of Prototype

 Performance testing and redesign of the prototype continues
until this design-test-redesign process produces a satisfactorily
performing prototype
Steps in Developing New Products

4. Market Sensing/Evaluation and Economic

Evaluation of the Prototype
 Accomplished by demonstrations to potential customers,
market test, or market surveys
 If the response to the prototype is favorable, economic
evaluation of the prototype is performed to estimate
production volume, costs, and profits
 If the economic evaluation is favorable, the project enters
the production design phase.
Steps in Developing New Products

5. Design of Production Model

 The initial design of the production model will not be the final
design; the model will evolve
Steps in Developing New Products

6. Market/Performance/Process Testing and

Economic Evaluation of Production Model
 The production model should exhibit:
 low cost
 reliable quality
 superior performance
 the ability to be produced in the desired quantities on the
intended equipment
Steps in Developing New Products

7. Continuous Modification of Production Model

 Production designs are continuously modified to:
 Adapt to changing market conditions
 Adapt to changing production technology
 Allow for manufacturing improvements
 Managing Product Development Projects

 About 5% of all new-product ideas survive to

production, and only about 10% of these are
successful.
 It is best to cancel unpromising new-product/service
development projects early!
 Employees often become emotionally caught up in
these projects and are overly optimistic
 An impartial management review board is needed for
periodic reviews of the progress of these projects.
 Getting New Products to Market Faster

 Speed creates competitive advantages

 Speed saves money
 Tools to improve speed:
 Autonomous design and development teams

 Computer-aided design/computer-aided manufacturing

(CAD/CAM)
 Simultaneous (concurrent) engineering
Tools to Improve Speed to Market

 Autonomous Design and Development Teams

 Teams are given decision-making responsibility and more
freedom to design and introduce new products/services
 Time-to-market has been slashed dramatically

 Enormous sums of money have been saved

 Teams do not have to deal with the bureaucratic red tape

ordinarily required to obtain approvals
Tools to Improve Speed to Market

 Computer-Aided Design/Computer-Aided
Manufacturing (CAD/CAM)
 Engineers, using CAD/CAM, can generate many views of parts,
rotate images, magnify views, and check for interference
between parts
 Part designs can be stored in a data base for use on other
products
 When it is time for manufacturing, the product design is
retrieved, translated into a language that production
machinery understands, and then the production system can
be automatically set up.
Tools to Improve Speed to Market

 Simultaneous Product/
(Concurrent) Service Ideas
Engineering Continuous
Interaction
Economic and Technical
Feasibility Studies

Product/Service Design Production Process Design

Produce and Market

New Product/Service
Other Design factors

 Old “over-the –wall” sequential

design process should not be used

 Replace with a Concurrent

Engineering process
 End of session