02SMR Ses2 Ver 1-2

Strategic Management of Resources
Session 2
Choices Affecting Structure
Strategic Management of Resources
Session 1: Aligning Resources with Strategic Plans
Session 2: Choices Affecting Operations Structure
Session 3: Choices Affecting Infrastructure
Session 4: Configuring and Integrating Operating
Processes
Session 5: Supply Chain Management
Session 6: Configuring and Integrating Design and
Development and Cost Management Processes
Session 7: Project Management
Session 8: Measurement Management
Session 9: Change Management
Strategic Management of Resources, ver. 1.2—October 2002
Visual
2-2
Objectives of Session 2

Explain what operations strategy is and
understand how it is developed

Know how strategic operating decisions
are made based on process or product
choices, volume and variety options, and
product factors

Identify and understand the content of
structural choices
Visual
2-3
Operations Strategy
Corporate Strategy
Focus: Survival
Business Strategy
Focus: Distinctive competence in the field
• Cost leadership
• Product differentiation
• Focus (cost or differentiation)
Manufacturing Operations Strategy Other Operations

Strategies
Focus: Competitive Strategies
Marketing
Cost Flexibility Quality Delivery Finance
Human Resource
Engineering
Policy
Service-enhanced product or delivered service Satisfied customer
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
Visual
2-4
Focus of Session 2
Manufacturing Operations Strategy

Focus: Competitive Priorities
Cost Flexibility Quality Delivery
Levels of Management Critical Decision

Operation Function Resources Focus
Top management Capability building Land Structure
General staff • Planning Capital • Organizational
Specialists staff • Fitting Labor structural design
Functional Implementation Knowledge • Capacity strategies
activities • Direction • Facilities strategy
• Control • Technology
Infrastructure
• Organizational
infrastructure design
• Workforce involvement
• Operation systems
configuration
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
Visual
2-5
Critical Choices
Focus decisions Product factors decisions
 Product volume, variety,

Process-focused
profile, and range

Product-focused  Types of processes
 Customer-focused  Product life cycle
 Product or service matrix
 Market exit and timing
Visual
2-6
Operations Strategy Choices
Structure decisions Infrastructure
include decisions include
 Organizational  Organizational
structural design infrastructure design
 Capacity strategies  Workforce

Facilities strategy involvement
 Technology  Operation systems
configuration
Visual
2-7
Content of Operations Strategy
Hayes and
Decision Skinner Buffa Fine and
Wheelwright
Focus (1969) (1984) Hax (1985)
(1989)
• Plant and • Capacity • Capacity • Capacity
Structure equipment location
• Facilities • Facilities
• Product or
• Technology process • Processes and
technology technologies
• Vertical
integration
• Production • Production • Implications of • Product quality

Infrastructure planning and planning and operating
control control decisions • Human
resources
• Organization • Quality • Workforce and
and job design • Scope of new
management • Organization products
• Position of
• Labor and • Workforce production
staffing • New product system
• Product design development
and engineering • Performance
measurement
systems
Source: Stonebraker, Peter W. and Leong, G.K., Operations Strategy (Prentice-Hall, 1994). Reprinted with permission.
Visual
2-8
Definition of Volume and Variety
 Product volume—
Refers to the overall quantities of a
particular product or product family in a
market niche
 Product variety—
Refers to the number of end items that are
possible for a product or product family
Visual
2-9
Volume and Variety Matrix
High
1 Job shop
Batch
2
Variety
Line
3
4 Continuous
Low High
Volume
Source: Hill, Terry, Manufacturing Strategy: Text and Cases, 2nd ed., (Irwin McGraw-Hill, 1994). Reprinted with permission.
Strategic Management of Resources, ver. 1.2—October 2002 2-
Visual
10
Product Range
Niche 1
Same products
Niche 2
or product
families
Niche 3
Different volumes and varieties of products will result.
Visual
11
Product Grouping Questions
 What are the overall firm strategy and marketing
strategy?
 What market niches are being served?
 What products are being sold into those niches?
 What are the order winners and qualifiers for products
in each niche?
 What are the current and expected volumes and
varieties for products in each niche?
 How should we create product groupings?
 What are the manufacturing strategies for each
product grouping?
Visual
12
Order Winners and Qualifiers
Niche 1
Order winners,
qualifiers, and non-
issues determine
Niche 2
the formulation of
the planning and
control system.
Niche 3
Visual
13
Product Profiling
Product profiling seeks to determine the degree of
fit between the deployment choices of the firm and
the current and expected volumes and varieties of
products in each market niche.
Deployment choices
Expected
volumes and
varieties
Visual
14
Template for Product Profiling
Volume and Variety
1 2 3 4
Issues Job Shop Batch Line Continuous
Products and Markets

Type of product Special Standard
Product variety High Low
Product volume Low High
Amount of change required High Low
Need for flexibility High Low
Order winners Cost/price, Price
flexibility,quality,
delivery
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc., 1989. Adapted with permission of McGraw-Hill, Inc.
Visual
15
Product Profiling 2
Volume and Variety
1 2 3 4

Order winners Delivery, quality, Price
product design,
flexibility
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc., 1989). Reprinted with permission of McGraw-Hill, Inc.
Visual
16
Product Profiling 3
Volume and Variety
1 2 3 4

Order winners Delivery, quality, Price
product design,
flexibility
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases ( Irwin McGraw-Hill, Inc., 1989). Reprinted with permission of McGraw-Hill, Inc.
Visual
17
Stages of the Product Service
 Birth of the Delivery System
 Design and process technology selection

Design of the delivery system

Start-up of the delivery system
 Growth of volume
 Stable state

Decline and renewal of the system
Visual
18
Product and Service Portfolio Matrix
Low High
4 5
Question Star
High
Market Growth
marks performers
7 6
Low
Dogs Cash cows

Source: Hedly, Barry,
“Strategies and the
Business Portfolio,” Long-
Range Planning, February
1977.
Market Share
Visual
19
Market Entrance and Exit Timing
Timing of Market Exit
Stable State Decline and Renewal
Timing of Market Entrance
Growth of Volume
4 3
Blunder Standardized
high volume
1 2
Flexible, then
Start-Up
Innovative shifts toward

standardization Stonebraker, Peter W. and
Keong Leong, G., Operations
and high volume Strategy, (Prentice-Hall,
1994). Reprinted with
permission.
Visual
20
Product Life Cycle
The life cycle defines development of a product or service in four phases.
More stable design

with fewer models
Product sales
Higher volumes High volumes

Lots of new
Very few models
features and
options,
Low volumes leading to
Rapidly lower
changing volumes
variety per product
type
Introduction Growth Maturity Decline
Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998).
Visual
21
Questions at Introduction Phase
Morestabledesign
withfewer models
Higher volumes
Highvolumes
Productsales
Very fewmodels
Lots of new
features and
Lowvolumes options,
leading
Rapidly to lower
changing volumes per
variety producttype
 What product or service will be offered?

 What is the design of the product or service?
 What is the expected market for the product or service?
 What volume and process capacities are required?
 What level of process technology is appropriate?
 What types of equipment and labor force should be selected?
 How should the production or service delivery system be organized?
 What information system should be chosen?
Visual
22
Questions at Growth Phase
Morestabledesign
withfewer models
Higher volumes
Highvolumes
Productsales
Very fewmodels
Lots of new
features and
Lowvolumes options,
leading
Rapidly to lower
variety producttype
 What facility and process upgrades are required?

 How will production or service delivery be scheduled?
 How will performance be evaluated?

How will the distribution system be organized?
Visual
23
Questions at Maturity Phase
Morestabledesign
withfewer models
Higher volumes
Highvolumes
Productsales
Very fewmodels
Lots of new
features and
Lowvolumes options,
leading
Rapidly to lower
variety producttype
 What process efficiencies are necessary?

 What product or service features are required?
 What market repositioning is appropriate?

What follow-on product or service should be considered?
Visual
24
Questions in the Decline Phase
Morestabledesign
withfewer models
Higher volumes
Highvolumes
Productsales
Very fewmodels
Lots of new
features and
Lowvolumes options,
leading
Rapidly to lower
variety producttype
 What is the salvage value of the facility?

 How much repair parts stock should be produced?
 How can the effects on employees be minimized?
 What are the long-range responsibilities for the product or
service, process technology, and production system residues?
Visual
25
Life Cycle and Manufacturing Deployment
Start-up of Growth of Stable state Decline and
operations volume renewal
Product Service
Volume Low Increasing High volume Declining
Variety Unique Increasing Emergence of High

products or standardization a dominant standardization
services design
Process Technology
Organization Fixed-project Small batch Line flow Line flow
job shop assembly assembly
process process
Innovation High Medium Medium Low
Integration Low Medium Medium High
Industry Factors
Structure Small Consolidation Few large Survivors
competitors and fallout companies
Competitive Flexibility Quality and Price/cost and Price/cost
Priority flexibility delivery
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy, (Prentice-Hall, 1994). Reprinted with permission.
Visual
26
Manufacturing Strategy Choices
Structure—Session 2
 Organizational structural design
 Capacity strategies
 Facilities strategy
 Technology
Manufacturing Operations Strategy
Focus: Competitive Priorities
Cost Flexibility Quality Delivery
Levels of Management Critical Decision

Operation Function Resources Focus
Top management Capability-building Land Structure
General staff • Planning Capital • Organizational design
Specialists staff • Fitting Labor • Capacity strategies
Functional Implementation Knowledge • Facilities strategy
activities • Direction • Technology
• Control Infrastructure
• Organizational design
• Workforce involvement
• Operation systems
configuration
Visual
27
Examples of Structural Choices
 Organizational design:
Which of five forms fit needs
 Capacity strategies:
utilization, number of shifts,
degree of overtime, amount
of subcontracting, etc.
Visual
28
Examples of Structural Choices (cont.)
 Facility size, design, location,

cost, and range of products
manufactured
 Technology, specialization,
degree of automation,
technologies employed,
capability, and output rate
Visual
29
Organizational Design
Organizational design focuses on the

decisions by Operations Management
about the features and linkages of the
organization. It has two aspects:
 Mechanisms that define the features

Mechanism that link the parts
Visual
30
Five Forms of Organization
The five forms of organization design

are
 Simple

Functional

Divisional
 Conglomerate
 Hybrid
Visual
31
Characteristics of Simple Design
 Small in size
 Less than four levels

Little formalization

Low complexity
 Centralized authority
Visual
32
Characteristics of Functional Design
 Used in larger organizations

 Defined staff functions and line
organization

Requires functional specialists
 Less centralization
 Higher formality of functional design
Visual
33
Characteristics of Divisional Design
 Great horizontal differentiation

 Made up of self-contained business units

Different products or services

Differing level of process
 Different locations
 Decentralized authority

Possibly redundant technical and
administrative functions
Visual
34
Characteristics of Conglomerate Design
 Little task or output dependency

 Receives resources from conglomerate

Returns revenue to conglomerate

Independently functioning groups
 Distribution of risk over several business
units

High complexity
Visual
35
Characteristics of Hybrid Design
 Integrated functional designs

 Duality of responsibility

Decentralization

Very low level of formality
 Highly complex
Visual
36
Capacity Strategy
Capacity strategy is the process of identifying,

measuring, and adjusting the limits of the
transformation process to support competitive
priorities such as

Cost

Quality
 Delivery
 Flexibility
Visual
37
Capacity Strategies
 Lead strategy
Capacity is added in anticipation of
increased demand.

Lag strategy
Capacity is added only after demand
increases are well known.

Tracking strategy
Capacity is added in small increments to
follow demand patterns closely.
Visual
38
Plant and Facility Decisions
The four major decisions associated with

facilities are
 Size

Location

Focus
 Layout
Visual
39
Facility Location Decisions
Cost factors
 Facility costs

Taxes
 Local labor rates
 Utility costs
 Transportation costs
Visual
40
Facility Location Decisions (cont.)
Qualitative factors
 Proximity to customers
 Proximity to suppliers
 Availability of labor,
transportation, power
supply, and utilities

Quality of life

Legal issues
 Special incentives and
community attitudes
Visual
41
Plant Focus
The concentration of work in a plant “on a limited,

concise, manageable set of products, technologies,
volumes, and markets precisely defined by the
company’s competitive strategy, its technology, and
economics”
Competitive
Strategy
Visual
42
A Plant Can Focus on:
Product
Process
Order Winners
(Customer focus)
Visual
43
Product Focus
Product focus means that the plant produces
a single product or product line.
Visual
44
Order-Winner Focus
Order-winner focus means a plant concentrates on
output that provides a certain strategic order-
winning characteristic.
Customer Focus
Visual
45
Fixed-Position Layout
Raw Materials
Workers Grinders
Drills Cutters
Welding Machines
Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998).
Visual
46
Process or Functional Layout
Lathe Drill
Assemble Weld
Source: Stonebraker, Peter W. and Keong Leong,.G., Operations Strategy (Prentice-Hall, 1994).
Visual
2-47
47
Product Layout
Line 1
WS11 WS12 WS13 WS14 WS15
Raw Finished
Materials Materials
Storage Storage
Line 2
WS21 WS22 WS23
Product A Product B WS = Work Station

Source: Stonebraker, Peter W. and G. K. Leong, Operations Strategy (Prentice-Hall, 1994).
Visual
48
Cellular Layout
C-Shaped Cell U-Shaped Cell
Visual
49
Group Technology
 Identifies similarity of manufactured parts

 Establishes common routings

Classifies parts
– Size
– Geometry
– Function
 Facilitates cellular layout
Visual
2-50
50
Focused-Factory Process
A focused factory structures its capabilities to

be consistent with a single market’s order
winners and order qualifiers.
Visual
51
Focused Factory
 Entire factory focused on a limited set of

– Products
– Technologies
– Volumes
– Markets

Defined by the company’s competitive
strategy
Visual
2-52
52

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Strategic Management of Resources

Strategic Management of Resources, ver. 1.2—October 2002

Strategic Management of Resources, ver. 1.2—October 2002

Manufacturing Operations Strategy Other Operations

Service-enhanced product or delivered service Satisfied customer

Manufacturing Operations Strategy

Levels of Management Critical Decision

Strategic Management of Resources, ver. 1.2—October 2002

Strategic Management of Resources, ver. 1.2—October 2002

• Production • Production • Implications of • Product quality

Strategic Management of Resources, ver. 1.2—October 2002

Different volumes and varieties of products will result.

Strategic Management of Resources, ver. 1.2—October 2002 2-

Strategic Management of Resources, ver. 1.2—October 2002 2-

Strategic Management of Resources, ver. 1.2—October 2002 2-

Products and Markets

Strategic Management of Resources, ver. 1.2—October 2002 2-

Products and Markets

Strategic Management of Resources, ver. 1.2—October 2002 2-

Products and Markets

Strategic Management of Resources, ver. 1.2—October 2002 2-

Strategic Management of Resources, ver. 1.2—October 2002 2-

Dogs Cash cows

Innovative shifts toward

Strategic Management of Resources, ver. 1.2—October 2002 2-

More stable design

Higher volumes High volumes

Introduction Growth Maturity Decline

Introduction Growth Maturity Decline

 What product or service will be offered?

Strategic Management of Resources, ver. 1.2—October 2002 2-

Introduction Growth Maturity Decline

 What facility and process upgrades are required?

Strategic Management of Resources, ver. 1.2—October 2002 2-

Introduction Growth Maturity Decline

 What process efficiencies are necessary?

Strategic Management of Resources, ver. 1.2—October 2002 2-

Introduction Growth Maturity Decline

 What is the salvage value of the facility?

Strategic Management of Resources, ver. 1.2—October 2002 2-

Variety Unique Increasing Emergence of High

Levels of Management Critical Decision

Strategic Management of Resources, ver. 1.2—October 2002 2-

Strategic Management of Resources, ver. 1.2—October 2002 2-

 Facility size, design, location,

Strategic Management of Resources, ver. 1.2—October 2002 2-

Organizational design focuses on the

Strategic Management of Resources, ver. 1.2—October 2002 2-

The five forms of organization design

Strategic Management of Resources, ver. 1.2—October 2002 2-

Strategic Management of Resources, ver. 1.2—October 2002 2-

 Used in larger organizations

 Higher formality of functional design

Strategic Management of Resources, ver. 1.2—October 2002 2-

 Great horizontal differentiation

 Little task or output dependency

Strategic Management of Resources, ver. 1.2—October 2002 2-

 Integrated functional designs

Strategic Management of Resources, ver. 1.2—October 2002 2-

Capacity strategy is the process of identifying,

Strategic Management of Resources, ver. 1.2—October 2002 2-

The four major decisions associated with

Strategic Management of Resources, ver. 1.2—October 2002 2-