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- 2. Operations Strategy as a competitive weapon One of the key objectives of any business organization is to reach a position where it is able to attract more customers than it’s competitors • • • • • • Shorter Product Cycle / Pioneer status advantage Production flexibility Low-cost process (e.g. Outsourcing) Convenience and Location (e.g. Courier services) Product variety and Facility size (e.g. super markets) Quality (e.g. MNCs’ producing cars in India for Exports) 2
- 3. Competitive Dimensions • • • • • • • Cost or Price Make the Product or Deliver the Service Cheap Quality Make a Great Product or Deliver a Great Service Delivery Speed Make the Product or Deliver the Service Quickly Delivery Reliability Deliver It When Promised Coping with Changes in Demand Change Its Volume Flexibility and New Product Introduction Speed Change It Other Product-Specific Criteria Support It 3
- 4. Order Qualifiers and Winners Defined Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers Order winners are the criteria that differentiates the products and services of one firm from another 4
- 5. 5 Service Breakthroughs A brand name car can be an “order qualifier” Repair services can be “order winners” • Examples: Warranty, Roadside Assistance, Leases, etc
- 6. 6 Operations Strategy Strategy Process Customer Needs Corporate Strategy Operations Strategy Decisions on Processes and Infrastructure Example More Products Increase Org. Size Increase Production Capacity Build New Factory
- 7. 7 Strategy Design Process Strategy Map What it is about! Financial Perspective Improve Shareholder Value Customer Perspective Customer Value Proposition Internal Perspective Build-Increase-Achieve Learning and Growth Perspective A Motivated and Prepared Workforce
- 8. 8 The Balanced Scorecard Judicious mix of financial and operational measures for measuring the performance • Customer perspective • Business process perspective • Innovation and learning perspective
- 9. Balanced Scorecard Model for Measuring Operations Performance How do stakeholders view Operations? Financial Perspective How do customers view the Operations? Goals Measures Customer Perspective Goals At which Operations tasks must we excel Internal / Process Perspective Measures Goals Innovation & Learning Perspective Goals Measures measures
- 10. 10 Kaplan and Norton’s Generic Strategy Map In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components: 1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital
- 11. Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components: 1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company 11
- 12. Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace: 1. Product leadership 2. Customer intimacy 3. Operational excellence 12
- 13. 13 Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning: 1. Strategic competencies 2. Strategic technologies 3. Climate for action
- 14. Developing an Operations Strategy Corporate Corporate Objectives Objectives Business Plan Marketing Plan Budget Production Plan Other Plan Functional Areas Operations Marketing Business Strategies Financing/Accounting Business Strategies Research & Dev. Strengths and Weaknesses Human Capital Operations Operations Objectives Objectives Operation Strategies Operation Strategies Long-range Decisions about Products, Processes and Facilities Position the Production System Focus of Factories or Service Facilities Product / Service Design and Development Allocation of Resources to Alternatives Facility Planning : Capacity, Location and Layout
- 15. 15 Steps in Developing a Manufacturing Strategy 1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements
- 16. 16 Service Strategy Capacity Capabilities • Process-based • Systems-based • Organization-based Capacities that transforms material or information and provide advantages on dimensions of cost and quality Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand Capacities that are difficult to replicate and provide abilities to master new technologies
- 17. 17 What is Productivity? Defined Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs
- 18. Productivity – Introduction & Definition • Productivity primarily is an attitude of mind – an attitude of looking at the scope for improvement • It stands for the elimination of MUDA( Japanese ) or Waste in all forms • It is the function of providing more and more of everything, for more and more people with less and less consumption of Resources • The essence of productivity lies in producing the same
- 19. Factors affecting Productivity External Factors • • • • • • Beyond the control of individual Enterprise External Infrastructure Non- availability of Funds, Water, Power, Transportation Raw Material Supply constraints Government Policies ( Emission Laws etc.) Social / Political / Economic Environment
- 20. Factors affecting Productivity ( contd.) Internal Factors • Hard Factors – Products / Technology / Plant & Eqpt. / Raw Materials • Soft Factors – People / Work Methods / Systems & Procedures / Organisation Structure / Management Practices
- 21. Total Measure Productivity Total Measure Productivity = Outputs Inputs or = Goods and services produced All resources used 21
- 22. 22 Partial Measure Productivity Partial measures of productivity = Output or Output or Output or Output Labor Capital Materials Energy
- 23. 23 Multifactor Measure Productivity Multifactor measures of productivity = Output Labor + Capital . + Energy or Output Labor + Capital . + Materials
- 24. Example of Productivity Measurement You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. Is productivity increasing or decreasing? Answer: Last week’s productivity = 480/2000 = 0.24, and this week’s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly. 24
- 25. 25 Question Bowl An operations strategy is concerned with which of the following? a. Setting specific policies and plans b. Short-term competitive strategies c. Coordination of operational goals d. All of the above e. None of the above Answer: c. Coordination of operational goals
- 26. 26 Question Bowl Typically a strategy breaks down into what major components? a. Operations effectiveness b. Customer management c. Production innovation d. All of the above e. None of the above Answer: d. All of the above
- 27. 27 Question Bowl A criterion that differentiates the products and services of one firm from another can be which of the following? a. An order qualifier b. An order winner c. PWP d. KPI e. None of the above Answer: b. An order winner
- 28. 28 Question Bowl a. b. c. d. e. A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? An increase in productivity from Day 1 to Day 2 A decrease in productivity from Day 1 to Day 2 The same productivity from Day 1 to Day 2 Can not be computed from data above None of the above Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)
- 29. 29 Question Bowl In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer? a. How do customers see us? b. What must we excel at? c. How can we continue to improve and create value? d. All of the above e. None of the above Answer: d. All of the above
- 30. 30 Solved Problems – OPERATIONS MANAGEMENT (Class of 2010) Q3. d) Various financial data for 2002 & 2003 follow. Calculate the total productivity measure and the partial measure for labour, capital and raw materials for this company for both years. What do these measures tell you about this company? 2002 Output Sales Input Labour Raw Material Energy Capital Answer :- Others 2003 $ 2,00,000 $2,20,000 30,000 40,000 35,000 45,000 5,000 6,000 50,000 50,000 2,000 Total Productivity 3,000 = Output Input
- 32. 32 a) Total Productivity measure Year 2002 Total Productivity = Output Input = 2,00,000 1,22,000 = 1.66 Year 2003 Total Productivity = 2,20,000 1,44,000 = 1.53
- 33. 33 b) Partial Productivity measure (Labour) Partial Productivity measure = Total Output Cost of Labour for the year 2002 = 2,00,000 = 6.67 30,000 for the year 2003 = 2,20,000 = 5.5 40,000 c) Partial Productivity measure (Capital) Partial Productivity measure = Total Output Capital for the year 2002 = 2,00,000 = 4 50,000 for the year 2003 = 2,20,000 = 4.4 50,000
- 34. 34 d) Partial Productivity measure (Raw Materials) Partial Productivity measure = Total Output Cost of Raw Materials for the year 2002 = 2,00,000 = 5.71 35,000 for the year 2003 = 2,20,000 = 4.88 45,000