Operations Management Modules 2 & 3 Operations Strategy & Competitiveness and Performance Measures S.Balachandran 2007 December 2007

December 2007© S.Balachandran2 of 20 In this session... Strategy – Role of OperationsStrategy – Role of Operations Competitiveness – Dimensions, TradeoffsCompetitiveness – Dimensions, Tradeoffs Order Qualifiers & WinnersOrder Qualifiers & Winners OM Strategy – DecisionsOM Strategy – Decisions Strategy – Process LinkageStrategy – Process Linkage Strategic Map : Four PerspectivesStrategic Map : Four Perspectives Service Operations : CapabilitiesService Operations : Capabilities Operational Performance MeasuresOperational Performance Measures

December 2007© S.Balachandran3 of 20 Strategy – Role of Operations Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Market analysis Segmentation Needs assessment Market analysis Segmentation Needs assessment Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others

December 2007© S.Balachandran4 of 20 Strategy – Role of Operations Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Market analysis segmentation needs assessment Market analysis segmentation needs assessment Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others Cost 1. Low-cost operations Quality 2. High-performance design 3. Consistent quality Delivery 4. Fast delivery 5. Development speed Reliability 6. Of Delivery, Prod. Performance Flexibility 7. Customization & Variety 8. Volume flexibility Responsiveness 9. Pre-sales Info 10. After-sales Service Cost 1. Low-cost operations Quality 2. High-performance design 3. Consistent quality Delivery 4. Fast delivery 5. Development speed Reliability 6. Of Delivery, Prod. Performance Flexibility 7. Customization & Variety 8. Volume flexibility Responsiveness 9. Pre-sales Info 10. After-sales Service

December 2007© S.Balachandran5 of 20 Strategy – Role of Operations Functional area strategies Finance Marketing Operations Others Functional area strategies Finance Marketing Operations Others Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Business strategy Goals Core Competencies Environmental responses New products/services New Markets Global strategies Market analysis Segmentation Needs assessment Market analysis Segmentation Needs assessment Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others Competitive priorities Operations Marketing Cost Quality Finance Delivery Reliability Flexibility Responsiveness Others Capabilities Current Needed Plans Capabilities Current Needed Plans

December 2007© S.Balachandran6 of 20 Competitiveness - Dimensions Cost or PriceCost or Price –Make the Product or Deliver the Service Cheap QualityQuality –Make a Great Product or Deliver a Great Service Delivery SpeedDelivery Speed –Make the Product or Deliver the Service Quickly Delivery ReliabilityDelivery Reliability –Deliver It When Promised Coping with Changes in DemandCoping with Changes in Demand –Change Its Volume Flexibility and New Product Introduction SpeedFlexibility and New Product Introduction Speed –Change It Other Product-Specific CriteriaOther Product-Specific Criteria –Support It

December 2007© S.Balachandran7 of 20 Tradeoffs Cost Quality DeliveryFlexibility

December 2007© S.Balachandran8 of 20 Order Qualifiers & Winners Order qualifiers : basic criteria that permit the firms’ products to be considered as candidates for purchase by customersOrder qualifiers : basic criteria that permit the firms’ products to be considered as candidates for purchase by customers –Necessary but not Sufficient Condition Order winners : criteria that differentiate the products and services of firm from competitorsOrder winners : criteria that differentiate the products and services of firm from competitors

December 2007© S.Balachandran9 of 20 Operations Strategy - Decisions Market analysis Competitive priorities Corporate strategy Operations strategy

December 2007© S.Balachandran10 of 20 Operations Strategy - Decisions Market analysis Competitive priorities Corporate strategy Operations strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

December 2007© S.Balachandran11 of 20 Market analysis Competitive priorities Corporate strategy Operations strategy Services Manufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Operations Strategy - Decisions ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

December 2007© S.Balachandran12 of 20 Operations Strategy - Decisions Market analysis Competitive priorities Corporate strategy Operations strategy Services Manufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions – Sourcing, Order Placement: Party, Qty., Frequency, Inventory Level, No. of Shifts, Manning Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions – Sourcing, Order Placement: Party, Qty., Frequency, Inventory Level, No. of Shifts, Manning

December 2007© S.Balachandran13 of 20 Operations Strategy - Decisions Market analysis Competitive priorities Corporate strategy Operations strategy Services Manufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions – Sourcing, Order Placement: Party, Qty., Frequency, Inventory Level, No. of Shifts, Manning Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions – Sourcing, Order Placement: Party, Qty., Frequency, Inventory Level, No. of Shifts, Manning

December 2007© S.Balachandran14 of 20 Strategy & Process Design - Example Decision AreaHospital 1Hospital 2 BusinessLow-volume,High-volume strategycustomized services standardized products made to stock CompetitiveCustomized services,Low-cost, fast delivery, prioritiesconsistent quality, and consistent quality and volume flexibility ProcessLabor intensiveCapital intensive design

December 2007© S.Balachandran15 of 20 Improve Shareholder Value Shareholder Value ROCE Shareholder Value ROCE Strategic Map – Four Perspectives Revenue Growth Strategy Productivity Strategy Build the Franchise Increase Customer Value New Revenue SourcesCustomer Profitability Improve Cost Structure Improve Asset Utilization Cost per Unit Asset Utilization Product Leadership Customer Intimacy Operational Excellence Customer Value Proposition PriceQualityTime Function- ality Service Relation- ships Brand ImageRelationshipProduct/Service Attributes A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action Source: Kaplan & Norton, The Strategy Focused Organization “Be a Good Corporate Citizen” (Regulatory and Environmental Processes) “Build the Frnchise” (Innovation Processes) “Achieve Operational Excellence” (Operational Processes) “Increase Customer Value” (Customer Management Processes) Financial Perspective Financial Perspective Customer Perspective Customer Perspective Internal Perspective Internal Perspective Learning & Growth Perspective Learning & Growth Perspective

December 2007© S.Balachandran16 of 20 Rockwater Strategy Map A : Operational Excellence B : Customer Management A : Operational Excellence B : Customer Management

December 2007© S.Balachandran17 of 20 Activity Map – Southwest Strategy

December 2007© S.Balachandran18 of 20 Operations Strategy Framework Customer Needs New product : Old product Competitive dimensions & requirements Competitive dimensions & requirements Cost, Quality, Delivery, Flexibility, Reliability, Responsiveness Cost, Quality, Delivery, Flexibility, Reliability, Responsiveness Operations & Supplier capabilities R&DTechnologySystemsPeopleDistribution Support Platforms Financial management Human resource managementInformation management Enterprise capabilities Operations and Supplier Capabilities R&D TechnologySystemsPeopleDistribution

December 2007© S.Balachandran19 of 20 Operations Capabilities for Services Process-basedProcess-based – Transform material or information and provide advantages on dimensions of cost and quality Systems-basedSystems-based – Broad-based - involving the entire operating system and provide advantages of short lead times and customize on demand Organization-basedOrganization-based – Difficult to replicate and provide abilities to master new technologies

December 2007© S.Balachandran20 of 20 Productivity Measures Productivity : a common measure on how well resources Productivity : a common measure on how well resources are being used. In the broadest sense, it can be defined as are being used. In the broadest sense, it can be defined as the ratio: Outputs the ratio: Outputs Inputs Inputs Total Measure Productivity Total Measure Productivity = Goods and services produced All resources used Partial measures of productivity =Partial measures of productivity = Output or Output or Output or Output Output or Output or Output or Output Labor Capital Materials Energy Labor Capital Materials Energy Multifactor measures of productivity = Output. Labor + Capital + Energy or Output. Labor + Capital + Materials