S. Chopra/Operations/Strategy1 Operations Management: Introduction & Strategy Module u Introduction & Administrative u Key Principles of Course »Strategic role of Ops »Process view of Ops u Strategies, Competencies and Operations »Product attributes and the Competitive Product Space »Strategic Operational Audit »Wal-Mart u Aligning strategy and operations: »Focus »Relationship between process choice and strategy »Shouldice Hospital »Wriston Manufacturing

S. Chopra/Operations/Strategy2 The Changing Environment Invention Continuous Improvement Mass Customization Mass Production Process Change Product Change

S. Chopra/Operations/Strategy3 Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ‘69]

S. Chopra/Operations/Strategy4 Key Principle of Course: 2. The Process View of Ops u By rethinking the IBM Austin assembly plant and introducing cells, –distance traveled by a card was cut from 1.5 miles to 200 yards –floor space was reduced to half –production tripled with about the same number of workers. [Chicago Tribune, July 1992]

S. Chopra/Operations/Strategy5 Operations & the Process View: What is a Process? Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management

S. Chopra/Operations/Strategy6 What defines a “good process”? Performance: Financial Measures u Absolute measures: –revenues, costs, operating income, net income –Net Present Value (NPV) = u Relative measures: –ROI, ROE –ROA = u Survival measure: –cash flow

S. Chopra/Operations/Strategy7 Firms compete on product attributes. This requires process competencies. Product Attribute (External)Process Competency (Internal) Cost Response timeFlow time VarietyFlexibility Quality

S. Chopra/Operations/Strategy8 Process Competencies are affected by Process Structure and Management u Process structure or architecture: –(1) inputs and outputs –(2) flow unit (“jobs”) –(3) network of activities & buffers »quantity & location »precedence relationships –(4) resource allocation »capacity & throughput u Operations Planning & Control u Organization

S. Chopra/Operations/Strategy9 A Strategic Framework for Operations Business Strategy Desired Capabilities Processes Resources Operations Structure

S. Chopra/Operations/Strategy10 A Strategic Framework for Operations u Corporate Strategy u Business Unit Strategy –Sales pitch used by sales (target segments). u Operations Strategy –What must Operations do particularly well? What capabilities must Operations develop? u Operations Structure –How should Operations processes and resources be structured to develop capabilities and support strategy?

S. Chopra/Operations/Strategy11 Wal-Mart Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices Operations Strategy –Short flow times –Low inventory levels Operations Structure –Cross docking –EDI –Fast transportation system –Focused locations –Communication between retail stores

S. Chopra/Operations/Strategy12 Wal-Mart (Resulting Benefits) u Inventory at retail stores turned over twice a week (Industry averages once every two weeks) u Improved targeting of products to markets u Sales per square foot increased from $102 in 1985 to $140 in 1991 to $455 in 2002 (Industry average increased from $102 to $110 to $224)

S. Chopra/Operations/Strategy13 Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Responsiveness operations frontier A B C Price HighLow

S. Chopra/Operations/Strategy14 Shouldice Hospital

S. Chopra/Operations/Strategy15 Wriston Manufacturing

S. Chopra/Operations/Strategy16 Focus and the Frontier I n the health-care sector Cost efficiency Responsiveness World-class Emergency Room World-class (non-emergency) Hospital One general facility operations frontier

S. Chopra/Operations/Strategy17 Classification of Processes by process architecture u Project u Job Shop u Batch u Line Flow u Continuous Flow Job Shop Flow Shop

S. Chopra/Operations/Strategy18 Characteristics of Processes: Job Shop vs. Batch vs. Flow Shop

S. Chopra/Operations/Strategy19 Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repari) LINE FLOWS (Auto Assembly, Car lubrication shop) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket Costs High Low High Matching Process Choice with Strategy: Product-Process Matrix

S. Chopra/Operations/Strategy20 Learning Objectives Operations & Strategy u An operation as a transformation process u Product Attributes / Process Competencies / Operations structure u Link between business strategy, operations strategy, and operations structure –Strategy vs. Operational Effectiveness –Operational Focus –Process Classification and Relationship with strategy