1 Operations Strategy Strategy The science and art of conducting a military campaign on a broad scale; A plan or technique to achieve some end. : strategos = Greek: strategos = general (stratos = army) + (agein = to lead)

2 Corporate Strategy n To be successful, a company must attain and sustain a competitive advantage over other companies in the same industry. How? “The essence of strategy is what to do and what not to do” (M. Porter, 1996). n Mission n Long term Goals n Complementary Functional Strategy n Supporting Management Practices

3 Corporate Strategy n Long term future n defines the business the firm will pursue n opportunities and threats n strengths and weakness n growth and business strategies

4 Corporate Strategy n n defines the business the firm will pursue n opportunities and threats n strengths and weakness n growth and business strategies n Mission? n What business are we in? n Who are our customers? n What are our beliefs? n How do we measure success?

5 Corporate Strategy n n defines the business the firm will pursue n opportunities and threats n strengths and weakness n growth and business strategies n Environmental Scanning n Monitor trends in n industry (technological change and competitors) n market place (changing customer preferences) n society (political conditions) n vital resources (availability)

6 Corporate Strategy n n defines the business the firm will pursue n opportunities and threats n strengths and weakness n growth and business strategies n Core competencies n workforce n facilities, location n market, financial and operational know-how n systems and technology

7 Corporate Strategy n n defines the business the firm will pursue n opportunities and threats n strengths and weakness n growth and business strategies n Global alliances? n Joint venture n licensing of technology n franchise n off-shore production n logistics partnership

8 Strategic Positioning n Defines those positions that a firm wants to occupy in the competitive product space. n Competitive Dimensions n Cost n Quality n Time n Flexibility/Variety

9 Operational Effectiveness n process infrastructure and management for expedient production and delivery of goods and services n Strategic Fit n business strategy n operational strategy n management policies Strategic fit means consistency between the competitive advantage that a firm seeks and the process capabilities and managerial policies that it uses to achieve that advantage.

10 Corporate Strategy, Competitive Priorities and Functional Inter-relationships Market analysis segmentation needs assessment Socioeconomic and business environment Corporate strategy missions goals distinctive Future directions global strategy new products/services Competitive priorities cost quality time flexibility Capabilities current needed plans Functional area strategies

11 The Strategic Hierarchy n Corporate/Business Strategy n SWOT n Functional Strategies n marketing n identify customers, products and competitors n finance n acquisition and allocation of resources n operations n configure and develop business processes for production and delivery of products n process capabilities must be aligned with desired product attributes

12 Matching Products and Process n Hayes and Wheelwright (1979)

13 Developing an Operations Strategy (Terry Hill) 1. Define corporate objectives. 2. Determine marketing strategies (strategic positioning). 3. Assess how different products qualify in their respective markets and win orders 3. Assess how different products qualify in their respective markets and win orders against competitors. 4. Establish appropriate operational processes for product manufacture and delivery. 5. Provide the operational infrastructure to support production/delivery.

14 Corporate Objectives n Reflect nature of economy, markets, opportunity and company preference n Well-thought out, consistent, provide strategic direction n Sets boundaries and parameters against which inputs and targets can be measured n profit vs sales and investment n absolute growth n market share growth n employee policies n environmental/social issues

15 Marketing Strategy n Establish market plans and control units n bundle products with closely related market targets and similar marketing characteristics n shared marketing programmes n Situational analysis of markets n current and future volumes n define end-user characteristics n assess patterns of buying behaviour n examine industry practices and trends n identify key competitors and review the business relative strategic position n Identify target markets and objectives n in co-ordination with other functional strategies (operational support, investment needs) n product market segments: range, mix, volume n competitive priorities n innovation? Market-leader?

16 Order Winners & Qualifiers n Order Qualifiers are those (minimum) criteria that a company must meet to be considered as a possible supplier (e.g. ISO 9000). n Order winners are those criteria that wins the orders. n Invariably due to re-directing competitive priorities n Define relative importance (allocate weights) among order winning criteria n Monitor changing weights and criteria over time

17 Procedure for Establishing Order-winners and Qualifiers n Separate business into different segments n Focus on a sample product and/or customer from each segment and focus on two future time periods n Provide actual and forecast sales volume n Identify qualifiers and order winners (with weights) for each sample product/customer n identify qualifiers that are potential order-winners n identify qualifiers that are order-losing sensitive n iterative n integrative

18 Process Choice n Design and choice of operational process for manufacture and delivery of products n Choice should reflect the volume and order- winning criteria involved n reflect current and future trade-offs

19 Infrastructure n Procedures,systems, controls, organizational issues

20 Outputs of Manufacturing Strategy n Review of implications for manufacturing processes and infrastructure support for current and future products n Assess degree of match between capabilities and order-winning and order-qualifying needs n Continual monitor changes in match and mismatch n Necessary operational re-design, infrastructure investments, change schedule integrated into corporate strategy in co-ordination with other functional strategies

21 Strategy Drivers n Market-driven n starts with key competitive priorities and then develops processes to support them n Process-driven n starts with given set of process capabilities and then identifies market positions that can be supported n Focussed strategy n targeting limited but congruent set of objectives in terms of demand and supply n broad corporate strategy; focussed business strategies

22 Historical Evolution of Strategy and Process Management n B.C. to 1765 n commerce limited by transportation (slow) speed and costs n artisan system, guilds n 1765: industrial revolution n factory system n Adam Smith: division of labour, functional specialisation n James Watt: steam engine, machines replace labour n : mass production n Eli Whitney: interchangeable parts, no more custom fitting n Ford: assembly line (Model T: > 1.5 hrs) n 1930: product variety n General Motors: ‘A car for every purpose and every price’ n 1970: quality n Toyota: kanban, TQM n 2000 : supply chain management n delivery speed, availability, customization

23 Operations Management as a Competitive Weapon n Dell vs. IBM n HP: n modular design n re-designed production/distribution process n Michael Hammer: n “re-engineering the supply chain is the key to manufacturing success in the new millennium” n “inventory is a substitute for information

24 Summary n Tool kit: n Linear optimisation(Solver) n Integer linear optimisation (Solver) n Multi-objective n goal programming(Solver) n AHP(Excel, ExpertChoice) n n Decision Analysis(TreePlan) n n Queuing(Excel worksheet) n n Simulation(Excel, CrystalBall) n n Implementation n n Strategic Fit