1. Operations Strategy
Sana Ullah Khan

2. What is strategy???
A strategy should describe how a firm intends to create and sustain value for its shareholders.
A strategy breaks into three components.
Operations effectiveness- core business processes to run the business.
Customer management- relates to better understanding customer relationship.
Product innovation- the development of new product, market, and relationships to sustain growth.

3. What is Operations Strategy?
Operations and supply management is significant since it relates to all components of strategy.
A company’s competitiveness refers to its relative position in comparison to other firms.
Operations & supply strategy is concerned with setting broad policies and plans for using the resources of a firm to best support its long-term competitive strategy.
Involves decisions that relate to design of a process & infrastructure needed to support the process.

4. Meanings of Competitiveness, Strategy and Productivity
Competitiveness refers to an aggressive willingness to compete.
Productivity refers to the ratio of the quantity and quality of units produced to the labor per unit of time or simply ratio of output to input.
Strategy is an elaborate and systematic plan of action with defined resources.

5. Competitiveness
Competitiveness is how effectively an organization meets the needs and requirements of customers relative to other (Competitors) organizations that offer similar goods or services
The key to successfully competing against the organizations competitors or rivals is to answer these two questions diligently
I. What do the Customers Want?
II. How can our business deliver the required Value to the customers?
Mathematically speaking value equals the performance (of the product or service) divided by cost.
Value= Performance/Cost= (Quality +Speed+ Flexibility)/Cost

6. How Organizations can gain Competitive Advantage
As Students of Organization Management, we can look at value in terms of the three important functions of any organization to see how organizations can gain competitive advantage
1. Marketing
2. Finance
3. Operations
Businesses Gain Competitive Advantage by using Market based strategies
1. Identifying consumer wants and needs
2. Pricing
3. Advertising and promotion

7. Competitive Dimensions
How do customers decide which product or service to buy???
Cost or Price
Make the Product or Deliver the Service Cheap
Quality
Make a Great Product or Deliver a Great Service- Design and Process quality.
Delivery Speed
Make the Product or Deliver the Service Quickly
Delivery Reliability (Consistency)
Deliver It When Promised- Fedex.

8. Competitive Dimensions
Coping with Changes in Demand
Change Its Volume
Flexibility and New Product Introduction Speed
Change It- offer variety of products.
Other Product-Specific Criteria
Support it.
Technical support
After sale support
Other dimensions- color, size, weight, etc.

9. How Organization Compete against each other
1. Price: In our day to day routine observations, we often see that a lower price would attract more customers provided the product or service fulfills its intended use. Lower price helps an organization to increase its customer base.
2. Quality is an important dimension by which superior raw materials as well as high Skillman ship would ensure that product manufactured or service developed is offered to the customer with something extra. That something extra is nothing else but Quality. Quality is always offered free of cost, we will discuss this when we study in details Quality Management and Total Quality Management.

10. How Organization Compete against each other
3. Product Differentiation refers to special features that make the product or service look more suitable to the customers like an automobile manufacturer decides to provide GPS system to selected customer at an additional price etc.
4. Flexibility is the ability to respond to changes. It may refer to changes in target sales, product feature like adding GPS device to all automobiles
5. Time refers to the period required to provide a product or service to a customer from the moment the order is booked to the delivery, also time required to rectify a shortcoming or mistake

11. Competitive Advantage by using Operations based strategies
1. Product and service design. The design is not only the starting point but allows certain features to be added which makes your product or service favorable to the customer.
2. Cost or Cost Leadership, offers the product or service at an economical price
3. Location refers to the Convenient point of sales, it can be a petrol pump (services) with an attached convenience store
4. Quality should always match the price and service.
5. Quick response aka Also known as Agility and an organization on this basis is often known as
Agile Organization)

12. Competitive Advantage by using Operations based strategies
6. Flexibility. Flexibility change the car model from sedan to coupe based on your marketing divisions inputs.
7. Inventory management. Maintain safety stocks and critical spares.
8. Supply chain management. Develop and sustain an active and strong chain between suppliers and end customers.
9. Service .After sales service, owning the customers issue as your own, a concept which has failed PK in its quest for foreign market penetration.

13. Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
Cost
Quality
Delivery
Flexibility
For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
Continental vs Southwest Airlines

14. Order Qualifiers and Winners
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 .

15. Strategic Fit: Fitting Operational Activities to Strategy
All the activities that make up a firm’s operation relate to one another
To be efficient, must minimize total cost without compromising on customer needs.
Activity-system maps show how a company’s strategy is delivered through a set of tailored activities

16. Mapping Activity Systems

17. Productivity Measurement
Productivity is a common measure of how well an organization is using its resources
Fundamental to understanding operations-related performance
In its broadest sense productivity is outputs divided by inputs
To increase productivity, we want to make this ratio as large as practical

18. Productivity Measurement
Productivity is a relative measure
Can be compared with similar operations within its industry
Can be compared over time
Productivity may be expressed as:
Partial measures: output to one input
Multifactor measures: output to a group of inputs
Total measures: output to all inputs

19. Examples of Productivity Measures

20. Operations Strategy- Starbucks
If someone says, “Lets go out for coffee,” Starbucks often comes to mind.
Entrepreneur Howard Schultz had an operations strategy in mind in 1990 when he bought the 17-store Seattle chain and turned it into a global success.
12,440 stores in 37 countries stores opened in 2006( 6 stores a day)
Average growth in profits reached up to 30 %

21. Operations Strategy- Starbucks
Service strategy was key.
To speed up service, customers may use;
Prepaid Starbucks card, automated espresso machine, Starbucks express( which uses web technology to provide faster service). You can also order by phone or internet and order will be available for pick up.
Further, customers find a store for every 9400 peoples, Manhattan’s 24 square miles has 124 stores, one for peoples.
All in a socially interactive atmosphere.

22. Wall Mart versus Kmart Both chains started in 1962.
In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198.
Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion.
By 1991, Wal-Mart’s sales exceeded Kmarts.
Kmart still had more stores.
In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion.
During this time Kmart emphasized marketing and merchandising (such as national TV, ad campaigns).

23. Wall Mart versus Kmart
Wal-Mart was investing millions in its operations to lower cost.
Wal-Mart developed Sophisticated Distribution System that integrated its computer system with its distribution system.
Kmart’s employees lacked skills needed to plan and control inventory.
Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to 22.7 percent.
Wal-Mart's increased from 20.1 percent to 41.6 percent.

24. Operations Strategy at Wal-Mart

25. Operations Strategy at Dell
Dell-$2.6 billion net income on revenue of $41 billion(2004)– How??????
Direct selling-bypasses distributors & retailers
Better forecasting
Centralized manufacturing & inventories- provides a large variety in short time with minimum inventory-
Customized web page- information sharing with suppliers
Effective cash flow- cash conversion cycle of 36 days
Running business on other guy’s money!!!!

26. Supply Chain Strategy I
Sana Ullah Khan

27. OBJECTIVES Supply-Chain Management Bullwhip Effect
Supply Chain Design Strategy
Outsourcing
Mass Customization

28. What is a Supply Chain?
Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together

29. What is a Supply Chain? Contd
Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.
SCM involves
Procurement
Manufacturing
Distribution
The Operation
Second tier
suppliers
First tier
customers

30. What is a Supply Chain? Contd
Supply chains typically involve a two-way flow of information and material and consist of a series of linked suppliers and customers. In a supply chain every customer is a supplier to the next downstream organisation
Suppliers
Manufacturer
Wholesaler
Retailer
Customers
Products
Information
Financial Resources
“From your supplier’s supplier to your customer’s customer”

31. Bullwhip Effect
The magnification of variability in orders in the supply-chain
Retailer’s Orders
Wholesaler’s Orders
Manufacturer’s Orders
Quantity
Order
Quantity
Order
Quantity
Order
Time
Time
Time
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.

32. Bullwhip Effect Contd 50 100 150 200 20 40 60 80 Time (weeks)50
100
150
200 20 40 60 80
Time (weeks)
Tier 4
Tier 1
Tier 2
Tier 3
Order Rate (units)

33. Bullwhip Effect Contd Causes Effects Remedies Price variations
Batch size
Rationing & gaming
Poor forecasting
Effects
Over capacity & under capacity utilization
Excessive inventory & stock out
Poor customer service level
Remedies
Information sharing
Echelon (Tier) reduction

34. Supply Chain Design Strategy
Fisher developed framework to understand the nature of demand for their products and then devise supply chain accordingly.
Functional Products- wide range of daily life products available at retail outlets, grocery stores, gas stations, etc.
Innovative Products- Have a life cycle of few months- fashion clothes, Computers, etc.

35. Supply Chain Design Strategy
Functional
Innovative
Low demand uncertainty
More predictable demand
Long product life cycle
Low inventory cost
Low profit margin
Low product variety
High volume
Low stock out cost
High demand uncertainty
Difficult to forecast
Short selling season
High inventory cost
High profit margin
High product variety
Low volume
High stock out cost

36. Supply Chain Design Strategy
Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC.
A Stable Supply Process has mature manufacturing processes & underlying technologies are mature and supply base is well established.
Evolving Supply Process- where manufacturing process & underlying technology are still under development and rapidly changing and supply base is limited in size and experience.

37. Supply Chain Design Strategy
Evolving
Stable
Less breakdowns
Stable & higher yield
Less quality problems
More supply resources
Reliable suppliers
Less process changes
Less capacity constraints
Dependable lead times
Vulnerable to breakdowns
Variable & lower yield
Potential quality problems
Limited supply resources
Unreliable suppliers
More process changes
Potential capacity constraints
Variable lead times

38. Hau Lee’s Concepts of Supply Chain Management
Lee characterize four types of SC’s strategies
1- Efficient SC’s- aimed at creating highest cost efficiency.
Non-value added activities should be eliminated
Scale economies should be pursued
Information sharing (grocery, food, apparel)
2-Risk-Hedging SC’s
Pooling & sharing resources so that risk in supply disruption can be shared.
A single entity in supply chain can be vulnerable to supply disruption.
Safety stock is being held at different locations
Information sharing is important for the success of these strategies ( hydroelectric power, few food produce).

39. Hau Lee’s Concepts of Supply Chain Management
3-Responsive SC’s-
Utilize strategies aimed at being responsive and flexible to changing needs of customers.
Companies use Make-to-Order and Mass Customization strategies. (fashion goods, popular music)
4-Agile SC’s
Utilize strategies aimed at being responsive & flexible to changing needs of customers while risk of supply disruption or shortage is being hedged by adding inventory or capacity.
Have the strength of both risk-hedging and responsive SCs. (Telecom, computers)

40. Service Supply Chains
Differences b/s service & manufacturing supply chains.
Service SCs tend to be hubs not manufacturing SCs- A car repair shop may outsource the rebuilding of engines to machine shop and therefore acts as a hub.
Service supply chains are short & customers have expanded role where they are supplier of inputs to service providers.
Service operations need to be flexible enough to handle various customer demands while manufacturer can use inventory.

41. What is Outsourcing?
Outsourcing: the act of moving a firm’s internal activities and decision responsibility to outside providers
Allows a company to create a competitive advantage while reducing cost
An entire function may be outsourced, or some elements of an activity may be outsourced, with the rest kept in-house
Reasons to outsource
Organizationally-driven
Improvement-driven
Financially-driven
Cost-driven
Employee-driven

42. Logistics
Logistics: the management functions that support the complete cycle of material flow
Purchase and internal control of materials
Planning and control of WIP
Purchasing, shipping, and distribution of finished product
Emphasis on lean inventory means there is less room for delivery errors

43. Value Density An important decision is how items should be shipped????
Value density is defined as the value of an item per pound of weight
It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped
Transportation Modes

44. Mass Customization
Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers
The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network
Principle 1- A product must be designed so it consists of independent modules that can be assembled into different forms of product easily and inexpensively.

45. Mass Customization
Principle 2- Manufacturing & service processes should be designed so that they consist of independent modules that can be moved or rearranged easily to support different distribution network design.
Theory of process postponement
Principle 3- The supply network- positioning of inventory and locations of manufacturing and distribution facilities should be designed to provide two capabilities-
1- must be able to supply basic product to facilities.
2- it must have flexibility & responsiveness to deliver customized goods quickly.

46. Supply Chain Strategy II

47. What is a Supply Chain?
Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together

48. What is a Supply Chain?
Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer
Formulas for Measuring Supply-Chain Performance
One of the most commonly used measures in all of operations management is “Inventory Turnover”

49. Measuring Supply-Chain Performance
In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time .
Example-Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10.

50. Measuring Supply-Chain Performance
= $160/$35
= 4.57
Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before.

51. Bullwhip Effect
The magnification of variability in orders in the supply-chain
Retailer’s Orders
Wholesaler’s Orders
Manufacturer’s Orders
Quantity
Order
Quantity
Order
Quantity
Order
Time
Time
Time
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.

52. Supply Chain Design Strategy
Dell’s supply chain- Direct selling
Campbell Soup- Continuous replenishment
ZARA- Highly responsive to changing trends with low cost
Fisher developed framework to understand the nature of demand for their products and then devise supply chain accordingly.
Functional Products- wide range of daily life products available at retail outlets, grocery stores, gas stations, etc.
Innovative Products- Have a life cycle of few months- fashion clothes, Computers, etc.

53. Supply Chain Design Strategy
Functional
Innovative
High demand uncertainty
Difficult to forecast
Variable demand
Short selling season
High inventory cost
High profit margin
High product variety
Low volume
High stock out cost
High obsolescence
Low demand uncertainty
More predictable demand
Stable demand
Long product life cycle
Low inventory cost
Low profit margin
Low product variety
High volume
Low stock out cost
Low obsolescence

54. Supply Chain Design Strategy
Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC.
A Stable Supply Process has mature manufacturing processes & underlying technologies are mature and supply base is well established.
Evolving Supply Process- where manufacturing process & underlying technology are still under development and rapidly changing and supply base is limited in size and experience.

55. Supply Chain Design Strategy
Evolving
Stable
Less breakdowns
Stable & higher yield
Less quality problems
More supply resources
Reliable suppliers
Less process changes
Less capacity constraints
Easier to change over
Flexible
Dependable lead times
Vulnerable to breakdowns
Variable & lower yield
Potential quality problems
Limited supply resources
Unreliable suppliers
More process changes
Potential capacity constraints
difficult to change over
Inflexible
Variable lead times

56. Hau Lee’s Concepts of Supply Chain Management
Lee characterize four types of SC’s strategies
1- Efficient SC’s- aimed at creating highest cost efficiency.
Non-value added activities should be eliminated
Scale economies should be pursued
Optimization technique should be deployed to get capacity utilization in manufacturing & transportation.
Information sharing (grocery, food, apparel)
2-Risk-Hedging SC’s
Pooling & sharing resources so that risk in supply disruption can be shared.
A single entity in supply chain can be vulnerable to supply disruption.
Safety stock is being held at different locations
This type of strategy is common where different retailing store share inventory.
Information sharing is important for the success of these strategies ( hydroelectric power, few food produce).

57. Hau Lee’s Concepts of Supply Chain Management
3-Responsive SC’s-
utilize strategies aimed at being responsive and flexible to changing needs of customers.
Companies use Make-to-Order and Mass Customization strategies. (fashion goods, popular music)
4-Agile SC’s
Utilize strategies aimed at being responsive & flexible to changing needs of customers while risk of supply disruption or shortage is being hedged by adding inventory or capacity.
Have the strength of both risk-hedging and responsive SCs. (Telecom, computers)

58. Hau Lee’s SC Uncertainty Framework
Demand Uncertainty
Low (Functional products)
High (Innovative products)
Low
(Stable
Process)
High
(Evolving
Supply
Uncertainty
Efficient SC
Ex.: Grocery
Responsive SC
Ex.: Computers
Risk-Hedging SC
Ex.: Hydro-electric power
Agile SC
Ex.: Telecom

59. Service Supply Chains
Differences b/s service & manufacturing supply chains.
Service SCs tend to be hubs not manufacturing SCs- A car repair shop may outsource the rebuilding of engines to machine shop and therefore acts as a hub.
Service supply chains are short & customers have expanded role where they are supplier of inputs to service providers.
Service operations need to be flexible enough to handle various customer demands while manufacturer can use inventory.

60. What is Outsourcing?
Outsourcing: the act of moving a firm’s internal activities and decision responsibility to outside providers
Allows a company to create a competitive advantage while reducing cost
An entire function may be outsourced, or some elements of an activity may be outsourced, with the rest kept in-house
Reasons to outsource
Organizationally-driven
Improvement-driven
Financially-driven
Revenue-driven
Cost-driven
Employee-driven

61. Logistics
Logistics: the management functions that support the complete cycle of material flow
Purchase and internal control of materials
Planning and control of WIP
Purchasing, shipping, and distribution of finished product
Emphasis on lean inventory means there is less room for delivery errors

62. Value Density An important decision is how items should be shipped????
Value density is defined as the value of an item per pound of weight
It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped
Transportation Modes

63. Mass Customization
Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers
The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network
Principle 1- A product must be designed so it consists of independent modules that can be assembled into different forms of product easily and inexpensively.

64. Mass Customization
Principle 2- Manufacturing & service processes should be designed so that they consist of independent modules that can be moved or rearranged easily to support different distribution network design.
Theory of process postponement
Principle 3- The supply network- positioning of inventory and locations of manufacturing and distribution facilities should be designed to provide two capabilities-
1- must be able to supply basic product to facilities.
2- it must have flexibility & responsiveness to deliver customized goods quickly.

65. Thank you