1. Operations Management & Performance Modeling
Operations Strategy
Class 1a: Introduction to Operations
Introduction & Administrative
Key Principles of Course
Strategic role of Ops
Process view of Ops
Strategies, Capabilities and Operation Drivers
Wal-Mart
Process Analysis
Lean Operations
Supply Chain Management
Capacity Management in Services
Quality Management
Business Process Reengineering
OM&PM/Class 1a
OM&PM/Class 1a

2. 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]
OM&PM/Class 1a
OM&PM/Class 1a

3. Key Principle of Course: 2. The Process View of Ops
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]
OM&PM/Class 1a
OM&PM/Class 1a

4. Operations & the Process View: What is a Process?
Inputs
Outputs
Goods
Services
Labor & Capital
Feedback
for control
Transformation
Process
Flow Units
(RM, people,
information, etc.)
Resources
Operations
Management
OM&PM/Class 1a

5. What is Operations Management?
Management of business processes
How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs.
What is appropriate?
OM&PM/Class 1a
OM&PM/Class 1a

6. What are “appropriate capabilities”? An example: A Supply Chain
Market
Distribution
Production
Service Delivery System
Service
Outputs
The market + your strategy
determine criteria for appropriate.
OM&PM/Class 1a

7. What defines a “good process”? Performance: Financial Measures
Absolute measures:
revenues, costs, operating income, net income
Net Present Value (NPV) =
Relative measures:
ROI, ROE
ROA =
Survival measure:
cash flow
OM&PM/Class 1a

8. Firms compete on product attributes. This requires process capabilities.
Price (Cost)
Quality
Customer service
Product quality
Time
Rapid, reliable delivery
New product development
Flexibility
Variety or volume flexibility
“order winners”
“capabilities”
OM&PM/Class 1a

9. Process Capabilities are affected by Process Drivers/Levers
Process structure/architecture
jobs
activities & storage/inventories: quantity & location
resources: capacity & throughput
routes: information and product flow
positioning (product/process focus)
capabilities (technology, “real” investment)
Operations Planning & Control
Organization
OM&PM/Class 1a
OM&PM/Class 1a

10. Linking the strategic role & process view: Strategic Operational Audit
Business Strategy
compatible?
Desired Capabilities
. . .
Marketing Strategy
Operations Strategy
Financial Strategy
p, Q, t, flexibility
Operations Structure:
Processes & Resources
OM&PM/Class 1a
OM&PM/Class 1a

11. A Strategic Framework for Operations
Corporate Strategy
businesses in which the corporation will participate
acquisition & allocation of key corporate resources to each business
Business Unit Strategy
scope of the business (product/market/service segments)
basis on which BU will achieve and maintain competitive advantage
Operations Strategy (and mkt strat, fin strat ...)
What must operations do particularly well? Which capabilities must ops develop?
Operations Structure
How should operations processes be structured to develop capabilities that support strategy?
OM&PM/Class 1a
OM&PM/Class 1a

12. Wal-Mart Corporate Strategy Operations Structure Operations Strategy
(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices
Operations Structure
Cross docking
EDI
Fast transportation system
Focused locations
Communication between retail stores
Operations Strategy
Short flow times
Low inventory levels
OM&PM/Class 1a
OM&PM/Class 1a

13. Wal-Mart (Resulting Benefits)
Inventory at retail stores turned over twice a week (Industry averages once every two weeks)
Improved targeting of products to markets
Sales per square foot increased from $102 in 1985 to $140 in 1991 (Industry average increased from $102 to $110)
OM&PM/Class 1a
OM&PM/Class 1a

14. Historical Development of OM
Craft guilds & Cottage Industry
1765: Factory System (Adam Smith, James Watt)
1810: American System of Mfg (Whitney’s interchangeable parts)
1890s: Bicycle boom (sheet metal stamping, electrical resistance welding)
* Scientific Management >> Time & motion studies (Frederick Taylor 1900s)
April 1, 1913: Mass Production (Henry Ford’s Moving Assembly Line)
1927: Flexible Mass Production (Alfred Sloan & GM)
* Statistical Quality Control (Walter Shewhart at Bell Labs, 1930s)
Hawthorn Studies (Elton Mayo at Western Electric, 1930s)
1970: Toyota Production System (Taiichi Ohno)
1980s-now: Ops in the spotlight
Manufacturing Strategy Paradigm (HBS)
Lean Ops: JIT, CAD/CAM, CIM, FMS, TQM, business reengineering
OM&PM/Class 1a
OM&PM/Class 1a

15. Class 1a Learning Objectives
An operation as a transformation process
Product Attributes / Operational Capabilities
Process Drivers / Operations structure
Link between business strategy, operations strategy, and operations structure
OM&PM/Class 1a
OM&PM/Class 1a