1. Chapter 2 -Operations Strategy
Links long and short-term operations decisions to corporate strategy
Must be customer-driven
Helps to develop competitive priorities
Repetitive cycle for modifications
This presentation covers the graphical material in Chapter 2 - Operations Strategy.

2. Operations Strategy Strategy Process Example Customer Needs
More Product
Corporate Strategy
Increase Org. Size
Operations Strategy
Increase Production Capacity
Decisions on Processes
and Infrastructure
Build New Factory

3. Competitive Priorities
Corporate strategy
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
segmentation
needs assessment
Competitive priorities
Operations Marketing
cost
quality Finance
time
flexibility Others
Capabilities
current
needed
plans
The next series of slides presents Figure 2.1. The series builds in steps to the final Figure.
Functional area strategies
finance
marketing
operations
others
Figure 2.1

4. Corporate Strategy
Specifies the direction of the organization over the long run. Specify business opportunities and threats, identify growth objectives, how to develop a sustainable competitive advantage.
Strategic Considerations
Global Strategies

5. Strategic considerations
Respond to pressures for flexibility.
Monitor and adjust to changes in the business environment.
Identify and develop distinctive competencies.

6. Flexibility
Evaluate and revise corporate strategy continually to remain competitive.
Develop a capability for change.
Five ways to respond to the need for flexibility
Scenario building
Reality checks
Communication
Hires
Shortening the budget cycle

7. Core Competencies
Unique resources and strengths that management considers when formulating a strategy. Examples:
Workforce: well trained and flexible (especially service organizations)
Facilities: well located and flexible (volume)
Marketing and financial skill
Systems and technology: achieve competitive advantage through innovation

8. Environment
Environmental scanning: Monitor socioeconomic trends for potential opportunities or threats.
Competition is broadening product lines, improving quality, or lowering costs
Economic trends
Technological changes
Political conditions
Social changes (such as ability to adapt to change)
Availability of vital resources
Collective power of customers or suppliers

9. Global Strategies Forms of strategic alliances
Collaborative effort [ Kodak.]
Joint venture [China.]
Licensing of technology [Canon copiers.]
Locating operations in foreign countries: some differences to consider
Political environment
Customer needs
Customs [McDonald’s restaurants.]
Economic situation

10. Xerox R&D – explore the unknown and invent the future
Xerox Research and Technology drives invention, innovation and integration throughout the corporation. Working hand in hand with Xerox's business divisions, XR&T focuses on five key areas: digital imaging, marking systems, materials, document services, and solutions. XR&T also develops research, technology and business concepts that enable Xerox growth opportunities in new markets.
The group creates further customer and business value through driving industry standards and ensuring that Xerox products comply with coherence requirements. XR&T also oversees development and deployment of many of the corporation's core processes in product development through a managed Time-to-Market program.
In 2000, Xerox and Fuji Xerox spent $1.6 billion on research and development (R&D), or about 8 percent of its $18.6 billion in revenues.

11. Market Analysis Market segmentation (Step 1)
Identify customer groups having common characteristics that differentiate them from other market segments.
Incorporate market segment needs into product or service design and the operations system design.
Dimensions used to determine market segments
Demographic factors
Psychological factors
Industry factors

12. Market Analysis Needs assessment (Step 2)
Customer benefit package
Core product or service
Set of peripheral products or services
Four categories of market needs
Product/service
Delivery system
Volume
Other

13. Competitive Priorities
Cost 1. Low-cost operations
Quality 2. High-performance design
3. Consistent quality
Time 4. Fast, Reliable delivery
5. On-time delivery
6. New development speed
Flexibility 7. Customization
8. Volume flexibility
Operating system capabilities and strengths required to serve customers and outperform competitors

14. Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
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.
Cost
Quality
Delivery
Flexibility

15. Service Strategies Standardized-services strategy
Processes are designed for low variety and high volume.
Flow tends to follow a linear pattern. [Postal Service and FedEx.]
Tasks are repetitive and routine.
Assemble-to-order strategy
Processes are designed to produce a set of standardized services and to assembling standardized offerings for specific customer needs.
Typical competitive priorities are customization and fast delivery time.
Customized-services strategy
Nested processes are typically grouped by the function they perform.
Processes are designed to provide a high variety of customized services.
Typical competitive priorities include high-performance design as well as customization.

16. Health Clinic Process D R P T B Physical exam Flu Physical exam
Broken arm
Broken arm T B
Flu
D: Doctor (examination rooms)
R: Radiology (X-ray)
T: Triage (assess severity of illness)
B: Blood (lab test)
P: Pharmacy (fill prescriptions)

17. Manufacturing Strategies
Make-to-stock strategy
Finished goods items held in stock for immediate delivery.
High volumes, standard products, linear flow
Production based on forecasted demand
Supports low cost, consistent quality, competitive priority.
Assemble-to-order strategy.
Assemblies and components are held in stock.
Final assembly is completed after customer selects options.
A very large number of final configurations are possible.
Forecasting the final configuration is impractical because of the many combinations.
This series of slides develops Figure 2.3.
This slide advances automatically.

18. Manufacturing Strategies
Make-to-order strategy
Most required materials are ordered after the customer places the order.
Goods are produced to customer specifications.
Flexible processes and flow are typical.
Supports customization as a competitive priority

19. Mass Customization
Use an assemble-to-order strategy, but typically focus on large volumes.
Postpone the task of differentiating the product or service until the latest possible moment.
Product or service implications
Design the product or service in modular forms that can be easily and quickly assembled for a specific customer.
Process implications
Design processes as independent modules that can be easily arranged to meet a variety of needs at the latest possible moment.

20. Automobile Assembly Process Made-to-Stock
Midsized
6 cylinder
Compact
4 cylinder
Midsized
6 cylinder
Compact
4 cylinder A H F S
A: Front-end body-to-chassis assembly
H: Hood attachment
F: Fluid filling
S: Start-up testing
Notice that the processes are much less complex and variable, benefits of classic flow strategies.

21. Operations Strategy as a Pattern of Decisions
Operations strategy translates service or product plans and competitive priorities for each market segment into decisions affecting the processes that support those market segments.
A service or manufacturing strategy must be selected for each process.
These decisions must be continually reevaluated according to the needs of the market.
The pattern of decisions is also a function of the firm’s core competencies.

22. Operations Strategy Across the Organization
A firm is a system of interconnected parts, or functional areas.
Management information systems help to link the various functional areas.
Full collaboration among functional areas on decisions is a vital requirement for success.

23. Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Capabilities
Operations strategy
Services Manufacturing
Standardized services
Assemble-to-order
Customized services
Make-to-stock
Make-to-order
Process decisions
Quality decisions
Capacity, location, and layout decisions
Operating decisions
Figure 2.4

24. Strategies at LFKHS and Chaparral
Decision Area LFKHS Chaparral
Business Low-volume, High-volume
strategy customized services standardized products
made to stock
Competitive Customized services, Low-cost, fast delivery,
priorities consistent quality, and consistent quality
and volume flexibility
Process Labor intensive Capital intensive
design

25. HP Operations Strategy
In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements.
Outsourcing PC manufacturing allows HP to focus on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.