1. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-1 Operations Management Operations Strategy Chapter 2

2. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-2 Business Elements  Structural buildings, equipment, technology, computer systems  Infrastructural organization, planning & control, decision rules, quality management, purchasing, product/service development  Personnel ( )

3. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-3  Merck – The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return  Hard Rock Café – To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success. Mission The organization’s purpose for being; provides boundaries and focus

4. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-4 Mission / Strategy / Core Competencies  Mission – The organization’s purpose for being; provides boundaries and focus  Business strategy – Action plan for the business to achieve the mission  Functional strategies – Translate the business strategy into specific actions for the functional areas  Core competencies – Organizational abilities/strengths, developed over a long period, which customers find valuable, and competitors find difficult to copy

5. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-5 Strategy Linkages / Alignment All functional strategies must support the business strategy Marketing strategy based on differentiation and customization Operations strategy to build to stock Financial strategy to minimize capital investment Operations strategy to increase investment for quality improvement Engineering strategy to specify an entirely new part when an existing part will do Operations strategy for low cost

6. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-6 Strategy Process Operations Strategy - Translate business strategy into operations & supply chain actions - Provide value to targeted customers - Develop supporting core competencies Other Functional Strategies - Marketing - Finance - Human Resources - Research & Development - Engineering Mission Statement Business Strategy - Targeted customers / markets - Areas of sustainable competitive advantage - Role of supply chain partners - Time frames & performance objectives Strategic Alignment

7. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-7 Four Performance Dimensions Operations Strategy - Translate business strategy into operations & supply chain actions - Provide value to targeted customers - Develop supporting core competencies Other Functional Strategies - Marketing - Finance - Human Resources - Research & Development - Engineering Mission Statement Business Strategy - Targeted customers / markets - Areas of sustainable competitive advantage - Role of supply chain partners - Time frames & performance objectives Quality-Performance quality -Conformance quality -Reliability quality Time-Delivery speed -Delivery reliability Flexibility-Volume flexibility -Mix flexibility -Changeover flexibility Cost -Low-cost operations

8. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-8 Order Winners vs. Order Qualifiers Item Conformance quality 99.9% pure - Meets 98% pure – Does not meet Delivery 3 days2 days Cost $30 / liter $20 / liter Flexibility 100 liter minimum order50 liter minimum order Supplier ASupplier B  Order winners – performance dimensions that differentiate a company’s products and services from its competitors  Order Qualifiers – performance dimensions on which customers expect a minimum level of performance

9. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-9 Operations Strategy Operations Strategy - Translate business strategy into operations & supply chain actions - Provide value to targeted customers - Develop supporting core competencies Other Functional Strategies - Marketing - Finance - Human Resources - Research & Development - Engineering Mission Statement Business Strategy - Targeted customers / markets - Areas of sustainable competitive advantage - Role of supply chain partners - Time frames & performance objectives Operations strategy Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Services Manufacturing Customized services Assemble-to-order Standardized services Make-to-order Assemble-to-order Make-to-stock

10. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-10 Operations Strategy Make to Order (MTO) Receive order before producing goods e.g. Machine shop Make to Stock (MTS) Satisfy customer orders from inventory e.g. Paper Assemble to Order (ATO) Stock standardized components/assemblies assemble finished product to customer order e.g. Dell Computer Service StrategiesManufacturing Strategies Customized Services Strategy Individualized services e.g. Health clinic Assemble to Order Strategy Assemble standardized offerings for a specific customer’s needs e.g. Cellular phone service Standardized Services Strategy High volume with little variety e.g. U.S. Postal Service

11. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-11 Generic Operations Strategies Operations Strategy - Translate business strategy into operations & supply chain actions - Provide value to targeted customers - Develop supporting core competencies Other Functional Strategies - Marketing - Finance - Human Resources - Research & Development - Engineering Mission Statement Business Strategy - Targeted customers / markets - Areas of sustainable competitive advantage - Role of supply chain partners - Time frames & performance objectives Differentiation – better / unique Cost leadership – cheaper / value Quick response – faster

12. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-12 Operations Strategies - Examples

13. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-13 Closing the Loop Operations Strategy - Translate business strategy into operations & supply chain actions - Provide value to targeted customers - Develop supporting core competencies Other Functional Strategies - Marketing - Finance - Human Resources - Research & Development - Engineering Mission Statement Business Strategy - Targeted customers / markets - Areas of sustainable competitive advantage - Role of supply chain partners - Time frames & performance objectives Strategic Alignment

14. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-14 OM’s Contribution to Strategy Response (Faster) Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance HP’s ability to follow the printer market Differentiation (Better) Cost leadership (Cheaper) Southwest Airlines No-frills service Sony’s constant innovation of new products Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” Motorola’s automotive products ignition systems Motorola’s pagers IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage

15. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-15 Strategy and Issues During a Product’s Life

16. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-16 Summary  Strategy is how we accomplish our mission  Functional strategies must be aligned to support the business strategy  OM goals are to be faster, better and/or cheaper  Operations strategy:  Where the product or service is in its life cycle  Determines our mix of faster, better, and cheaper to satisfy our customers (trade-offs where necessary)  Specifies process choice, work flow, order processing, inventory, capacity, etc.