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©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Operations Strategy Operations Management Design, operation, and improvement of the operations systems and processes What direction? What focus? ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Process View of Operations
INPUTS TRANSFORMATION / OUTPUTS CONVERSION Goods Services Facilities Equipment Information People Materials “Needs” ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Old View of Operations Operations is necessary, but not a source of strategic advantage. Minimize costs. High volume, standard products (Economies of scale). ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Into the 1980s ... Operations: Usually static,
with technological jumps Buffers Marketing: Segmentation Niche marketing Pricing strategies, etc. Finance: Cash flow management Leveraging Buyouts, etc. “Closed” System ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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A Top-Down Model of Strategy
Goals Business Strategy Mission Statement Marketing Strategy Financial Operations Operations Decisions ... ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Definitions Business Strategy Long-term master plan for the company; establishes the general direction Goals Performance targets and milestones Functional Strategies Further develop the business strategy in segments of the business — must be aligned and coordinated ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Operations Strategy Translates the business strategy into operations terms. Assures coordination with other areas. Provides direction and guidance for operations decisions. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Key Interactions MIS Finance Human Resources Design Operations
What IT solutions to make it all work together? Finance Budgeting. Analysis. Funds. Human Resources Skills? Training? # of Employees? Design Sustainability. Quality. Manufacturability. Operations Table 1.2 on page 13 in the text for more details to support this discussion Marketing What products? What volumes? Costs? Quality? Delivery? Accounting Performance measurement systems. Planning and control. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Decisions Guided by the Operations Strategy - I
Capacity Size? Timing? Type? Facilities Location? Technology Equipment? Processes? Information systems? Vertical Integration Direction? Extent? ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Decisions Guided by the Operations Strategy - II
Workforce Skills? Wages? Availability? Quality Level? Defect monitoring? Prevention and improvement? Planning and Control Sourcing? Scheduling? Prioritizing? Organization Chains of command? Reward systems? Etc. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Example: Acme Furniture
Business Strategy Become a dominant player in the high-end furniture market Marketing Strategy Financial Operations Gallery stores Advertising, etc. High quality Wide variety Volume flexibility Fund growth ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Acme Furniture New marketing strategy — Gallery stores Wide variety
Lower per unit volumes New, unique designs Premium prices ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Impact of the “wrong” Operations Strategy?
Standard Products Operations Low Volume High Volume Discussion with the class about the importance of all organizational functions to be in the same quadrant of the customization and volume matrix for a business to be successful. Here Acme is moving toward a high-end, relatively low volume market. If operations is focused on standard, high-volume production >>> business failure! Marketing New, Unique Products ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Prioritizing: Where Must We Excel?
Potential sources of distinct competence Quality (performance, conformance, reliability) Time (delivery speed and reliability, development speed) Flexibility (mix, changeover, volume) Cost (labor, material, engineering, quality-related) Discussion of performance dimensions, pages 28 to 30 in text. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Order Winners and Qualifiers
Differentiators — performance not yet duplicated by competitors Competitive advantage — performance better than all or most of the competitors Qualifiers Minimum acceptable level of performance With time, Winners become Qualifiers Discussion about how today’s exceptional performance becomes tomorrow’s standard customer exp[ectation. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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The Idea Behind Prioritizing:
“Best in Class” Minimum Needs Cost Design Quality Speed Flexibility ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Comparing Two Software Development Firms
“Best in Class” Minimum Needs Cost Design Quality Speed Flexibility ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Value Analysis A process for determining the best choice when there are no unambiguous formulas for doing so. Helps maintain focus in gathering and assessing relevant data. (also called a preference matrix). Some examples are: Choosing which home to buy or apartment to rent Picking a location for a new factory Selecting the best person for a new position Deciding which supplier to use other than for lowest price Deciding which features to include in a new product ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Value Analysis – Thoughts
Requires definition of criteria and their importance beforehand to avoid bias It is useful if the importance or weighting values add up to 100% A threshold score can be set by evaluating the current situation, if it exists, using the selected analysis criteria Requires careful definition of scoring values for performance assessment (highest value represents most desirable result) People may not be comfortable with this… but, that may be exactly what’s required! Encourages identification of less important factors. A higher score to reflect the more desirable outcome and to avoid biasing a choice. A potential problem that can be solved by eliminating any alternative that fails to meet the minimum acceptable score for that criterion. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Value Analysis: Introduce new product?
Performance Importance Score Value Criteria (A) (B) (A x B) Market potential 30 Unit profit margin 20 Operations compatibility 20 Competitive advantage 15 Investment requirement 10 Project risk % Threshold score = 800 Threshold score is value determined by existing product to these criteria. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Value Analysis: Introduce new product?
Threshold score of current product = 800 Performance Importance Score Value Criterion (A) (B) (A x B) Market potential 30 8 Unit profit margin 20 10 Operations compatibility 20 6 Competitive advantage 15 10 Investment requirement 10 2 Project risk 5 4 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Value Analysis: Introduce new product?
Performance Importance Score Value Criterion (A) (B) (A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk Value Index = 750 Threshold score = 800 Not at this time! ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Measurements Performance against: Comparisons to competitors
Customer needs Business objectives or standards Comparisons to competitors Comparisons to “best in class.” ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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Manufacturing Strategy
The Terry Hill Model Corporate Objectives Marketing Strategy Order Winners Manufacturing Strategy Process Infrastructure Growth Survival Profit ROI Other financial measures Product markets and segments Range Mix Volumes Standardization vs customization Level of innovation Leader vs follower Price Quality Delivery speed reliability Demand increases Color range Product range Design Brand image Technical support After-sales support Choice of alternative processes Trade-offs in processes Role of inventory Make or buy Capacity size timing location Function support Manufacturing planning & control systems Quality assurance and control Manufacturing systems engineering Clerical procedures Compensation agreements Work structuring Organizational structure ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
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