OPERATIONS MANAGEMENT

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STRATEGY, COMPETITIVENESS & PRODUCTIVITY By: HAKEEMURREHMAN PCBAUCP

FOUR STEPS FOR STRATEGY FORMULATION

DEFINING A PRIMARY TASK

What is the firm in the business of doing? What does the firm do better than anyone else?

ASSESSING CORE COMPETENCIES

DETERMINING ORDER WINNERS AND ORDER QUALIFIERS

What wins the order? What qualifies an item to be considered for purchase? How will the firm compete?

POSITIONING THE FIRM

STRATEGY/MISSION/TACTIC S

STRATEGY: Provides direction for achieving a mission MISSION: The reason for the existence of an organization MISSION STATEMENT: States the purpose of an organization GOALS: provide detail and scope of the mission TACTICS: The methods and actions taken to accomplish strategies

PLANNING AND DECISION MAKING

Mission Goals Organizational Strategies Functional Goals Finance Strategies Tactics Operating procedures Operations Strategies Tactics Operating procedures Marketing Strategies

Tactics Operating procedures

STRATEGY EXAMPLE
You are a business student at PCBA. You would like to have a career in business, have a good job, and earn enough income to live comfortably
Mission: Goal: Strategy: Tactics: Operations: graduate, Live a good life Successful career, good income Obtain a Business Degree from PCBA. Select a business field of your interest and high market value Register, buy books, take courses study, apply & get job

OPERATIONS STRATEGY

The approach, consistent with organization strategy that is used to guide the operations function.
Organizational strategy is:

an over all big picture for the whole organization. Longer in time horizon Less detailed and broader in scope. Narrower in scope and in more detail Prepared by middle management. Should be in line with the Organization strategy

Operational Strategy is:

STRATEGY DESIGN PROCESS

Strategy Process
Customer Needs

Example
More Product

Corporate Strategy

Increase Org. Size Increase Production Capacity

Operations Strategy

Decisions on Processes and Infrastructure

Build New Factory

FOUR STEPS FOR STRATEGY FORMULATION

Defining a primary task What is the firm in the business of doing? Assessing core competencies What does the firm do better than anyone else? Determining order winners and order qualifiers What wins the order? What qualifies an item to be considered for purchase? Positioning the firm How will the firm compete?

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.

COMPETITIVE DIMENSIONS

Cost or Price

Make the Product or Deliver the Service Cheap Make a Great Product or Deliver a Great Service Make the Product or Deliver the Service Quickly Deliver It When Promised Change Its Volume

Quality

Delivery Speed

Delivery Reliability

Coping with Changes in Demand

Flexibility and New Product Introduction Speed

Change It

COMPETITIVENESS: DEALING WITH TRADEOFFS

For example, if we reduce costs by reducing product For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. quality inspections, we might reduce product quality. For example, if we For example, if we improve customer service improve customer service problem solving by crossproblem solving by crosstraining personnel to deal training personnel to deal with a wider-range of with a wider-range of Flexibility problems, they may problems, they may become less efficient at become less efficient at dealing with commonly dealing with commonly occurring problems. occurring problems.

Cost Delivery Quality

COMPETITIVENESS: DEALING WITH TRADEOFFS

Mathematically speaking value equals the performance (of the product or service) divided by cost.

Value = Performance/Cost= (Quality +Speed+ Flexibility) / Cost Value = (w1 x Quality + w2 x Speed+ w3 X Flexibility) /

Cost

PLANT WITHIN A PLANT (PWP):

PWP concept, in which different locations within the facility are allocated to different product lines, each with their own operations strategy. Under the PWP concept, even the workers are separated to minimize the confusion associated with shifting from one type of strategy to another. STRADDLING occurs when a company seeks to match the benefits of a

FOUR STEPS FOR STRATEGY FORMULATION

Defining a primary task What is the firm in the business of doing? Assessing core competencies What does the firm do better than anyone else? Determining order winners and order qualifiers What wins the order? What qualifies an item to be considered for purchase? Positioning the firm How will the firm compete?

ORDER QUALIFIERS AND WINNERS

ORDER QUALIFIERS?
They are the basic criteria that permit the firms products to be considered as candidates for purchase by customers.

ORDER WINNERS?
They are the criteria that differentiates the products and services of one firm from another.

SERVICE BREAKTHROUGHS

A brand name car can be an order qualifier Repair services can be order winners
Examples: Warranty, Roadside Assistance, Leases, etc.

OPERATIONS STRATEGY: PRODUCTS AND SERVICES

MAKE TO STOCK:

Producing in anticipation of demand. (e.g., Televisions, Mobiles, Books, airline flights, etc) Critical operations issues: Forecasting future demand, maintaining inventory levels

MAKE TO ORDER:
Producing to customer specifications after an order has been received. (e.g., manufacturing furniture like bed, chairs etc.) Critical operations issues: Customer customization, minimizing the time required to complete the order

ASSEMBLE TO ORDER (BUILD TO ORDER):

adding options according to customer specifications. (e.g., Computer systems, Industrial equipments, etc.) Critical operations issues: minimizing the inventory level of

PRODUCTION STRATEGY: PROCESSES AND PROJECT TECHNOLOGY

one-at-a-time production of a product to customer order BATCH PRODUCTION systems process many different jobs at the same time in groups (or batches) MASS PRODUCTION large volumes of a standard product for a mass market CONTINUOUS PRODUCTION used for very high volume commodity products

THE PRODUCT-PROCESS MATRIX The most important characteristics (in terms of process choice) are degree
of Standardization and Demand Volume.

Hig h

Continuous Production

Low

VOLUME Batch Production Projects

Mass Production

Low

STANDARDIZATIO N

Hig h

OPERATIONS IN THE SERVICE SECTOR

CLASSIFICATION OF SERVICE OPERATIONS:

EXTENT OF SERVICE CONTACT

(e.g., Hospital Vs Postal Service) (e.g., Legal Service (i.e., Lawyer) Vs Public Transportation)

EXTENT OF SERVICE CUSTOMIZATION

EXTENT OF RELATIONSHIP BETWEEN CUSTOMER AND FIRM

(e.g., Insurance Vs Car Rental)

HIGH CONTACT SERVICES

Customer is an essence in the production of services. Scheduling is difficult as customer demand varies. Work force attitude effects the customers view of the services. Examples: Teachers, Doctors, Taxi drivers

LOW CONTACT SERVICES

Customer cannot strongly influence the process by which the service is provided. Standardization makes managerial control easy and straightforward. Low contact service firms tend to have a systematic and predictable operation. Example: Insurance Company, Post Office etc.

SERVICE STRATEGY: PROCESSES AND TECHNOLOGY

PROFESSIONAL SERVICE highly customized and very labor intensive (i.e., Lawyer, Doctor) SERVICE SHOP customized and labor intensive (i.e., School, Hospital) MASS SERVICE less customized and less labor intensive (i.e., Banking, Ticket Collectors at sports events and concerts) SERVICE FACTORY least customized and least labor intensive (i.e., Airlines)

THE SERVICE-PROCESS MATRIX The most important characteristics (in terms of process choice) are degree
of Customization and Labour Intensity.

Low
Labour Intensity

Service Factory

Mass Service

Service Shop

Professional Hig Service h Hig h

Customization

Low

FOUR STEPS FOR STRATEGY FORMULATION

Defining a primary task What is the firm in the business of doing? Assessing core competencies What does the firm do better than anyone else? Determining order winners and order qualifiers What wins the order? What qualifies an item to be considered for purchase? Positioning the firm How will the firm compete?

OPERATIONS STRATEGY: CAPACITY AND FACILITY

Capacity strategic decisions include: When, how much, and in what form to alter capacity Facility strategic decisions include: whether demand should be met with a few large facilities or with several smaller ones whether facilities should focus on serving certain geographic regions, product lines, or customers

OPERATIONS STRATEGY: HUMAN RESOURCES

What is skill levels required to operate production system? What are training requirements and selection criteria? What are policies on performance evaluations, compensation, and incentives? Will workers be salaried, paid an hourly rate, or paid a piece rate? Will workers perform individual tasks or work in teams? Will they have supervisors or work in self-managed work groups? Will extensive worker training be necessary? Should workforce be cross-trained?

OPERATIONS STRATEGY: QUALITY

What is target level of quality for our products and services? How will it be measured? What will be the responsibilities of the quality department? What types of systems will be set up to ensure quality? How will quality awareness be maintained? How will customer perceptions of quality be determined?

WHAT IS PRODUCTIVITY?

PRODUCTIVITY A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity ratios are used for: Planning workforce requirements Scheduling equipment Financial analysis

Productivity = Output / Input

EFFECTIVENESS: It is the degree of accomplishment of the objectives that is: How well a set of result is accomplished? How well are the resources utilized? Effectiveness is obtaining the desired results. It may reflect output quantities, perceived quality or both. EFFICIENCY: (Actual Output / Standard Output) This occurs when a certain output is obtained with a minimum of inputs.

Management of a hotel is concerned with labor efficiency, especially when labor is costly. To determine how efficient labor is in a given situation, management sets an individual standard, a goal reflecting an average workers output per unit of time under normal working conditions. Say that the standard in a cafeteria is the preparation of 200 salads per hour. If a labor input produces 150 salads per hour, how efficient is the salad operation ? ANSWER: Labor efficiency = Labor Outputs/Labor Input = 150 salads / 200 salads 100% = 75% So, compared with the standard, this operation is 75% efficient in the preparation of salads.

EXAMPLE : EFFICIENCY

PRODUCTIVITY

PARTIAL MEASURES

output/(single input) output/(multiple inputs) output/(total inputs)

MULTI-FACTOR MEASURES

TOTAL MEASURE

Output Productivity = Inputs

Productivity Growth Current Period = Productivity Previous Period Productivity

Previous Period Productivity

MEASURES OF PRODUCTIVITY
PARTIAL MEASURES
Output Labor Output Machine Output Capital Output Energy

MULTIFACTOR Output MEASURES Labor + Machine TOTAL MEASURE

Output Labor + Capital + Energy

Goods or Services Produced All inputs used to produce them

EXAMPLE OF PRODUCTIVITY MEASUREMENT

You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Is productivity increasing or decreasing? ANSWER: Last weeks productivity = 480/2000 = 0.24, and this weeks productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.

EXAMPLE OF PRODUCTIVITY MEASUREMENT

A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in one-half hour with four workers. What is labour productivity?
ANSWER: Labour Productivity =

Quantity produced Labour Hours = 400 cases __. 4 workers X (1/2) hour /Worker = 200 cases per labour hour

EXAMPLE OF PRODUCTIVITY MEASUREMENT

A Wrapping paper company produced 2,000 rolls of paper one day. Standard price is $1/roll. Labour cost was $160, material cost was $50, and overhead was $320. Determine the multifactor productivity.
ANSWER: MFP = (2000 Rolls) ($1/roll) $160+$50+$320 3.77 rolls per dollar

FACTORS AFFECTING PRODUCTIVITY

CAPITAL QUALITY

TECHNOLOGY
BOTTLENEC K

MANAGEMENT

BOTTLENECK OPERATION

Machine #2 Machine #2

QUESTION S