OM 501- OPERATIONS STRATEGY

MBA (FT) 2016-18

Institute of Management
Nirma University

THREE LEVELS OF STRATEGY IN ORGANIZATIONS

STRATEGY DEVELOPMENT PROCESS

Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine the Corporate Mission

State the reason for the firms existence and identify the
value it wishes to create.

Form a Strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, aftersale service, broad product lines.

Source: Heizer and Render

SUSTAINABLE STRATEGY

The firms strategy describes how it will create and sustain

value for its current shareholders

Shareholders individuals or companies that legally own one or

more shares of stock in the company

Stakeholders individuals or organizations who are directly or

indirectly influenced by the actions of the firm

Adding a sustainability requirement means meeting value goals

without compromising the ability of future generations to meet
their own needs

Triple bottom line evaluating the firm against social,

economic, and environmental criteria
Source: Chase, Shankar and Jacob

TRIPLE BOTTOM LINE

OPERATIONS AND SUPPLY CHAIN STRATEGY

Setting broad policies and plans for using the resources of a

firm must be integrated with corporate strategy

Corporate strategy provides overall direction and coordinates

operational goals with those of the larger organization

Operations effectiveness performing activities in a manner

that best implements strategic priorities at a minimum cost

Source: Chase, Shankar and Jacob

FORMULATING AN OPERATIONS AND SUPPLY CHAIN

STRATEGY

Source: Chase, Shankar and Jacob

COMPETITIVE DIMENSIONS
Price
Make the product or deliver the service cheap
Quality
Make a great product or delivery a great service
Delivery Speed
Make the product or deliver the service quickly
Delivery Reliability
Deliver it when promised

Coping with Changes in Demand

Change its volume
Flexibility and New-Product Introduction Speed

Change it

Source: Chase, Shankar and Jacob

TRADE-OFFS

Management must decide which parameters of performance are

critical and concentrate resources on those characteristics

For example, a firm that is focused on low-cost production may

not be capable of quickly introducing new products

Straddling seeking to match a successful competitor by

adding features, services, or technology to existing activities
Often a risky strategy

Source: Chase, Shankar and Jacob

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Lean,
Productive
Employees

High
Aircraft
Utilizatio
n

Courteous, but
Limited
Passenger
Service

Competitive
Advantage:
Low Cost
Standardized
Fleet of Boeing
737 Aircraft

Short Haul, Pointto-Point Routes,

Often to Secondary
Airports

Frequent,
Reliable
Schedules

Source: Heizer and Render

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Lean,
Productive
Employees

High
Aircraft
Utilizatio
n

Courteous, but
Limited
Passenger
Service

Automated ticketing machines

No seat assignments
Competitive
No
baggage transfers
Advantage:
Cost
NoLow
meals (peanuts)

Standardized
Fleet of Boeing
737 Aircraft

Short Haul, Pointto-Point Routes,

Often to Secondary
Airports

Frequent,
Reliable
Schedules

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited
Passenger
Service
No meals (peanuts)

Lean,
Lower gate costs at secondary airports
Productive
High number of flights reduces employee
Employees
idle time between flights

High
Aircraft
Utilizatio
n

Competitive
Advantage:
Low Cost
Standardized
Fleet of Boeing
737 Aircraft

Short Haul, Pointto-Point Routes,

Often to Secondary
Airports

Frequent,
Reliable
Schedules

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Lean,
Productive
Employees

Courteous, but
Limited
Passenger
Service

High number of flights reduces employee

Competitive
idle time between
flights

Advantage:
Saturate a city with
flights, lowering
Low Cost
administrative costs (advertising,
HR, etc.)
High per passenger for that city

Aircraft
Pilot training required on only one type of
Utilizatio
aircraft
Standardized
n
Fleet
of Boeing
Reduced maintenance
inventory
required
because of only one737
typeAircraft
of aircraft

Short Haul, Pointto-Point Routes,

Often to Secondary
Airports

Frequent,
Reliable
Schedules

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited
Passenger
Service
Pilot training required
on only one type of
Lean,
Short Haul, Pointaircraft
Productive
to-Point Routes,
Reduced
maintenance
inventory
required
Employees
Often to Secondary
because of only one type of aircraft
Airports
Excellent supplier
relations with Boeing has
Competitive
aided financing
Advantage:

High
Aircraft
Utilizatio
n

Low Cost

Standardized
Fleet of Boeing
737 Aircraft

Frequent,
Reliable
Schedules

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Lean,
Productive
Employees
Flexible union
contracts

High
Aircraft
Utilizatio
n

Courteous, but
Limited
Passenger
Service

Short Haul, Pointto-Point Routes,

Often
to Secondary
Reduced maintenance inventory
required
because of only one type of aircraftAirports

Competitive

Flexible employees and standard planes aid

Advantage:
scheduling

Low Cost

Maintenance personnel trained only one

Frequent,
type of aircraft

Reliable

20-minute gate turnarounds Schedules

Standardized

Fleet of Boeing
737 Aircraft

ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Lean,
Productive
Employees

Courteous, but
Automated
Limited ticketing machines
Passenger
Empowered employees
Service
High employee compensation
Short Haul, PointHire for attitude, then train
to-Point Routes,
Often to Secondary
High level of stock ownership
Airports

High
number of flights reduces employee
Competitive
idle time between flights

High
Aircraft
Utilizatio
n

Advantage:
Low Cost

Standardized
Fleet of Boeing
737 Aircraft

Frequent,
Reliable
Schedules

PROCESS CONSIDERATION AND COMPETITIVE PRIORITIES

COST

Definition

Process Considerations

Example

1.Low-cost
operations

Delivering a service
or a product at the
lowest possible cost

Processes must be designed

and operated to make them
efficient

BigBazar

2.Top quality

Delivering an
outstanding service
or product

May require a high level of

customer contact and may
require superior product
features

Rolex

3.Consistent
quality

Producing services or Processes designed and

products that meet
monitored to reduce errors
design specifications and prevent defects
on a consistent basis

QUALITY

McDonalds

Source:Krajewski, Malhotra, Ritzman and Srivastava

PROCESS CONSIDERATION AND COMPETITIVE PRIORITIES

COST

Definition

Process Considerations

Example

1.Low-cost
operations

Delivering a service
or a product at the
lowest possible cost

Processes must be designed

and operated to make them
efficient

BigBazar

2.Top quality

Delivering an
outstanding service
or product

May require a high level of

customer contact and may
require superior product
features

Rolex

3.Consistent
quality

Producing services or Processes designed and

products that meet
monitored to reduce errors
design specifications and prevent defects
on a consistent basis

QUALITY

McDonalds

Source:Krajewski, Malhotra, Ritzman and Srivastava

PROCESS CONSIDERATION AND COMPETITIVE PRIORITIES

TIME

Definition

Process Considerations

Example

4.Delivery speed

Quickly filling a
customers order

Design processes to reduce

lead time

Netflix

5.On-time
delivery

Meeting deliverytime promises

Planning processes used to

United Parcel
increase percent of customer Service (UPS)
orders shipped when
DHL, India
promised

6.Development
speed

Quickly
introducing a new
service or a
product

Cross-functional integration
and involvement of critical
external suppliers

Lin &Fung

PROCESS CONSIDERATION AND COMPETITIVE PRIORITIES

Process
Considerations
Low volume, close
customer contact, and
easily reconfigured

FLEXIBILITY

Definition

7.Customization

Satisfying the unique

needs of each customer
by changing service or
product designs

8.Variety

Handling a wide
assortment of services
or products efficiently

Capable of larger
volumes than processes
supporting
customization

Accelerating or
decelerating the rate of
production of services
or products quickly to
handle large
fluctuations in demand

Processes must be
designed for excess
capacity and excess
inventory

9.Volume
flexibility

Example
Ritz Carlton

Amazon.com

20 million
SKU to indian
customer
The United
States Postal
Service
(USPS)

ORDER WINNERS AND ORDER QUALIFIERS

Order qualifiers are those dimensions that are necessary for a

firms products to be considered for purchase by customers

Features customers will not forego

Order winners are criteria used by customers to differentiate

the products and services of one firm from those of other firms

Features that customers use to determine which product to ultimately

purchase

Source: Chase, Shankar and Jacob

RELATIONSHIP OF ORDER WINNERS TO

COMPETITIVE PRIORITIES

Source: Krajewski, Malhotra, Ritzman and Srivastava

GLOBAL OPERATIONS STRATEGY OPTIONS

High

Cost Reduction

International strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

Source: Heizer and Render

GLOBAL OPERATIONS STRATEGY OPTIONS

Cost Reduction

High

International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product

Low
Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

Cost Reduction

High

Low

Global strategy
(eg, Caterpillar
Texas
Instruments
International
strategy
Otis Elevator)

Standardize
(eg, Harley-Davidson
U.S. Steel)
product
Import/export or
license
existing

Economies
of
scale
product
Cross-cultural
learning

Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

High

Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)

Cost Reduction

Standardize product
Economies of scale
Cross-cultural
learning

International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product

Low
Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

High

Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)

Cost Reduction

Multidomestic
strategy
Standardize
product McDonalds
(eg,
Heinz,
Economies of scale
Cross-cultural
The Body Shop
learning
Hard Rock Cafe)
Use existing domestic
model globally
Franchise, joint
Import/export
or
ventures,
subsidiaries
license existing

International
strategy
(eg, Harley-Davidson
U.S. Steel)

product

Low
Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

High

Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)

Cost Reduction

Standardize product
Economies of scale
Cross-cultural
learning

International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product

Low

Multidomestic
strategy
(eg, Heinz, McDonalds
The Body Shop
Hard Rock Cafe)
Use existing
domestic model
globally
Franchise, joint
ventures,
subsidiaries

Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

Cost Reduction

High

Low

Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)

Transnational
strategy
(eg,
Standardize
product
Coca-Cola,
Nestl)
Economies of scale
Cross-cultural
Move material,
learning
people, ideas across
Multidomestic
International
national
strategy
strategy
(eg,
Heinz,
McDonalds
(eg, Harley-Davidson
boundaries
The Body Shop
U.S. Steel)
Hard Rock Cafe)

Economies
of scale
Import/export or
Use existing
license existing
domestic model
Cross-cultural
product
globally
joint
learning Franchise,
ventures,
subsidiaries

Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

GLOBAL OPERATIONS STRATEGY OPTIONS

High

Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)

Cost Reduction

Standardize product
Economies of scale
Cross-cultural
learning

International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product

Low

Transnational
strategy
(eg, Coca-Cola, Nestl)
Move material,
people, ideas across
national boundaries
Economies of scale
Cross-cultural
learning

Multidomestic
strategy
(eg, Heinz, McDonalds
The Body Shop
Hard Rock Cafe)
Use existing
domestic model
globally
Franchise, joint
ventures,
subsidiaries

Low

High
Local Responsiveness
(Quick Response and/or Differentiation)

SC RISK EXAMPLES

Japanese Tsunami (March 2011).

In 1996 General Motors experienced an 18-day labor strike at a

brake supplier factory.
This strike idled workers at 26 assembly plants and led to an
estimated $900 million reduction in earnings.
In 1997 a Boeing suppliers failure to deliver two critical parts
led to a loss of $2.6 billion.

Source: Chase, Shankar and Jacob

ASSESSING RISK ASSOCIATED WITH OSCM

STRATEGY

All strategies have an inherent level of risk

Uncertainty in the environment causes supply chain planners to

evaluate the relative riskiness of their strategies

Supply chain risk is the likelihood of a disruption that would

impact the ability of a company to continuously supply
products or services

Supply chain coordination risks are associated with the day-today management of the supply chain

Disruption risks are caused by natural or manmade disasters

Source: Chase, Shankar and Jacob

RISK MITIGATION FRAMEWORK

Identify the sources of potential disruptions and assess a type of

vulnerability.

Focus on highly unlikely events that would cause a significant disruption

to normal operations.

Assess the potential impact of the risk. Here the goal is to quantify the
probability and the potential impact of the risk.
Could be based on financial impact, environmental impact, ongoing
business viability,
Brand image/reputation, potential human lives, and so on.

Develop plans to mitigate the risk. A detailed strategy for minimizing

the impact of the risk could take many different forms, depending on
the nature of the problem.

Source: Chase, Shankar and Jacob

RISK MITIGATION STRATEGIES

Source: Chase, Shankar and Jacob