Production and Operations Management 524

Operatio ns Decision Quality s

OMs Contribution to Strategy

Exampl es Specific Strategy Used
FLEXIBILITY LOW COST DELIVERY

Competit ive Advanta ge

Product Compaq Computers ability to follow the PC market Volume Process Southwest Airlines No-frills service Location Layout

Sonys constant innovation of new products Design

Pizza Huts five-minute guarantee at lunchtime Speed Dependability Federal Expresss absolutely, positively on time
QUALITY

Differentiation (Better) Respons Cost e leadership (Faster) (Cheaper)

Human Resource

Conformance Motorolas automotive products ignition systems Supply Chain Motorolas pagers Performance

Inventory Scheduling
IBMs after-sale service on mainframe computers AFTER-SALE SERVICE Fidelity Securitys broad line of mutual BROAD PRODUCT LINE funds

Maintenance
PowerPoint presentation to accompany Operations Management, 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-2

Issues In Operations Strategy

Research about effective operations management strategies Preconditions for developing effective OM strategies The dynamics of OM strategy development

Characteristics of High ROI Firms

High product quality High capacity utilization High operating efficiency Low investment intensity Low direct cost per unit
From the PIMS program of the Strategic Planning Institute

Strategic Options to Gain a Competitive Advantage

28% 18% 17% 16% 14% 4% 3% Operations Management Marketing/distribution Momentum/name recognition Quality/service Good management Financial resources Other

Elements of Operations Management Strategy

Low-cost product Product-line breadth Technical superiority Product characteristics/differentiation Continuing product innovation Low-price/high-value offerings Efficient, flexible operations adaptable to consumers Engineering research development Location Scheduling

Preconditions
One must understand:
Strengths and weaknesses of competitors and possible new entrants into the market Current and prospective environmental, technological, legal, and economic issues The product life cycle Resources available within the firm and within the OM function Integration of OM strategy with companys strategy and with other functional areas

Dynamics of Strategic Change

Changes within the organization
Personnel Finance Technology Product life

Changes in the environment

Product Life Cycle

Introduction Growth
Practical to change price or quality image Strengthen niche

Maturity
Poor time to change image, price, or quality Competitive costs become critical Defend market position

Decline
Cost control critical

Company Strategy/Issues

Best period to increase market share R&D engineering is critical

Internet search engines LCD & plasma TVs Sales Xbox 360 iPods

CD-ROMs Analog TVs

Drivethrough restaurants

3 1/2 Floppy disks Figure 2.5

Product Life Cycle

Introduction
Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality

Growth
Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution

Maturity
Standardization Less rapid product changes more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting

Decline
Little product differentiatio n Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity

OM Strategy/Issues

Figure 2.5

SWOT Analysis
Mission Internal Strengths Analysis Internal Weaknesses Strategy External Threats External Opportunities

Strategy Development Process

Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.

Determine 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, after-sale service, broad product lines. Figure 2.6

Strategy Development and Implementation

Identify critical success factors Build and staff the organization Integrate OM with other activities
The operations managers job is to implement an OM strategy, provide competitive advantage, and increase productivity

Critical Success Factors

Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions Product Quality them Process Location Layout Human resource Supply chain Inventory 16 Schedule Maintenance Finance/Accountin g Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Sample Options Production/Operations

Chapter

Customized, or standardized 5 Define customer expectations and how to achieve 6, S6 Facility size, technology, capacity 7, S7 Near supplier or near customer 8 Work cells or assembly line 9 Specialized or enriched jobs 10, S10 Single or multiple suppliers 11, S11 When to reorder, how much to keep on hand 12, 14, Stable or fluctuating production rate 13, 15 Repair as required or preventive maintenance 17 2.7 Figure

DynamicsReasons for Strategy Change

Strategies change for two reasons: Changes in the organization Eg. Product life cycle Changes in the environment Eg. Economic, social, legal, political, market, etc.

Stages in the Product Life Cycle

Introduction

Growth rate

Growth Maturity Decline

PowerPoint presentation to accompany Operations Management,

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

2-16

Strategy and Issues During a Products Life

Best period to increase market share

Introduction

Practical to change price or quality image Strengthen niche Drive-thru restaurants CDROM

Growth

Maturity
Poor time to change image, price, or quality Competitive costs become critical Defend market Fax position machines

Decline
Cost control critical

Company Strategy/Issues

R&D product engineering critical

Sales
Color copiers HDTV Product design and development critical

Internet

3 1/2 Floppy disks Station wagons

Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution

Standardization Less rapid product changes - more minor changes Optimum capacity Increasing stability of process Long production runs

Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity

OM Strategy/Issue s

Frequent product and process design changes Short production runs High production costs Limited models Attention to quality

PowerPoint presentation to accompany Operations Management,

Product improvement and cost cutting 2001 by Prentice Hall, Inc.,

Upper Saddle River, N.J. 07458

2-17

Strategy & Issues During Product Life

Introduction
Company Strategy & Issues
Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models 2001 by Hall, Inc., 2-18 Utmost Prentice N.J. 07458 to quality attentions Upper Saddle River,

OM Strategy & Issues

PowerPoint presentation to accompany Operations Management,

Strategy & Issues During Product Life

Growth
Company Strategy & Issues OM Strategy & Issues
Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-19

PowerPoint presentation to accompany Operations Management,

Strategy & Issues During Product Life

Maturity
Company Strategy & Issues
Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs 2001 by Prentice Hall, Inc., 2-20 Attention to product improvement and Upper Saddle River, N.J. 07458

OM Strategy & Issues

PowerPoint presentation to accompany Operations Management,

Strategy & Issues During Product Life

Decline
Company Strategy & Issues OM Strategy & Issues
Cost control critical to market share

Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-21

PowerPoint presentation to accompany Operations Management,

Strategy Development and Implementation

Identify critical success factors
- those activities or factors that are the key to achieving competitive advantage what tasks must be done particularly well for a given operations strategy to succeed?

Build and staff the organization

- group activities into an organizational structure

Integrate OM with other functional areas such as marketing, finance, HR, MIS, etc
PowerPoint presentation to accompany Operations Management, 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-22

SWOT Analysis Process

Environmental Analysis

Determine Corporate Mission Form a Strategy

PowerPoint presentation to accompany Operations Management, 2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-23

SWOT Analysis to Strategy Formulation

Mission Internal Strengths Strategy Internal Weaknesses
PowerPoint presentation to accompany Operations Management,

External Opportunities

Competitive Advantage
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

External Threats

2-24

Identifying Critical Success Factors

Marketing
Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions

Finance/Accoun ting
Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit

Production/Opera tions

Sample Options

Product Customized, or standardized Quality Define customer expectations and how to achieve them Process Facility size, technology Location Near supplier or customer Layout Work cells or assembly line Human resource Specialized or enriched jobs Supply chain Single or multiple source suppliers Inventory When to reorder, how much to keep on hand PowerPoint presentation to accompany 2001 or fluctuating Schedule Stable by Prentice Hall, Inc.,productions Operations Management, Upper Saddle River, N.J. 07458 rate

2-25

Critical Success Factors Microsoft & Compaq

They focus on one business They are global Their senior management is actively involved in defining and improving the product development process They recruit and retain the top people in their fields. They understand that speed to market reinforces product quality

PowerPoint presentation to accompany Operations Management,

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

2-26