Module-1 - Op Strategies in Global Economy

8/9/2019 Module-1 - Op Strategies in Global Economy

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Module 1 (Chapter 2)Module 1 (Chapter 2)Module 1 (Chapter 2)Module 1 (Chapter 2)

Operations StrategiesOperations Strategies

in a Global Economyin a Global Economy


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OverviewOverviewOverviewOverview

Introduction to Operations ManagementIntroduction to Operations Management

Todays Global Business ConditionsTodays Global Business Conditions

Operations StrategyOperations Strategy

Forming Operations StrategiesForming Operations Strategies WrapWrap--Up: What WorldUp: What World--Class Producers DoClass Producers Do


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Introduction to Operations ManagementIntroduction to Operations ManagementIntroduction to Operations ManagementIntroduction to Operations Management

Operations managementOperations managementis the management of anis the management of an

organizations productive resources or its productionorganizations productive resources or its production

system.system.

AAproduction systemproduction system takes inputs and converts themtakes inputs and converts theminto outputs.into outputs.

TheThe conversion processconversion process is the predominant activity ofis the predominant activity of

a production system.a production system.

The primary concern of anThe primary concern of an operations manageroperations manageris theis theactivities of the conversion process.activities of the conversion process.


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Organizational Model : Importance of OMOrganizational Model : Importance of OMOrganizational Model : Importance of OMOrganizational Model : Importance of OM

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSales

FinanceFinance

OMOM


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Historical Milestones in OMHistorical Milestones in OM

The Industrial RevolutionThe Industrial Revolution

PostPost--Civil War PeriodCivil War Period

Scientific ManagementScientific Management

Human Relations and BehaviorismHuman Relations and Behaviorism Operations ResearchOperations Research

The Service RevolutionThe Service Revolution


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Operations as a SystemOperations as a SystemOperations as a SystemOperations as a System

InputsInputs OutputsOutputsConversionConversion

SubsystemSubsystem

Production SystemProduction System

ControlControl

SubsystemSubsystem


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Outputs of an Operations SystemOutputs of an Operations SystemOutputs of an Operations SystemOutputs of an Operations System

DirectDirect

ProductsProducts

ServicesServices IndirectIndirect

WasteWaste

PollutionPollution

Technological AdvancesTechnological Advances


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Production as an Organization FunctionProduction as an Organization FunctionProduction as an Organization FunctionProduction as an Organization Function

Indian companies cannot compete with marketing,Indian companies cannot compete with marketing,finance, accounting, and engineering alone.finance, accounting, and engineering alone.

We focus on OM as we think of globalWe focus on OM as we think of globalcompetitiveness, because that is where the vastcompetitiveness, because that is where the vastmajority of a firms workers, capital assets, andmajority of a firms workers, capital assets, andexpenses reside.expenses reside.

To succeed, a firm must have a strong operationsTo succeed, a firm must have a strong operationsfunction teaming with the other organizationfunction teaming with the other organizationfunctions.functions.


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Strategic DecisionsStrategic Decisions

These decisions are of strategic importance andThese decisions are of strategic importance andhave longhave long--term significance for theterm significance for the

organization.organization.

ExamplesExamples include deciding:include deciding: the design for a new products productionthe design for a new products production

processprocess

where to locate a new factorywhere to locate a new factory whether to launch a newwhether to launch a new--productproduct

development plandevelopment plan


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IntroductionIntroduction to Operations Strategiesto Operations Strategies

Operational effectivenessOperational effectiveness is the ability tois the ability toperform similar operations activities better thanperform similar operations activities better thancompetitors.competitors.

It is very difficult for a company to competeIt is very difficult for a company to competesuccessfully in the long run based just onsuccessfully in the long run based just onoperational effectiveness.operational effectiveness.

A firm must also determine how operationalA firm must also determine how operational

effectiveness can be used to achieve aeffectiveness can be used to achieve asustainablesustainable competitive advantagecompetitive advantage..

An effectiveAn effective competitive strategycompetitive strategy is critical.is critical.


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Factors Affecting TodaysFactors Affecting Todays

Global Business ConditionsGlobal Business Conditions

Factors Affecting TodaysFactors Affecting Todays

Global Business ConditionsGlobal Business Conditions

Reality of global competitionReality of global competition

Quality, customer service, and costQuality, customer service, and cost

challengeschallenges

Rapid expansion of advancedRapid expansion of advanced

technologiestechnologies

Continued growth of the service sectorContinued growth of the service sector Scarcity of operations resourcesScarcity of operations resources

Social responsibility issuesSocial responsibility issues


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Reality of Global CompetitionReality of Global CompetitionReality of Global CompetitionReality of Global Competition

Changing nature of world businessChanging nature of world business

International companiesInternational companies

Strategic alliances and productionStrategic alliances and productionsharingsharing

Fluctuation of international financialFluctuation of international financial

conditionsconditions


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Changing Nature of World Business : US ViewChanging Nature of World Business : US ViewChanging Nature of World Business : US ViewChanging Nature of World Business : US View

The US gross domestic product (GDP) is, at $10The US gross domestic product (GDP) is, at $10

trillion, the largest in the world.trillion, the largest in the world.

Companies all over the globe are aggressivelyCompanies all over the globe are aggressively

exporting their products/services to the USexporting their products/services to the US Many US companies are targeting foreign markets toMany US companies are targeting foreign markets to

shore up profits.shore up profits.

The global economy that interconnects the economiesThe global economy that interconnects the economies

of all nations has been termed theof all nations has been termed the global villageglobal village.. One of the most important new markets is China.One of the most important new markets is China.


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Changing Nature of World Business : Indian ViewChanging Nature of World Business : Indian ViewChanging Nature of World Business : Indian ViewChanging Nature of World Business : Indian View

The India gross domestic product (GDP) is, at USThe India gross domestic product (GDP) is, at US

$1.141 trillion (2007), the 12th in the world.$1.141 trillion (2007), the 12th in the world.

Indian GDP Growth in billions of US $ :Indian GDP Growth in billions of US $ :

19801980 200, 1990200, 1990 370, 2000370, 2000 560, 2007560, 2007--11411141 Many foreign companies are aggressively investing inMany foreign companies are aggressively investing in

India.India.

Many Indian companies are targeting foreign marketsMany Indian companies are targeting foreign markets

and foreign companies to shore up profits.and foreign companies to shore up profits.

One of the most important new markets is China. ItOne of the most important new markets is China. It

is the biggest competitor to Indiais the biggest competitor to India


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International CompaniesInternational CompaniesInternational CompaniesInternational Companies

International companiesInternational companies are those whose scope ofare those whose scope of

operations spans the globe as they buy, produce, andoperations spans the globe as they buy, produce, and

sell.sell.

International firms search out opportunities for profitsInternational firms search out opportunities for profits

relatively unencumbered by national boundaries.relatively unencumbered by national boundaries.

Operations managers must coordinate geographicallyOperations managers must coordinate geographicallydispersed operations.dispersed operations.


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International CompaniesInternational CompaniesInternational CompaniesInternational Companies

Worlds Largest CorporationsWorlds Largest Corporations1. General Motors1. General Motors USUS

2. Wal2. Wal--Mart StoresMart Stores USUS

3. Exxon Mobil3. Exxon Mobil USUS

4. Ford Motor4. Ford Motor USUS

5. DaimlerChrysler5. DaimlerChrysler GermanyGermany

6. Mitsui6. Mitsui JapanJapan

7. Mitsubishi7. Mitsubishi JapanJapan

8. Toyota8. Toyota JapanJapan

9. General Electric9. General Electric USUS

10. Itochu10. Itochu JapanJapan


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Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

Strategic alliancesStrategic alliances are joint ventures amongare joint ventures amonginternational companies to exploit global businessinternational companies to exploit global business

opportunities.opportunities.

Alliances are often motivated by :Alliances are often motivated by :

Product or production technologyProduct or production technology

Market accessMarket access

Production capabilityProduction capability

Pooling of capitalPooling of capital


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Strategic AlliancesStrategic Alliances

General Motors (US) &General Motors (US) &

Kia Motor Corp. (S.K.)Kia Motor Corp. (S.K.)

Kia might help sellKia might help sell

and market GM carsand market GM cars

in South Koreain South Korea

Renault (France) &Renault (France) &

City of MoscowCity of Moscow

Manufacture 100,000Manufacture 100,000vehicles annuallyvehicles annually

near Moscownear Moscow

Sino Aerospace InvestSino Aerospace Invest--ment Corp. (Taiwan) &ment Corp. (Taiwan) &

Swearingen Aircraft (US)Swearingen Aircraft (US)

Forming TexasForming Texas--basedbasedSino SwearingenSino Swearingen

Aircraft Co.Aircraft Co.


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Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

Japanese companies have long practicedJapanese companies have long practicedkeiretsukeiretsu, the linking of companies into, the linking of companies into

industrial groups.industrial groups.

AAfinancialkeiretsufinancialkeiretsu links companieslinks companiestogether with crosstogether with cross--holding of shares, salesholding of shares, sales

and purchases within the group, andand purchases within the group, and

consultation.consultation.

AAproduction keiretsuproduction keiretsu is a web ofis a web of

interlocking relationships between a biginterlocking relationships between a big

manufacturer (Toyota) and its suppliers.manufacturer (Toyota) and its suppliers.


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Production SharingProduction SharingProduction SharingProduction Sharing

Production sharingProduction sharingmeans that a productmeans that a product

might be designed and financed in onemight be designed and financed in one

country, its materials produced in othercountry, its materials produced in other

countries, assembled in another country, andcountries, assembled in another country, andsold in yet other countries.sold in yet other countries.

The country that is the highestThe country that is the highest--quality, lowestquality, lowest--cost producer for a particular activity wouldcost producer for a particular activity would

perform that portion of the production of theperform that portion of the production of the

product.product.


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Pros and Cons of GlobalizationPros and Cons of GlobalizationPros and Cons of GlobalizationPros and Cons of Globalization

Pros (Pluses)Pros (Pluses) Productivity grows more quickly (living standardsProductivity grows more quickly (living standards

can go up faster)can go up faster)

Global competition and cheap imports keep a lidGlobal competition and cheap imports keep a lidon prices (inflation less likely to derail economicon prices (inflation less likely to derail economicgrowth)growth)

Open economy spurs innovation (with fresh ideasOpen economy spurs innovation (with fresh ideasfrom abroad)from abroad)

Export jobs often pay more than other jobsExport jobs often pay more than other jobs

India has more access to foreign investment (keepsIndia has more access to foreign investment (keepsinterest rates low)interest rates low)


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Pros and Cons of Globalization (US View)Pros and Cons of Globalization (US View)Pros and Cons of Globalization (US View)Pros and Cons of Globalization (US View)

Cons (Minuses)Cons (Minuses)

Millions of Americans have lost jobs due toMillions of Americans have lost jobs due to

imports or production shifts abroadimports or production shifts abroad

Most displaced workers find new jobs that pay lessMost displaced workers find new jobs that pay less Workers face payWorkers face pay--cuts demands from employerscuts demands from employers

Service and whiteService and white--collar jobs are increasinglycollar jobs are increasingly

vulnerablevulnerable

US employees lose their comparative advantageUS employees lose their comparative advantage

when companies buildwhen companies build advancedadvancedfactories abroadfactories abroad


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International Financial ConditionsInternational Financial ConditionsInternational Financial ConditionsInternational Financial Conditions

International financial conditions are complexInternational financial conditions are complex

due to:due to:

inflationinflation

fluctuating currency exchange ratesfluctuating currency exchange rates

turbulent interest ratesturbulent interest rates

volatility of international stock marketsvolatility of international stock markets

huge national debts of some countrieshuge national debts of some countries

enormous trade imbalances betweenenormous trade imbalances between

countriescountries


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The Dollar Versus the Yen, Mark and RsThe Dollar Versus the Yen, Mark and Rs

YearYear Yen per DollarYen per Dollar Mark per DollarMark per Dollar Rs per DollarRs per Dollar

19751975 305305 2.72.7

19801980 215215 2.02.019851985 210210 2.42.4 1313

19901990 135135 1.61.6

19951995 8585 1.41.4

20002000 108108 2.22.2


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Example of Currency Exchange Rate ChangesExample of Currency Exchange Rate Changes

A product produced and sold in the US forA product produced and sold in the US for

$1 would have sold in Japan for 135 yen in$1 would have sold in Japan for 135 yen in

1990 and 85 yen in 1995, a price decrease of1990 and 85 yen in 1995, a price decrease of37%.37%.

A product produced and sold in Japan forA product produced and sold in Japan for

135 yen in 1990 and sold for $1 in the US135 yen in 1990 and sold for $1 in the USwould have sold in the US for $1.57 inwould have sold in the US for $1.57 in

1995, a 57% price increase.1995, a 57% price increase.


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International Financial ConditionsInternational Financial Conditions

Due, in part, to the fall in the value of theDue, in part, to the fall in the value of thedollar between 1975 and 1995, thedollar between 1975 and 1995, the

following occurred:following occurred:

Prices of US products/services abroadPrices of US products/services abroadfell and demand increasedfell and demand increased

Japan and other countries builtJapan and other countries built

factories in USfactories in US

Japanese manufacturers moved upscaleJapanese manufacturers moved upscale

toward higher priced productstoward higher priced products


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Companies must be ready to move quickly toCompanies must be ready to move quickly toshift strategies as world financial conditionsshift strategies as world financial conditions

change.change.

Opportunities are usually available to reduceOpportunities are usually available to reducerisk :risk :

Building smaller, more flexible factoriesBuilding smaller, more flexible factories

Using foreign suppliers for materials, parts,Using foreign suppliers for materials, parts,

or productsor products

Carefully planning and forecasting so thatCarefully planning and forecasting so that

changing conditions can be anticipatedchanging conditions can be anticipated


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Quality, Service, and Cost ChallengesQuality, Service, and Cost ChallengesQuality, Service, and Cost ChallengesQuality, Service, and Cost Challenges

Quality :Quality :

The goal of adequate quality must be replaced withThe goal of adequate quality must be replaced with

the objective of perfect product and servicethe objective of perfect product and service

quality.quality.

The entire corporate culture must be redirected andThe entire corporate culture must be redirected and

committed to the ideal of perfect quality.committed to the ideal of perfect quality.

All employees must be empowered to act.All employees must be empowered to act.

A commitment to continuous improvement has toA commitment to continuous improvement has tobe organizationbe organization--widewide..


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Customer ServiceCustomer Service :: Companies must quickly develop innovativeCompanies must quickly develop innovative

products and respond quicklyproducts and respond quickly to customers needs.to customers needs.

Organizational structures must be made moreOrganizational structures must be made more

horizontal to quickly accommodate change.horizontal to quickly accommodate change. Multidisciplinary teams must have decisionMultidisciplinary teams must have decision--

making authority, responding better to themaking authority, responding better to themarketplace.marketplace.

Large, unwieldy companies are spinning off wholeLarge, unwieldy companies are spinning off wholebusiness units making them autonomousbusiness units making them autonomousbusinesses that can compete with small, aggressivebusinesses that can compete with small, aggressivecompetitorscompetitors..


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Cost :Cost : There is continuing pressure to reduce direct costsThere is continuing pressure to reduce direct costs

(of producing and selling) and overhead costs.(of producing and selling) and overhead costs.

It cost the US automakers $1,500 more per autoIt cost the US automakers $1,500 more per autofor labor in 1980 than it cost the Japanese autofor labor in 1980 than it cost the Japanese auto--makers. By the 1990s the difference was almostmakers. By the 1990s the difference was almostzero.zero.

Giant retailers (like WalGiant retailers (like Wal--Mart) squeezed weakerMart) squeezed weaker

competitors out of the market, giving the retailerscompetitors out of the market, giving the retailersthe leverage to force their suppliers to streamlinethe leverage to force their suppliers to streamlineoperations and reduce costs/prices.operations and reduce costs/prices.


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Cost :Cost : CostCost--cutting measurescutting measuresbeing used include:being used include:

Moving production to lowMoving production to low--laborlabor--costcost

countriescountries Negotiating lower labor rates with unionsNegotiating lower labor rates with unions

and workersand workers

Automating processes to reduce theAutomating processes to reduce theamount of labor needed, particularlyamount of labor needed, particularly

processes that areprocesses that are labor intensive.labor intensive.


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Advanced TechnologiesAdvanced TechnologiesAdvanced TechnologiesAdvanced Technologies

The use ofThe use ofautomationautomation is one of the most faris one of the most far--reaching developments to affect manufacturing andreaching developments to affect manufacturing and

services in the past century.services in the past century.

TheThe initial costinitial cost of these assets is high.of these assets is high.

TheThe benefitsbenefits go far beyond a reduction in labor costs.go far beyond a reduction in labor costs.

Increased product/service qualityIncreased product/service quality

Reduced scrap and material costsReduced scrap and material costs

Faster responses to customer needsFaster responses to customer needs Faster introduction of new products and servicesFaster introduction of new products and services


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Advanced TechnologiesAdvanced TechnologiesAdvanced TechnologiesAdvanced Technologies

Companies cannot use automated productionCompanies cannot use automated productiontechnology as a longtechnology as a long--term competitiveterm competitive

advantage.advantage.

Automation systems are available to anyAutomation systems are available to anycompany in the world today, although the pricecompany in the world today, although the price

is prohibitive for some companies.is prohibitive for some companies.

Not investing, or delaying investing in thisNot investing, or delaying investing in thistechnology could be disastrous for a company.technology could be disastrous for a company.


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Continued Growth of Service SectorContinued Growth of Service SectorContinued Growth of Service SectorContinued Growth of Service Sector

A robust service sector helps support theA robust service sector helps support themanufacturing sector.manufacturing sector.

There is much opportunity for quality improvementThere is much opportunity for quality improvementin Indian service firms.in Indian service firms.

Many operations managers are being employed inMany operations managers are being employed inservices.services.

Planning, analyzing, and controlling approaches fromPlanning, analyzing, and controlling approaches frommanufacturing are being adapted to service systems.manufacturing are being adapted to service systems.

The Indian service sector, like the manufacturingThe Indian service sector, like the manufacturingsector, must streamline and improve operations if it issector, must streamline and improve operations if it isto survive and grow.to survive and grow.


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Scarcity of Operations ResourcesScarcity of Operations ResourcesScarcity of Operations ResourcesScarcity of Operations Resources

Raw materials like titanium, nickel, coal,Raw materials like titanium, nickel, coal,natural gas, water, and petroleum products arenatural gas, water, and petroleum products are

periodically unavailable or in short supply.periodically unavailable or in short supply.

A shortage of any necessary input to aA shortage of any necessary input to aconversion subsystem, including skilledconversion subsystem, including skilled

personnel, can be a challenge for an operationspersonnel, can be a challenge for an operations

manager.manager.

An important issue in the formation ofAn important issue in the formation of

business strategy is how to allocate scarcebusiness strategy is how to allocate scarce

resources among business opportunities.resources among business opportunities.


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SocialSocial--Responsibility IssuesResponsibility IssuesSocialSocial--Responsibility IssuesResponsibility Issues

Corporate attitudes are evolving from doing whatCorporate attitudes are evolving from doing whatcompanies have a legal right to do, tocompanies have a legal right to do, to doing what isdoing what is

right to do.right to do.

Factors influencing this evolution include:Factors influencing this evolution include:

Consumer attitudeConsumer attitude ---- Consumers are expressingConsumers are expressingtheir likes/dislikes by such means as stockholdertheir likes/dislikes by such means as stockholder

meetings, liability suits, and buying preferences.meetings, liability suits, and buying preferences.

RegulationRegulation The EPF, Pollution Act, andThe EPF, Pollution Act, and

Maternity Leave Act etc place constraints onMaternity Leave Act etc place constraints on

businesses.businesses.

SelfSelf--interestsinterests ---- Companies realize that profits willCompanies realize that profits will

be greater if they act responsibly.be greater if they act responsibly.


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Environmental ImpactEnvironmental Impact

ProductProduct--Safety ImpactSafety Impact

Employee ImpactEmployee Impact


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SocialSocial--Responsibility IssuesResponsibility Issues

Environmental Impact :Environmental Impact :

Concerns about the global environment include:Concerns about the global environment include:

Landfill waste reductionLandfill waste reduction

RecyclingRecycling Energy conservationEnergy conservation

Chemical spillsChemical spills

Acid rainAcid rain Radioactive waste disposalRadioactive waste disposal

and more and more


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Environmental Impact :Environmental Impact :

There is a need for standardizing governmentThere is a need for standardizing government

regulations of the environment.regulations of the environment.

Otherwise, companies will gravitate to the lessOtherwise, companies will gravitate to the less--regulated countries.regulated countries.

The International Organization for StandardizationThe International Organization for Standardization

has developed a set of environmental guidelineshas developed a set of environmental guidelines

called ISO 14000.called ISO 14000.


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ProductProduct--Safety Impact :Safety Impact :

Harm to people or animals that results from poorHarm to people or animals that results from poor

product design can :product design can :

Damage a companys reputationDamage a companys reputation

Require a large expense to remedyRequire a large expense to remedy

Cause governments to impose more regulationsCause governments to impose more regulations


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Employee Impact :Employee Impact :Employee benefits and policies include:Employee benefits and policies include:

Safety and health programsSafety and health programs

Fair hiring and promotion practicesFair hiring and promotion practices DayDay--carecare

Family leaveFamily leave

Health careHealth care

Retirement benefitsRetirement benefits Educational assistanceEducational assistance

and more and more


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Employee Impact :Employee Impact :

Employee benefits and policies impact longEmployee benefits and policies impact long--

term profitability due to their effect on:term profitability due to their effect on:

Employee morale and productivityEmployee morale and productivity Recruitment and retention of employeesRecruitment and retention of employees

Demand for a companys productsDemand for a companys products

Cost of defending against lawsuits andCost of defending against lawsuits andboycottsboycotts


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Developing Operations StrategyDeveloping Operations StrategyDeveloping Operations StrategyDeveloping Operations Strategy

Corporate MissionCorporate Mission

Business StrategyBusiness Strategy

Product/Service PlansProduct/Service Plans

Competitive PrioritiesCompetitive Priorities

Operations StrategyOperations Strategy

AssessmentAssessment

of Globalof Global

BusinessBusiness

ConditionsConditions

DistinctiveDistinctive

CompetenciesCompetencies

oror

WeaknessesWeaknesses


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Corporate MissionCorporate MissionCorporate MissionCorporate Mission

AA corporate missioncorporate mission is a set of longis a set of long--rangerangegoals and including statements about:goals and including statements about:

the kind of business the company wants tothe kind of business the company wants to

be inbe in who its customers arewho its customers are

its basic beliefs about businessits basic beliefs about business

its goals of survival, growth, andits goals of survival, growth, andprofitabilityprofitability


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Business StrategyBusiness StrategyBusiness StrategyBusiness Strategy

Business strategyBusiness strategy is a longis a long--range game plan ofrange game plan ofan organization and provides a road map ofan organization and provides a road map of

how to achieve the corporate mission.how to achieve the corporate mission.

Inputs to the business strategy are :Inputs to the business strategy are :

Assessment of global business conditionsAssessment of global business conditions --

social, economic, political, technological,social, economic, political, technological,

competitivecompetitive

Distinctive competencies or weaknessesDistinctive competencies or weaknesses --

workers, sales force, R&D, technology,workers, sales force, R&D, technology,

managementmanagement


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Competitive PrioritiesCompetitive PrioritiesCompetitive PrioritiesCompetitive Priorities

Low Production Costs :Low Production Costs : DefinitionDefinition

Unit cost (labor, material, and overhead) of eachUnit cost (labor, material, and overhead) of eachproduct/serviceproduct/service

Some Ways of CreatingSome Ways of Creating

Redesign of product/serviceRedesign of product/service

New technologyNew technology

Increase in production ratesIncrease in production rates Reduction of scrap/wasteReduction of scrap/waste

Reduction of inventoryReduction of inventory


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Delivery PerformanceDelivery Performance Definition :Definition :

a) Fast deliverya) Fast delivery b) Onb) On--time deliverytime delivery

Some Ways of Creating :Some Ways of Creating :

a) larger finisheda) larger finished--goods inventorygoods inventory

b) faster production ratesb) faster production rates

c) quicker shipping methodsc) quicker shipping methods

d) mored) more--realistic promisesrealistic promisese) better control of production of orderse) better control of production of orders

f) better information systemsf) better information systems


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HighHigh--Quality Products/Services :Quality Products/Services :

DefinitionDefinition ::

Customers perception of degreeCustomers perception of degree of excellenceof excellence

exhibited by products/servicesexhibited by products/services Some Ways of Creating :Some Ways of Creating :

Improve product/servicesImprove product/services

AppearanceAppearance

Performance and functionPerformance and function

Wear, endurance abilityWear, endurance ability

AfterAfter--sales servicesales service


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Customer Service and FlexibilityCustomer Service and Flexibility

Definition :Definition :

Ability to quickly change production to otherAbility to quickly change production to other

products/services. Customer responsiveness.products/services. Customer responsiveness. Some Ways of Creating :Some Ways of Creating :

Change in type of processes usedChange in type of processes used

Use of advanced technologiesUse of advanced technologies

Reduction in WIP through lean manufacturingReduction in WIP through lean manufacturing

Increase in capacityIncrease in capacity


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Operations StrategyOperations StrategyOperations StrategyOperations Strategy

Operations strategyOperations strategy is a longis a long--range game plan for therange game plan for the

production of a companysproduction of a companysproducts/services, and provides aproducts/services, and provides a

road map for the productionroad map for the production

function in helping to achieve thefunction in helping to achieve thebusiness strategy.business strategy.


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Elements of Operations StrategyElements of Operations StrategyElements of Operations StrategyElements of Operations Strategy

Positioning the production systemPositioning the production system

Product/service plans (Module 2)Product/service plans (Module 2)

Outsourcing plans (Module6

)Outsourcing plans (Module6

) Process and technology plansProcess and technology plans (Modules 2 & 3)(Modules 2 & 3)

Strategic allocation of resourcesStrategic allocation of resources ( 2( 2ndnd Semester)Semester)

Facility plans: capacity, location, and layoutFacility plans: capacity, location, and layout(studied in 2(studied in 2ndnd semester)semester)


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Positioning the Production SystemPositioning the Production SystemPositioning the Production SystemPositioning the Production System

Select the type ofSelect the type of product designproduct design StandardStandard

CustomCustom

Select the type ofSelect the type of production processing systemproduction processing system Product focusedProduct focused

Process focusedProcess focused

Select the type ofSelect the type of finishedfinished--goods inventory policygoods inventory policy

ProduceProduce--toto--stockstock ProduceProduce--toto--orderorder


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Product / Service PlansProduct / Service PlansProduct / Service PlansProduct / Service Plans

As a product is designed, all the detailedAs a product is designed, all the detailed

characteristics of the product are established.characteristics of the product are established.

Each product characteristic directlyEach product characteristic directly

affects how the product can be made.affects how the product can be made.

How the product is made determinesHow the product is made determines

the design of the production system.the design of the production system.


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Stages in a Products Life CycleStages in a Products Life CycleStages in a Products Life CycleStages in a Products Life Cycle

IntroductionIntroduction-- Sales begin, production and marketingSales begin, production and marketingare developing, profits are negative.are developing, profits are negative.

GrowthGrowth -- sales grow dramatically, marketing effortssales grow dramatically, marketing efforts

intensify, capacity is expanded, profits begin.intensify, capacity is expanded, profits begin.

MaturityMaturity -- production focuses on highproduction focuses on high--volume,volume,

efficiency, low costs; marketing focuses onefficiency, low costs; marketing focuses on

competitive sales promotion; profits are at peak.competitive sales promotion; profits are at peak.

DeclineDecline -- declining sales and profit; product might bedeclining sales and profit; product might bedropped or replaced.dropped or replaced.


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Stages of a Products Life CycleStages of a Products Life CycleStages of a Products Life CycleStages of a Products Life Cycle

Introduction Growth Maturity DeclineIntroduction Growth Maturity Decline

B&W TVB&W TV

AutomobileAutomobile

Video RecorderVideo Recorder

CD PlayerCD PlayerColor CopierColor Copier

Cell PhoneCell Phone

Internet RadioInternet Radio

Fax MachineFax MachineDotDot--MatrixMatrix

PrinterPrinter


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Outsourcing PlansOutsourcing PlansOutsourcing PlansOutsourcing Plans

OutsourcingOutsourcingrefers to hiring out or subcontractingrefers to hiring out or subcontractingsome of the work that a company needs to do.some of the work that a company needs to do.

This strategy is being used more and more asThis strategy is being used more and more as

companies strive to operate more efficiently.companies strive to operate more efficiently.

Outsourcing has many advantages and disadvantages.Outsourcing has many advantages and disadvantages.

Companies try to determine the best level of outCompanies try to determine the best level of out--

sourcing to achieve their operations & business goals.sourcing to achieve their operations & business goals.

More outsourcing requires a company to have lessMore outsourcing requires a company to have lessequipment, fewer employees, and a smaller facility.equipment, fewer employees, and a smaller facility.


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A company might outsource any of theA company might outsource any of thefollowingfollowing manufacturing related functionsmanufacturing related functions::

Designing the productDesigning the product

Purchasing the basic raw materialsPurchasing the basic raw materials

Processing the subcomponents,Processing the subcomponents,

subassemblies, major assemblies, andsubassemblies, major assemblies, and

finished productfinished product Distributing the productDistributing the product


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Many companies even outsource someMany companies even outsource some serviceservicefunctionsfunctions such as:such as:

PayrollPayroll

BillingBilling Order processingOrder processing

Developing/maintaining a websiteDeveloping/maintaining a website

Employee recruitmentEmployee recruitment

Facility maintenanceFacility maintenance


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Process and Technology PlansProcess and Technology PlansProcess and Technology PlansProcess and Technology Plans

An essential part of operationsAn essential part of operationsstrategy is the determination of howstrategy is the determination of how

products/services will be produced.products/services will be produced.

The range of technologies availableThe range of technologies available

to produce products/services is greatto produce products/services is greatand is continually changing.and is continually changing.


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Strategic Allocation ofResourcesStrategic Allocation ofResourcesStrategic Allocation ofResourcesStrategic Allocation ofResources

For most companies, the vast majority ofFor most companies, the vast majority ofthe firms resources are used inthe firms resources are used in

production/operations.production/operations.

Some or all of these resources are limited.Some or all of these resources are limited.

The resources must be allocated toThe resources must be allocated to

products, services, projects, or profitproducts, services, projects, or profit

opportunities in ways that maximize theopportunities in ways that maximize the

achievement of the operations objectives.achievement of the operations objectives.


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Facility PlansFacility PlansFacility PlansFacility Plans

How to provide theHow to provide the longlong--range capacityrange capacity totoproduce the firms products/services is aproduce the firms products/services is a

critical strategic decision.critical strategic decision.

TheThe locationlocation of a new facility may need to beof a new facility may need to be

decided.decided.

The internal arrangement (The internal arrangement (layoutlayout) of workers,) of workers,

equipment, and functional areas within aequipment, and functional areas within a

facility affects the ability to provide thefacility affects the ability to provide thedesired volume, quality, and cost ofdesired volume, quality, and cost of

products/services.products/services.

Characteristics of ServicesCharacteristics of ServicesCharacteristics of ServicesCharacteristics of Services


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Characteristics of ServicesCharacteristics of Services

and Manufactured Productsand Manufactured Products

Characteristics of ServicesCharacteristics of Services

and Manufactured Productsand Manufactured Products

ServicesServices ProductsProducts

OutputOutput IntangibleIntangible TangibleTangible

Output InventoriedOutput Inventoried NoNo YesYes

Customer ContactCustomer Contact ExtensiveExtensive LittleLittleLead TimeLead Time ShortShort LongLong

IntensityIntensity LaborLabor CapitalCapital

QualityQuality SubjectiveSubjective ObjectiveObjective


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Competitive Priorities for ServicesCompetitive Priorities for ServicesCompetitive Priorities for ServicesCompetitive Priorities for Services

TheThe competitive prioritiescompetitive priorities listed earlier forlisted earlier formanufacturers apply to service firms as well :manufacturers apply to service firms as well :

Low production costsLow production costs

Fast and onFast and on--time deliverytime delivery

HighHigh--quality products/servicesquality products/services

Customer service and flexibilityCustomer service and flexibility

Providing all the priorities simultaneously toProviding all the priorities simultaneously to

customers is seldom possible.customers is seldom possible.


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Positioning Strategies for ServicesPositioning Strategies for ServicesPositioning Strategies for ServicesPositioning Strategies for Services

Type of Service DesignType of Service Design Standard or custom productsStandard or custom products

Amount of customer contactAmount of customer contact

Mix of physical goods and intangible servicesMix of physical goods and intangible services

Type ofProduction ProcessType ofProduction Process

Quasi manufacturingQuasi manufacturing

CustomerCustomer--asas--participantparticipant CustomerCustomer--asas--productproduct


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Positioning Strategies for ServicesPositioning Strategies for ServicesPositioning Strategies for ServicesPositioning Strategies for Services

Example:Example: McDonaldsMcDonalds

Highly standardized service designHighly standardized service design

Low amount of customer contactLow amount of customer contact

Physical goods dominating intangiblePhysical goods dominating intangible

servicesservices

QuasiQuasi--manufacturing approach to backmanufacturing approach to back--room production processroom production process


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Forming Operations StrategiesForming Operations StrategiesForming Operations StrategiesForming Operations Strategies

Support the product plans andSupport the product plans andcompetitive priorities defined in thecompetitive priorities defined in the

business strategy.business strategy.

Adjust to the evolving positioningAdjust to the evolving positioningstrategies.strategies.

Link to the marketing strategies.Link to the marketing strategies.

Look at alternative operations strategies.Look at alternative operations strategies.


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Evolution ofPositioning StrategiesEvolution ofPositioning StrategiesEvolution ofPositioning StrategiesEvolution ofPositioning Strategies

The characteristics of production systems tendThe characteristics of production systems tendto evolve as products move through theirto evolve as products move through their

product life cycles.product life cycles.

Operations strategies must include plan forOperations strategies must include plan for

modifying production systems to a changingmodifying production systems to a changing

set of competitive priorities as productsset of competitive priorities as products

mature.mature.

The capital and production technologyThe capital and production technologyrequired to support these changes must berequired to support these changes must be

provided.provided.


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Evolution ofPositioning StrategiesEvolution ofPositioning StrategiesEvolution ofPositioning StrategiesEvolution ofPositioning Strategies

VolumeVolumeVeryVery

LowLowLowLow HighHigh

VeryVery

HighHigh

FocusFocus ProcessProcess ProcessProcess ProductProduct ProductProduct

Fin.Gds.Fin.Gds. ToTo--OrderOrder ToTo--OrderOrder ToTo--StockStock ToTo--StockStock

BatchBatch

SizeSize

VeryVery

SmallSmallSmallSmall LargeLarge

VeryVery

LargeLarge

ProductProduct CustomCustomSlightlySlightly

StandardStandardStandardStandard

HighlyHighly

StandardStandard

LifeLife

StageStageIntro.Intro.

EarlyEarly

GrowthGrowth

LateLate

GrowthGrowthMaturityMaturity


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Linking Operations and Marketing StrategiesLinking Operations and Marketing StrategiesLinking Operations and Marketing StrategiesLinking Operations and Marketing Strategies

Operations StrategyOperations Strategy ProductProduct--focusedfocused

MakeMake--toto--stockstock

Standardized productsStandardized products

High volumeHigh volume Marketing StrategyMarketing Strategy

Low production costLow production cost

Fast delivery of productsFast delivery of products

QualityQuality

Example:Example: TV setsTV sets


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Operations StrategyOperations Strategy ProductProduct--focusedfocused

MakeMake--toto--orderorder

Standardized productsStandardized products

Low volumeLow volume Marketing StrategyMarketing Strategy

Low production costLow production cost

Keeping delivery promisesKeeping delivery promises

QualityQuality

Example:Example: School busesSchool buses


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Operations StrategyOperations Strategy ProcessProcess--focusedfocused

MakeMake--toto--stockstock

Custom productsCustom products

High volumeHigh volume Marketing StrategyMarketing Strategy

FlexibilityFlexibility

QualityQuality

Fast delivery of productsFast delivery of products

Example:Example: Medical instrumentsMedical instruments


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No Single Best StrategyNo Single Best StrategyNo Single Best StrategyNo Single Best Strategy

StartStart--up and Small Manufacturersup and Small ManufacturersUsually prefer positioning strategies with:Usually prefer positioning strategies with:

Custom productsCustom products

ProcessProcess--focused productionfocused production ProduceProduce--toto--order policiesorder policies

These systems are more flexible and require lessThese systems are more flexible and require less

capital.capital.


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StartStart--up and Small Servicesup and Small ServicesSuccessfully compete with large corporations by:Successfully compete with large corporations by:

Carving out a specialty nicheCarving out a specialty niche

Emphasizing close, personal customer serviceEmphasizing close, personal customer service Developing a loyal customer baseDeveloping a loyal customer base


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TechnologyTechnology--Intensive BusinessIntensive Business Production systems must be capable of producingProduction systems must be capable of producing

new products and services in high volume soonnew products and services in high volume soon

after introductionafter introduction

Such companies must have two key strengths:Such companies must have two key strengths:

Highly capable technical peopleHighly capable technical people

Sufficient capitalSufficient capital


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WrapWrap--Up: WorldUp: World--Class PracticeClass Practice

Put customers firstPut customers first Get new products/services to market fasterGet new products/services to market faster

Are high quality producersAre high quality producers

Have high labor productivity & low production costsHave high labor productivity & low production costs Carry little excess inventoryCarry little excess inventory

. . . more. . . more


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WrapWrap--Up: WorldUp: World--Class PracticeClass Practice

Think more globally in purchasing and sellingThink more globally in purchasing and selling Quickly adopt and develop new technologiesQuickly adopt and develop new technologies

Trim organizations to be lean and flexibleTrim organizations to be lean and flexible

Are less resistant to strategic alliances/joint venturesAre less resistant to strategic alliances/joint ventures Consider relevant social issues when setting strategiesConsider relevant social issues when setting strategies

E d f M d l 1 (Ch 2)E d f M d l 1 (Ch 2)E d f M d l 1 (Ch 2)E d f M d l 1 (Ch 2)


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End of Module 1 (Chapter 2)End of Module 1 (Chapter 2)End of Module 1 (Chapter 2)End of Module 1 (Chapter 2)

Module-1 - Op Strategies in Global Economy

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Transcript of Module-1 - Op Strategies in Global Economy