Increasing Competitive Advantage & Sustainability through Processes

1. Increasing Competitive Advantage & Sustainability through Processes Professor Mellie Pullman Week 1

2. Where does operations management fit into a business? • How are we going to _________ the product or service? • Other functional areas: • Marketing • Accounting • Finance • Human Resources • Information Systems

3. What is a process? • A sequence of activities that is intended to achieve some result. • A process perspective: • Links together all necessary activities and increase one’s understanding of the entire system, rather than focusing on only one small part.

4. Most Processes cross organizational boundaries

5. Example: Order fulfillment

6. Input Output A Process Transformation (Conversion) Process

7. Conversions include: • Physical: manufacturing • Location: transportation • Exchange: retailing • Storage: warehousing or disk • Physiological: health care • Informational: insurance, telecommunications, etc.

8. Energy Materials Labor Goods or Services Capital Information Feedback information for control of process inputs and process technology Inputs, Outputs, and Feedback Transformation (Conversion) Process

9. Process Boundary can change perspective • How many liters of water does it take to make 1 Liter bottle of Coke?

10. Water Use for Coke • In bottle itself: • Roughly 1 liter of water • Add Bottling plant operations, cleaning, cooling, and other needs • Roughly 2.7 liters of water for 1 liter of Coke • Add raw materials: the growing of Sugar Cane, one of the thirstiest crops in the world • Roughly 250 liters of water to make 1 liter of Coke.

11. Process Changes to address this issue: “Water is to Coca-Cola as clean energy is to BP… We need to mange this issue (fresh water availability and use) or it will manage us.” Jeff Seabright, VP of Environment and Water Resources, Coca-Cola Corporation Actions: influence the process • Local targets established to improve water efficiency and energy use • Commitment to rainwater harvesting

12. A Café Latté Lid = 2.5 L Water = .5 L Cup = 5.5 L Sugar = 7.5 L Milk = 49 L Energy Coffee = 143 L 208 L Water per Cup

13. What is managed inside the box? Parts, Data & Equipment People Processes Planning & Scheduling Buildings or Facilities

14. Discussion Breakout • Think of a company that you believe has a sustainability focus: • What activities have they done any of the 5 P’s to improve their sustainability? • People • Parts & Equipment • Processes • Plants or Facilities (Buildings) • Planning & Scheduling (Measuring/Monitoring) • Is there an area where they are particularly weak? Why?

15. Strategy!Getting a Competitive Advantage through Operations “Strategy without tactics is the slowest route to victory; Tactics without strategy is the noise before defeat.” Sun Tzu (2001)

16. The Role of Business Strategy • The firm’s long-range plan based on an understanding of the marketplace • Defines how a company intends to differentiate itself from competitors • Individual employees & functional units use the strategy to align their efforts with each other to accomplish the overall game plan

17. Business strategy Internal analysis External analysis Consistent pattern of decisions Results Operations Strategy Model Corporate strategy Functional strategies in marketing, finance, engineering, human resources, and information systems Operations Strategy Mission Distinctive Competence Objectives (cost, quality, flexibility, delivery, etc) Policies (process, quality systems, capacity, and inventory)

18. Business Strategy versus Mission • How is the business strategy different from the mission statement? • Southwest airlines?

19. Business Strategy Southwest Airlines Co. ("Southwest") is a major domestic airline that provides primarily short haul, high-frequency, point-to-point, low-fare service.

20. The Mission of Southwest Airlines • The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

21. Distinctive competence • What does Southwest do better than most (if not all) of their competitors? • Southwest • has the lowest operating cost structure in the domestic airline industry, • consistently offers the lowest and simplest fares, • has one of the best overall Customer Service records.

22. Common competitive priorities These dimensions of value enable firms to win customers: • Cost (Price) • low production costs enables the company to price its product below competitors • Quality • higher performance or a more consistent product can support a price premium • Delivery Time • faster delivery or consistent on-time delivery can support a price premium • Flexibility (variety) • highly customized products or choice flexibility can support a price premium • Innovation or Sustainability: • products that connect with consumers on social, environmental, and other values.

23. QUALITY & DESIGN FLEXIBILITY QUALITY Fresh, Natural Ingredients Toppings & Crust Choice Expensive Ingredients Slow to Cook Low Volume Ovens COST TIME VOLUME FLEXIBILITY Can do all those well simultaneously?Hot Lips Pizza

24. Operations Strategy & the “tactics” • The long-range plan for the design & use of the operations function to support the overall business strategy: • The location, size, & type of facilities • The worker skills & talents required • The technology & processes to be used • How product & service quality will be controlled

25. Netflix

26. Major Decision Responsibilities of Operations (Netflix) • Policies about • Process • How to produce & deliver • Quality • Criteria, measurement & process for achieving • Capacity • Physical facilities (where, size, activities) & labor (what kind, how many, when) • Inventory • What, when & how much?

27. Examples of how policy affects strategic choice

28. Summary • Process Mindset • Operations • fit with the strategy of an organization • as a competitive advantage • as the key to addressing sustainability