217-711 Operations Strategy

1. 217-711Operations Strategy Samar Mukhopadhyay University of Wisconsin-Milwaukee Samar Mukhopadhyay

2. Day 1 The Nature of Operations Operations Strategy University of Wisconsin-Milwaukee Samar Mukhopadhyay

3. Kmart Versus Wal-Mart • Both chains started in 1962 • In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198. • Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion • By 1991, Wal-Mart’s sales exceeded Kmarts • Kmart still had more stores University of Wisconsin-Milwaukee Samar Mukhopadhyay

4. Kmart Versus Wal-Mart continued • In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion. • During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns). • Wal-Mart was investing millions in its operations to lower cost. University of Wisconsin-Milwaukee Samar Mukhopadhyay

5. Kmart Versus Wal-Mart continued • Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system. • Kmart’s employees lacked skills needed to plan and control inventory. • Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to 22.7 percent. • Wal-Mart's increased from 20.1 percent to 41.6 percent University of Wisconsin-Milwaukee Samar Mukhopadhyay

6. Kmart Versus Wal-Mart continued • Fast forward to 2004 • Kmart appears to have adopted a new strategy • Merge with Sears, Roebuck & Co. • Potential synergies between Kmart’s convenient locations and Sears’ strong brands • Wal Mart’s sales revenue in 2007: 378.8 billion from 7200 stores worldwide University of Wisconsin-Milwaukee Samar Mukhopadhyay

7. Definition Operations Management is the function of designing, planning, organizing and controlling operations. Operations function is the process that accepts inputs and uses resources to transform these inputs into useful outputs University of Wisconsin-Milwaukee Samar Mukhopadhyay

8. Value added Inputs Outputs Transformation Land Goods Labor Services process Capital Feedback Control Feedback Feedback The Operations System The Value-Added Process University of Wisconsin-Milwaukee Samar Mukhopadhyay

9. Systems Perspective • Inputs • Transformation System • Alter,Transport, Store, Inspect • Outputs • Control system • Monitor, compare, take corrective action if necessary • Environment (external to operations system) University of Wisconsin-Milwaukee Samar Mukhopadhyay

10. Two Types Of Outputs 1. Goods: tangible 2. Service: Bundle of benefits, sometime accompanied by facilitating goods University of Wisconsin-Milwaukee Samar Mukhopadhyay

11. Characteristics of goods and Services University of Wisconsin-Milwaukee Samar Mukhopadhyay

12. Strategy Output Planning Capacity Planning Facility Location Facility Layout Aggregate Planning Inventory Management Materials Requirements Planning Scheduling Quality Control Operations Activities University of Wisconsin-Milwaukee Samar Mukhopadhyay

13. Operations Strategy and Global Competitiveness University of Wisconsin-Milwaukee Samar Mukhopadhyay

14. Three Levels of Decision Making • Strategic • Tactical • Operational (also called control decisions) University of Wisconsin-Milwaukee Samar Mukhopadhyay

15. Characteristics of strategic decisions • Long term • Unstructured • High uncertainty • Irreversible • High cost of wrong decision • Done at the top level University of Wisconsin-Milwaukee Samar Mukhopadhyay

16. Competitive Priorities • Cost • Quality • Response time • Flexibility University of Wisconsin-Milwaukee Samar Mukhopadhyay

17. Strategy Formulation University of Wisconsin-Milwaukee Samar Mukhopadhyay

18. Business Strategy A set of well defined objectives, plans, and policies for the organization to successfully compete in its markets, domestic and global. • The business strategy needs to be divided into functional strategies. • Operations strategy is one such functional strategy. Marketing strategy is another. • The functional strategies must be aligned with and should support the overall business strategy. University of Wisconsin-Milwaukee Samar Mukhopadhyay

19. Operations Strategy Definition: Operations Strategy defines the choice of process technology, degree of vertical integration, the number and location of facilities, factory focus and the manufacturing infrastructures. (Meyer and Moore, 1983) University of Wisconsin-Milwaukee Samar Mukhopadhyay

20. Definition (cont’d) Operations Strategy is the pattern of decisions actually made, the degree to which the pattern supports the business strategy. (Hayes and Wheelwright, 1984). University of Wisconsin-Milwaukee Samar Mukhopadhyay

21. Linkage between business strategy and operations strategy • Operations strategy should be adjusted to achieve the goals set by business strategy. • Operations should define the distinctive competence and technical core - the foundations of business strategy. • Operations must make process and infrastructure design choices consistent with the business strategy. University of Wisconsin-Milwaukee Samar Mukhopadhyay

22. Core Competencies • Collective knowledge and skills an organization has that distinguish it from the competition. • Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. University of Wisconsin-Milwaukee Samar Mukhopadhyay

23. Core Competencies continued • Are basis on which new outputs are developed. • Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. • Identifying and developing core competencies is one of top management’s most important roles. University of Wisconsin-Milwaukee Samar Mukhopadhyay

24. Examples of Core Competencies • Sony - miniaturization • 3M- knowledge of substrates, coatings and adhesives • Black and Decker - small electrical motors and industrial design • Honda - engines and power trains University of Wisconsin-Milwaukee Samar Mukhopadhyay

25. Core Competencies Used to Gain Access to Variety of Markets • Cannon • core competencies in optics, imaging, and electronic controls • Products include copiers, laser printers, cameras, and image scanners. • Boeing • integrating large scale systems • commercial jetliners, space stations, missiles University of Wisconsin-Milwaukee Samar Mukhopadhyay

26. Key Characteristics of Core Competencies • Should be used to gain access to a variety of markets • Should be strongly related to key benefits provides by products or services • Should be difficult to imitate University of Wisconsin-Milwaukee Samar Mukhopadhyay

27. Focus of operations: Definition: Focus is the degree or extent to which the demands on a manufacturing facility is one where the characteristics associated with each dimension are more uniform and more consistent than for the less focused facility. University of Wisconsin-Milwaukee Samar Mukhopadhyay

28. Focus of operations (cont’d) Focused factories sacrifice economies of scope, but benefits from: • Fewer problems of control • Less worker discontent due to impersonality of a large plant • Specialization University of Wisconsin-Milwaukee Samar Mukhopadhyay

29. Terry Hill • Order Qualifiercharacteristics that are the ante to enter the market • Order Winnercharacteristics that win the customer’s purchase University of Wisconsin-Milwaukee Samar Mukhopadhyay

30. Productivity • Measure of how well the transformation system converts inputs into output • Productivity = Output/inputs used • Since 1889, U.S. productivity has increased at 2.5% annual rate University of Wisconsin-Milwaukee Samar Mukhopadhyay

31. Growth Rate Comparison • US: Growth rate (% change from 3rd Qr ‘05 to 3rd Qr ‘06): 4.5% in manufacturing • Korea: Labor productivity in the third quarter of 2006 posted a year-on-year increase of 12.2% • In 2006, the U.S. ranked eleventh (out of 16) with an increase of productivity of 2.4%. • The Republic of Korea (+10.8%), Germany (7.1%) and Taiwan (+6.9%) had the largest manufacturing productivity increases University of Wisconsin-Milwaukee Samar Mukhopadhyay

32. University of Wisconsin-Milwaukee Samar Mukhopadhyay

33. Productivity Growth in S. Korea University of Wisconsin-Milwaukee Samar Mukhopadhyay

34. Rate of growth of labor productivity University of Wisconsin-Milwaukee Samar Mukhopadhyay

35. Measures of Productivity Partial Output Output Output Outputmeasures Labor , Machine , Capital , Energy Multifactor Output Output measures Labor + Machine , Labor + Capital + Energy Total Goods or Services Produced measure All inputs used to produce them University of Wisconsin-Milwaukee Samar Mukhopadhyay

36. Improving Productivity Growth • Estimated that technology has been responsible for at least half the productivity gains in the U.S. • Automation • In Korea: Technical education for the workforce • Increasing workers capability and skill University of Wisconsin-Milwaukee Samar Mukhopadhyay