Operations Strategy Class 1a: Introduction to Operations Introduction & Administrative Key Principles of Course Stra

1. Operations Management & Performance Modeling • Operations Strategy • Class 1a: Introduction to Operations • Introduction & Administrative • Key Principles of Course • Strategic role of Ops • Process view of Ops • Strategies, Capabilities and Operation Drivers • Wal-Mart • Process Analysis • Lean Operations • Supply Chain Management • Capacity Management in Services • Quality Management • Business Process Reengineering OM&PM/Class 1a

2. Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ‘69] OM&PM/Class 1a

3. Key Principle of Course: 2. The Process View of Ops • By rethinking the IBM Austin assembly plant and introducing cells, • distance traveled by a card was cut from 1.5 miles to 200 yards • floor space was reduced to half • production tripled with about the same number of workers. [Chicago Tribune, July 1992] OM&PM/Class 1a

4. Operations Management Feedback for control Transformation Process Inputs Outputs Goods Services Flow Units (RM, people, information, etc.) Labor & Capital Resources Operations & the Process View: What is a Process? OM&PM/Class 1a

5. What is Operations Management? • Management of business processes • How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. • What is appropriate? OM&PM/Class 1a

6. Service Outputs Service Delivery System Production Distribution Market What are “appropriate capabilities”? An example: A Supply Chain The market + your strategy determine criteria for appropriate. OM&PM/Class 1a

7. What defines a “good process”? Performance: Financial Measures • Absolute measures: • revenues, costs, operating income, net income • Net Present Value (NPV) = • Relative measures: • ROI, ROE • ROA = • Survival measure: • cash flow OM&PM/Class 1a

8. Firms compete on product attributes. This requires process capabilities. • Price (Cost) • Quality • Customer service • Product quality • Time • Rapid, reliable delivery • New product development • Flexibility • Variety or volume flexibility “order winners” “capabilities” OM&PM/Class 1a

9. Process Capabilities are affected by Process Drivers/Levers • Process structure/architecture • jobs • activities & storage/inventories: quantity & location • resources: capacity & throughput • routes: information and product flow • positioning (product/process focus) • capabilities (technology, “real” investment) • Operations Planning & Control • Organization OM&PM/Class 1a

10. Linking the strategic role & process view: Strategic Operational Audit Business Strategy compatible? Desired Capabilities . . . Marketing Strategy Operations Strategy Financial Strategy p, Q, t, flexibility Operations Structure: Processes & Resources OM&PM/Class 1a

11. A Strategic Framework for Operations • Corporate Strategy • businesses in which the corporation will participate • acquisition & allocation of key corporate resources to each business • Business Unit Strategy • scope of the business (product/market/service segments) • basis on which BU will achieve and maintain competitive advantage • Operations Strategy (and mkt strat, fin strat ...) • What must operations do particularly well? Which capabilities must ops develop? • Operations Structure • How should operations processes be structured to develop capabilities that support strategy? OM&PM/Class 1a

12. Wal-Mart Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices • Operations Structure • Cross docking • EDI • Fast transportation system • Focused locations • Communication between retail stores • Operations Strategy • Short flow times • Low inventory levels OM&PM/Class 1a

13. Wal-Mart (Resulting Benefits) • Inventory at retail stores turned over twice a week (Industry averages once every two weeks) • Improved targeting of products to markets • Sales per square foot increased from $102 in 1985 to $140 in 1991 (Industry average increased from $102 to $110) OM&PM/Class 1a

14. Historical Development of OM • Craft guilds & Cottage Industry • 1765: Factory System(Adam Smith, James Watt) • 1810: American System of Mfg(Whitney’s interchangeable parts) • 1890s: Bicycle boom (sheet metal stamping, electrical resistance welding) * Scientific Management >> Time & motion studies (Frederick Taylor 1900s) • April 1, 1913: Mass Production(Henry Ford’s Moving Assembly Line) • 1927: Flexible Mass Production (Alfred Sloan & GM) * Statistical Quality Control (Walter Shewhart at Bell Labs, 1930s) Hawthorn Studies (Elton Mayo at Western Electric, 1930s) • 1970: Toyota Production System (Taiichi Ohno) • 1980s-now: Ops in the spotlight • Manufacturing Strategy Paradigm (HBS) • Lean Ops: JIT, CAD/CAM, CIM, FMS, TQM, business reengineering OM&PM/Class 1a

15. Class 1a Learning Objectives • An operation as a transformation process • Product Attributes / Operational Capabilities • Process Drivers / Operations structure • Link between business strategy, operations strategy, and operations structure OM&PM/Class 1a