-Operations Strategy

1. -Operations Strategy MBA 642 Mike Busing Spring 2003

2. Strategy • Definition:

3. Strategy • Definition: the science or art of military command as applied to the overall planning and conduct of large-scale combat operations. (The American Heritage Dictionary)

4. Elements of Strategy from a Business Unit Perspective Corporate Mission Business Strategy Competitive Priorities Operations Strategy

5. Corporate Mission • is a set of long-range goals unique to each organization. • Includes statements about: • kind of business the company wants to be in • who its customers are • its beliefs about business • its goals of survival, growth, and profitability

6. Business Strategy • long-range game plan for the the organization. • provides road-map of how to achieve the corporate mission given: • global business conditions • distinctive competencies/weaknesses (anything that helps the firm to capture market share)

7. Competitive Priorities • Low production costs • High quality products and services • Fast/on-time delivery • Customer service and flexibility • Speed

8. Operations Strategy • long-range game plan for the production of a company’s products and services. It provides a road map for what operations must do if business strategies are to be achieved.

9. Operations Strategy (cont’d) • Answers such questions as: • What new products must be developed? • When should new products be introduced into production? • What new production facilities are needed? • When should the new production facilities be completed?

10. Elements of Operations StrategyI. Positioning the Operations System • Type of product design • custom products • standardized products

11. Elements of Operations StrategyI. Positioning the Operations System • Type of product design • custom products • standardized products • Type of production processing system • product focused or line flow (good for low variety high volume) • process focused (good for high variety (custom), low volume)

12. Elements of Operations StrategyI. Positioning the Operations System • Type of finished-goods inventory policy • produce to stock (aka: make to stock) • produce to order (aka: make to order)

13. Elements of Operations StrategyI. Positioning the Operations System C.L.T. M.L.T. C.L.T. M.L.T.

14. Elements of Operations StrategyII. Focus of Production • Without economies of scale, it may be beneficial to focus on a narrow product mix for a particular niche. Otherwise the factory/service facility may become vulnerable to smaller and more specialized competitors who can provide better cost, delivery, quality, and/or service.

15. Elements of Operations StrategyIII. Product/Service Plans • Introduction: production and marketing developing and profit is negative. • Growth: sales grow dramatically, marketing efforts intensify, production concentrates on expanding capacity fast enough to keep up with demand and profits begin.

16. Elements of Operations StrategyIII. Product/Service Plans • Maturity: production concentrates on high volume, efficiency, and low costs; marketing uses competitive sales promotion aimed at increasing or maintaining market share. Profits at peak • Decline: product may be dropped by the firm or replaced by improved products due to declining profits and sales.

17. Elements of Operations StrategyIV. Production Process and Technology Plans • Matching high volume/low variety product line with product focused production technology • Matching low volume/high variety product line with process focused production technology • Intermediate case??

18. Elements of Operations StrategyV. Allocation of Resources to Strategic Alternatives • Resources are scarce • e.g., product mix problem and other optimization problems

19. Elements of Operations StrategyVI. Facility Plans • Capacity, location, and layout decisions • The internal arrangement of workers, production processes, and departments within the facilities can affect the ability to provide desired volume, quality, and cost of products. • Walker manufacturing example.

20. Positioning Strategies for Services • Type of Service Design: (i.e., standard or custom product, amount of customer contact, mix of physical goods and intangible services) • Type of Production Process: (i.e., quasi manufacturing, customer as participant, customer as product)

22. Marketing HRM Finance Operations

23. ERP • Enterprise • Resource • Planning

24. ERP – Key Point • Common Database benefits?

25. ERP Benefits • Integration of Financial Data • Standardization of Manufacturing Process • Standardization of HR Information

26. Issues to Consider • ERP package will most likely not match current business process. • Cost is significant (average TCO = $15MM). • Implementation Time can be long (1-3 years is typical). • No payback is typical until 8 months after installation is complete. • Average payback is $1.6MM/yr.

27. Problems and Budget Overruns • Training (including business process) • Integration/Testing (add-on packages) • Data Conversion • Data Analysis (data warehousing) • Consultants (staff training) • Replacing your best and brightest • Implementation teams never stop • Waiting for ROI • Post ERP Depression (productivity drop)