Ops class1

Operations Management

MMS I Semester 1.4 Operations Management

What is Operations Management :
 Operations management is an area
of management concerned with overseeing, designing,
and redesigning business operations in the production of
goods and/or services.
 It involves the responsibility of ensuring that
business operations are efficient in terms of using as little
resources as needed, and effective in terms of meeting
customer requirements.
 It is concerned with managing the process that converts
inputs (in the forms of materials, labor, and energy) into
outputs (in the form of goods and/or services).


 Operations management aims to increase the content of value-
added activities in any given process.
 Fundamentally, these value-adding creative activities should be
aligned with market opportunity (through marketing) for optimal
enterprise performance.
 Operations management is the field concerned with managing and
directing the physical and/or technical functions of a firm or
organization, particularly those relating to development, production,
and manufacturing.
 The systematic direction and control of the processes that transform
inputs into finished goods and services. The inputs are transformed
at operations into outputs.


 In other words Operations Management deals with all activities
involved with designing, producing and delivering a product.
Operations as a Transformation Process

Inputs Transformation Output

 Where does it fit in an organization?
Operations is one functional area, supporting corporate strategy and
exchanging information with the marketing, finance and human
resources areas.


The Production System


Operations Strategy
 In some ways the very term ‘operation strategy’ sounds like a contradiction in
terms.
 Operations is, after all, about the day-to-day creation and delivery of products
and services. So how can it be strategic?
 In fact, the issue is one of distinguishing between two words which are similar
but have different meanings.
 These are operations and operational. Operations refers to those parts of the
business which are concerned with producing products and services.
 Operational is the opposite of strategic in the sense that it means ‘short-term’
and ‘limited in its influence’.
 Other functions of the business such as marketing or finance have both
strategic and operational activities.


Operations Strategy
 For example, marketing strategy covers the overall long-term approach to
how the organisation wants to position itself in its markets. The operational
side of marketing refers to the day by day tactics of how to manage things like
advertising, pricing, and so on.

 It is just the same with operations.
 Operations strategy looks at the long-term issues of how to manage the resources
which produce products and services.
 The more operational subject of operations management looks at the more detailed
and ‘shop floor’ issues of designing, planning and controlling, and improving the
resources which produce products and services.


Operations Strategy – Content & Process
 The content of operations strategy is concerned with the specific decisions
which shape and develop the long-term direction of the operation.

 Think of content as the building blocks of an operations strategy.

 The process of operations strategy refers to the procedures which are used to
formulate operations strategies. It is the way we go about the activity of
devising strategy.

 Think of operations strategy content as what the organisation is deciding to
do and process as how the organisation has made that decision.


Operations Strategy – Top-down versus bottom-up
perspectives

 One view of operations strategy (the more traditional one) is operations
strategy is one of several functional strategies which are governed by decisions
taken at the top of the organisational tree.
 According to this ‘top-down’ approach, overall business strategy sets the
general direction of the organisation, this is then interpreted by the different
functional areas of the company (marketing, finance, operations, etc.) in their
functional strategies.
 By contrast, the ‘bottom-up’ view of operations strategy is to see strategic
decision making as an accumulation of practical experiences.
 After all, organisations would find it difficult to ‘invent’ strategies in a total
vacuum. Their ideas are formed from their previous experience of dealing
with customers, suppliers and their own processes.
 This is the idea behind emergent strategies. These are strategic ideas which
emerge over time as an organisation begins to understand the realities of their
situation.

Operations Strategy – Top-down versus bottom-up
perspectives

 When thinking about top-down versus bottom-up perspectives of operations
strategy, remember that they are not ‘rival’ ideas.

 In reality we can see both top-down and bottom-up influences on strategy
making.

 What is important to remember is that the pure ‘top-down’ view of operations
strategy is simplistic in the sense that it does not recognise the importance of
learning through experience.


Operations Strategy – Market requirements versus
operations resources

 The market requirements perspective starts from the commonsense
notion that any operations strategy should reflect what the
organisation is trying to do in its markets.
 Companies compete in different ways, some may compete primarily
on cost, others on the excellence of their products or services, others
on high levels of customer service, others on customising their
products and services to individual customer needs, and so on.
 The operations function therefore must respond to this by providing
the capabilities which allow it perform in an appropriate manner to
satisfy the requirements of its market.
 In some ways this is a ‘translation’ task because the techniques and
language used by marketing managers to understand the
requirements of markets are different to the language and techniques
used by operations managers to manage their productive resources.

•The first product group
is a range of standard
electronic medical
equipment which is sold
‘off the shelf’ direct to
hospitals and clinics.
Different
ways of •The second product
competing group is a wider range
imply different of electronic measuring
competitive devices which are sold
factors and to original equipment
therefore manufacturers who
incorporate them in their
different
own products. These
performance electronic measuring
objectives. devices often have to be
customized to individual
customer requirements.



 The analysis of the two product groups shows that they have very
different competitive factors.
 Therefore different performance objectives are required from the
manufacturing operation.
 Such very different competitive needs could possibly require two
separate operations – one for each product group – each focused on
its own objectives and devoted to providing the things which are
important in its particular markets.


Competitive advantage
 A competitive advantage is an advantage over competitors gained by
offering consumers greater value, either by means of lower prices or by
providing greater benefits and service that justifies higher prices.
 Competitive advantage occurs when an organization acquires or develops
an attribute or combination of attributes that allows it to outperform its
competitors.
 These attributes can include access to natural resources, such as high grade ores or
inexpensive power, or access to highly trained and skilled personnel human
resources. New technologies such as robotics and information technology either to
be included as a part of the product, or to assist making it.
 Competitive advantage is the ability to stay ahead of present or potential
competition, thus superior performance reached
through competitive advantage will ensure market leadership. Also it
provides the understanding that resources held by a firm and the business
strategy will have a profound impact on generating competitive advantage.


 Michael Porter suggested four "generic" business strategies that could
be adopted in order to gain competitive advantage. The four
strategies relate to the extent to which the scope of a businesses'
activities are narrow versus broad and the extent to which a business
seeks to differentiate its products.



The differentiation and cost leadership strategies
seek competitive advantage in a broad range of market or industry
segments. By contrast, the differentiation focus and cost
focus strategies are adopted in a narrow market or industry.

 Strategy - Differentiation
 This strategy involves selecting one or more criteria used by buyers in a
market - and then positioning the business uniquely to meet those
criteria.

 This strategy is usually associated with charging a premium price for the
product - often to reflect the higher production costs and extra value-
added features provided for the consumer.

 Differentiation is about charging a premium price that more than covers
the additional production costs, and about giving customers clear reasons
to prefer the product over other, less differentiated products.

 Example of Differentiation Strategy: Mercedes Cars


 Strategy - Cost Leadership
 With this strategy, the objective is to become the lowest-cost producer in
the industry.
 Many (perhaps all) market segments in the industry are supplied with the
emphasis placed on minimising costs.
 If the achieved selling price can at least equal (or near)the average for the
market, then the lowest-cost producer will (in theory) enjoy the best
profits.
 This strategy is usually associated with large-scale businesses offering
"standard" products with relatively little differentiation that are perfectly
acceptable to the majority of customers.
 Occasionally, a low-cost leader will also discount its product to maximise
sales, particularly if it has a significant cost advantage over the
competition and, in doing so, it can further increase its market share.
 Examples of Cost Leadership: Indian IT Companies


 Strategy - Differentiation Focus
 In the differentiation focus strategy, a business aims to differentiate within
just one or a small number of target market segments.
 The special customer needs of the segment mean that there are
opportunities to provide products that are clearly different from
competitors who may be targeting a broader group of customers.
 The important issue for any business adopting this strategy is to ensure
that customers really do have different needs and wants - in other words
that there is a valid basis for differentiation - and that existing
competitor products are not meeting those needs and wants.
 Examples of Differentiation Focus: any successful niche retailers;
(e.g. Mainland China)


 Strategy - Cost Focus
 Here a business seeks a lower-cost advantage in just one or a small
number of market segments. The product will be basic - perhaps a similar
product to the higher-priced and featured market leader, but acceptable
to sufficient consumers. Such products are often called "me-too's".
 Examples of Cost Focus: Many smaller retailers featuring own-label or
discounted label products.


Time based Competition
 The widespread use of just-in-time production (JIT) and other advanced
manufacturing techniques has been credited with providing such
improvements as decreased inventories, set-up times, downtime and
workspace.
 These decreases have yielded increases in inventory turns, equipment
utilization, labor utilization, and ultimately, profit.
 Simply stated, this means that finished goods are produced and delivered just
in time to be sold, subassemblies just in time to be assembled into finished
goods, fabricated parts just in time to go into subassemblies and raw
materials just in time to be transformed into fabricated parts.
 In effect, consumption of time has been reduced.
 Some firms have reduced the consumption of time, not only in the
production area, but also throughout the system.
 Firms that manage this have gone beyond JIT and its competitive advantages.
They have an advantage in time-based competition.


 JIT was the first manifestation of time-based competition.
 Time-based competition is the extension of JIT into every facet of the
product delivery cycle, from research and development through marketing
and distribution of the final product.
 Even quality, while still critical to success, is not the competitive advantage it
once was in many industries. Manufacturing firms then have three strategic
options: seek coexistence, retreat in the face of competitors, or attack (directly
or indirectly).
 It has been said that strategy is and always has been a moving target. For
some firms who choose to attack, this target has moved to speed and time-
based competition.
 The term time-based competition came into use with its appearance in a
1988 Harvard Business Review article entitled "Time-The Next Source of
Competitive Advantage" by George Stalk, Jr.


 Time-based competition is a broad-based competitive strategy which
emphasizes time as the major factor for achieving and maintaining a
sustainable competitive advantage.

 It seeks to compress the time required to propose, develop, manufacture,
market and deliver its products.

 In order to do this, the firm must change its current processes and alter the
decision structures used to design, produce and deliver to the customer.

 Time-based competition appears in two different forms: fast to market and
fast to produce.


Time based Competition- “fast to
market”
 Firms that compete with to-market speed emphasize reductions in design
lead-time.
 In other words, the firm has the ability to minimize the time it takes to
develop new products or make rapid design changes.
 Products fifty percent over budget but introduced on time have been found to
generate higher profit levels than products brought to market within budget
but six months late.
 Also, this form allows firms to gain a market edge by being able to
consistently introduce more new products or large numbers of product
improvements / variations faster than its competitors, thereby dominating the
market.
 Sun Microsystems achieved leadership in engineering workstations by
reducing (by fifty percent compared to competitors) the time required to
design and introduce new systems.
 Additionally, these firms are now moving further along the learning curve
than the competition. Both factors ultimately increase barriers to entry by
competitors.

Time based Competition- “Fast-to-product”
 Fast-to-product firms emphasize speed in responding to customer demands
for existing products.
 Firms competing in this area focus on lead-time reduction throughout the
system, from the time the customer places an order until the customer
ultimately receives the product.
 This includes the ability to reduce the time it takes to manufacture products
(throughput time) as well as the ability to reduce the time between taking a
customer's order and actually delivering the product (delivery speed).
 These reductions in lead-time are usually accompanied by significant
reductions in inventory levels. As with JIT, there is less rework, fewer
supervisors, lower carrying costs, less overhead, and so forth, as well as
enhanced quality and on-time delivery performance.
 Some customers, known as impatient customers, place a great deal of value on
reduced lead-time. These customers are willing to pay a premium to get their
goods and services quickly. This combination of lower costs and higher
revenues contributes significantly to an improved corporate performance.


 While product development cycle time, new product introduction,
production lead time, and delivery speed all contribute to improved business
performance, not all contribute equally.
 A study found that the most consistent predictor of business performance was
new product introduction. The second best predictor was product
development cycle time.
 While production lead time and delivery speed were found to be related to
business performance (respectively, in order of contribution), their
relationship to business performance was not as significant as the other two
factors.
 Some firms have traced the complete order entry process only to find that it
took longer to complete the paperwork than it did to manufacture the
product.
 One major manufacturer compressed its manufacturing processes but still
took months to convert a customer order into an approved order for
manufacture.


 Time reductions resulting from JIT success are worth much less when orders
sit at the retailer for weeks, float in the mail for a week, sit at the distributor
for a week, float in the mail for another week and then begin the now
shortened transformation process at the factory.
 Paperwork is subject to the same delays. When paperwork moves in batches
(similar to manufacturing), several days of delay can develop while the order
sits in a stack awaiting enough volume for the batch to move on to the next
stage in processing.
 Time-based competitors begin by eliminating all unnecessary paperwork.
 Incoming mail is categorized as fast or slow track, allowing the fast track orders to
be handled immediately.
 Also, some firms structure the paperwork process so that transactions are handled
one at a time, eliminating the delay caused from batch movement.
 A door manufacturer managed to refine its process to the point that it could price
and schedule 95 percent of incoming orders during the initial customer call.


 Frequently, when delays occur, the delay time is made up at the end of the
product cycle.
 Obviously, the last place to make up for lost time is at the distribution and
transportation stage (similar to the way a delayed airline flight might make up
for delayed take-offs and manage to still land on time).
 If time can be reduced in these emergency situations, why not reduce it
permanently and reap the benefits of time-based competition?


Time based competition


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