Strategy of Operation

Management
Bijay Lal Pradhan, PhD
Operation Strategy across the organization
• Operation strategy is a top-down reflection of what the whole group
or business wants to do;
• Operations strategy is a bottom-up activity where operations
improvements cumulatively build strategy;
• Operations strategy involves translating market requirements into
operations decisions;
• Operations strategy involves exploiting the capabilities of operations
resources in chosen markets.
Corporate Mission
• A corporate mission is a set of long-range goals and including
statements about:

• the kind of business the company wants to be in

• who its customers are
• its basic beliefs about business
• its goals of survival, growth, and profitability

• Mission - where you are going

Business Strategy
• Business strategy is a long-range game plan of an organization and
provides a road map of how to achieve the corporate mission.
• Inputs to the business strategy are
• Assessment of global business conditions - social, economic, political,
technological, competitive
• Distinctive competencies or weaknesses - workers, sales force, R&D,
technology, management

• Strategy - how you are going to get there; an action plan

Strategic Process
Organization’s
Mission

Functional Area
Missions

Finance/
Marketing Operations
Accounting
 Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and strengths,
neutralize threats, and avoid
weaknesses
Strategies for Competitive Advantage

 Differentiation – better, or at least different

 Cost leadership – cheaper
 Response – rapid response
Competing on Differentiation

Uniqueness can go beyond both the physical

characteristics and service attributes to encompass
everything that impacts customer’s perception of
value

 Disney Kingdom – experience

differentiation
 Natraj Dinning – dining experience
Competing on Cost
Provide the maximum value as perceived by
customer. Does not imply low quality.

 Bhat Bhateni – small overheads,

shrinkage distribution costs
Competing on Response
 Flexibility is matching market changes in design
innovation and volumes
 Reliability is meeting specifications.
 Timeliness is quickness
in design, production,
and delivery
Strategic operations management decisions:
 Process Design
High Process-focused Mass Customization
JOB SHOPS Customization at high
(Print shop, emergency Volume
room, machine shop, fine- (Dell Computer’s PC,
dining Repetitive (modular) cafeteria)
Variety of Products

restaurant) focus
Moderate ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, beer, paper,
Low bread, institutional
kitchen)

Low Moderate High

Volume
Preconditions
One must understand:
 Strengths and weaknesses of competitors and possible
new entrants into the market
 Current and prospective environmental, technological,
legal, and economic issues
 The product life cycle
 Resources available within the firm and within the OM
function
 Integration of OM strategy with company’s strategy and
with other functional areas
Dynamics of
Strategic Change
 Changes within the organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment
Product Life Cycle
Introduction Growth Maturity Decline
Product design and Forecasting critical Standardization Little product
development Product and process Less rapid product differentiation
critical reliability changes – more Cost
Frequent product minor changes minimization
OM Strategy/Issues

Competitive product
and process design improvements and Optimum capacity Overcapacity in
changes options the industry
Increasing stability
Short production Increase capacity of process Prune line to
runs eliminate items
Shift toward product Long production
High production focus runs not returning
costs good margin
Enhance distribution Product
Limited models improvement and Reduce capacity
Attention to quality cost cutting

Figure 2.5
Global Strategies
 Honda sales and production are worldwide
 Pasmina and wool carpets are sold around the
world.
 Cocacola Terai purchases components from
suppliers in India, Thailand, Malaysia, Singapore
and around the world.
 Shakti plast brings raw materials from india and
abroad and sales its product to india.
Global Strategies
 Haier – A Chinese company, produces compact
refrigerators (it has one-third of the US market)
and wine cabinets (it has half of the US market)
in South Carolina.
 Most of the Multinational companies has setup
their manufacturing units in south Asian
countries due to labor cost.
 A company may have factory at Asia, marketing
office at USA and its Head office at Europe.
Some Multinational Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Colgate- USA 72 63 NA
Palmolive
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51
Some Multinational Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Nestle Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Reasons to Globalize

Reasons to Globalize

Tangible
Reasons 1. Reduce costs (labor, taxes, tariffs, etc.)
2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible
Reasons
5. Learn to improve operations
6. Attract and retain global talent
 Reduce Costs
 Foreign locations with lower wage rates can lower
direct and indirect costs
 Maquiladoras (free trade zone in Mexico)
 World Trade Organization (WTO)
 North American Free Trade Agreement (NAFTA)
 European Union (EU)

30 minutes episode of cartoon costs $1,30,000 in Manila,

$5,00,000 in US
Improve the Supply Chain
 Locating facilities closer to unique resources
 Auto design to California
 Athletic shoe production to China (40,000 HR) –
shift from korea
 Perfume manufacturing in France (flowers of the
Mdeiterranean)
Provide Better Goods
and Services
 Objective and subjective characteristics of
goods and services
 On-time deliveries
 Improved customer service
 Understand Markets
 Interacting with foreign customers and suppliers can
lead to new opportunities
 Cell phone
design from
Europe
 Cell phone
trends from
Japan
 Extend the product life cycle
Learn to Improve Operations
 Remain open to the free flow of ideas
 General Motors partnered with a Japanese auto
manufacturer to learn
 Want to learn more about the production and
inventory idea.
Attract and Retain Global Talent
 Offer better employment opportunities
 Better growth opportunities and insulation
against unemployment
 Relocate unneeded personnel to more
prosperous locations
 Incentives for people who like to travel
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different towards

 Punctuality  Stealing
 Lunch breaks  Corruption
 Environment  Child labor
 Intellectual property
Factors to be Consider
 Rate of innovation  Work ethic
 Rate of technology change  Tax rates
 Number of skilled workers  Inflation
 Political stability  Availability of raw materials
 Product liability laws  Interest rates
 Export restrictions  Population
 Variations in language  Number of miles of highway
 Phone system
Product & Association
 Surya Nepal 1. Carlsberg Breauary,
Denmark
 Bottlers Terai Ltd
2. Indian Tobacco Company
 Hotel Soltee
3. Axiata Group
 Uniliver Nepal 4. Holiday Inns China
 N Cell 5. Cocacola
 Gorkha Breaury 6. Hindustan Liver
Pros and Cons of Globalization
• Pros (Pluses)
• Productivity grows more quickly (living standards can go up faster)
• Global competition and cheap imports keep a lid on prices (inflation less likely
to derail economic growth)
• Open economy spurs innovation (with fresh ideas from abroad)
• Export jobs often pay more than other jobs
• US has more access to foreign investment (keeps interest rates low)
Pros and Cons of Globalization
• Cons (Minuses)
• Millions of Americans have lost jobs due to imports or
production shifts abroad
• Most displaced workers find new jobs that pay less
• Workers face pay-cuts demands from employers
• Service and white-collar jobs are increasingly vulnerable
• US employees lose their comparative advantage when
companies build advanced factories abroad
Product Development Process
• To design new product
• To redesign the existing product
• To Identify of new uses of existing product
• To improve of packing of existing products
Product Life Cycle
Introduction Growth Maturity Decline
Best period to increase Practical to change Poor time to change Cost control critical
Company Strategy/Issues market share price or quality image image, price, or quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position

CD-ROMs
Internet search engines
Analog TVs
Drive-through
LCD & plasma TVs restaurants

Sales iPods

3 1/2”
Xbox 360 Floppy
disks

Figure 2.5
Product Development Process
Product development process
Design and development of new product passes through following order.

Need Feasibility Advance

identification study design

Product
evaluation and Process design Product
improvement and development
development and engineering

Product use and

support
Design Manufacturing Unit
(i) Project technology - e.g. building construction
(ii) Job shop technology - e.g. bakery
(iii) Batch technology - e.g. print shop
(iv) Assembly line technology- e.g. automobile production
(v) Continuous flow technology - e.g. oil refinery
Process Life Cycle

Manufacturing cost/unit

Batch Assembly continuous

Line flow

Job shop

0 Start-up rapid growth maturation commodity time

Quality Function Deployment
• Even when products are designed by cross-functional teams, translating
customer requirements into detailed technical product specifications can be very
difficult. Customer requirements are often vague and it is not unusual for some
of them to conflict with each other. And since technical product specifications
are expressed in a “different language” than are the needs of the customer. “the
voice of the customer” is often lost. The end result is a product that does not
fully meet customer needs.
• The Japanese developed an approach called “quality function deployment”
(QFD) to meet customer’s requirements throughout the design process and also
in the design of production systems. Quality function deployment is a method by
which cross-sectional teams translate customer requirements into appropriate
design requirements at each stage of the product development process.
QFD
• QFD is an excellent way for firms to capture the “voice of the
customer”. It ensures that the customer is the focus of all design
activities and “dictates” all design trade-offs.
The four step process of QFD are
• Customer requirement planning matrix
• Technical features deployment matrix
• Process plan and quality control chart
• Operating Instructions
 House of Quality

Technical requirements Component Characteristics Process Operations Quality Control Plan

       
       
       
       
House 1 House 2 House 3 House 4

Component Characteristics
Customer requirements

Technical requirements

Process Operations
 

 
Six Steps to be followed in QFD
• Identify customer requirements
• Identify supporting technical characteristics
• Relate the customer requirements to the supporting technical
characteristics
• Conducting and evaluation of competing products.
• Evaluate technical requirements and develop targets and
• Determine which technical requirements to deploy in the remainder
of the production process.