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Operations Strategy

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Title: Operations Strategy


1
Topic-3
  • Operations Strategy

2
Operations Strategy
  • Definition Strategy is a set of plans and
    policies by which a company whishes to gain
    advantages over its competitors in the
    marketplace.
  • Three levels of strategy
  • 1.Corporate Strategy overall plan of company
    Company level. (What Market segment do we want to
    go?)

3
Operations Strategy
  • 2. Business Strategy General plan of Strategy
    Business Unit (SBU) (How do we compete in the
    selected market?)
  • 3. Functional Strategy Specific Plan of a
    functional unit.
  • Operations strategy
  • How does the production system provide
  • the desired competitive advantages in
  • marketplace?

4
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5
Competitive Priorities
  • Capabilities
  • current
  • needed
  • planned

6
  • Operational effectiveness is the ability to
    perform similar operations activities better than
    competitors.
  • It is very difficult for a company to compete
    successfully in the long run based just on
    operational effectiveness.
  • A firm must also determine how operational
    effectiveness can be used to achieve a
    sustainable competitive advantage.
  • An effective competitive strategy is critical.

7
Operations performance criteria
  • 1. Productivity
  • 2.Quality
  • 3.Flexiblity
  • 4.Reliability
  • 5.Low price/cost
  • 6.Consistency
  • 7.Delivery speed
  • 8.Delivery reliability
  • 9.Stisfaction of workers
  • 10.

8
Order-winning criteria
  • 1.Cost leader
  • 2.Unique feature/value of products/service
  • 3.Variety of products/service
  • 4.High quality
  • 5.New product leader
  • 6.Flexibility to market changes
  • 7.Customerization

9
Competitive Priorities
  • Low Production Costs
  • Definition
  • Unit cost (labor, material, and overhead) of
    each product/service
  • Some Ways of Creating
  • Redesign of product/service
  • New technology
  • Increase in production rates
  • Reduction of scrap/waste
  • Reduction of inventory

10
Competitive Priorities
  • Delivery Performance
  • Definition
  • a) Fast delivery b) On-time delivery
  • Some Ways of Creating
  • a) larger finished-goods inventory
  • b) faster production rates
  • c) quicker shipping methods
  • d) more-realistic promises
  • e) better control of production of orders
  • f) better information systems

11
Competitive Priorities
  • High-Quality Products/Services
  • Definition
  • Customers perception of degree of excellence
    exhibited by products/services
  • Some Ways of Creating
  • Improve product/services
  • Appearance
  • Performance and function
  • Wear, endurance ability
  • After-sales service

12
Competitive Priorities
  • Service and Flexibility
  • Definition
  • Ability to quickly change production to other
    products/services. Customer responsiveness.
  • Some Ways of Creating
  • Change in type of processes used
  • Use of advanced technologies
  • Reduction in WIP through lean manufacturing
  • Increase in capacity

13
No Single Best Strategy
  • Start-up and Small Manufacturers
  • Usually prefer positioning strategies with
  • Custom products
  • Job shop or batch Shop focused production
  • Produce-to-order policies
  • -- more flexible and require less capital.
  • -- can Successfully compete with large
    corporations by
  • Carving out a specialty niche
  • Emphasizing close, personal customer service
  • Developing a loyal customer base

14
Wendys McDonalds
Mission Purpose
  • A uniform, economical, mass produced burger (and
    associated products) sold to younger market on a
    standardized basis.
  • A higher quality, 100 fresh beef burger (and
    associated products) sold to an older (over 25)
    market on an as you want it basis.

15
Wendys Operations
McDonalds Operations
Made to order Made to stock
Customized Standardized
Non-automated Automated More technology
Worker packed assembly line Batch assembly line
16
Wendys Operations
McDonalds Operations
Customization important single lines Throughput speed important
Moderate job specialization More job specialization
Emphasizes quality customization Emphasis efficiency consistency, economy
17
TI vs. HPDifferentiation Hand Calculators
Texas instruments TI Hewlett- Packard HP
Product Lower priced standardized product Higher priced performance- oriented
Size of potential market Very large Small
Engineering More process and industrial engineers emphasis is in efficiency of manufacturing More product engineers- emphasis is in perfecting new performance features
18
TI vs. HP (Cont.)
Texas Instruments TI Hewlett Packard HP
Vertical integration makes more of components Purchases more of components
Manufacturing process Assembly line Batch production bench assembly
Production employees Lower skilled assemblers Higher skilled assemblers
Distribution Wide system- large number of different retail outlets Narrow focus specialized outlets
19
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20
TIMEX (Its early Success)
  • Not taken seriously at first by U.S. and Swiss
    watch manufacturers, Timex introduced its line of
    inexpensive watches in 1950. By 1970, half of the
    watches sold in the U.S. (and lots of foreign
    countries) were made by Timex. The success of
    Timex depended upon a careful matching of
    production and marketing strategies. The Timex
    formula through the early years Mass Production
    and Mass Marketing.

21
TIMEX Mass Production
  • Single, simple product focus
  • Simple process technology
  • Unskilled labor
  • Economies of Scale
  • Product durability stressed
  • High degree of standardization

Swiss Timex
125 parts 98 parts
6 plates 2 plates
31 screws 6 screws
100 steps 6 steps
22
TIMEX Mass Marketing
  • Mass distribution through drug stores
  • Changed consumers views towards watches No
    longer a heirloom, but functional
  • T.V. Ads used to reach masses
  • Now consumer challenged that relationship

23
TIMEX (follow-up story)
  • In the 1960s Timex upgraded its product lines
    partly as a competitive weapon and partly as an
    attempt to expand its market. The plan moved to
    17 and 21 jeweled watches, electronic watches,
    multiple technologies, expanded retail outlets.
    Timex expanded its focus from the single product,
    single technology company it was in 1950s. Pros
    Upper end of their line made lower portion of
    line look good. Cons Image problem, customers
    confused. Increased competition. Multi product
    line increased inventory holdings, operating
    costs.

24
Operations Strategy Model
Structure Capacity Facility Technology
Competitive Priorities Cost Quality Flexibilit
y Delivery
Infrastructure Workforce Quality Production
Planning Organization
25
Time line for Operations Strategies
26
Characteristics of a good operations strategy
  • 1. Is the operations adaptive and flexible?
  • (Ready for changing in operations when
    necessary?)
  • 2. Dose the operations unit provide a real
    competitive advantage?
  • (An advantage in facility may not be
  • an advantage in the marketplace.)

27
  • Thanks, but I really have no use for a
    Stairmaster.
  • A unique competence may not give you a real
    competitive advantage- a lesson for Operations
    managers.

28
Characteristics of a good operations strategy
  • 3. Are operations decisions internally
    consistent?
  • 4. Are operations decisions compatible with and
    supportive if the firms strategy?
  • 5. Is the operation unit focused on a limited
    dimensions?

29
Strategic vs Tactical Decision
1.MGT level 2.Time horizon 3.Importance 4. Uncertainty 5.Problem nature Strategic Top Long range Large impact (across organization) High unstructured Tactical Middle or low Short range Small impact (within functional unit) Low structured
30
Strategic vs Tactical Decision (II)
6.Information Needs 7.Correction after implementation Strategic Qualitative External Related to future Difficult and expensive Tactical Quantitative Internal Related to past Relatively easy and inexpensive
31
Examples of strategic decisions in operations
management
  • 1.Product and process design
  • 2.Technology selection
  • 3.Inventory level determination
  • 4.Work force size and composition
  • 5.Facility location
  • 6.Facility size and layout (capacity
  • planning)

32
Examples of strategic decisions in operations
management (II)
  • 7.Integration degree
  • 8.span of process (e.g. make of buy decision)
  • 9. quality assurance planning
  • 10. organizational structure
  • 11. management information system
  • design for production planning and
  • control

33
Strategy Formulation Process
  • Analysis of business environment
  • External factors
  • customers/competitors/market segment
    social/political/technological/
  • Internal factors Finance/marketing/supplier/c
    apacity of production/work force/

34
Strategy Formulation Process
  • Specification of overall business strategy
  • How firms capabilities best match current
    (potential) market opportunities?
  • Determination of operations performance criteria
  • Price leader/quality/reliability/customization
  • /

35
Strategy Formulation Process
  • Strategic operations decisions
  • Capacity planning/facility location
    selection/span of process facility size and
    layout/product and process design/

36
Products Life Cycle
  • Introduction- Sales begin, production and
    marketing are developing, profits are negative.
  • Growth - sales grow dramatically, marketing
    efforts intensify, capacity is expanded, profits
    begin.
  • Maturity - production focuses on high-volume,
    efficiency, low costs marketing focuses on
    competitive sales promotion profits are at peak.
  • Decline - declining sales and profit product
    might be dropped or replaced.

37
Stages of a Products Life Cycle
38
National competitive advantages
  • 1.Factor conditions a nations ability to turn
    its basic resources into a specialized advantage.
  • 2.Demand conditions number and sophistication of
    domestic customers, and the strength of media
    exposure to customers.
  • 3.Related and supporting industries High
    integration and corporation within the industry
    and among related industries. (e.g.
  • A supplier industrial cluster or chain

39
National competitive advantages
  • 4. Company strategy, structure and rivalry An
    effective strategy with matching organizational
    structure and strong domestic competition.
  • (combination of all 4 points above is desirable
    for a nation to gain competitive advantages.)

40
National competitive advantages
  • 5.Chance and opportunity (e.g. wars, oil crisis,
    etc.)
  • 6.Government support (e.g. favorable policies
    and regulations)

41
International Companies
  • International companies are those whose scope of
    operations spans the globe as they buy, produce,
    and sell.
  • International firms search out opportunities for
    profits relatively unencumbered by national
    boundaries.
  • Operations managers must coordinate
    geopraphically dispersed operations.

42
International Companies
  • Worlds Largest Corporations
  • 1. General Motors US
  • 2. Wal-Mart Stores US
  • 3. Exxon Mobil US
  • 4. Ford Motor US
  • 5. DaimlerChrysler Germany
  • 6. Mitsui Japan
  • 7. Mitsubishi Japan
  • 8. Toyota Japan
  • 9. General Electric US
  • 10. Itochu Japan

43
Global operations strategy
  • Between two extremes
  • Domestic operations with exporting orientation
    (e.g. Diamond cutting)
  • Localized operations by licensing joint
    ventures (e.g. fast food industry)

44
Global operations strategy
  • Multi-national operations through
  • subsidiary structure.
  • (e.g. Professional service. Public
  • accounting, etc.)
  • Global operations with cross-nation integrated
    manufacturing
  • (e.g. Auto and electronics industries)

45
Global operations strategy
  • Two important strategy determinants
  • 1. capacity rationalization required by the
    scale and efficiency of operations, productivity
    oriented.
  • 2. Localization of operations required by
    different local technical standards, demand
    specifications and local
  • governmental regulations.

46
Cont.
47
Ranking of Preferred Competitive Strategies
North America, Japan, and Europe
Competitive Weapon North America Japan Europe
Consistent quality 1 3 1
High product performance 2 6 2
On-time deliveries 3 4 3
Low price 4 1 5
Fast delivery 5 7 4
Rapid design changes 6 2 6
After-sales service 7 8 7
Rapid volume changes 8 5 8
  • Note 1 is the highest ranking and 8 is the lowest

48
Strategic alliance
  • Strategic alliances are joint ventures among
    international companies to exploit global
    business opportunities
  • Alliances are often motivated by
  • 1.Product or production technology
  • 2.Market access
  • 3.Production capability
  • 4.pooling of capital

49
Strategic Alliances
Kia might help sell and market GM cars in South
Korea
General Motors (US) Kia Motor Corp. (S.K.)
Manufacture 100,000 vehicles annually near Moscow
Renault (France) City of Moscow
Forming Texas-based Sino Swearingen Aircraft Co.
Sino Aerospace Invest- ment Corp. (Taiwan)
Swearingen Aircraft (US)
50
E-Shoe Retailer - Zappos
  • Amazonof Shoe Retail

51
Welcome to Zappos
  • http//www.youtube.com/watch?vPqAXLbV9gGU
  • http//www.youtube.com/watch?v0mBxK6eXLrQ
  • http//www.youtube.com/watch?vuxBWfqDAQkg
  • http//www.youtube.com/watch?vtFyW5s_7ZWc

52
About Zappos
  • The annual sales of Zappos was 800 million, over
    ¼ of E-shoe retail market, whose market size is
    over 3 billions
  • It is so famous and popular that it is known as
    Amazon in this industry, which is the leader of
    E-shopping business.
  • Diversified the products, such sunglasses and
    purse, etc.
  • Open the first direct store in Las Vegas in 2007
  • Aimed to reach a 1 billion sales in 2010.

53
Zappos Core Value
  • Deliver WOW Through Service
  • Embrace and Drive Change
  • Create Fun and A Little Weirdness
  • Be Adventurous, Creative, and Open-Minded
  • Pursue Growth and Learning
  • Build Open and Honest Relationships With
    Communication
  • Build a Positive Team and Family Spirit
  • Do More With Less
  • Be Passionate and Determined
  • Be Humble

54
History of Zappos
  • 1999, Xie met Nick Swinmurn and discussed the
    possibility of running E-Shoe Store.
  • E-shopping Market size of 40 billions, and
    mail-order exceeds 2 billions
  • Xie first invest 1 million on Swinmurns online
    shoe store, Shoe Site, which is changed name to
    Zappos soon. (The name Zappos is derived from the
    Spanish word zapatos, meaning shoes.)
  • Later, another 10 million investment is added
    Zappos by Xie, who became the CEO of Zappos in
    2000.

55
New Products on Zappos
  • Zappos has expanded from shoes to handbags and
    purses, and has launched a second line of
    high-end shoes called Zappos Couture.

56
The Founder of Zappos
  • Founder Jiahua Xie, A Chinese Guy born in
    Illinois
  • Graduated from Harvard University
  • Major in Computer Technology, and won couple of
    champions
  • Starts running a pizza business while in school
  • Made his first bucket of gold of founding
    LinkEchange, an internet advertising company

57
Problems
  • Difficulties at the beginning
  • Insufficient Orders
  • 1/10 of orders are unavailable, either out of
    stock or delivered wrong shoes
  • Kept on losing money and faced the threat of
    bankrupt
  • Zappos did "almost nothing" in sales for 1999
  • Xie took certain of actions to improve the
    Zapposs performance in both hardware and
    software.

58
Hardware
  • To help customers easy shopping every pair of
    shoes in inventory of total 58,000 pairs is
    pictured at 8 different angles.
  • To ensure fast delivery, Zappos located its
    warehouses next to UPS airports and make them
    work 24/7.

59
Software
  • Free return
  • No successful examples before in E-shoe retailing
    because its too easy to buy the wrong shoes.
  • Need to relief customers discomposure as well as
    minimize the cost.
  • Xie designed E-mail system for Zappos to
    automatically reply custpomers e-mail of return
    requests.
  • Zaoppor paid 100 millions as a shipping cost for
    all returns and redeliveries.

60
As A results
  • Greatly enhanced customers satisfaction and
    loyalty
  • Since 2000 to 2007, Zapposs sales increase
    dramatically in past 7 years
  • Grossed over 800 million in merchandise sales in
    2007, and is projecting over 1 billion in 2008
  • Zappos serve for total customers of 5 million.
  • 60 of total customers returned customers
  • Other 25 use word of mouth to bring in new
    customers to Zappos
  • 15 million venture capital is invested in.

61
High Requirements of Employee
  • Zappos manage professional skills of call in
    service, and try to create free and easy shopping
    atmosphere to customers.
  • Thus, customer representatives are required to
    perform cleverly and humorously in couple of
    hours.

62
Employee Training
  • Zappos has its own special method to look for
    those qualified employees.
  • Professional 4-week training program, make
    employees aware of companys strategy, culture,
    and customer devotion.
  • After the first week of training program, deal
    no deal time offer 1000 to ask trainees to
    quit. About 10 new employees choose to deal.
  • The idea here is that Zappos take initial cost to
    instead of long term investment, and try to
    identify the matchingness between company value
    and employees individual value.

63
Assignment Questions?
  • Q-1 What are key success factors for Zappos?
  • Q-2 What are possible main challenges facing the
    company?
  • Q-3 What are lessons one should learn from
    Zappos successful story?
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