View Operations Management as Strategy

JWI 550 Operations Management, week2 summary, 1/20/13

I. View Operations Management As Strategy - Jack Welch Video
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An Operation that has a clear focus and understands it as a strategy
is so different than those that just try it as a tactic

In South West airlines & WalMart  - they are committed to be low cost suppliers
Apple - operations management strategy is excellence in quality and timeliness

Those who use OM as a Tactic go after quick fix this week and another next week; they do not use OM as a strategy eg. let's lower inventory to get costs down - will be a momentary hit; let's have quick delivery of sales

OM strategy means employees understand what truly matters:
eg. Delivery of products on time (Apple), low cost always (WalMart), committed as low cost supplier of air transportation (South West)

II. THE GOAL - Eliyahu Goldratt (2012)
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The Goal of a manufacturing firm is to make money (Goldratt, 2012). 

The three critical measurements of achieving The Goal are Throughput, Inventory and Operating Expense.

The Goal is achieved by (a) increasing throughput while simultaneously reducing both inventory and operating expense and (b) ensuring the value/price of the product is higher than investment in inventory and operational expense per unit of sale.

(1) Throughput - is the money coming into the firm
It is the rate at which the firm generates money through sales (unlike through production as in traditional definition).

(2) Inventory - is the money currently tied as investment inside the firm that can be sold (unlike all stocks - some of which cannot be sold - as in traditional definition)
- the manufacturing plant
- undepreciated value of machines
- knowledge that can be sold eg. patents, technology licenses

(3) Operating Expense - is the money going out of the firm
It is the money taken out of the firm to make payments and enable throughput
- employee time (direct, indirect, idle or operating time)
- any money lost eg. depreciation of machines
- cost of parts needed to run the machines eg. oil
- waste created eg. scrap
- cost of carrying (WIP - work in progress)
- knowledge to turn inventory into throughput

III. Operations Management (Heizer, Render, 2011)
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1. Job of an OM Manager (Heizer & Render, 2013)
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Implement OM strategy, provide competitive advantage, increase productivity

2. Ten Strategic OM decisions are
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(i) Goods and Services Design
(ii) Quality
(iii) Process and capacity design
(iv) location selection
(v) layout design
(vi) Human Resources and Job Design
(vii) Supply chain management
(viii) Inventory
(ix) Scheduling
(x) Maintenance

3. Techniques for OM Strategy Analysis
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Resources view: check compatibility of strategy & available resources - financial, physical, human, technological
Value chain analysis: identify activities that add value; determine strengths & weaknesses and opportunities to develop competitive advantage
5 forces: immediate rivals, potential entrants, customers, suppliers, substitute products

4. OM issues vary by stage in Product Life Cycle
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Introduction
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Corporate strategy: Best period to increase market share
OM strategy: Critical R&D, product design
Issues: frequent design changes, short production runs, high productions costs, limited models, quality
Growth
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Corporate strategy: Practical change price or quality image, strengthen niche
OM strategy: Critical to forecast, process reliability, competitive product improvements, increase capacity, product focus, enhance distribution
Maturity
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Corporate strategy: Poor time to change price or quality, competitive costs critical, defend market position
OM strategy: standardization, only minor changes allowed, optimum capacity, increase stability of process, long production runs, product improvement, cost cutting
Decline
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Corporate strategy: Cost control
OM strategy: Little product differentiation, cost minimization, overcapacity in industry, prune low margin products, reduce capacity

IV. OM Strategy Development & Implementation
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Start with Environmental analysis, then determine corporate mission and finally form a strategy
(a) SWOT
(b) KSF - Key success factors to achieving competitive advantage
(c) Core competencies - particular set of skills and talents and activities that firm does really well
(d) Activity Map - graphically link competitive advantage, KSF, support activities

V. Global Operations Strategy
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MNC - firm owns and controls facilities in more than one country
International strategy - firm has cross border transactions; penetrate global markets through exports and licenses; Little local responsiveness & cost advantage
Multidomestic strategy - operating decisions decentralized to each country to enhance local responsiveness; significant local responsiveness; little cost advantage
Global strategy - operating decisions centralized; HQ coordinates standardization and learning between facilities; little local responsiveness but significant cost advantage
Transnational strategy - combines benefits of global scale efficiencies with benefits of local responsiveness; significant local responsiveness & cost advantages



Dr DP