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OM
Lecture I
Operations Strategy
Professor Kihoon Kim
Operations Strategy
Slide 1
42%
40%
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17%
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10%
0%
Operations
Finance
Marketing
Sales
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40%
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30%
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10%
6%
0%
Operations
Slide 2
Finance
Marketing
General
Management
Slide 3
Agenda
What is Operations?
Process view of Ops
Operations Strategy
Slide 4
Operations Strategy
Operations Strategy
Slide 5
Operations Strategy
Slide 6
versa.
Truck dispatching
vs.
Compensation Scheme for truck dispatcher
IT at Walmart
Operations Strategy
Slide 7
Operations Strategy
Slide 8
Operations Strategy
Slide 9
What is Operations?
Operations Strategy
Slide 10
Process
Management
Inputs
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units/Entities
(customers, data,
material, cash, etc.)
Resources
Labor & Capital
Operations Strategy
Information
structure
Slide 11
Operations Strategy
Slide 12
Absolute measures:
revenues, costs, operating income, net income
Net Present Value
Relative measures:
Return on assets (ROA), ROI, ROE
Survival measure:
cash flow
Operations Strategy
Slide 13
customer exchanges
Ideas
Design
Produce
Market
& Sell
Ship
Service
Willingness to pay
surplus
How to classify values to customers?
Operations Strategy
Slide 14
Benefit driven by
customer value
Variety V
(flexibility)
Price p
(Cost)
Quality Q:
of product or outcome
of service
Operations Strategy
Time T:
Rapid, reliable delivery
New product development
Slide 15
competitive
strategy
2.
operations
strategy
Operations Strategy
Rank (p, T, Q, V)
3.
Process
structure & mgt
A good Operations
structures the processes and resources to
align and adapt
the operational competencies
with the needs of the customers
and market conditions.
Operations Strategy
Slide 17
2.
Cost efficiency
Operations Strategy
Slide 18
The Fundamentals:
Operations Strategy a framework
A plan for developing resources and configuring processes such that the
resulting competencies maximizes NPV/value
Cost
Time
Quality
Variety
Competencies
Resources
Operations Strategy
Operations
Strategy
Slide 19
Processes
Representation of Strategy:
Current Position and Strategic Directions of Movement in the competitive product space
Responsiveness
A
High
Low
Price
Operations Strategy
Slide 20
Responsiveness
A
B
operations
frontier
High
Low
Price
Operations Strategy
Slide 21
Wal-Mart
Corporate Strategy
(Gain competitive advantage by) providing customers access to quality goods,
when and where needed, at competitive prices
Operations Structure
Cross docking
EDI
Fast transportation
system
Focused locations
Communication between
retail stores
Operations Strategy
Short flow times
Low inventory levels
Operations Strategy
Slide 22
Classification of Processes:
by Process Types
Project
Line Flow
Batch
Job Shop
Job Shop
One-of-a-kind products
Examples:
Continuous Flow
Operations Strategy
Flow Shop
Slide 23
Characteristics of Processes:
Comparison of Process Types
Type of
Process
Product
Volume
Product
Variety
Machine
Setup
Frequency
Job Shop
Flow Shop
Operations Strategy
Slide 24
Labor
Skills
Variable
Cost
JOB SHOP
Jumbled Flow.
Process segments
loosely linked.
(Commercial Printer,
Architecture firm)
BATCH
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
(Heavy Equipment,
Auto Repari)
LINE FLOWS
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
Low
High Standardization
Commodity Products
High volume
Operations Strategy
High
Few Major Products
Slide 25
Many Products
Low Standardization
One of a kind
Low Volume
Product
Variety
Q, Flex)
3. Given needed competencies, which process design is best? design process
Focused processes are easiest to get to the frontier; one integrated may be
needed because of financial investments
Operations Strategy
Pick the right process type (job shop vs. flow shop) using service-process matrix
Slide 26
Basic facts:
there are many other dimensions of value besides low cost,
2. a process cannot perform well on every yardstick,
3. simplicity and repetition breeds competence
1.
But what do you do if you want to serve different customer types with
different needs (values)? The choice:
Operations Strategy
Slide 27
Good Operations?
Operations Strategy
Slide 28