OM_P2

6. Operations Strategy
Chapter 2

7. Four Steps for Strategy
Formulation
Defining a primary task



What is the firm in the business of doing?

Assessing core competencies
What does the firm do better than anyone else?

Determining order winners and order qualifiers
What wins the
What qualifies
order?
an item to be
firm

 considered for purchase?
Positioning the

How will the firm compete?

Copyright 2006 John Wiley & Sons, Inc. 2-3
Four Steps for Strate

8. Competitive Priorities
Cost
Quality
Flexibility
Speed




Copyright 2006 John Wiley & Sons, Inc. 2-4
Competitive Prioriti

9. Competitive Priorities:
Cost
Lincoln Electric

reduced costs by $10 million a year for 10 years
skilled machine operators save the company millions
would have been spent on automated equipment

that

Southwest Airlines

one type of airplane facilitates crew changes, record-
keeping, maintenance, and inventory costs
direct flights mean no baggage transfers
$30 million annual savings in travel agent commissions
requiring customers to contact the airline directly


by

Copyright 2006 John Wiley & Sons, Inc. 2-5
Competitive Prioriti

10. Competitive Priorities:
Quality
Ritz-Carlton - one customer at a time

Every employee is empowered to satisfy a guest’s wish
Teams at all levels set objectives and devise quality
action plans
Each hotel has a quality leader
Quality reports tracks




guest room preventive maintenance cycles
percentage of check-ins with no waiting
time spent to achieve industry-best clean room
appearance



Guest Preference Reports are recorded in a database

Copyright 2006 John Wiley & Sons, Inc. 2-6
Competitive Prioriti

11. Competitive Priorities:
Flexibility
Andersen Windows

number of products offered grew from 28,000 to 86,000
number of errors are down to 1 per 200 truckloads


Custom Foot Shoe Store:

customer’s feet are scanned electronically to capture
measurements
custom shoes are mailed to the customer’s home in weeks
prices are comparable to off-the-shelf shoes



National Bicycle Industrial Company

offers 11,231,862 variations
delivers within two weeks at costs only 10% above standard
models


Copyright 2006 John Wiley & Sons, Inc. 2-7
Competitive Prioriti

12. Competitive Priorities:
Speed
Citicorp

advertises a 15-minute mortgage approval

L.L. Bean


ships orders the day they are received

Wal-Mart
replenishes its stock twice a week

Hewlett-Packard

produces electronic testing equipment in five days

General Electric

reduces time to manufacture circuit-breaker boxes into three

days and dishwashers into 18 hours
Dell


ships custom-built computers in two days

Motorola
needs less than 30 minutes to build to order pagers

Copyright 2006 John Wiley & Sons, Inc. 2-8
Competitive Prioriti

13. Corporate Strategy
Operations provides support for a
differentiated strategy

 Operations serves as a firm’s distinctive
competence in executing
better than competitors
similar strategies
Copyright 2006 John Wiley & Sons, Inc. 2-9
Operations’ Role in

14. Strategic Decisions in
Operations
Services Process
and
Technolog
y
Products
Human
Resource
s
Quality
Capacity
Sourcing Operatin
g
Systems
Facilities
Copyright 2006 John Wiley & Sons, Inc. 2-14
Strategic Decisions

15. Products and Services
Make-to-order

products and services are made to customer
specifications after an order has been received
Make-to-stock


products and services are made in anticipation of
demand
Assemble-to-order


products and services add options according to
customer specifications

Copyright 2006 John Wiley & Sons, Inc. 2-15
Operations Strategy:
Products and Servic

16. Processes and technology
Project

one-at-a-time production of a product to customer order

Batch production

systems process many different jobs at the same time
in groups (or batches)
Mass production


large volumes of a standard product for a mass market

Continuous production

used for very high volume commodity products

Copyright 2006 John Wiley & Sons, Inc. 2-16
Production Strategy:
Processes and techno

17. Product-Process Matrix
Source: Adapted from Robert
Hayes and Steven Wheelwright,
Restoring the Competitive
Edge: Competing Through
Manufacturing (New York: John
Wiley & Sons, 1984), p. 209
Copyright 2006 John Wiley & Sons, Inc. 2-17
Product-Process Ma

18. Copyright 2006 John Wiley & Sons, Inc. 2-18
project that took almost 10 years to complete.
s Production
A paper manufacturer produces a
continuous sheet paper from wood
hich is mixed, pressed,
dried, and wound onto reels.
Mass Production
Here in a clean room a worker performs
quality checks on a computer assembly line.
Batch Production
At Martin Guitars bindings on the guitar frame are
installed by hand and are wrapped with a cloth
webbing until glue is dried.
Project
Construction of the aircraft carrier USS Nimitz was a huge
C ontinuou
A paper man
continuous
pulp slurry, w

19. Processes and Technology
Professional service

highly customized and very labor intensive

Service shop

customized and labor intensive

Mass service

less customized and less labor intensive

Service Factory

least customized and least labor intensive

Copyright 2006 John Wiley & Sons, Inc. 2-19
Service Strategy:
Processes and Techn

20. Service-Process Matrix
Source: Adapted from Roger
Schmenner, “How Can Service
Businesses Survive and
Prosper?” Sloan Management
Review 27(3):29
Copyright 2006 John Wiley & Sons, Inc. 2-20
Service-Process Matr

21. Copyright 2006 John Wiley & Sons, Inc. 2-21
on extensive training in medicine.
delivery is affected by students in each class.
Service Factory
Electricity is a commodity available
continuously to customers.
Mass Service
A retail store provides a standard array of
products from which customers may choose.
Service Shop
Although a lecture may be prepared in advance, its
Professional Service
A doctor provides personal service to each patient based

22. Capacity and Facility
 Capacity strategic decisions include:
When, how much, and in what form to alter

capacity
Facility strategic decisions include:

whether demand should be met with a few large

facilities or with several smaller ones
whether facilities should focus on serving certain
geographic regions, product lines, or customers
facility location can also be a strategic decision


Copyright 2006 John Wiley & Sons, Inc. 2-22
Operations Strategy:

23. Human Resources
What is skill levels and degree of autonomy
required to operate production system?
What are training requirements and selection
criteria?
What are policies on performance evaluations,
compensation, and incentives?





Will workers be salaried, paid
paid a piece rate?
Will profit sharing be allowed,
criteria?
an hourly
and if so,
rate, or
on what
Copyright 2006 John Wiley & Sons, Inc. 2-23
Operations Strategy:

24. Human Resources (cont.)
Will workers perform individual tasks or work
in teams?
Will they have supervisors or work in self-
managed work groups?
How many levels of management will be
required?
Will extensive worker training be necessary?
Should workforce be cross-trained?
What efforts will be made in terms of
retention?






Copyright 2006 John Wiley & Sons, Inc. 2-24
Operations Strategy:
Human Resources (c

25. Quality
What is target level of quality for our
products and services?
How will it be measured?
How will employees be involved with
quality?



 What will be the responsibilities
quality department?
of the
Copyright 2006 John Wiley & Sons, Inc. 2-25
Operations Strategy:

26. Quality (cont.)
What types of systems will be set up to
ensure quality?

How
How
How
will
will
will
quality awareness be maintained?
quality efforts be evaluated?


 customer perceptions of quality be
determined?
How will decisions
affect quality?
in other functional areas

Copyright 2006 John Wiley & Sons, Inc. 2-26
Operations Strategy:

27. Sourcing
Vertical integration

degree to which a firm produces parts that go

into its products
Strategic Decisions

How much of work should be done outside
firm?
the

On what basis should particular items
made in-house?
When should items be outsourced?
How should suppliers be selected?
be



Copyright 2006 John Wiley & Sons, Inc. 2-27
Operations Strategy:

28. Sourcing (cont.)
What type of relationship should be
maintained with suppliers?
What is expected from suppliers?
How many suppliers should be used?



How can quality and dependability
suppliers be ensured?
of

How can suppliers
collaborate?
be encouraged to

Copyright 2006 John Wiley & Sons, Inc. 2-28
Operations Strategy:

29. Operating Systems
How will operating systems execute
decisions?
How to align information technology
strategic
and



operations strategic goals?
How information technology supports both
customer and worker demands for rapid access,
storage, and retrieval of information?
How information technology support decisions
making process related to inventory levels,
scheduling priorities, and reward systems?

Copyright 2006 John Wiley & Sons, Inc. 2-29
Operations Strategy:

30. Copyright 2006 John Wiley & Sons, Inc. 2-30
Financial
Strategy
Operations
Strategy
Marketing
Strategy
Corporate
Strategy
Mission
and Vision
Strategic Planning

31. Performance
Indicators
Robert Kaplan and David
l
Press, 2004), Figure 3-2,
Copyright 2006 John Wiley & Sons, Inc. 2-32
Key
Perform
Source:
Robert Kaplan and Davi
Norton, Strategy Maps:
Converting Intangible
Assets into Tangible
Outcomes (Boston:
Harvard Business Schoo
Press, 2004), Figure 3-2
p. 67

32. Dashboard
Radar Chart
Copyright 2006 John Wiley & Sons, Inc. 2-33
Balanced Scorecard

33. Operations
Global markets, global sourcing, and
global operations
Virtual companies





Greater choice, more
Emphasis on service
Speed and flexibility
individualism
Copyright 2006 John Wiley & Sons, Inc. 2-34
Issues and Trends in

34. Operations (cont.)
Supply chains
Collaborative commerce
Technological advances
Knowledge and ability to





learn
Environmental and
responsibilities
social
Copyright 2006 John Wiley & Sons, Inc. 2-35
Issues and Trends in

35. Changing Corporation
20th-Century 21st-Century
Characteristic Corporation Corporation
 Interdependencies
Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
Copyright 2006 John Wiley & Sons, Inc. 2-36
Organization
Focus
Style
Source of strength
Structure
Resources
 Pyramid
 Internal
 Structures
 Stability
 Self-sufficiency
 Physical assets
 Web
 External
 Flexible
 Change
 Information
Changing Corporatio

36. Changing Corporation
(cont.)
20th-Century 21st-Century
Characteristic Corporation Corporation
 Hours
Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
Copyright 2006 John Wiley & Sons, Inc. 2-37
Operations
Products
Reach
Financials
Inventories
Strategy
 Vertical integration
 Mass production
 Domestic
 Quarterly
 Months
 Top-down
 Virtual integration
 Mass customization
 Global
 Real-time
 Bottom-up
Changing Corporatio

37. Changing Corporation
(cont.)
20th-Century 21st-Century
Characteristic Corporation Corporation
Leadership
Workers
Job expectations
Motivation
Improvements
Quality
Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
Copyright 2006 John Wiley & Sons, Inc. 2-38
 Dogmatic
 Employees
 Security
 To compete
 Incremental
 Affordable best
 Inspirational
 Employees, free agents
 Personal growth
 To build
 Revolutionary
 No compromise
Changing Corporatio

38. Quality Management
Chapter 3

39. Meaning of Quality
Total Quality Management
Quality Improvement and
Employees


 Role of
Strategic Implications
Six Sigma
of TQM


Copyright 2006 John Wiley & Sons, Inc. 3-2
Lecture Outline

40. Lecture Outline (cont.)
TQM in Service Companies
Cost of Quality
Quality Management and Productivity
Identifying Quality Problems and Causes




 Quality Awards
Standards
ISO 9000
and Setting Quality

Copyright 2006 John Wiley & Sons, Inc. 3-3
Lecture Outline (con

41. Webster’s Dictionary


degree of excellence of a thing

American Society for Quality
totality of features and characteristics

that satisfy needs
Consumer’s and
Perspective
Producer’s

Copyright 2006 John Wiley & Sons, Inc. 3-4
Meaning of Quality

42. Dimensions of Quality:
Manufactured Products
Performance

basic operating characteristics of a product; how

well a car is handled or its gas mileage
Features

“extra” items added to basic features, such as a

stereo CD or a leather interior in a car
Reliability

probability that a product will operate properly
within an expected time frame; that is, a TV will
work without repair for about seven years

Copyright 2006 John Wiley & Sons, Inc. 3-6
Dimensions of Qual
Manufactured Produ

43. Dimensions of Quality:
Manufactured Products (cont.)
Conformance
degree to which a product meets pre–established
standards
Durability




how long product lasts before replacement

Serviceability
ease of getting repairs, speed of repairs,
and competence of repair person
courtesy

Copyright 2006 John Wiley & Sons, Inc. 3-7
Dimensions of Qual
Manufactured Produ

44. Dimensions of Quality:
Manufactured Products (cont.)
Aesthetics

how a product looks, feels, sounds,

smells, or tastes
Safety

assurance that customer will not suffer
injury or harm from a product; an
especially important consideration for

automobiles
Perceptions

subjective perceptions based on brand
name, advertising, and the like

Copyright 2006 John Wiley & Sons, Inc. 3-8
Dimensions of Qualit
Manufactured Produ

45. Dimensions of Quality:
Service
Time and Timeliness

How long must a customer wait for service,
and is it completed on time?
Is an overnight package delivered overnight?


Completeness:

Is everything customer asked for provided?
Is a mail order from a catalogue company
complete when delivered?


Copyright 2006 John Wiley & Sons, Inc. 3-9
Dimensions of Qual

46. Dimensions of Quality:
Service (cont.)
Courtesy:

How are customers treated by employees?
Are catalogue phone operators nice and are
their voices pleasant?


Consistency

Is the same level of service provided to each
customer each time?
Is your newspaper delivered on time every
morning?


Copyright 2006 John Wiley & Sons, Inc. 3-10
Dimensions of Qual

47. Dimensions of Quality:
Service (cont.)
Accessibility and convenience

How easy is it to obtain service?
Does a service representative answer you calls

quickly?

Accuracy

Is the service performed right every time?
Is your bank or credit card statement correct every month?


Responsiveness

How well does the company react to unusual situations?
How well is a telephone operator able to respond to a
customer’s questions?


Copyright 2006 John Wiley & Sons, Inc. 3-11
Dimensions of Qualit

48. A Final Perspective
Consumer’s and producer’s

perspectives depend on each other
Consumer’s perspective: PRICE
Producer’s perspective: COST
Consumer’s view must dominate



Copyright 2006 John Wiley & Sons, Inc. 3-13
Meaning of Quality:

49. Total Quality Management
Commitment to quality throughout organization

Copyright 2006 John Wiley & Sons, Inc. 3-15
 Principles of TQM
 Customer-oriented
 Leadership
 Strategic planning
 Employee responsibility
 Continuous improvement
 Cooperation
 Statistical methods
 Training and education
Total Quality Manag

50. Copyright 2006 John Wiley & Sons, Inc. 3-18
1. Create constancy of purpose
2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on
quality
5. Constantly improve system and
workers
Deming’s 14 Points

51. Deming’s 14 Points (cont.)
Copyright 2006 John Wiley & Sons, Inc. 3-19
1. Institute worker training
2. Instill leadership among
supervisors
3. Eliminate fear among
employees
4. Eliminate barriers between
departments
5. Eliminate slogans
Deming’s 14 Points (

52. Deming’s 14 Points (cont.)
Copyright 2006 John Wiley & Sons, Inc. 3-20
1. Remove numerical quotas
2. Enhance worker pride
3. Institute vigorous training and
education programs
4. Develop a commitment from
top management to implement
above 13 points
Deming’s 14 Points (

54. and Role of Employees
Participative
problem solving

employees involved in
quality management
every employee has
undergone extensive
training to provide quality
service to Disney’s guests


Copyright 2006 John Wiley & Sons, Inc. 3-23
Quality Improvement
and Role of Employ

55. Quality
Presentation Group processes
Monitoring Problem analysis
Copyright 2006 John Wiley & Sons, Inc. 3-24
Circle Organization
ers
Same area
Supervisor/moderator
Training
Implementation Data collection
Problem
Solution Identification
Problem results List alternatives
Consensus
Problem
Brainstorming
Analysis
Cause and effect
Data collection
and analysis
Quality Circle Organizat
8-10 memb

56. Strategic Implications
TQM
of
 Strong leadership
 Goals, vision, or mission
 Operational plans and policies
 Mechanism for feedback
Copyright 2006 John Wiley & Sons, Inc. 3-25
Strategic Implications

57. A process for developing and delivering
near perfect products and services
Measure of how much a process
deviates from perfection
3.4 defects per million opportunities
Champion




an executive responsible for project success

Copyright 2006 John Wiley & Sons, Inc. 3-26
Six Sigma

58. Copyright 2006 John Wiley & Sons, Inc. 3-28
Six Sigma: DMAIC
DEFINE MEASURE ANALYZE IMPROVE CONTROL
67,000 DPMO
cost = 25% of
sales 3.4 DPMO

59. Seven Quality Control Tools
Pareto Analysis
Flow Chart
Check Sheet
Histogram




Scatter Diagram
SPC Chart
Cause-and-Effect
Diagram



Copyright 2006 John Wiley & Sons, Inc. 3-42
Seven Quality Control

60. Copyright 2006 John Wiley & Sons, Inc. 3-43
NUMBER OF
CAUSE DEFECTS PERCENTAGE
Poor design 80 64 %
Wrong part dimensions 16 13
Defective parts 12 10
Incorrect machine calibration 7 6
Operator errors 4 3
Defective material 3 2
Surface abrasions 3 2
125 100 %
Pareto Analysis

61. 10
Copyright 2006 John Wiley & Sons, Inc. 3-44
Percent
from
each
cause
(64)
(13)
(6)
70
60 Pareto Chart
50
40
30
20
(10)
(3) (2) (2)
0
Causes of poor quality

62. Finish
Finish
Copyright 2006 John Wiley & Sons, Inc. 3-45
Flow Chart
Start/
Operation Operation Decision Operation
Operation Operation
Decision Start/

63. Copyright 2006 John Wiley & Sons, Inc. 3-46
COMPONENTS REPLACED BY LAB
TIME PERIOD: 22 Feb to 27 Feb 2002
REPAIR TECHNICIAN: Bob
TV SET MODEL 1013
Integrated Circuits ||||
Capacitors |||| |||| |||| |||| |||| ||
Resistors ||
Transformers ||||
Commands
CRT |
Check Sheet

64. 0
Copyright 2006 John Wiley & Sons, Inc. 3-47
20
15
10
5
1 2 6 13 10 16 19 17 12 16 2017 13 5 6 2 1
Histogram

65. Copyright 2006 John Wiley & Sons, Inc. 3-48
Scatter Diagram
Y
X

66. Control Chart
Copyright 2006 John Wiley & Sons, Inc. 3-49
Number
of
defects
C
24
21
18
15
12
9
6
3
UCL = 23.35
c = 12.67
LCL = 1.99
2 4 6 8 10 12 14 16
Sample number

67. Defective from vendor Poor process design
control
Not to specifications management
Copyright 2006 John Wiley & Sons, Inc. 3-50
Cause-and-Effect Diagram
Measurement Human Machines
Faulty
testing equipment Poor supervision Out of adjustment
Incorrect specifications Lack of concentration Tooling problems
Improper methods Inadequate training Old / worn
Quality
Inaccurate
Problem
temperature
Ineffective quality
Dust and Dirt Material- Deficiencies
handling problems in product
design
Environment Materials Process

68. Created in 1987 to stimulate growth of
quality management in the United States
Categories
Leadership
Information and analysis
Strategic planning
Human resource
Focus
Process management
Business results
Customer and market focus








Copyright 2006 John Wiley & Sons, Inc. 3-51
Baldrige Award

69. Implications of ISO
Companies
9000 for U.S.
Many overseas companies
will not do business with a
supplier unless it has ISO
9000 certification
ISO 9000 accreditation
ISO registrars



 A total commitment to
is required throughout
organization
quality
an
Copyright 2006 John Wiley & Sons, Inc. 3-55
Implications of ISO 9000