How to developOperational Strategy

Operational Strategy

It is concerned with the development of a long- term plan for determining how to best utilize the major resources of the firm so that there is a high degree

of compatibility between these resources and the firm’s long term

corporate strategy

Typical Operations Strategy

How big do we make the facilities?Where do we locate them?When do we build them?What type of processes do we install to

make the product?

Priorities of Operations Strategy

CostQualityDeliveryFlexibility

CostA firm must be a low cost producer.Does not always guarantee profitability

and success.Customers cannot distinguish the products

of one firm from those of anotherSegment of market is very large and many

companies are lured by the potential for significant profits.

There can be only one low cost producer who usually establishes the selling price in the market.

Eg:Nucor in the US.

Quality

Product QualityThe level of quality in a product’s design

will vary as to the market segment it is aimed for.

The goal is to focus on the requirements of the customer.

Process QualityRelates directly to the reliability of the

product.The goal is to produce error free products

through the concept of continuous improvement.

Speed of Delivery

Speed of delivery is an important determinant in its purchasing decisions for another niche.

The ability of a firm to be able to provide consistent and fast delivery allows it to charge a premium price for its products.

Eg: one-hour eye glass manufacturing, ‘same day’ dry cleaning etc.

Delivery Reliability

This priority relates to the ability of the firm to supply the product or service on or before a promised due date.

Flexibility

The ability of a company to offer a wide variety of products to its customers.

An important element is the time required for a company to develop a new product and convert its processes to offer the new product.

Eg: Celestica, Inc, a Canadian computer component manufacturer.

Other Product Specific Criteria

Technical Liaison and Support.Meeting a launch dateSupplier After Sale Support

Elements of Operations Strategy

Designing the production system. Product/Service design and development. Technology selection and process

development. Allocation of resources to strategic

alternatives. Facility Planning.

Designing the production System

Product design1. Customized product design

2. Standard product design

Production System1. Product Focused System

2. Process Focused System

Finished Goods Inventory Policy1. Produce to stock policy

2. Produce to order policy

Production/Service Design & Development

Every product has a Life Cycle.Introduction Stage is the First stage after Designed

& Development.• Introduction- Sales depends on promotion and other

marketing efforts.• Growth- Sales volume increases exponentially.

Organizations takes decision regarding production expansion capacity.

• Maturity- Sales growth become stagnant. Organizations focuses on improving efficiency of the processes, minimizing cost, etc.

• Decline- Sales shows downward trend, because of Obsolescence of technology used in the product.

Steps in the Development of new products

1. Idea Generation2. Feasibility Studies3. Prototype Design4. Prototype Testing5. Initial Design of Production Model6. Economic Evaluation7. Market Testing8. Final Design of Production Testing

Technology selection and process development

• After finalizing design next step is how to produce.

• Process involves analysis and planning of the production processes and facilities.

• Process of Production is planned in detail.• Technology to be used in the production

process is selected from a range of Options

Allocation of resources to strategic alternatives

• Problem of scares resources like capital, machines and materials and so on.

• Resource inputs are vital to production activities, their shortages can influence production performance significantly.

• Optimal use of resources both in terms of minimizing wastage, and in terms of their allocation to the best strategic use.

Facility Planning

• Location of the production facilities is one of the key decisions. Since it is critical to the competitiveness of the organization.

• Setting up production facilities with adequate capacity involves massive initial investment.

A FRAME WORK FOR OPERATIONS STRATEGY IN

MANUFACTURING

Strategic vision

NEW PRODUCT CURRENT PRODUCT

Quality, Dependability, flexibility, Price, stability

Operation capabilities

Technology

CIM

CUSTOMER NEEDS

PERFORMANCE PRIORITIES

Enterprise capabilities

Systems People

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R &

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Developing a manufacturing strategy

• The steps for developing priorities are:1) Segment the market according to the

product group2) Identify the product requirement, demand

patterns, and profit margin of each group3) Determine the order winner and order

qualifiers for each group4) Convert order winners into specific

performance requirements

Manufacturing requirements differences

1) Products

2) Customers

3) Product range

4) Design changes

5) Quality

6) Demand variation

7) Profit margin

External performance priorities

• Order winners

Price, product, reliability, product specification

--Order qualifiers

Delivery lead time

Product specification

Quality conformance

Price

Productivity Measurement and Learning CurvesProductivity Measurement: Productivity is a common measure of how well a country,industry, or business unit is using its resources. Since operations management focuses on making the best use ofthe resources available to a firm, productivity measurementis fundamental to understanding operations-related performance. In its broadest sense, productivity is defined as

Productivity = Outputs Inputs

Productivity may be expressed as partial measures, multi-factor, or total measures.

Partial measure = Output or Output or Output or Output Labor Capital Materials Energy

Multifactor = Output or Output Labor+Capital+Energy Labor+Capital+MaterialsTotal measure = Output or Goods and services produced

Input All resources used

Learning Curves:Learning Curves Analysis is based on the premises that anorganization gains experience in manufacturing a product,the resource required per unit of output diminishes over theof the product,Reasons:

1. Workers are unfamiliar with the task, time required to produce first few units 2. Technology is new and has not been tried out 3. As workers learn their tasks, their performance improves

Performance time drops off faster at first and it continues to fall at some slower rate until a performance leveling-off is reached.

This learning pattern applies to individual, groups and organizations. Further it is often regular and predictable