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Aligning the Operation Strategy (2. Capacity strategy (Factors affecting…
Aligning the Operation Strategy
Operations strategy
: the total pattern of decisions that shape the long-term capabilities of an operation and their contribution to overall strategy.
Characteristics:
a longer time frame;
a broader perspective;
a higher level of focus.
Requirements:
consistent with the strategic choices made at the business strategy level;
mindful of the market requirements;
open to the lessons of experience from those involved in operations;
aware of the operation’s resource, capabilities, and limitations.
Four key areas:
Capacity
Supply network
Process technology
Improvement
1. Operations performance objectives
Five generic performance objectives
Quality
By the specification of the attributes of the product or service
By the compliance of the product or service with its specification
Speed
the time that has elapsed btw the beginning and the end of a sales transaction.
Delivery lead time
: the time from the receipt of a customer order to the delivery of a product.
Time-based competition (TBC)
Dependability
keep promises to customers, such as delivery time or promised volume.
Flexibility
has two dimensions: volume/mix and agility
Volume/mix
: refer to an operation’s ability to produce
such as different types of products or services, within a given
Time, levels of output, or delivery dates.
Agility
: refer to how quickly and efficiently an organization can respond to changes
Product-mix flexibility
: the ability to change over quickly to other products produced in a facility, as required by demand shifts in mix.
Cost
the goal of lowering unit cost, with the goal of increasing the profit or increasing competitive edge by lowering price
Detailed performance measures
Factors affecting the weight of performance objectives
Business strategy
Commitment to stakeholders
(tools: triple bottom line)
Competitive factors
Order qualifiers
: those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace.
Order winners
: be considered to be competitive advantages for the firm.
Order losers
: fail to meet customer expectation and cause loss of business.
Life cycle effects
Production environment
Two factors in manufacturing environment
:
variety of products it creates
the volume of its output
Types of production environment
:
engineer-to-order (ETO)
make-to-order (MTO)
assemble-to-order (ATO)
make-to-stock (MTS)
mass customization (with high degree of variety and volume)
Repetitive manufacturing
: the repeated production of the same discrete products or families of products. (such as ATO, MTS)
Setting performance targets through benchmarking
Steps in benchmarking process
:
Determine critical performance;
Define the metric;
Identify leading or benchmark targets;
Gather the organization’s own performance data;
Identify and analyse performance gaps;
Plan a path forward;
Allocate resources, implement plans, and measure results.
2. Capacity strategy
Capacity
: the maximum level of value-added activity over a period of time that the operation can achieve under normal conditions.
Capacity utilization = total output capacity / goods produced (customers served)
Capacity strategy
: includes lead, lag, and tracking. (usually takes 1-3 year)
Resource planning
: is normally based on the production plan but may be driven by higher-level plans beyond the time horizon of the production plan.
Factors affecting resources planning
Demand or external factors
Supply or internal factors
Surge capacity
: the ability to meet sudden, unexpected increases in demand by expanding production with existing personnel and equipment.
Number and size of sites
Larger but fewer sites
Ad
: less costly to operate due to economies of scale; less costly to supply materials to a centralized location
Smaller but more sites
Ad
: increase customer responsiveness by shortening time from order to delivery; decrease costs of transportation to customers by locating smaller facilities near customer markets
Changing capacity
Timing of capacity change
Lead capacity strategy
adding capacity to a resource in anticipation of increased future demand. (to ensure the ability to satisfy market demand when increase occurs.)
Lag capacity strategy
not adding capacity until the firm is operating at or beyond full capacity. (to minimize cost by working at full capacity, but does not satisfy total demand.)
Tracking capacity strategy
adding capacity in small amounts to attempt to respond to changing demand in real time in the marketplace. (to satisfy demand and minimize unit costs, but it can be difficult in some situation to add incremental amount of capacity.)
Planning increments of capacity change
Locating capacity
Market factors
: customer service, etc.
Operational factors
: cost of operating in a location (price of land, labour cost, transportation cost, etc.)
3. Supply network strategy
Supply chain networks
Make-or-buy decision
Make it when
:
• Activity has strategic importance to the organization
• Activity requires specialized knowledge/ skills that only operations possesses
• Activity could increase operations’ core competence
Buy it when
:
• The supplier has unique expertise or capabilities that operations does not possess
• The supplier can support improved operations performance
Make or buy it when
:
• Activity is not strategically important, but creates a high level of risk to meeting operations objectives
Supply chain dynamics: bullwhip effect
Causes
Demand forecast updating
Order batching
Price fluctuation
Rationing and gaming
Forward buying
: purchasing now to meet future demand because of promotional pricing.
Control approaches
~ Improved forecasts based on point-of-sale data
~ Breaking up order batching by placing smaller orders more frequently
~ Stabilizing prices by decreasing the use of promotions
~ Eliminating gaming by allocating suppliers to customers based on their historical demand or working closely with customers to align production with their anticipated inventory needs
~ Restricting the ability of customers to return unsold product
Supplier relationships
Factors
Organization’s business strategy
Stability of the industry
Competitive factors
Supply chain risks
~ Natural events
~ Technical problems
~ Forecast inaccuracy
~ Price increase due to competition, decreased supply of raw materials, or changes in exchange rates
~ Loss of intellectual property
~ Loss of real property/ value through system hacking and theft
~ Loss of reputation caused by unsustainable behaviour by a supply chain partner
4. Process technology strategy
Process technology
: consist of machinery and information processing that help processes transform materials.
Aligning manufacturing strategy with market and operations needs
Manufacturing environments
Engineer-to-order
few and unique items; long lead time; complex and skill-required work; meet agreed speed and quality; cost performance; high margin.
Make-to-order
greater volume than ETO; important customer-facing performance metrics; margin remain higher.
Assemble-to-order
shorter lead time; cost performance.
Make-to-order
large amounts of items
Process types
Factors
Scale
: the number of technology units required to process the work
Automation
: the degree to which human intelligence or skill is applied in the process
Coupling
: the degree to which technology is integrated in the process
Types
Project
: used for large, often unique, items or structures that require a custom design capacity. (highly flexible and can copy with a broad range of product designs and design changes.)
Work centre or job shop
: used for produce items to each customer’s specifications. (handle a wide range of product designs and are performed at fixed plant locations using general purpose equipment.)
Batch
: used to produce items with similar designs…typically…of a repeat nature.
Line (repetitive)
: used to produce a narrow range of standard items with identical or highly similar designs.
Continuous manufacturing
: dedicated to production of a very narrow range of standard products.
Process layouts
Fixed-position layout
: plans for the product to be in a set place.
Functional layout
: a similar nature or function are grouped together based on departmental specialty.
Cellular layout
: produce families or parts within a single line or cell of machines controlled by operators who work only within the line or cell.
Product-based layout
: resources are arranged sequentially according to the steps required to make a particular complex product.
Process technology and service industries
Enterprise resources planning (ERP)
advantages
Improve awareness of how the organization’s piece fit together
Increase the adoption of business planning processes
Support the concept of continuous improvement
Improve the quality of communication with stakeholders
Integrate supply chain partners and support more operations
Technology selection criteria
Competitive advantages
Scare
Difficult to move
Difficult to copy
Difficult to substitute
Feasibility
Financial analysis
Operation analysis (consider: learning curve)
Operation’s performance objectives
Quality
Speed
Dependability
Flexibility
Cost
Risks
Uncontrolled external environment
Unsustainable effects of technology
Future introduction of newer technology
Inability to implement the technology fully
Changing market needs
5. Improvement strategy
Performance improvement
Baseline measure
: seeks to establish the current or starting level of performance of a process, function, product, firm, or other entity.
Continuous improvement
Sand cone model of performance improvement (core: quality)
Continuous improvement process
Tools
: PDCA model, Six Sigma model, etc
Steps
:
observe operations;
analyze observations; (tools: value stream mapping, root cause analysis, control chart, etc.)
Implement changes;
Monitor, measure, and improve.
Knowledge management
an integrated approach used by organizations to capture, share, develop, and use organizational knowledge.
Decision support systems (DSS)
a computer system designed to assist managers in selecting and evaluating courses of action by providing a logical analysis of the relevant factors
Steps
:
Gather data from systems;
Filter data to reduce the quantity to a manageable amount of meaningful and relevant information;
Load it into a model to reveal patterns and possibly suggest actions;
Validate the decision results.
