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. 屏幕快照 2018-08-28 上午10.23.40

Characteristics:

  1. a longer time frame;
  2. a broader perspective;
  3. a higher level of focus.

Requirements:

  1. consistent with the strategic choices made at the business strategy level;
  2. mindful of the market requirements;
  3. open to the lessons of experience from those involved in operations;
  4. aware of the operation’s resource, capabilities, and limitations.

Four key areas:

  1. Capacity
  2. Supply network
  3. Process technology
  4. Improvement

1. Operations performance objectives

Five generic performance objectives

Detailed performance measures

Factors affecting the weight of performance objectives

Setting performance targets through benchmarking

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

Business strategy

Commitment to stakeholders (tools: triple bottom line)

Competitive factors

Life cycle effects

Production environment

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.

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)

Steps in benchmarking process:

  1. Determine critical performance;
  2. Define the metric;
  3. Identify leading or benchmark targets;
  4. Gather the organization’s own performance data;
  5. Identify and analyse performance gaps;
  6. Plan a path forward;
  7. 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

Number and size of sites

Changing capacity

Locating capacity

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.

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

Timing of capacity change

Planning increments 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.) 屏幕快照 2018-08-29 上午9.59.53

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.)

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
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Make-or-buy decision

Supply chain dynamics: bullwhip effect

Supplier relationships

Supply chain risks

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

Causes

Control approaches

Demand forecast updating

Order batching

Price fluctuation

Rationing and gaming

~ 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

Forward buying: purchasing now to meet future demand because of promotional pricing.

Factors

Organization’s business strategy

Stability of the industry

Competitive factors

~ 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

Enterprise resources planning (ERP)
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Manufacturing environments
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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
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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 屏幕快照 2018-08-30 下午1.53.16

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

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

Feasibility

Operation’s performance objectives

Scare

Difficult to move

Difficult to copy

Difficult to substitute

Financial analysis

Operation analysis (consider: learning curve)

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
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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
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Sand cone model of performance improvement (core: quality)

Continuous improvement process

Tools: PDCA model, Six Sigma model, etc

Steps:

  1. observe operations;
  2. analyze observations; (tools: value stream mapping, root cause analysis, control chart, etc.)
  3. Implement changes;
  4. 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:

  1. Gather data from systems;
  2. Filter data to reduce the quantity to a manageable amount of meaningful and relevant information;
  3. Load it into a model to reveal patterns and possibly suggest actions;
  4. Validate the decision results.