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Session 2 : Operations Strategy Learning Objectives By the end of this Unit, you should be able to: Understand the concept of business strategy. Explain the strategic planning process and the differences between strategic, tactical and operations planning. Appreciate operations from a systems perspective. Recognize the importance of operations strategy. Describe the key criteria of distinctive competencies. Distinguish between order qualifiers and order winners. Appreciate the concept of the balanced scorecard when formulating strategies. 2

What is a System? A set of interconnected elements that must function together in unison within a certain environment

CSR W

ld or e W rad T

Sh ho arelde rs

Your organization

Competi tors

Exch ang Rate e s

Uni o

Train

ar oba m l in g

ns

Customers

i ng

ss ine s s Bu ycle C

gy

Suppliers

Transport Modes

Gl

Te c

Banks

Ta

xe s

al b n lo G atio iz

OIL Price

hn ol o

E

S THIC

LS

-M ITC

KYOTO

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Kyoto Protocol

Competing Supply Chains Banks Suppliers

Inputs

Competitors

Transformation

Shareholders

Taxes

Outputs

Customers

Trade Unions

Government Regulations Globalization 4

Action Point

Your Organization from a Systems Perspective

Using the template below, illustrate your organization from a systems perspective i.e. your organization interacting with its environment:

Suppliers

Inputs

Transformation

Outputs

Customers

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Corporate / business strategies are... …how an organization plans to accomplish its mission and goals …needed to survive in a changing world …implemented through the process of strategic planning

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Vision/Mission

Corporate / Business Strategy

Operations Strategy

Financial Strategy

Marketing Strategy

Strategic Planning

Strategic Planning

Strategic Planning

Tactical Planning

Tactical Planning

Tactical Planning

Operational Planning

Operational Planning

Operational Planning

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Planning levels: Strategic planning

is the preparation of long-term plans by top management aimed at achieving organizational goals and objectives.

Tactical planning

is the preparation of medium- term plans by middle management aimed at ing the strategic plan by achieving functional goals and tactical objectives.

Operational planning

is the preparation of short-term plans by first-line management aimed at ing tactical plans and achieving operational goals and objectives. 8

Types of Planning Strategic Planning: long-range decisions (typically 1 to 5 years)

Tactical Planning: medium-term decisions (Typically one month and less than 1 year) Operational Planning & Control (OPC): short-term decisions (daily, weekly, monthly)

Examples of Decisions

Where do we locate a new factory? Top What new products do we introduce? Manage- How do we increase market share? Should we implement ISO 9001? ment Do we need additional capacity? When? What layout do we need for the new product? When ? What new Senior quality checks are required? or Middle What equipment do we Management replace? Do we need an extra shifts?

First Line Management

What orders have priority? When can we schedule maintenance? How do we increase productivity? 9

Developing a winning strategy: Order Qualifiers vs. Order Winners

Order Qualifiers: the six competencies needed for a business to be considered as a potential supplier: quality, delivery, flexibility, time, cost and service.

Order Winners: the criteria that differentiate the goods and/or services of one business from those of another, and which result in it being awarded the order.

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Action Point

Order Qualifiers and Order Winners To achieve a winning strategy, it is important for organizations to convert from being order qualifiers to become order winners. Using your organization, how would you develop your package of key competencies/criteria to be distinctive competencies in order to win repeat orders?

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What is the Balanced Scorecard

?

A holistic strategic planning system that aligns the various business activities of an organization with its overall vision and mission using balanced performance measures in four areas: financial, customers, internal processes and learning & growth.

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From an operations management strategic viewpoint, these four performance measures could include the following: Financial Perspective

How do we add value for our customers but also reduce our operating and material costs?

Customer Perspective

How do we create value for our customers?

Learning & Growth Perspective

How do we change to meet our customers’ present and future demands? What are our training needs?

Internal Process Perspective

How do we improve our processes to meet the present and future demands of our customers? 13

Strategic Operations Objectives The BIG SIX Key Competencies

SERVICE

QUALITY

FLEXIBILITY

DELIVERY

TIME

COST

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The BIG SIX Key Competencies: 1

QUALITY

 High and consistent quality is essential to prosper in a competitive environment  It is the easiest of the key criteria for a customer to judge

 Continuously improving quality results in higher productivity and lower costs  High quality attracts customers; improving

quality retains customers

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The BIG SIX Key Competencies: 2

DELIVERY

 Relates to the delivery of the product or the performance of the service

 Sometimes called the “Reliability / Dependability” competency  Late delivery can have serious consequences

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The BIG SIX Key Competencies: 3

COST

 Higher productivity leads to lower costs  Lower costs allow a business to offer lower prices  This helps to increase its market share

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The BIG SIX Key Competencies: 4

TIME

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9 6

 In    

recent decades, competition has changed: from price… …to price & quality …to price & quality & delivery …to price & quality & delivery & TIME

 Time (& speed) provide a sustainable competitive advantage  Reducing time serves to gain an advantage 18

The BIG SIX Key Competencies: 5

FLEXIBILITY

 It means being able to…  …adapt rapidly to changing business conditions  …respond quickly to evolving customer needs  Three types of flexibility:  Volume flexibility – responding to changes in demand  Variety (or mix) flexibility – providing the range of products that customers ask for  Product flexibility – developing new products when needed 19

The BIG SIX Key Competencies: 6

SERVICE

 It is the fusion of the other five competencies – a blend of quality, delivery, cost, time & flexibility  It also means agility – how quickly a business responds to both market and customer needs  Agility is increasingly important with the growing focus on supply chains 20

Trade-offs between Key Competencies Often, one key competency may conflict with another An organization may thus take a strategic decision to excel in one or more key competencies at the expense of others

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Productivity Agility in servicing customers enables organizations along a supply chain to obtain a competitive advantage One way of achieving this is to improve productivity Productivity is probably the performance measure most used in operations management It measures the amount of output (goods and / or services) achieved per unit of input (labour, materials, capital & energy) Productivity = Output Input It measures how efficiently resources have been used

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