Introduction

Strategy and Sustainability

Week 1

What is Operations Management?

Operations management (OM) is defined

as the design, operation, and improvement

of the systems that create and deliver the

firm’s primary products and services.

Historical Development of OM

Operation Management for Competitive Advantage, Chase, Jacob, & Aquilano, McGraw Hill 2006

Ford Model T Production Line

 • In 1912, Ford
produced 170,000
Model T, selling
at $690.

• Why Ford was

able to produce
363,000 Model T
in 1916?

• Why Ford was

able to reduce the
selling price to
$360?

Frederick Winslow Taylor (March 20, 1856 –

March 21, 1915) was an American mechanical
engineer who sought to improve industrial
efficiency. He is regarded as the father of scientific
management and was one of the first management
consultants. Taylor was one of the intellectual
leaders of the Efficiency Movement and his ideas,
broadly conceived, were highly influential in the
Progressive Era .
Father of Statistical Quality Control
PERT founded by Frederick Taylor and later
refined by Henry Ford.
Not only was the concept of MRP developed by the late Oliver Wight, the
organization consists of the recognized leaders and innovators in the field.
Each Oliver Wight consultant has successfully sponsored a Class A
implementation and has the unique ability to help others become successful
as well.

For over three decades, Oliver Wight Companies has helped thousands of
companies -- both small and large -- like Procter & Gamble, Merck, H J
Heinz, Bimba Manufacturing and Caterpillar and brought many of them to
the level of Class A Operational Excellence.

http://www.goldrattconsulting.com/
Michael Martin Hammer
(13 April 1948 - 3 Sept 2008)
was an American engineer,
management author, and a
former professor of
computer science at the MIT,
known as Father of BPR.
 Work Involved in Each Type of Process
 Planning: the processes needed to operate an existing
supply chain strategically
 Sourcing: the selection of suppliers that will deliver the
goods and services needed to create the firm’s product
 Making: Where the major product is produced or the
service provided
 Delivering: carriers are picked to move products to
warehouses and customers
 Returning: the processes for receiving worn-out,
defective, and excess products back from customers

Operations Processes
 Q
 What are the differences Between Services and
Goods?

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Differences Between Services and Goods

1. Service cannot be physically weighted or
measured
2. Service requires some interaction with the
customer
3. Service varies depending on interaction with
customers
4. Service cannot be stored
5. Service is defined by a set of intangible features
The Goods-Services Continuum

What is:
• Efficiency?
• Effectiveness?
• Value?

Efficiency or Effectiveness, which

one is more important?
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Efficiency, Effectiveness, and Value
 Efficiency: Doing something at the lowest
possible cost
 Effectiveness: Doing the right things to create
the most value for the company
 Value: quality divided by price

Careers in Operations Management

 Plant manager  Business process
 Hospital administrator improvement analyst
 Quality control manager
 Branch manager
 Lean improvement
 Call center manager manager
 Supply chain manager  Project manager
 Purchasing manager  Production control
analyst
 Facilities manager
 Supply Chain Management

 Definition:
Supply Chain Management is primarily concerned with the
efficient integration of suppliers, factories, warehouses and
stores so that merchandise is produced and distributed in
the right quantities, to the right locations and at the right
time, and so as to minimize total system cost subject to
satisfying service requirements.

What are the key words?

 Supply Chain Management

 Definition:
Supply Chain Management is primarily concerned with the
efficient integration of suppliers, factories, warehouses and
stores so that merchandise is produced and distributed in
the right quantities, to the right locations and at the right
time, and so as to minimize total system cost subject to
satisfying service requirements.
 Notice:
– Everyone is involved
– Systems approach to reducing costs
– Integration is the key

What is Operations and Supply Strategy?

 Operations and supply strategy: setting broad
policies and plans for using the recourses of a
firm to best support its long-term competitive
strategy
– Part of a planning process that coordinates
operational goals with those of the larger organization

 Operations effectiveness relates to the core

business processes needed to run the business
 Q

If you are running a business, you have to

entertain:
1. Shareholders or
2. Stakeholders

Shareholders & Stakeholders

 Shareholders: Those individuals or companies

that legally own one or more shares of stock in
the company

 Stakeholders: Those individuals or

organizations who are influenced, either directly
or indirectly, by the actions of the firm

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 Sustainability &
Triple Bottom Line

Which manufacturer? How much?

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 TATA NANO
 Tata Nano : $2,500
 Nano factory of Tata Motors at Singur in Singur, West Bengal, India
 In 2006 started constructing a factory to manufacture their $2,500 car
 Acquired of 997 acres (4.03 km2) under the colonial Land Acquisition Act of 1894
 The site is the most fertile in Singur
 Chief protesters include the opposition parties
 The fenced off area has been regularly guarded
 Multiple rape followed by burning to death of teenage villager Tapasi Malik who was
active in the protests
 October, 2008 pulling out of Singur due to the political unrest and agitation.
 It took 14 months to build a new factory in Sanand, compared with 28 months for the
Singur factory

2,039 km
Singur

Sanand

32
 A Sustainable Strategy
Triple Bottom Line
 Social: pertains to fair and beneficial business
practices toward labor, the community, and the
region in which a firm conducts is business

 Economic: the firm’s obligation to compensate

shareholders who provide capital via competitive
returns on investment

 Environmental: the firm’s impact on the

environment
 Closed-Loop Strategy Process

Closed-Loop Strategy Process

 Activity 1 is performed at least yearly and is

where the overall strategy is developed

 Activity 2 is where the overall strategy is refined

and updated as often as four times a year

 Activity 3 is where operational plans that relate

to functional areas such as marketing,
manufacturing, and so on, are coordinated
 2-37

Competitive Dimensions

 Cost or Price
– Make the Product or Deliver the Service Cheap
 Quality
– Make a Great Product or Deliver a Great Service
 Delivery Speed
– Make the Product or Deliver the Service Quickly
 Delivery Reliability
– Deliver It When Promised
 Coping with Changes in Demand
– Change Its Volume
 Flexibility and New Product Introduction Speed
– Change It
 Other Product-Specific Criteria
– Support It

Order Qualifiers and Order Winners are

changing over time?

Exhibit 2.5
 Time Line for Operations Strategies

2-40

Dealing with Trade-offs

For example, if we reduce costs by reducing product

quality inspections, we might reduce product quality.

For example, if we
improve customer Cost
service problem solving
by cross-training Flexibility Delivery
personnel to deal with a
wider-range of
Quality
problems, they may
become less efficient at
dealing with commonly
occurring problems.
 Microsoft’s Mission

 Empower People through Great Software any

time, any place, and any device

Mircosoft’s Mission
 To enable people and
businesses throughout the
world to realize their full
potential
 Ten things we know to be true

1. Focus on the user and all else will follow.

2. It’s best to do one thing really, really well.
3. Fast is better than slow.
4. Democracy on the web works.
5. You don’t need to be at your desk to need an answer.
6. You can make money without doing evil.
7. Great just isn’t good enough.
8. You can be serious without a suit.
9. The need for information crosses all borders.
10. There’s always more information out there.

Starbucks Mission Statement

 Our mission: to inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time.

Our Environmental Mission Statement

 Starbucks is committed to a role of environmental leadership in all facets of our
business.

We fulfill this mission by a commitment to:

 Understanding of environmental issues and sharing information with our partners.
 Developing innovative and flexible solutions to bring about change.
 Striving to buy, sell and use environmentally friendly products.
 Recognizing that fiscal responsibility is essential to our environmental future.
 Instilling environmental responsibility as a corporate value.
 Measuring and monitoring our progress for each project.
 Encouraging all partners to share in our mission.
 Corporate Strategy
Key Terms
 Corporate strategy is based on corporate mission. It
reflects how the firm plans to use all its resources and
functions to gain competitive advantages in the market
place
 Operations strategy specifies how the firm will
employ its production capabilities to support its
corporate strategy
 Operations Management is concerned with how to
manage the five P’s so that the transformation process
can add the maximum value to customers

Operations Strategy
Strategy Process Example

Customer Needs More Product

Corporate Strategy
Increase Org. Size

Operations Strategy Increase Production Capacity

Decisions on Processes
and Infrastructure Build New Factory
 2-49

Order Qualifiers and Winners

Order qualifiers are the basic criteria

that permit the firms products to be
considered as candidates for purchase
by customers

Order winners are the criteria that

differentiates the products and services
of one firm from another

World-Class Manufacturing Firms

They have become order qualifiers.

 Order Qualifier

 A brand name car

can be an “order
qualifier”

Service Breakthroughs

 Service can be an Travel

Warranty
“order winner” Planning

Leases

Roadside
Assistance
 How do we convert order winners into specific
performance requirements?

Competition Us
(Them) Differentiation (Core competencies)

Value-Added Services

Value-added services differentiate the

organization from competitors and build
relationships that bind customers to the
firm in a positive way.
Value-Added Service Categories

Problem Solving

Operations
Information Sales Support
Management

Field Support

Q
Haier is competing on what?
 Strategy Begins with Priorities

 Consider the case of Progressive Insurance

– Automobile Insurance company
– Based in Mayfield Village, Ohio
– 1.3 billion sales in 1991
– 9.5 billion sales in 2002

– Lower price and better services

– Provides services to claimant 24x7
– Adjustor in mobile claim van (not in office), available within 9 hours (7-10
days industrial practice)
– On site estimate, issue a cheque on spot

– Time shorten replacement car  lower cost

– Better utilization of IT credit check  lower price
 Strategic Fit:
Fitting Operational Activities to Strategy

 All the activities that make up a firm’s operation

relate to one another

 To be efficient, must minimize total cost without

compromising on customer needs

Strategic Fit:
Fitting Operational Activities to Strategy

 Activity-system maps show how a company’s

strategy is delivered through a set of tailored
activities
 Mapping Activity Systems at IKEA

Panasonic Bicycle
Panasonic Bike
 Manufactured to exactly match:
– Your size
– Your weight
– Color preference
 Panasonic Bicycle
Manufacturing System

 Panasonic Individual Customer System

 21 employees
 CAD system
 8 million variations
 18 models of racing, road, and mountain
bike
 199 colors

Panasonic Bicycle
Manufacturing time

 150 minutes
 Customers wait 3 weeks
 Panasonic Bicycle More value

 Send thank you mail

 Drawing of the bike

Panasonic Bicycle
 2-67

What is Productivity?

Productivity is a common measure on

how well resources are being used. In
the broadest sense, it can be defined as
the following ratio:

Outputs
Inputs

2-68

Total Measure Productivity

Total Measure Productivity = Outputs

Inputs

or
= Goods and services produced
All resources used
 2-69

Partial Measure Productivity

 Partial measures of productivity =

 Output or Output or Output or Output

Labor Capital Materials Energy

2-70

Multifactor Measure Productivity

Multifactor measures of productivity =

Output
Labor + Capital + Energy

or

Output
Labor + Capital + Materials
 2-71

Example of Productivity Measurement

 You have just determined that your service

employees have used a total of 2400 hours
of labor this week to process 560 insurance
forms. Last week the same crew used only
2000 hours of labor to process 480 forms.

Is productivity increasing or decreasing?

 Answer: Last week’s productivity =
480/2000 = 0.24, and this week’s
productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.

Thank You