Week 1: Introduction to Operations Strategy

 Assessment
o Report 50% - Choose an organisation and critically discuss its operations strategy
 QUESTION - “Many organisations in many industries claim to be
following operations startegies based upon Lean Operations and Agile
Operations. Choose an organisation in which you are interested, and in
a report of maximum 2500 words. Describe their operations strategy
and critically consider how closely this strategy aligns with the precepts
of either Lean operations or Agile operations.”
o Examination 50% - Answer 2 of 5 questions, 1000 words each

Operations management – “the operations function of the organisation is the arrangement

of those resources which are devoted to the production and delivery of its products and
services” – Slack, Chambers & Johnston, Operations Management

Four Performance Objectives

 Cost: Minimise units of input or resource per unit output. Minimise unit cost of output
 Quality: Develop a specification for the product or service; are the specifications being
met? Do the specifications meet customer needs?
 Flexibility: Future scenarios, can they be accommodated?
 Sustainability: Can the existing policies be continued into the future?

 Operations represent a major proportion of costs in most organisations

 Major source of competitive advantage
 Major source of organisational failure

Mission – purpose of the operations function in relation to business objectives

Distinctive Competence – wat operations must excel at in relation to competition
Objectives – Measurable objectives on cost, quality, delivery and flexibility
Policies – how the objectives will be achieved

Facilities can only excel if diversity is reduced

 Reduce product ranges
 Have a single process type
 Limit unproven technologies
 Have similar product volumes and quality levels
 Either make to stock or to order, not both
 Limit novel products

Firms should specialise in doing a few things very well and use outsourcing for other key
operations
Stages in Operations Effectiveness (Hayes & Wheelwright, restoring our competitive edge.
1984)

 Internally Neutral – avoid operations causing problems

 Externally Neutral – operations following competitors
 Internally Supportive – operations support the company’s strength
 Externally Supportive – operations integrated into business strategy

Reading 1: From angry Adele fans to broken robot vacuums: AWS outage
ripples through US – FT

 Millions hit by suspension of services that use cloud computing, including amazon
deliveries
 Robot vacuums ceased sucking, WiFi cameras stopped watching and eager Tinder daters
were left unable to “swipe right” on their smartphone apps
 Outage at Amazon Web Services, the cloud arm of Amazon, had rippled through the
online economy, crippling services used by millions of people
 According to Gartner, 80 per cent of the cloud market is handled by just five companies.
Amazon, with a 41 per cent share of the cloud computing market, is the very biggest.
 AWS is particularly exposed due to the sheer volume of business they have
 Within Amazon itself on Tuesday, the unthinkable occurred: grounded delivery drivers
were unable to load packages and deliver to customers’ doorsteps, just as the peak
Christmas season begins to step up

Reading 2: Supply chains: companies shift from ‘just in time’ to ‘just in case’ -
FT

 Businesses exposed by pandemic shortages and shipping bottlenecks are being forced to
rethink their operations
 Heineken
o Sells 300 brands to customers in 190 countries
o Part of the strategy has been to produce regional brands locally and then export
to bigger markets
o After purchasing Red Stripe in 2015, it repatriated production to Jamaica
o Similarly, the Dos Equis brand was brewed exclusively in Mexico
 Single sourcing came back to bite last year when Mexican Gov declared
beer non-essential, closing the countries breweries during the pandemic
 Heineken sent the labels and bottles to the Netherlands and started
brewing there in response
 Wake up call to Heineken, needs alternative production hubs
 The pandemic has triggered a rethink of corporate strategy
 For decades, companies prioritised costs above all else when selecting suppliers,
building factories and deciding how much stock to keep on hand
 o This philosophy dubbed “Just in time”, emphasised keeping inventory to a
minimum and using short-term, flexible contracts that could be adjusted quickly
to changes in demand
 Drive for efficiency encompassed moving production to low-wage locations,
consolidated orders to maximise economies of scale, tried to minimise their physical
presence in high-tax jurisdictions
 Old operating models neglect risk, focusing on cost. Companies are not entirely
abandoning existing supply chain policies, but they are revamping them to build
additional resilience
 Some businesses are increasing the inventory they keep and entering into longer term
contracts with key suppliers
 Others are diversifying their manufacturing to create regional hubs with local suppliers
and investing in tech to give them greater advance warning of potential bottlenecks
 Also investigating ways of working with their rivals to share information to develop
emergency back up facilities without falling foul of competition regulators
 What companies love to do is to optimise working capital. So many manufacturers went
to just-in-time inventory, and, pre-pandemic, that worked pretty well.
 But when the pandemic hit and everything was shut down, including manufacturing, and
then the economy started to open and the demand. . . jumped, well, that just-in-time
inventory didn’t work anymore. Companies are now thinking about, I need ‘just in case’
inventory

‘The pandemic changed everything’

 Changes are being driven by the pandemic and the supply chain shock that followed
 Also reflect the geopolitical tensions between China and the west and the growing
pressure on companies to reduce their carbon footprint
 US carmakers and Ford GM are setting up partnerships, rather than just supplier
contracts, with semiconductor manufacturers to improve their access to chips
 Their German rival Volkswagen is looking at extending the length of its contracts with
key suppliers, and Chinese energy groups have been rushing to sign liquefied natural gas
contracts that extend as long as 20 years, more than double the old normal length
 As a result, warehouse costs are rising sharply in many markets, as manufacturers and
retailers boost inventory levels
 With supply chains becoming more complex and natural disasters disrupting them more
often, “you have to reinvent ‘just in time’, says Oscar de Bok, head of supply chain
business at DHL, “You can’t plan it as lean any more as you wanted it in the past.”

‘Local for Local’ supply chains

 Companies that had consolidated their production into one or a few low-cost locations
got a nasty shock last year as pandemic-related shutdowns and shipping bottlenecks left
them without key parts or even merchandise to sell.
 The message was reinforced by the unexpected February freeze in Texas which shut
down petrochemical plants and led to shortages of resin, a core ingredient in everything
from plastic straws to auto parts
 The pandemic strengthened the hand of corporate executives who were already
exploring whether to set up regional networks for other reasons — such as sidestepping
rising US-China tensions or to take advantage of government incentives aimed at
stimulating local manufacturing
 Multinational companies are now talking about “local for local” supply chains. That’s
partly because logistics problems have eaten away the advantages of shipping products
from low-cost factories half a world away
 Manufacturers and retailers of everything from cars and footwear to vaccines are
rediscovering the advantages of having suppliers closer to consumers. In strategically
important sectors such as healthcare, they are also receiving government support
 This is reviving interest in manufacturing in North America where, for instance, Ford and
South Korea’s SK Innovation recently announced a plan to build a $5.8bn lithium-ion
battery plant in Kentucky, and in continental Europe, where Intel has promised to spend
$20bn on semiconductor manufacturing.

Shared responsibility, shared risk

 VW and BMW trying to standardise components across each of their models/brands, so

suppliers have sufficient volume to manufacture regionally
 VW’s design platform for combustion engine cars is highly flexible
 While much of the focus on localisation has been driven by logistics issues, executives
say the trend also dovetails with their efforts to address global warming, and capitalise
on changing government policies
 Cutting back on the number of parts and products that are shipped around the world is
an easy way to improve a company’s carbon footprint.
 Some groups are also moving their manufacturing to places where renewable energy is
abundant and there are substantial markets for their products
o such as Yunnan province in China, where hydropower has helped it become a
centre of aluminium production
 The tweaks to supply chains go beyond physical shifts. Many companies are using
technology to quickly identify supply chain delays. BMW has increased its use of digital
trackers to follow its parts across Europe and receive real time alerts if a truck is running
late