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Agenda
BM63009 – Production and Operations Management
• What is Operations Management?
Week 2

• What is the strategic importance of operations

Introduction to Operations Strategy management for an organization?

Sushil Punia
VGSOM, IIT KGP

Aug– Nov 2022

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Competitiveness Competitiveness
How effectively an organization meets the wants and How to achieve competitiveness?
needs of customers… Business organizations compete through some
combination of price, delivery (or lead) time, and
…relative to others that offer similar goods or product or service differentiation,…
services?

Why? How to achieve competitiveness through

• Companies must be competitive to sell their goods Operations?
and services in the marketplace
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Boeing’s Global Supply-Chain Boeing’s Global Supply-Chain

Some of the International Suppliers of Boeing 787 Components Some of the International Suppliers of Boeing 787 Components
HEADQUARTERS HEADQUARTERS
SUPPLIER COUNTRY COMPONENT SUPPLIER COUNTRY COMPONENT
Cobham UK Fuel pumps and valves Kawasaki Heavy Japan Forward fuselage, fixed
Industries sections of wing, landing
Rolls-Royce UK Engine
gear wheel well
Smiths Aerospace UK Central computer systems Teijin Seiki Japan Hydraulic actuators
BAE Systems UK Electronics Mitsubishi Heavy Japan Wing box
Alenia Aeronautica Italy Upper center fuselage and Industries
horizontal stabilizers Chengdu Aircraft Group China Rudder
Toray Industries Japan Carbon fiber for wing and Hafei Aviation China Parts
tail units
Korean Airlines South Korea Wingtips
Fuji Heavy Industries Japan Center wing box
Saab Sweden Cargo and access doors
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Competitiveness
Mission/Goals/Strategy
Some examples:
• Best products to meet (exceed) what customer wants Mission Goals Strategy
(Product and service design)
• Efficient engines and better designs lead to better fuel • Mission
efficiency (Cost)
• The reason for existence for an organization
• Emissions reduction of 20% (Sustainability)
• Goals
• Exceptional engineering talent and suppliers, wherever • Provide detail and scope of the mission
they might be (Workers, Innovation)
• Strategies
• Achieved new levels of operational efficiency (Service) • Plans for achieving goals

Fastest-selling commercial jet in history with over 1,100 planes sold

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Mission/Strategy/Tactics
Mission Statement - PepsiCo. An Example
Our mission is to be the world's premier There is a school student who would like to have a career
consumer products company focused on in business, have a good job, and earn enough income to
live comfortably
convenient foods and beverages. We
seek to produce financial rewards to
investors as we provide opportunities for Mission: Live a good life
growth and enrichment to our Goal: Successful career, good income
employees, our business partners and Strategy: Obtain Business education
the communities in which we operate. And Tactics: Select a good business degree
in everything we do, we strive for honesty, Operations: Take admission, take courses,
fairness and integrity. graduate, do internships, get job
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Organizational Strategy: The Guiding Light Organization

Strategy
Examples of Companies
or Services

Organizational strategy guides the organization by providing Low cost Walmart

direction for, and alignment of, the goals and strategies of the
Responsiveness McDonald’s, FedEx
functional units.
Domino’s Pizza
FedEx
Organizational/Business strategies:
• Low cost Differentiation: Sony
• Responsiveness High quality

• Differentiation Differentiation: MSIL

Service Amazon

• Specialization Differentiation: UrbanClap

• Innovation Location Banks

• Sustainability
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How to formulate the (organizational)

Identify core competencies
strategy?
A two-step approach:
Use SW(OT) Analysis to identify core competencies

1) Identify core competencies SW – evaluated by operations people (Internal)

2) Keep scanning the environment

OT – identified by marketing people (External)

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Identify core competencies Order Winners and Order Qualifiers

Identify Order Winners

Order qualifiers Order winners
Order qualifiers: criteria that permit the firm’s products to be Quality of food Regional menu
considered as candidates Taste of food Restaurant location
Take away
Order winners: criteria that differentiate the products and Lead time
services Hygiene

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Order Winners and Order Qualifiers:

Step 2: Environment scanning
An Example
• Price can be an “order qualifier” Monitoring of events and trends that present either threats or
• After sale services can be “order winners” opportunities for the organization…
External Factors:
Examples: Warranty, Roadside Assistance,
service network, etc. • Political conditions
• Economic conditions
Note: • Change in Technology
• An order winner may become an order qualifier over • Legal environment
time, and vice versa
• Competition
• Marketing must determine and communicate to
operations • Markets
Use PESTLE analysis
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Strategy Formulation: Environmental scanning

Strategy Formulation
Key Internal Factors
Steps:
• Financial resources
1) Start with organization’s mission.
• Human Resources
2) Perform SW(OT) and identify core competencies.
• Facilities and equipment (Capacity)
3) Identify order winners and order qualifiers also.
• Products and services 4) Select one or two strategies (e.g., low cost,
• Suppliers speed, customer service) to focus on.
• Customers 5) Keep monitoring the environment, and revisiting
• Others – Technology, brand value, access to your core competencies as it will change over
time.
market, reputation/loyalty, etc.
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Strategy Mission/Strategy/Tactics in an organization

Amazon

Low Cost

Quick Delivery

Top Customer Service

21 Planning and decision making are hierarchical in organizations 22

What are Structural and Infrastructural

Functional Strategies Elements (Decisions) in OM?
Mission Organizational Functional Executing successful operations strategies means:
Mission choosing and implementing the right mix of structural and
Statement Strategy Strategy
infrastructural decisions.
Functional Strategy
• narrower in scope, dealing primarily with functional areas, e.g.
finance, marketing, or operations… • Structural decisions - Long term decisions

Operations Strategy • Infrastructural decisions - Daily routine operational and

tactical decisions
How structural and infrastructural elements within the
operations areas will be acquired and developed to support
the organizational strategy.
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Examples of Structural and Infrastructural Decisions

How operations can contribute to
organizational strategy?

• Strategically align with organizational strategy;

• Support the development of core competencies in

operations

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Reference: Espino-Rodríguez, Tomás & Gil, Antonia María. (2015). The structural and infrastructural decisions of operations management in the hotel sector
and their impact on organizational performance. Tourism and Hospitality Research. 15. 3-18.

Strategical Alignment : An Example Strategical Alignment

Company 1 Company 2
Organizational Target price-sensitive PCs, Target PCs, laptop and tablet
Strategy laptop and tablet buyers buyers who can pay a premium
for performance, delivery and
service
Operations • Buy components from the • Buy components from state-
Strategy lowest-cost suppliers who of-the-art suppliers (price is
meet quality and delivery important but not primary)
requirements • Keep enough inventory to
• Keep minimum inventory maintain best service levels
levels • Have superior customer
• Have an acceptable service
customer service • Same-day delivery options
• Use standard shipping
options

27 The four-stage model of operations contribution 28

Ref.: Hayes, R., and Wheelwright, S., Restoring Our Competitive Edge (New York: John Wiley, 1984).

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Supporting and developing core competencies Organization Operations Examples of Companies

Strategy Strategy or Services
OM Decision Options
Customized or standardized; sustainability Low price Low Production Cost Walmart
Product

Quality Define customer quality expectations and Responsiveness Short processing time McDonald’s, FedEx
how to achieve them
Process Facility design, capacity, how much On-time delivery Domino’s Pizza
automation FedEx
Location Near supplier or near customer
Differentiation: High-quality design and Sony
Layout Work cells or assembly line High quality processing
Human resources Specialized or enriched jobs
Differentiation: Superior customer service MSIL
Supply chain Single or multiple suppliers
Service Amazon
Inventory When to reorder; how much to keep on hand
Schedule Stable or fluctuating production rate Differentiation: Convenience UrbanClap
Location Banks’ ATMs
Others - Maintenance Repair as required or preventive maintenance
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How to measure operations Productivity

performance?

• Productivity

• Other measures of system performance

• Performance measures other than cost and

productivity Productivity is outputs/inputs

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Productivity Using OM to improve productivity

Units produced A team of 10 analysts continually look for ways to
save time.
Productivity =
Input used Some improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
• Measure of performance under $25

• Measure of process improvement Change the design of the Saved 14 seconds

ice scoop per drink
• Productivity increase can improve standard of living
New brewing machines Saved 12 seconds
per shot

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Using OM to improve productivity Productivity

A team of 10 analysts continually look for ways to • Partial measures
shave time off the operations. Output/(single input)
Some of the improvements: Inputs can be material, labor, machine, technology, etc.
• Starbucks outlets have increased
Stop requiringthe
signatures Savedper
average transactions 8 seconds
hour Example : Labor productivity, Machine Productivity, Land productivity,…
on credit card to
purchases per transaction
11.7—a 46% increase
under $25 • Total measure or Total factor productivity
• Yearly volume by $250,000, to
Change the size of the
about $1 ice
million. Saved 14 seconds Output/(total inputs)
scoop per drink
• 27% improvement in productivity
New espresso machines Saved 12 seconds • Multi-factor measures
per shot Output/(multiple inputs)
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Multi-Factor Productivity Example 1: What is the labor productivity?

Output • 10,000 Units Produced

Multi-Factor Prod. = • Sold for $10/unit
Labor + Material + Energy • 500 labor hours
• Labor rate: $9/hr
• Cost of raw material: $5,000
► Output and inputs are often expressed in same units • Cost of purchased material: $25,000

Output = 10,000 units/500hrs = 20 units/hour

Total Factor Prod. =
Labor + Material + Energy + Or, we can arrive at a unitless figure
Capital + Miscellaneous = (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22
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Measure operations performance at different levels

How to measure operations
performance?
Example of
FoxConn, Taiwan (Hon Hai Precision Industry Co. Ltd.)
It manufactures BlackBerry, iPad, iPhone, iPod, Kindle, Nokia
devices, Xiaomi devices, Xbox 360, Xbox One, …
https://www.youtube.com/watch?v=VBFoZDQ4THQ

• What factors to include as performance measures?

• What detailed measures to use?

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How to measure operations sustainability How to measure operations sustainability

at Societal Level? at Societal Level?
Using TBL Approach Using TBL Approach
People bottom line: measured by the impact of the Planet bottom line: measured by environmental
operation on the quality of people’s lives impact
• Recyclability of materials, energy consumption,
• Customer safety from products and services
waste material generation
• Employment impact of an operation’s location
• Employment implications of outsourcing • Noise pollution, fume and emission pollution
• Repetitive or alienating work • Obsolescence and wastage
• Staff safety and workplace stress • Environmental impact of process failures
• Non-exploitation of developing country suppliers. • Recovery to minimize impact of failures.
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How to measure operations sustainability How to measure operations impact at

Strategic Level?
at Societal Level?
Using TBL Approach
Economical bottom line: operations managers must
use the operation’s resources effectively

• Reducing Cost of producing products and services

• Increasing Revenue
• Increasing effectiveness of investment
• Reducing risk and increasing resilience of supply
• Building long-term capabilities for the future
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Performance objectives at operational level At Operational Level: Quality

• Cost Hospital
• Speed • Patients receives the most appropriate treatment
• Quality • Treatment carries out in appropriate manner
• Patients are consulted and kept informed
• Dependability
• Staff is courteous, friendly and helpful
• Flexibility

Quality of treatment… Quality of consultation …

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At Operational Level: Speed At Operational Level: Dependability

Receive products or services exactly when they are needed, or
The time between requiring treatment and receiving at least when they were promised.
treatment is kept minimum

• Proportion of appointments cancelled kept to minimum

• The testing time is kept to minimum
• X-rays • Keeping to appointment times
• Tests • Test results returned on promised dates
• Return of reports • Doctors, Staff dedicate scheduled time for the designated
patients

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At Operational Level: Flexibility

Able to change the operation in some way.

• Volume flexibility – ability to adjust number of

Thanks.
patient treated
• Mix flexibility – availability of wide range of
treatments Feedback: tiny.cc/pom22
• Product/Service flexibility – Introduction of new
type of treatments
• Delivery flexibility – ability to reschedule
appointments
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