1896 1920 1987 2006

Chapter 1 Production System and

Operations Strategy
Meimei Zheng
http://me.sjtu.edu.cn/teacher_directory1/
2022.html
Department of Industrial Engineering & Management
Shanghai Jiao Tong University
 Chapter 1 1896 1920 1987 2006

Production System and Operations Strategy

Contents
1. Basic Conception of Production & Operations
Management
2. Production System and its Classification
3. Organization of Production System
4. Operations Management &Operations Strategy
5. The Classical View of Operations Strategy
6. Matching Process and Product Life Cycles
7. Capacity Growth Planning
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Operations Management
• To design, operate, assess and improve
production system.
• The core of Operations Management is the
management of production systems- production
planning & control (PPC)
1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Marketplace

Business Strategy

Finance Stragegy Operation Strategy Market Strategy

Operations Management

Input People Plants Parts Processes Output

Planning &Control

Production System
 1.4 Operations Management &Operation Strategy 1896 1920 1987 2006

Operation Strategy
 The means by which a firm configures its resources to achieve
its competitive goals;
 For manufacturing firms, key Marketplace

operational decisions include

Business Strategy
 Location: where to locate new
Finance Stragegy Operation Strategy Market Strategy
manufacturing facilities;
 Capacity Planning: How large
Operations Management

these facilities should be;

Input People Plants Parts Processes Output
 Production Process: What
processes to use for manufacturing Planning &Control

Production System
and moving goods through the
system; and
 Workforce Level: What workers to
employ.
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

 Service firms also require an operation strategy

Establishing monthly sales goals;
optimizing bus routes for 250K daily guest trips;
implementing meter-based maintenance scheduling for ride
vehicles;
building queuing and simulation models for call centers,
theme park rides, and resort front desks.
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

American companies’ lesson: OM is important

• the American big three (General Motor, Ford Motor Co., and
Chrysler Group) placed too much emphasis on marketing and
finance ;
• The enormous success of Japanese auto makers motivated the
American big three to change their way;
• Today, the best American auto makers could compete their
Japanese counterparts;
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Two Traditional Strategic Dimensions-

• Lower Cost
New entrants to a market operate on low cost strategy;
Examples:
 Korean automakers: Hyundai and Daewoo;
 Discount outlets: Costco;
 Retailers: Wal-Mart;
 May be successful over short term, but risky in long run-low
cost.
1896 1920 1987 2006
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Two Traditional Strategic Dimensions

 Product Differentiation-Differentiate a company’s products

from its competitors’.

 Providing uniqueness to buyers;

 Providing product differentiation within a firm to capture

different market segments

 Lesson from Henry Ford & GM
 1.4 Operations Management &Operation Strategy1896 1920 1987 2006

Other Strategic Dimensions

• Quality;
• Delivery speed;
• Delivery reliability;
• Flexibility;

 Means different things in different contexts;

Product Functions
Reliability relevance
Delivery speed
Product Design
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Ferrari F50 Geo Prism

Biao Car！ Transportation Tool
• Both Geo Prism and Ferrari are quality products;
• Consumers buying these products at greatly different prices
are both looking for good quality but for fundamentally
different objectives.
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Other Strategic Dimensions

• Quality;
• Delivery speed;
• Delivery reliability;
• Flexibility;

An important competitive weapon in some context;

It is competitive basis for some firms: UPS, Federal Express;

Mail-order and web-based retailers remain competitive by reliably

and quick delivery;

 1.4 Operations Management &Operation Strategy1896 1920 1987 2006

Other Strategic Dimensions

• Quality;
• Delivery speed;
• Delivery reliability;
• Flexibility;
Being able to deliver products or service as promised;
 How do online brokerages retain customers?-Executing trade
reliably and quickly
 How do contract manufacturers keep continuously
successful? –putting customers first and maintaining a good
record of delivering high-quality products in reliable fashion.
 1.4 Operations Management &Operation Strategy
1896 1920 1987 2006

Other Strategic Dimensions

• Quality;
• Delivery speed;
• Delivery reliability;
• Flexibility;

Offering a wide range of products;

Being able to adjust to unexpected changes in demands of the
product mix offered;
Successful examples:
 Flexible assembly lines enable Toyoda to adjust product mix
in real time basis;
 Dell Computer-Mass customization.
 Contents
1. Basic Conception of Production & Operations
Management
2. Production System and its Classification
3. Organization of Production System
4. Operations Management &Operations Strategy
5. The Classical View of Operations Strategy
6. Matching Process and Product Life Cycles
7. Capacity Growth Planning
 1.5. The Classic View of Operation Strategy

• The traditional view of manufacturing strategy was put

forward by Wickham Skinner of the Harvard Business
School.
• Classical operations strategy thinking relates to the
following issues:
1. Time horizon
2. Focus
3. Evaluation
4. Consistency
 1.5. The Classic View of Operation Strategy -
Decision Time Horizons
Decision Time Horizons refer to the length of time required for
the strategy to have impact on.

Fig1-1 Decision Time Horizons of Manufacturing Strategy

 1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Short-term decision horizon

 Impacts of Short-term OS （strategy）are
measured in terms of days or even hours;

 Include purchasing, production & personnel

scheduling; policies for control of quality and
maintenance function, short-term inventory control,
production scheduling, and so on.
 1.5. The Classic View of Operation Strategy -
Decision Time Horizons

•Medium-term decision horizon

 Impacts of medium-range OS are measured in
terms of weeks and months;
 Include
 demand and requirement forecasting,
employment-planning (size & mix),
decisions on the distribution of goods,
 setting up targets for inventory and service
level ;
 1.5. The Classic View of Operation Strategy -
Decision Time Horizons
 Long-term decision horizon
Strategy is usually associated with long-term decision ;
Include
• choosing the timing, the location, and the scale of new
manufacturing facilities;
• addressing groundwork for building proper channel for sales
and distribution; and
• setting up service objectives;
Require
• information about the forecast for new and exiting products,
• the changing patterns of marketplaces , and
• changes in costs of availability of resources.
 1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Effects of time horizons on strategy

 Impact on decision contents;

 The uncertainties on decisions;

 Penalty for wrong decisions.

 1.5. The Classic View of Operation Strategy -
Decision Time Horizons
Example: The Gap
(1) Short time horizons involve many decisions,
each of whose impact may be small.
•Manager at the Gap store restock shelves and
reorder every days.
•Small errors in sales data and personal judgment
required for reordering mix of items may result in
out-of-stock or wasted shelf space.
 The Classic View of Operation Strategy - Decision
Time Horizons

(2) Buyers in San Francisco headquarters of the Gap decide on

what lines of clothes to stock for the coming seasons—Medium-
range decision.

•Less information available than store mangers for the decision;

•They have to judge fashion trends and the color preference;

•The decisions may have greater impact;

•Penalty: A line that has not been sold must be on sale at lower
price.
 1.5. The Classic View of Operation Strategy -
Decision Time Horizons

(3) Top manager must make long decisions, possibly

(a) the number, location, and size of distribution centers;
(b) terms and conditions of long-term contracts with suppliers;
(c) arrangements for firm-wide supply chain logistics;
(d) selection of management personnel.
More uncertainties:
• demographic change makes decision on location and sizing for
decisions wrong;
• a long-term contract with a oversea plant may have opposite
results, e .g. quotas, tariffs.
The End!