-Operations Strategy -ERP The Power of Information

COB 300C Dr. Mike Busing Fall 2002

COB 300C
Operations Strategy Dr. Busing Fall 2002

Strategy
Definition:

Strategy
Definition: the science or art of military command as applied to the overall planning and conduct of large-scale combat operations. (The American Heritage Dictionary)

Elements of Strategy from a Business Unit Perspective

Corporate Mission
is a set of long-range goals unique to each organization. Includes statements about:
kind of business the company wants to be in who its customers are its beliefs about business its goals of survival, growth, and profitability

Business Strategy
long-range game plan for the the organization. provides road-map of how to achieve the corporate mission given:
global business conditions distinctive competencies/weaknesses (anything that helps the firm to capture market share)

Competitive Priorities
Low production costs High quality products and services Fast/on-time delivery Customer service and flexibility Speed

Operations Strategy
long-range game plan for the production of a companys products and services. It provides a road map for what operations must do if business strategies are to be achieved.

Operations Strategy (contd)

Answers such questions as:
What new products must be developed? When should new products be introduced into production? What new production facilities are needed? When should the new production facilities be completed?

Elements of Operations Strategy

I. Positioning the Operations System

Type of product design

custom products standardized products

Elements of Operations Strategy

I. Positioning the Operations System

Type of product design

custom products standardized products

Type of production processing system

product focused or line flow (good for low variety high volume) process focused (good for high variety (custom), low volume)

Elements of Operations Strategy

I. Positioning the Operations System

Type of finished-goods inventory policy

produce to stock (aka: make to stock) produce to order (aka: make to order)

Elements of Operations Strategy

I. Positioning the Operations System

Elements of Operations Strategy

II. Focus of Production

Without economies of scale, it may be beneficial to focus on a narrow product mix for a particular niche. Otherwise the factory/service facility may become vulnerable to smaller and more specialized competitors who can provide better cost, delivery, quality, and/or service.

Elements of Operations Strategy

III. Product/Service Plans

Introduction: production and marketing developing and profit is negative. Growth: sales grow dramatically, marketing efforts intensify, production concentrates on expanding capacity fast enough to keep up with demand and profits begin.

Elements of Operations Strategy

III. Product/Service Plans

Maturity: production concentrates on high volume, efficiency, and low costs; marketing uses competitive sales promotion aimed at increasing or maintaining market share. Profits at peak Decline: product may be dropped by the firm or replaced by improved products due to declining profits and sales.

Elements of Operations Strategy

IV. Production Process and Technology Plans

Matching high volume/low variety product line with product focused production technology Matching low volume/high variety product line with process focused production technology Intermediate case??

Elements of Operations Strategy

V. Allocation of Resources to Strategic Alternatives

Resources are scarce

e.g., product mix problem and other optimization problems

Elements of Operations Strategy

VI. Facility Plans

Capacity, location, and layout decisions

The internal arrangement of workers, production processes, and departments within the facilities can affect the ability to provide desired volume, quality, and cost of products. Walker manufacturing example.

Positioning Strategies for Services

Type of Service Design: (i.e., standard or custom product, amount of customer contact, mix of physical goods and intangible services) Type of Production Process: (i.e., quasi manufacturing, customer as participant, customer as product)

L o

p r o d u c tio n

e liv e r y p e r o r m a n c e

H ig h - q u a lity p r o d u c ts /s e r v ic e s

u s to m e r s e r v ic e le x ib ility a n d

C o m

e t it iv e

r io r it y c o s ts

Marketing HRM Operations Finance

ERP
Enterprise Resource Planning

ERP Key Point

Common Database benefits?

ERP Benefits
Integration of Financial Data Standardization of Manufacturing Process Standardization of HR Information

Issues to Consider
ERP package will most likely not match current business process. Cost is significant (average TCO = $15MM). Implementation Time can be long (1-3 years is typical). No payback is typical until 8 months after installation is complete. Average payback is $1.6MM/yr.

Problems and Budget Overruns

Training (including business process) Integration/Testing (add-on packages) Data Conversion Data Analysis (data warehousing) Consultants (staff training) Replacing your best and brightest Implementation teams never stop Waiting for ROI Post ERP Depression (productivity drop)

Lux Capital Corp. Business Plan Competition

Business Concepts will be judged partly on the following criteria: Does the business opportunity serve an attractive market? How large is this market? Is the business opportunity realistic? How does your product/service serve this market? How will you make money from this opportunity (what is your business model)? Who are your competitors? What is your competitive advantage and how will you protect your business from competitors? How well does the team understand the industry and market? Who are the customers you will target? Who will be the first customers? How will you develop and market your product/service and how long will it take to break-even? What is the required capital investment to start the business? Are financial projections realistic and based on solid analysis? Who will manage the business and why will they be successful? Who do you need to bring in to the business and how will you attract them? Who are the investors? How will the investment money be spent? How and when will the investors be paid-back for their investment? How will this business become a market leader and how will a leadership position be maintained?