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Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
Operations Strategy Handbook
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Operations Strategy Handbook

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The world is changing – how about your Operations Strategy? …

The world is changing – how about your Operations Strategy?

The world is changing rapidly – same goes for your customers and suppliers. You are required to constantly improve your operations. Is optimising your current operating model sufficient or do you need to rethink?

A great Operations Strategy is what makes the sum of all operational capabilities of your business a competitive advantage.

Does your Operations Strategy fit in relation to environmental changes or changes in future customer demand?

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  • 1. OpsStrat Operations Strategy
  • 2. Content 1 Why Operations Strategy? 2 Operations Strategy approach 3 What is Operations Strategy – the elements in Operations Strategy? 4 Selected Operations references 2
  • 3. The world is changing – how about your Operations Strategy? A NEW STRATEGY FOR OPERATIONS? • The world is changing rapidly – same goes for your customers and suppliers • You are required to constantly improve your operations • Is optimising your current operating model sufficient or do you need to rethink? • A great Operations Strategy is what makes the sum of all operational capabilities of your business a competitive advantage • Does your Operations Strategy fit in relation to environmental changes or changes in future customer demand? 3
  • 4. To realise the vision and create value, Operations Strategy must consider both market requirements, operations resources and cost of capital REAL WORLD PERSPECTIVE FINANCIAL PERSPECTIVE Understand needs Choose customers Deliver products/ services Customers Products/ services Economic value is created if Payment ROIC Satisfy customer needs > WACC Revenues Operating profit margin EBIT/Sales Customer interaction Use operations resources Capital efficiency Sales/Invested capital Make money Resources/ services Cost of debt after tax Proportion of debt D/(D+E) Returns Payment Capabilities Suppliers Partners Define operating model Expenses Tax (1- Tax rate) Capital Cost of equity Investors Define capital structure Choose investors Proportion of equity E/(D+E) 4
  • 5. There are two paths to strategic value creation – exploration and optimisation TWO PATHS TO STRATEGIC VALUE CREATION ... EXPLORATION ... AND HOW THEY CAN WORK IN A REAL WORLD PERSPECTIVE OPTIMISATION • Invention of business • Administration of business • Rethinking current operating model • Current operating model • Intuition, feeling, hypotheses about the future, originality • Systematically honing and refining within current state • Uneven, false starts and significant leaps forward • High risk with potential of big reward • Long term Satisfy customer needs Customer interaction • Analysis, reasoning, data from the past, mastery Revenues Use operations resources Make money • Measured, careful incremental steps • Low risk but small reward Expenses • Short term Exploration: Reinvent the operating model with new manufacturing footprint, distribution footprint, technologies and/or network partner integration VALUE CREATION Optimisation: Optimize your current operating model through continuous improvements and improvement project within the current footprint, processes and competencies 5
  • 6. Market Requirements drives the need for Operations Resources Corporate Strategy • Capacity • Quality • Supply Network • Speed • Process Technology • Development & Organisation Operations Resources Operations Strategy Market Requirements • Dependability • Flexibility • Cost Bottom-up Experience ACHIEVING THE PERFECT FIT • Depending on the market requirements, the operational resources will have to be configured differently. Have you ensured the perfect fit or are you wasting resources? Source: Slack & Lewis 6
  • 7. Configuring your operating model must be based on your customers’ demand Impact on Operations Strategy Impact on relationship The below model divides supply chains into four dedicated conveyor belts based on different demand flow types. All supply chains demonstrate value-add and clear value propositions against the customers’ buying behaviour. For each flow type, the marketplace is analysed and used for configuration of related supply chains. The below model describes the four generic configurations of the supply chain in relation to ”relationship to customer” vs. ”predictable demand”. Collaboration and forecasting Tight Flow types Types of supply chains Cavitation ”Fully flexible”. Unplanned and unplannable demand due to unknown customers with exceptional, sometimes emergency, requests Surge ”Agile”. Usually unplanned, at least until the last possible moment. May result from promotions, new product launches, fashion marketing, unplanned stock-outs or unforeseen opportunities Semiwave Innovative and creative solutions ”Lean”. Regular pattern of demand, quite predictable and forecastable, although it may be seasonal. Tends to be mature low-risk products/services ”FULLY FLEXIBLE” ”CONTINUOUS REPLENISHMENT’ Relationship to customer ”LEAN” Base ”AGILE” Loose High ”Continuous replenishment”. Very predictable demand from known customers. Easily managed through tight collaboration with collaborative customers Low Predictable demand Request for low cost and high reliability Source: Gattorna 7 Balance service and costs
  • 8. Content 1 Why Operations Strategy? 2 Operations Strategy approach 3 What is Operations Strategy – the elements in Operations Strategy? 4 Selected Operations references 8
  • 9. We believe that Operations Strategy should be the result of cascading and aligning the overall strategic decisions to operations What is our winning aspiration? WHICH ARE CASCADED DOWNWARDS WITH UPWARD FEEDBACK LOOPS … Corporate STRATEGY CONSISTS OF FIVE KEY CHOICES Winning aspiration The purpose of the company Where to play How to win How will we win? The unique way to win: Our value proposition and our competitive advantage What capabilities must be in place? Management systems The set and configuration of capabilities needed to win in the chosen way What management systems are required? Capabilities Operations Where will we play? Where we will compete: Geography, products, segments, channels, value chain stages The systems and measures that enable the capabilities and support the choices Winning aspiration Where to play How to win Capabilities Management systems Strategic choices are cascaded to the next level as an overall strategic direction, but upward feedback loops from the business and functional units are essential part in strategy development Source: Roger Martin 9
  • 10. Choices in Operations Strategy What is our winning aspiration? • Choices: What is the guiding purpose for Operations in terms of supporting corporate and business unit strategies? • Example: Operating cost/Delivery performance/Working capital (choose one!) • Choices: What position will we take in the value chain? What will be the focus areas in Operations to support corporate and business unit strategies? Where will we play? • Examples: Where to produce? How to launch? Who to integrate to (customer or supplier)? Make/buy How will we win? • Choices: How will we perform the activities to support corporate and business unit strategies? How will we allocate internal and external resources to maximise productivity? • Examples: S&OP, Late customisation, VMI, Outsourcing/partnership, Platforms What capabilities must be in place? What management systems are required? • Choices: What specific capabilities must be in place in Operations? How will we upgrade the maturity of capabilities needed to support activities? • Examples: Competencies, IT/technology, Organisation, Sourcing • Choices: What systems, skills and structures are required to support the capabilities? How will the organisational design look like in Operations? How will we measure success? • Examples: Performance Management systems, Governance structures 10
  • 11. Our operating model serves as a platform for analysing and designing how Operations will support the value creation process OPERATING MODEL Operations Resources Market Requirements The cost and effectiveness of a business is largely determined by how well the business operating model is designed and implemented. Suppliers and Partners Capacity Why an operating model? What is it? Development and Organisation Supply Network Operational Performance Objectives Customers An operating model defines how people, organisation, processes and technology are designed to deliver one or several strategic choices to support the overall customer value propositions. How to use? Process Technology Competitors 11 The operating model is used when defining how operations will support the value creation process.
  • 12. It is essential to frame the conditions: What needs to be true for Operations to execute on the overall strategic choices? By framing the right prerequisites we can identify the real strategic options Strategic choice External factors Operations capabilities Ability to supply Analysis of performance Partner/supply network Process technologies Capacity Volumes What must we believe about our partner and supply network? What technologies need to be in place? What capacities must we have and where? What will we be able to deliver? And where? What is it? A clear specification of the conditions that must be true for a strategic option to be valid. Why? Strategic choice for Operations Customers What must we know about our customers? Operations capabilities What capabilities must we have? Supply network Costs What must be true about our supply network? 12 At what cost will we be able to supply our markets? Part of a simpler, more effective and engaging approach to strategy development more focused on choice: Deeply analytical, but focused on what really matters.
  • 13. Content 1 Why Operations Strategy? 2 Operations Strategy approach 3 What is Operations Strategy – the elements in Operations Strategy? 4 Selected Operations references 13
  • 14. The customer is king – so how do you prosper in their kingdom? Depending on which of the performance objectives the customers value, the operations resources must be aligned and conform or else the organisation loses ground. Top performers will therefore split their value chains to perfectly match the customer requirements, as exemplified by the four generic value chains presented below. The five performance objectives within each strategic decision area: Quality, Speed, Dependability, Flexibility & Cost. Capacity Strategy Supply Network Strategy Process Technology Strategy Fully flexible Unplanned and unplannable demand. Focus on: Quality, Speed, and Flexibility. Agile Usually unplanned, at least until the last possible moment. Focus on: Quality, Speed, and Flexibility. Lean Regular pattern of demand, quite predictable and forecastable. Focus on: Quality, Dependability, and Cost. Continuous replenishment Very predictable demand from known customers. Focus on: Dependability and Cost. 14 Development & Organisation
  • 15. Capacity Strategy – David or Goliath? Definition • The capacity strategy of an operation defines its overall scale. • That is, the number and size of different sites between which its capacity is distributed, the specific activities allocated to each site and the location of each site. Why a Strategy? Key strategic questions ICG viewpoint • Capacity is a fundamental decision that affects a large part of the business and its opportunities in the industry • How much capacity is needed to satisfy the market? • We emphasise that capacity and capability must go hand in hand while designing your Supply Chain footprint • For the business to fulfil its full potential, there must be a correlation between capacity decisions and overall corporate strategy • Many smaller factories spread around the world can give more flexibility and speed, where fewer larger factories can achieve economies of scale to ensure dependability and low cost • How should the capacity be distributed? • Where should the capacity be located? • How should we govern our different sites? • What level of capability should the different sites have? • Agility is king to most organisations – this requires additional capacity in your Supply Chain • When it comes to sourcing and manufacturing, we see a tendency towards “Move on or move home” to stay competitive • Complexity grows by itself – all structural changes must be towards simplification with the right balance of cost and complexity 15
  • 16. Supply Network Strategy – arm’s length or collaboration? Definition Supply network strategy is the strategic direction of an organisation’s relationships with suppliers, customers, suppliers’ suppliers and customers’ customers Supplier collaboration Why a Strategy? Production & distribution flow Need creation, price & terms of delivery Product portfolio Market segments & sales/distribution channels Pipeline & capacity management Order processing & planning Product structure Key strategic questions ICG viewpoint • No operation, or part of an operation, can be seen insulation. All are part of an interconnected network of their own customers and suppliers and their customers’ customers and suppliers’ suppliers • What we should do ourselves and what to subcontract? • We believe in upstream as well as downstream integration in the supply chain • Should you have close cooperation with few turnkey suppliers, or keep the suppliers at arm’s length? • Each set-up will grant different performance for the supply chain, but it must match the overall strategic goal of the entire value chain • How and why develop ‘partnership’ supply? • Number of and depth of relationships • Reducing supply chain instability • When to use market-based purchasing? • How supply networks fluctuate over time? 16 • Non-core, complex production should not be outsourced – it should be eliminated • Always be in close dialogue with your strategic suppliers and create common solutions with common goals • The best examples are when you succeed in integrating business processes, competences and information systems based on openness and confidence with an ambition to share the risk and profit
  • 17. Process Technology Strategy – low cost or high flexibility? Definition The set of decisions that define the strategic role that direct and indirect process technologies can play in the overall operations strategy of the organisation and sets out the general characteristics that help to evaluate alternative technologies. Why a Strategy? Key strategic questions ICG viewpoint • The choice of how to design your process flows is important to gain the sufficient speed and agility needed for each customer-driven chain • What are the process criteria for each customer segments? • The level of automation goes hand in hand with your supply chain footprint and level of labour wages - one size does not fit all • The design of process-cells can significantly increase the impact of customer service levels and cost to serve and are dependent on the material-, information-, and customer processing technologies • Which process capabilities do we need for each segment? • How should the new leadership style look like for each segment? • How should the DNA look like in each process cluster and how do we manage them day to day? 17 • Products and process technologies are closely related. We often see that a wide product portfolio is setting the boundaries for achieving the benefits from automation even though we see an increase in the possibilities for flexibility in automation technologies
  • 18. Development & Organisation – change or die Definition • Set of broad- and long-term decisions governing how the operation is run on a continuing basis. • Operations development is the ability of manage large “breakthroughs” and continuous improvements, and applies to both the organisation and its products and services. Why a Strategy? ICG viewpoint • Continuous change is necessary just to keep up with competitors Continuous improvement Key strategic questions • Big radical improvement projects, or small, continuous improvements? • If you aspire to beat them you must identify the next step, and move there before anyone else realises the change • Benchmarking against other operators? • The speed of change and level of Operational Excellence are correlated to the number of people decoupled from direct operational work • Understanding how customer value is created and how this can be increased through service and product development • Companies must be aware not to eliminate the resources required to maintain their ability to continuously improve and stay agile • Combining product and process development, on the hunt for higher customer value • We believe that every level in the organisation is responsible for continuous improvements. The best solution and knowledge must come from the people who are actually doing the work • We often see a great need for killing complexity in the product portfolio 18
  • 19. Content 1 Why Operations Strategy? 2 Operations Strategy approach 3 What is Operations Strategy – the elements in Operations Strategy? 4 Selected Operations references 19
  • 20. Selected references New global Operations Strategy with lead time reduction of +40 % European supply chain structure with COGS reduction of + €13m per year Redefinition of Operations Strategy leading to reduced working capital of +25 % 20
  • 21. Learn more about how we work with Operations Strategy Go to Implement Consulting Group's main website Implement Consulting Group Jan Lythcke-Jørgensen, Partner Thomas Graugaard, Managing Consultant Email: jlj@implement.dk Email: thg@mplement.dk Mobile: +45 2338 0017 Mobile: +45 5138 7423 Jacob Bønnelycke, Partner Martin Trier Hartz, Managing Consultant Email: jab@implement.dk Email: mth@implement.dk Mobile: +45 4138 0064 Mobile: +45 2338 0033 22

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