Operations strategy is ……..• “…….the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources”.
Operations Strategy – Designing theOperations Function
Competitive Priorities- The Edge• Four Important Operations Questions: Will you compete on – Cost? Quality? Time? Flexibility?• All of the above? Some? Tradeoffs?
Competing on Cost?• Typically high volume products• Often limit product range & offer little customization• May invest in automation to reduce unit costs• Can use lower skill labor• Probably use product focused layouts
Competing on Quality?• High performance design: • Superior features, high durability, & excellent customer service• Product & service consistency: • Meets design specifications • Close tolerances • Error free delivery
Competing on Time?• Fast delivery: • Focused on shorter time between order placement and delivery• On-time delivery: • Deliver product exactly when needed every time• Rapid development speed • Using concurrent processes to shorten product development time
Competing on Flexibility?• Product flexibility: • Easily switch production from one item to another • Easily customize product/service to meet specific requirements of a customer• Volume flexibility: • Ability to ramp production up and down to match market demands
Are There Priority Tradeoffs?• Which priorities are “Order Qualifiers”? e.g. Must have excellent quality since everyone expects it• Which priorities are “Order Winners”? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility• Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples• Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it
SUPPLY CHAIN• “A supply chain is the alignment of firms that bring products or services to market.”• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves.”
• “A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.”
A generalized SC Model Distribution Tier 2 Distribution Tier 1 Retailer Customer Raw MaterialsSupplier Supplier Distributor Retailer CustomerTier 2 Tier 1 ManufacturerSupplier SupplierTier 2 Tier 1 Distributor Retailer Customer Components Retailer Customer
A Supply Chain Example• Did you ever wonder where a television comes from? • A variety of companies in different countries play a role in building the components, assembling the product, and moving it through the supply chain. The goal of the supply chain is to have the television available when you’re ready to purchase it from your favorite store or website.
Who are the SC participants?Suppliers Manufacturing Distribution Retailer Consumer • Suppliers are the source of raw materials, component parts, semi- manufactured products, and other items. • Manufacturers are the makers of products. Many consider them to be the driver or leader of the supply chain. • Distributors are responsible for the packaging, storing, and handling of materials at receiving docks, warehouses, and retail outlets. • Retailers are the manufacturers customers - the stores and eCommerce companies that buy the actual products. • Consumers are the ultimate product users - the people who buy the product.
Importance / Benefits of SCM •To achieve economies of scale and scope – Costs are significant •To improve business focus and expertise •Customer Expectations are increasing •Supply and Distribution Lines are lengthening with complexity •Adds Significant Customer value •Customers Increasingly Want Quick & Customised Response
Importance / Benefits of SCM •To achieve economies of scale and scope – Costs are significant Internal SC functions lack economies of scale when compared with the potential capacity of an independent provider of the same product / service. Eg: Computer Monitor / Chip / Hard drive Attractive pricing – volume leverage. •To improve business focus and expertise Vertical integration multiplies the complexities of managing disparate businesses. An independent company that focuses entirely on a particular business can develop more expertise than an in-house department Ford divested their Iron Ore company, Steel Mill etc Higher Quality, Attractive Pricing or both
Importance / Benefits of SCM •Customer Expectations are increasing - Rapid processing of Customer Request - Quick delivery (shorter Order Cycle Time) - High degree of Product Availability - Lower Prices •Supply and Distribution lines are lengthening with greater complexity - Cut costs and expand markets - Trend towards an integrated world market - Designing products for world market & producing them wherever raw material, labour, components, overhead etc are lower - Political arrangements : European Union, ASEAN, SAARC etc - Globalization of industries depends on logistic performance and cvosts
Importance / Benefits of SCM •Adds significant Customer Value - A product or service is of no value to the customer, if not available when required Goods customers want are not produced where they want to consume OR goods are not accessible when customers want to consume Value Through Responsibility Form Converting raw materials Engineering & and components to the Manufacturing required Form, Fit & Function Time Production scheduling & Manufacturing & Logistics moving Place Moving & making Engineering & Logistics transportable Possession Advertising, Pricing, Marketing, Finance & Technical Support Engineering
Importance / Benefits of SCM •Customers Increasingly want Quick Customised Response - Customers expect that products / services can be made available in shorter times. Guided by Fast Food, ATM, E-Mail etc. - Improved IS and flexible manufacturing processes have led to mass customisation - One Size Fit all philosophy is not appreciated always - Manufacturers / Suppliers are offering products that meet individual needs
Process View of Supply Chain Management:Cyclic ViewSC is a sequence of processes and flows that take place within and between different SCstages and combine to fulfil a customer need for a product / service. These processes aredivided into a series of cycles (cyclic view), each performed at the interface between twosuccessive stages / entities of SC. Cycles Stage/Entity Customer Customer Arrival Customer Order Receiving Customer Order Cycle Customer Order Entry Customer Order Fulfilment Retailer Replenishment Retail Order Trigger Retail Order Receiving Cycle Retail Order Entry Retail Order Fulfilment Distributor Order Arrival from D/R/C Receiving by D/R/C Manufacturing Cycle Production Scheduling Manufacturing & Shipping Manufacturer Procurement Order from Manufacturer Receiving at Manufacturer Cycle Supplier Supplier Prodn Scheduling RM / Comp. Mfg & Shipping
Push/Pull View of Supply ChainsProcurement, Customer OrderManufacturing and CycleReplenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives
Process View of a Supply Chain: Push – Pull View LL Bean DELL PULL PULL Process ProcessCustomer OrderCycle Cust Order & Mfrg Customer order arrives CycleRepl & MfrgCycle Customer order arrives Procurement Procurement Cycle Cycle PUSH PUSH Process Process
Supply Chain Drivers• Production• Inventory• Location• Transportation• Information
Production• refers to the capacity of a supply chain to make and store products.• fundamental decision that managers face when making production decisions is how to resolve the trade-off between responsiveness and efficiency
Factories can be built to accommodateone of two approaches tomanufacturing:• Product focus• Functional focus
Inventory• includes everything from raw material to work in process to finished goods that are held by the manufacturers, distributors, and retailers in a supply chain.• Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand
Components of Inventory Decisions• Cycle inventory • Average amount of inventory used to satisfy demand between shipments • Depends on lot size• Safety inventory • inventory held in case demand exceeds expectations • costs of carrying too much inventory versus cost of losing sales• Seasonal inventory • inventory built up to counter predictable variability in demand • cost of carrying additional inventory versus cost of flexible production• Overall trade-off: Responsiveness versus efficiency • more inventory: greater responsiveness but greater cost • less inventory: lower cost but lower responsiveness
Location• refers to the geographical siting of supply chain facilities.• It also includes the decisions related to which activities should be performed in each facility• Location decisions have strong impacts on the cost and performance characteristics of a supply chain
• Once the size, number, and location of facilities is determined, that also defines the number of possible paths through which products can flow on the way to the final customer.• Location decisions reflect a company’s basic strategy for building and delivering its products to market.
Transportation• refers to the movement of everything from raw material to finished goods between different facilities in a supply chain
Transportation: Role inthe Supply Chain• Moves the product between stages in the supply chain• Impact on responsiveness and efficiency• Faster transportation allows greater responsiveness but lower efficiency• Also affects inventory and facilities
Transportation:Role in the Competitive Strategy • If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it • Can also use slower transportation modes for customers whose priority is price (cost) • Can also consider both inventory and transportation to find the right balance • Example 3.3: Laura Ashley
Components ofTransportation Decisions • Mode of transportation: • air, truck, rail, ship, pipeline, electronic transportation • vary in cost, speed, size of shipment, flexibility • Route and network selection • route: path along which a product is shipped • network: collection of locations and routes • In-house or outsource • Overall trade-off: Responsiveness versus efficiency
Information• Information is the basis upon which to make decisions regarding the other four supply chain drivers• It is the connection between all of the activities and operations in a supply chain
Information• Role in the supply chain• Role in the competitive strategy• Components of information decisions
Components of Information Decisions • Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) • Coordination and information sharing • Forecasting and aggregate planning • Enabling technologies • EDI • Internet • ERP systems • Supply Chain Management software • Overall trade-off: Responsiveness versus efficiency
Logistics ManagementLogistics is the process of strategically managingthe procurement, movement and storage of materials(and related information flows) through theorganisation and its marketing channels
• Logistics is the support element of the enterprise. It helps in managing the movement and storage of: Material into the enterprise. Goods in the enterprise. Finished goods from the enterprise.
FUNCTIONS OF LOGISTICS• Facility of location & Network design• Information management• Transportation management• Inventory management• Warehousing management• Material Handling system• Packaging
THREE CATEGORIES OF LOGISTICS 1. Subsistence logistics 2. Operation logistics 3. System logistics.
VALUE-ADDED ROLE OF LOGISTICS• Form Utility• Place Utility• Time Utility• Possession Utility
IMPORTANCE OF LOGISTICS MANAGEMENT Competitive pressure information technology channel power profit leverage.
LOGISTICS FOR COMPETITIVEADVANTAGE • ‘Three C’s’ company, customers competitors PRODUCTIVITY ADVANTAGE VALUE ADVANTAGE