Operations Management: Introduction & Strategy Module

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Introduction & Administrative Key Principles of Course

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Strategic role of Ops Process view of Ops Strategies, Capabilities and Operations

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Strategic Framework Wal-Mart Aligning strategy and operations:

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Shouldice Hospital Focus Wriston Manufacturing

S. Chopra/Operations/Strategy 1

Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a

competitive weapon

or a

corporate millstone

.

It is seldom neutral.” [

Skinner ‘69

] S. Chopra/Operations/Strategy 2

Key Principle of Course: 2. The Process View of Ops  By

rethinking

the IBM Austin assembly plant and introducing

cells

, – distance traveled by a card was cut from 1.5 miles to 200 yards – floor space was reduced to half – production tripled with about the same number of workers.

[

Chicago Tribune, July 1992

] S. Chopra/Operations/Strategy 3

Operations & the Process View: What is a Process?

Information

structure

Inputs Process Management

Network of

Activities

and

Buffers

Flow units (customers, data, material, cash, etc.)

Outputs

Goods Services Labor & Capital

Resources

S. Chopra/Operations/Strategy 4

What defines a “good process”?

Performance: Financial Measures  Absolute measures:  – revenues, costs, operating income, net income – Net Present Value (NPV) = Relative measures:

t T

  0  1

C t



r



t

– ROI, ROE EBIT  Tax – ROA = Average Total Assets  Survival measure: – cash flow S. Chopra/Operations/Strategy 5

Firms compete on product attributes.

This requires process competencies.

Product Attribute (External) Process Competency (Internal)

Cost Response time Variety Cost Flow time Flexibility Quality Quality S. Chopra/Operations/Strategy 6

Process Competencies are affected by Process Structure and Management  Process structure or architecture: – (1) inputs and outputs – (2) flow unit (“jobs”) – (3) network of activities & buffers » quantity & location » precedence relationships – (4) resource allocation » capacity & throughput  Operations Planning & Control  Organization S. Chopra/Operations/Strategy 7

What defines a good operation?

Achieving alignment at FedEx 2006 2005 2004 Revenues 32,294 29,363 24,710 Income 3,014 2,471 1,440 S. Chopra/Operations/Strategy 8

A Strategic Framework for Operations

Business Strategy Desired Capabilities Processes Operations Structure Resources S. Chopra/Operations/Strategy 9

What defines a good operation?

Achieving alignment at IKEA S. Chopra/Operations/Strategy 10

Shouldice Hospital S. Chopra/Operations/Strategy 11

Wriston Manufacturing S. Chopra/Operations/Strategy 12

Wriston Manufacturing

Burden Rates (total overhead cost / direct labor cost) 7 6 5 1 0 4 3 2 Sanduski Detroit Lima Lebanon Saginaw Free capacity and Throughput Essex Tiffin 160 140 120 100 80 60 40 20 0 Sanduski

S. Chopra/Operations/Strategy

Detroit Lima Lebanon Saginaw Essex Tiffin Freemont Maysville Freemont Maysville

13

Focus and the Frontier I n the health-care sector

Responsiveness

World-class Emergency Room One general facility operations frontier World-class (non-emergency) Hospital

Cost efficiency

S. Chopra/Operations/Strategy 14

Learning Objectives

Operations & Strategy

 An operation as a transformation process  Product Attributes / Operational Capabilities  Process Drivers / Operations structure  Link between business strategy, operations strategy, and operations structure – Strategy vs. Operational Effectiveness – Operational Focus S. Chopra/Operations/Strategy 15