2. Operations Strategy2. Operations Strategy

Operations managers must address every activity Operations managers must address every activity they are engaged with on the value added chain: they are engaged with on the value added chain:

producing to target, to cost producing to target, to cost quality - doing things right - error free processes quality - doing things right - error free processes speed or time compression - customer speed or time compression - customer responsiveness, lead times and elimination of responsiveness, lead times and elimination of delays, bottlenecks and inventory delays, bottlenecks and inventory predictability - to control events, actions and predictability - to control events, actions and relationships in orderly measured ways but with relationships in orderly measured ways but with an eye on flexibility (new products, product an eye on flexibility (new products, product /service range, volume and delivery). /service range, volume and delivery). control over costs (staff, facilities/technology, control over costs (staff, facilities/technology, materials) materials)

Value-added stages include: Value-added stages include:

needs identification and design of needs identification and design of products/services/processes products/services/processes

securing supplies and other inputs securing supplies and other inputs

manufacturing components from raw materials manufacturing components from raw materials

assembling components into finished assembling components into finished goods/services goods/services

distributing finished product to wholesalers, distributing finished product to wholesalers, retailers, or end users retailers, or end users

providing maintenance and after-care. providing maintenance and after-care.

PLC – Development/GrowthPLC – Development/Growth

Operations flexibility is at a premium. Operations flexibility is at a premium. The product may be made in low volumes. Its The product may be made in low volumes. Its design features are still being fined tuned and design features are still being fined tuned and there are still market uncertainties. there are still market uncertainties. Cash flow is negative. Cash flow is negative. Launch demands marketing and promotional Launch demands marketing and promotional expenditure. This continues until the product is expenditure. This continues until the product is established. established. Sales revenues must catch up. This is the Sales revenues must catch up. This is the classical break-even point concern. classical break-even point concern.

PLC - Maturity & DeclinePLC - Maturity & Decline

The product and market are stable. The product and market are stable. The aim is market share and cash generation with The aim is market share and cash generation with operations achieving consistent, high quality, low operations achieving consistent, high quality, low cost output. cost output. Predictability is a premium more than flexibility. Predictability is a premium more than flexibility. Investment in operational improvements aims to Investment in operational improvements aims to lower costs. lower costs. Product moving into decline may attract design Product moving into decline may attract design changes which will require operations to implement. changes which will require operations to implement. Improvement is the constant call as the firm strives Improvement is the constant call as the firm strives to keep its existing products from entering terminal to keep its existing products from entering terminal decline. decline.

Innovator or Imitator?Innovator or Imitator?

Imitator:Imitator: Wait until a product market is known, growing Wait until a product market is known, growing

and maturing and they can copy (legitimately and maturing and they can copy (legitimately or illegitimately) the design. or illegitimately) the design.

If an original developer-innovator wants to If an original developer-innovator wants to move on - they may seek to re-coup part of move on - they may seek to re-coup part of their original investment by licensing older their original investment by licensing older products and selling the designs and tools products and selling the designs and tools they do no longer need. they do no longer need.

Innovator or Imitator?Innovator or Imitator?

Innovator:Innovator: Introduce early product up-dates and invest in Introduce early product up-dates and invest in

market research/product design and grab market research/product design and grab market leadership. Rising star products offer market leadership. Rising star products offer premium prices and high market share. premium prices and high market share.

The innovator researches and develops rising The innovator researches and develops rising star products with unique selling points. star products with unique selling points.

Innovation often comes from quick Innovation often comes from quick exploitation of new technology, brand exploitation of new technology, brand promotion and defence of patents.promotion and defence of patents.

Self-sufficiency or Outsourcing?Self-sufficiency or Outsourcing?

Vertical integration - ownership and having all Vertical integration - ownership and having all functions in-house with overall control and functions in-house with overall control and economies of scale.economies of scale. But centralised, integrated systems can become But centralised, integrated systems can become bureaucratic and this may affect service and bureaucratic and this may affect service and quality. quality. The early 1990's - slim the organisation down to The early 1990's - slim the organisation down to core functionscore functions by out-sourcing peripheral by out-sourcing peripheral activities. Management can then concentrate activities. Management can then concentrate energy on core essentials. energy on core essentials. Needs balance Needs balance

AutomationAutomation

Automation speeds up operations, make them more Automation speeds up operations, make them more reliable and reduces unit costs reliable and reduces unit costs Decisions, however, affect staff: jobs, overtime, terms Decisions, however, affect staff: jobs, overtime, terms and conditions of employment, and full-time/part-time and conditions of employment, and full-time/part-time staffing mix etc. staffing mix etc. Technology may require fewer but more skilled staff. Technology may require fewer but more skilled staff. The organisation may become dependent on a small The organisation may become dependent on a small cohort of specialists. cohort of specialists. Automation has implications of changes in specialisation Automation has implications of changes in specialisation and relationships between people. and relationships between people. The skill mix of jobs change. The skill mix of jobs change.

Process-Service MixProcess-Service Mix

Operations are a blend of: Operations are a blend of: S - supplyS - supply

M - manufactureM - manufacture S - serviceS - service T - transportT - transport

Operations must correctly balance Operations must correctly balance SMSTSMST and monitor their interaction and and monitor their interaction and performance.performance.

OthersOthers

Delivering on Price: Need to reduce Delivering on Price: Need to reduce operational costsoperational costs

Delivering on quality: premium quality, Delivering on quality: premium quality, responsiveness & varietyresponsiveness & variety

Availability: readily available or made-to-Availability: readily available or made-to-order?order?