operations management - mm ugm jakarta - adg operations management adi djoko guritno program...

Operations Management - MM UGM Jakarta - ADG

OPERATIONS MANAGEMENT

Adi Djoko GuritnoAdi Djoko Guritno

PROGRAM MAGISTER MANAJEMEN

UNIVERSITAS GADJAH MADA


Operations Strategy:

Retail and Manufacturing Applications

Operations Strategy:

Retail and Manufacturing Applications

Session 7


3

OBJECTIVES

•Have an appreciation of the problems associated with these particular sectors•Understand the key building blocks of retail and manufacturing operations strategies•Discuss the formulation of manufacturing and retailing strategies•Appreciate the competitive advantage accruing from a manufacturing and retailing operations strategy


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Product LeadershipProduct

Leadership

Operational excellence

Operational excellence

Customer Intimacy

Customer Intimacy

MarketLeadership

MarketLeadership

Competitors Focus

Competitors Focus

Company Focus

Company Focus

Customer Focus

Customer Focus

Treacy & Wiersema Kenichi Ohmae

Fig. Strategic Triangle


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A strategy must :

•Fit the existing and potential environment. Addressing the needs of customers, the capabilities of customers and the anticipated change in response likely to be needed;•Provide a linkage mechanism for key organizational partners in a supply or wider mutual network;•Incorporate the activities of all major line functions of the firm;•Extend into staff activities, so that individuals can clearly visualize how their activities contribute to wider aims;•Specify the performance required to achieve strategic aims;•Promote a culture of continual improvement and development of both activities and strategic aims.


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Figure. Operations strategy filtration process


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The generic building blocksThe generic building blocks

•Core competencies, capabilities and processes.

•Resources.

•Technologies.

•Tactical activities.


8

Core competencies, capabilities and processesCore competencies, capabilities and processes

(a) process-based (derived from transformation activities), (b) system or coordination-based (across the entire operation system), (c) organization-based (across the entire organization), and (d) network-based (covering the whole supply network)


9

ResourcesResources

(a) individual resources of the firm (capital equipment, skills, brands and so on)

•tangible (physical, technologies and financial, etc.)

•intangible (communication and information systems, reputation, culture, brands,

and so on)

•human (specialized skills and knowledge, communication and interaction,

motivation and so on)

(b) the way they work together to create competitive advantage


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TechnologiesTechnologies

In addition to being a resource used in the general sense (equipment, etc.), technology will have an increasingly important role to play as it also includes core technological know-how in product and process innovation across the whole organization and its supply network)


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Tactical ActivitiesTactical Activities

Key activities that are vital in order to support a particular strategy or positioning. The continuation of certain core tactical activities will be vital to sustain a particular operations strategy or business positioning.


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PRODUCT AND SERVICE COMBINATION (OR PRODUCT AND SERVICE GROUP) DEMAND BEHAVIOR

• Product attributes;• Demand patterns;• Customer behaviour.


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INFLUENCES ASSOCIATED WITH THE STRUCTURE OF THE SUPPLY NETWORK

•Product stream value flows•Vertical integration•Individual firm’s sizes and power.


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INFLUENCES ASSOCIATED WITH PERFORMANCE METRICS WITHIN THE SUPPLY SYSTEM

•Lead time for supply;•Inventory at a particular supply pipeline stage;•Customer Service level;•Supplier Performance, this involves two factors: supplier service level and supplier process time (to convert raw materials or components into finished goods and services).


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RETAIL OPERATIONS STRATEGIESRETAIL OPERATIONS STRATEGIES


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Building Blocks (1)Building Blocks (1)

• Core competencies, capabilities and processes

1 Process-based capabilities (the transformation activities). 2 System or coordination-based capabilities (that is, found across the entire operations system). 3 Organization-based (across the entire enterprise).4 Network-based (covering a whole supply network).

• Resources

These included the skills of their workforce, technological priority in investment, use of dedicated and key suppliers, alliances and partnerships with other service providers and the selection and development of key geographic sites for stores.


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• Technologies

As we have discussed, the possession of technology alone was not a key to competitive advantage. It is the use to which it is put and the information that it provides that is difficult to replicate.

• Key tactical activities to support a strategic positioning

The necessary shorter term, tactical activities that support fast and effective procurement of goods, transportation, warehousing, logistics, etc., to ensure accurate replenishment of goods to real time demand levels


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MANUFACTURING AND PRODUCTION

OPERATIONS STRATEGIES

MANUFACTURING AND PRODUCTION

OPERATIONS STRATEGIES


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Formulating a manufacturing operations strategy

How are the various product transformation processes defined?

How are these transformational systems linked?

What are the basic operational principles (processes and infrastructure) for each

transformation system?

How is the actual transformation carried out?

What are the quantitative limits of the transformational process?

Where is the process located?

How is the process physically organized?

Who owns the transformation system?

How are the design attributes arrived at?

How is quality controlled and improved?

How are the informational needs of operations met?

How are human resource needs met?


20

Formulating a manufacturing operations strategyFormulating a manufacturing operations strategy

•How are the various product transformation processes defined?

•How are these transformational systems linked?

•What are the basic operational principles (processes and infrastructure) for each

transformation system?

•How is the actual transformation carried out?

•What are the quantitative limits of the transformational process?

•Where is the process located?

•How is the process physically organized?

•Who owns the transformation system?

•How are the design attributes arrived at?

•How is quality controlled and improved?

•How are the informational needs of operations met?

•How are human resource needs met?


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Fig. Manufacturing strategy framework


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Price (Travel Lodge hotels);Quality (Sony, Lexus, Kodak and Disneyland);Time (McDonald’s, Express mail and UPS)Flexibility (a hospital emergency and casualty facilities and Tesco Stores);Customer service (Nordstrom, Disneyland, five-star restaurants and hotels);Location (shopping centres or malls, service stations and ATMs).

• Resources

As mentioned above, access to the latest fabrics, materials and trims or components are vital in supplying haute couture fashion. At the same time the suppliers of such resources must be at the forefront of innovation and willing to create and develop new and unusual fabric products (both in terms of color, weight and texture).


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• Technologies

Perhaps less important as a core capability, but nevertheless necessary to ensure the latest technology is available and used to create high fashion clothing.


For a successful strategy, the organization must ensure an efficient and effective operation at two levels: upstream and downstream. The former involves all those activities necessary to secure excellent quality materials and process machinery. The latter involves very close communication and a working partnership with individual clients, as well as fashion show organizers and leading retailers in major cities throughout the world.


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Japanese manufacturing companies have employed a number of distinctive competencies:

•Low labour cost strategy – using an inexpensive labour pool that existed shortly after the war;•Scale-based strategy – in the 1960s capital intensive methods to achieve high productivity and low unit cost;•Focused factory strategy – smaller factories were used in the 1970s to focus on narrow product lines and specialization for higher quality;•Flexible factory strategy – time-based reduction in new product and process delivery and design times. High quality with increased variety;•Lean production – reducing all waste while maintaining product variety and quality.


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SME and Service SectorSME and Service Sector

Next


Operations Strategy: SMEs and Service Sector ApplicationsSMEs and Service Sector Applications

Operations Strategy: SMEs and Service Sector ApplicationsSMEs and Service Sector Applications

Session 8


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OBJECTIVES

•Formulate a strategy for SME operations•Appreciate an SME operational structure•Appreciate the nature of services and the service sector•Develop an operations strategy for service sector communities•Understand the business choices and integrative elements of a service strategy•Discuss the building blocks of a service strategy


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Usaha Mikro

(Menurut Kep. Menkeu No. 40/KMK.06/2003: Pendanaan Kredit Usaha Mikro dan Kecil)

•Usaha produktif milik keluarga atau perorangan Warga Negara Indonesia

•Memiliki hasil penjualan paling banyak Rp. 100 juta per tahun.


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Usaha Kecil (Menurut UU No. 9/1995, tentang Usaha Kecil)

•Usaha produktif milik Warga Negara Indonesia, yang berbentuk badan usaha orang orang perorangan, badan usaha yang tidak berbadan hukum, atau badan usaha berbadan hukum termasuk koperasi;

•Bukan merupakan anak perusahaan atau cabang perusahaan yang dimiliki, dikuasai atau berafiliasi, baik langsung maupun tidak langsung, dengan Usaha Menengah atau Besar;

•Memiliki kekayaan bersih paling banyak Rp. 200 juta, tidak termasuk tanah dan bangunan tempat usaha, atau memiliki hasil penjualan paling banyak Rp. 100 juta per tahun.


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Usaha Menengah

(Menurut Inpres No. 10/1999, tentang Pemberdayaan Usaha Menengah)

•Usaha produktif milik Warga Negara Indonesia, yang berbentuk badan usaha orang orang perorangan, badan usaha yang tidak berbadan hukum, atau badan usaha berbadan hukum termasuk koperasi;

•Berdiri sendiri, dan bukan merupakan anak perusahaan atau cabang perusahaan yang dimiliki, dikuasai atau berafiliasi, baik langsung maupun tidak langsung, dengan Usaha Besar;

•Memiliki kekayaan bersih lebih besar dari Rp. 200 juta, sampai dengan Rp. 10 miliar, tidak termasuk tanah dan bangunan tempat usaha, atau memiliki hasil penjualan paling banyak Rp. 100 juta per tahun.


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Departemen Perindustrian dan PerdaganganDepartemen Perindustrian dan Perdagangan• IKM adalah industri yang memiliki nilai investasi s/d Rp. 5 miliar.

• Memiliki aset tetap kurang dari Rp. 200 juta dan omzet per tahun kurang dari Rp. 1

miliar (sesuai UU No. 9 tahun 1995).

Bank IndonesiaBank Indonesia

• Menggolongkan UK dengan merujuk pada UU No. 9/1995

• Usaha menengah kriteria aset tetapnya adalah industri manufaktur (Rp. 200 juta

s/d Rp. 5 miliar) dan non manufaktur (Rp. 200 – 600 juta).

Badan Pusat Statistik (BPS)Badan Pusat Statistik (BPS)

• Menggolongkan suatu usaha berdasarkan jumlah tenaga kerja.

• Usaha kecil : memiliki 1-19 pekerja; usaha menengah : memiliki 20-99 pekerja; dan

usaha besar : memiliki minimal 100 pekerja


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Kegiatan usaha tidak terorganisasi dengan baik

Tidak memiliki izin usaha

Pola usaha tidak teratur

Usaha pemerintah membantu golongan lemah tidak sampai ke sektor ini

Unit usaha mudah keluar masuk dari satu sub-sektor ke sub-sektor lainnya

Teknologi primitif

Modal kecil

Tidak diperlukan pendidikan formal

Unit usaha termasuk golongan one-man-enterprise

Sumber modal sendiri atau badan keuangan tak remi

Hasil produksi umumnya dikonsumsi golongan masyarakat berpenghasilan kecil

dan menengah

Sektor Informal di Indonesia


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FORMULATING AN SME OPERATIONS STRATEGY

•The SME operations environment

•Changeable demand

•Increasing leverage

•The SME operations structure

•SME operations strategy building blocks

•Core competencies, capabilities and processes

•Resources

•Technologies

•Key tactical activities to support a strategic positioning


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The SME operations environment

•Changeable demand

•Increasing leverage


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Changeable demand

•SMEs tend to avoid permanent or binding linkages with suppliers and

other network contacts.

•Their flexibility relies upon the transient nature of their relationships with

other organizations using short-term, entrepreneurial contracts

•An ability to utilize resources carried by others (Stevenson and Gumpert,

1991).


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Increasing leverage

•SMEs face a dilemma: in seeking new opportunities and being nimble and fast they need instrumental relationships; in managing their current business they need strong, more permanent relationships. •The two are to a degree exclusive:

•One solution seems to be the development of new ventures alongside existing ones. The flexibility of the SME often allows this type of project management operation, with resources being switched between current and new activities (Lowson, 1998).

•Small and medium-sized firms also suffer a power imbalance when dealing with larger suppliers and customers, with both sides regarding the relationship as somewhat temporary. This arrangement certainly offers greater degrees of flexibility, but is also highly speculative and makes operations planning very problematical.


37

The generic building blocksThe generic building blocks

•Core competencies, capabilities and processes.

•Resources.

•Technologies.

•Tactical activities.


38

Core competencies, capabilities and processesCore competencies, capabilities and processes

(a) process-based (derived from transformation activities), (b) system or coordination-based (across the entire operation system), (c) organization-based (across the entire organization), and (d) network-based (covering the whole supply network)


39

Table. SME core capability sources (1)


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Table. SME core capability sources (2)


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ResourcesResources

•The SME has little bargaining power when it comes to resources. •Suppliers will often be larger and more powerful and can raise prices, reduce quality and restrict supplies as a means to squeeze SME profitability. •The SME has to be careful to avoid the high switching costs involved in changing supplier. •The fixed costs buyers face in changing suppliers can include:

•Being tied to a particular source of supply due to product specification;

•Investment in ancillary equipment or learning how to operate suppliers

equipment;

•Production lines being closely connected to a suppliers’;

•The use of a core input that is only available from a limited source with no

alternatives possible.


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TechnologiesTechnologies

•Often SMEs will lack the financial resources for high levels of investment in these areas. •As a consequence, flexibility is again the byword for the SME in ensuring that technologies can be adapted for multiple purposes.


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Tactical ActivitiesTactical Activities

•As with other organization types, certain short-term tactical activities will be vital to support a particular strategy or positioning; for example, particular linkages across the firm or externally with suppliers and customers. •Flexibility in both looking for new sources of raw materials (or other inputs) and new markets must be matched by internal operational flexibility that supports rapid changes and diversification in product and service combinations.•Flexible operations strategies are built upon a foundation of flexible tactical and support activities.


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SERVICE SECTOR OPERATIONS STRATEGIESSERVICE SECTOR OPERATIONS STRATEGIES


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Three vitally important aspects of service provision

•Paying attention to competencies and their continuous development•Establishing collaborative relationships•Empowering service employees


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Six essential parts of service value(Zeithaml, 1998, as adapted by Haksever et al., 2000):

•Perceived quality.•Intrinsic attributes.•Extrinsic attributes.•Monetary price.•Non-monetary price.•Time.


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Service-product bundle to consist of four elements

•Supporting facility – the physical resources that must be in place before the service can be offered (for example, a hospital)•Facilitating goods – the material elements of the product service combination (equipment in the hospital, patient records, medical supplies, etc.).•Explicit services – the benefits that are readily observable to the senses and consist of the essential, intrinsic features of the service (the absence of pain after breaking a leg or the cure of an illness).•Implicit services – the psychological benefits that a customer may only sense vaguely or the extrinsic features of the service (the status of the hospital as a teaching facility, for example)


48

Designing the product and service combination, decisions must be made regarding:

•Structural•Delivery system – front and back office arrangements, degree of customer participation and automation;•Facility design – layout, size aesthetics;•Location – consumer demographics, sites, competition, site characteristics;•Capacity planning – managing queues, number of customer servers employed, demand characteristics and strategies for matching demand.

•Managerial•Service encounter – service culture, motivation, selection and training, levels of employee empowerment;•Quality – measurement of levels, methods of delivery, value and expectations, service guarantees;•Management of demand and matching capacity – strategies for coping with demand and changing capacity to match ;•Information resources – data collection, processing and use of information sources (including sharing with trading partners).


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Formulating a service sector operations strategy

•Low entry barriers. Service inventions cannot be patented; innovations are easily copied.•Opportunities for economy of scale. Because most services are produced and consumed simultaneously and either the service or the customer must travel to consumption point, economies of scale are often low. •Erratic demand levels. Service sales levels are often a function of the time of day or day of the week – although there are also random and seasonal elements.•Size and power disadvantages. The SME service, however, is often at a disadvantage when dealing with supply system partners (customers or suppliers) that are much larger in size and more powerful.•Product and service combination substitution. Those offerings that tend to emphasize a higher service content can often be quickly and easily substituted using new technology•Exit barriers. Often have the flexibility and agility to move into similar markets (related diversification) or different markets altogether (unrelated diversification).


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Figure. Business decisions and integrative elements


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1 Process-based capabilities (the transformation activities). 2 System or coordination-based capabilities (that is, found across the entire operations system). 3 Organization-based (across the entire enterprise).4 Network-based (covering a whole supply network).

• Resources

These included the skills of their workforce, technological priority in investment, use of dedicated and key suppliers, alliances and partnerships with other service providers and the selection and development of key geographic sites for stores.


52


• Technologies

As we have discussed, the possession of technology alone was not a key to competitive advantage. It is the use to which it is put and the information that it provides that is difficult to replicate.


The necessary shorter term, tactical activities that support fast and effective procurement of goods, transportation, warehousing, logistics, etc., to ensure accurate replenishment of goods to real time demand levels


53

Figure. Employee productivity per sector


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Web Assignment:http://www.swedish.org

•Using essential parts of service value and service-product bundle, classify the

important elements of service that the Swedish hospital offers and the

necessary operational activities that will be essential in each case.

•What are the main operations strategy decisions necessary for the Swedish?

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