Operations Strategy

Strategic Management Process We can find different definitions about Strategy: o The determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. o A unified comprehensive, and integrated plan design to ensure that the basic objectives of the enterprise are achieved. o A pattern in a stream of decisions or actions. So, there are deliberate (planned) and emergent (unplanned) strategies.

Strategic Management Process Strategic planning can be of two types: Usual and Serendipitous. Managers must be able to judge the worth of emergent strategies and nurture the potentially good ones and abandon the unsuitable, although planned, ones.

The major components of the strategic management process are: A. Defining the mission and objective of the organization. B. Scanning the environment (external and internal). C. Deciding on an organizational strategy appropriate to the strengths and weaknesses of the organization after taking cognizance of the emerging opportunities and possible threats to the organization. D. Implementing the chosen strategy. E. Control the implementation.

What is operations / manufacturing strategy? Without following the Strategic Management Process, no operations / manufacturing strategy can be formulated. There are two-way feedbacks in any process to arrive at the strategies of the organization and of its functional disciplines such as the operation function. A functional strategy such as operations strategy is derived from the overall organizational and business strategies. Operations have to be congruent with the strategic stance of the business.

What is operations / manufacturing strategy? Strategy making is not a one-way street. A firm cannot always design its strategies based upon its own perceived strengths. Yesterday’s core competence may not be today’s competence.

What is operations / manufacturing strategy? After having decided upon the mission, objectives and (as a part of it) the targeted market segment in which the company will compete, the company has to choose between the fundamental strategic competitive options of: A. Meaningful differentiation. B. Cost leadership.

What is operations / manufacturing strategy? A. Meaningful differentiation It means being different and superior in some aspect of the business that has value to the customer. Differentiation is a strategy to win customer and to keep retaining them for a long time.

What is operations / manufacturing strategy? Agility While flexibility means being changeable in various aspects of the management of operations, in today’s business-world, an additional quality is expected: The quickness of response to change. This quickness of response to changes is multi-dimensional and such operational systems are called as being agile.

Approaches to Meaningful Differentiation through Product Availability, Old Approach: Keep / increase buffer stocks of the finished goods and other materials, Invest in more machinery, hire more people, get more materials and thus increase the production capacity, The by-products are increased costs due to higher inventories and higher investments, failure to meet customer’s changing needs. New Approach: Faster introduction of desired new products and services by the use of the new technology, Reduction of operations lead times, delivery times through continuous improvement, The by-products are, enhanced flexibility and agility in the operations system, and Enhanced flexibility and agility in the operations system.

What is operations / manufacturing strategy? B. Cost leadership The other fundamental strategic competitive option: offering the product/service at the lowest price in the industry. This must be achieved by cost reductions. The difference between the modern approach and the traditional approach to cost reduction is in how the company understands the customer needs.

What is operations / manufacturing strategy? Operations Strategies Manufacturing / operations strategies, that one should complement with the fundamental organizational strategies, comprise of the customer-oriented strategies of: Improved Responsiveness, Reduced Prices, and Improved Quality.

What is operations / manufacturing strategy? Improved Responsiveness in terms of: Minimizing time to respond to needs of existing products and services, and Timely response to needs for new products/services when required. Reduced Prices through: Overall improvements in the production-delivery value chain, and Better designs of products / services. Improved Quality through: Better skills, better knowledge, and better attitudinal orientation of all production and services providers, and Improved technology of process and of product / service.

Approaches to Cost Leadership as a Strategy, Traditional Approach, Control on costs, specially related to direct labor, Reduction of various indirect labor expenses and, therefore, reduction of support activities. This results in Increase in uncertainties, Reduction in motivation of the manpower. Modern Approach, Use technology including IR 4.0 to simplify the processes, procedures and to reduce confusion and resultant wastes, Eliminate only the non-value adding activities. This results in lean and agile operation, Improved market performance.

Kenichi Ohmae mentions the following as the key success factor for any business: I. Product performance. II. Technology leadership. III. New product introduction. IV. Access to key decision-makers or key influencers. V. Delivery service.

Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis. Whatever one may talk about the operations / manufacturing strategic issues, the relevant strategic plans cannot be implemented unless one takes a good look at the company’s internal strengths and weaknesses. Strengths and Weaknesses refer to internal resources. SWOT Analysis Opportunities and Threats arise in the macroenvironment and competitive environment. Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis. The SWOT analysis should indicate a “fit” between the proposed strategic response of the operations function and the strengths of the company.

Five Forces Model Another analysis that could be useful in devising an appropriate operations strategy is that of Five Forces Model as presented by Michael Porter. He says that the stronger each of these five forces is, the more difficult it will be for the company to raise prices and make more profits. Five Forces Model A strong force is equivalent to a threat, a weak force is equivalent to an opportunity. Environments: Microenvironment, Competitive, and internal. Managers must stay abreast of external developments and react effectively.

Operations Strategic Actions and its Relationship with other Functional Areas of Management. Operations strategies cannot function in isolation. A synergy is to be sought between operations and other functions

Operations Function’s Role: A New Concept. The Operations functions has been seen as optimally utilizing resources of men, machines and materials while producing the designated output. 1. Optimization needs an objective. 2. Is “profits” the primary objective or is it the “customer service” that should be the primary objective guiding the company?. 3. How should efficiencies and optimizations help toward fulfilling the organization’s objectives. 4. Resources do not comprise of men, machines and materials only. 5. Should management be viewed as doing only planning and controlling activities?

Globalization unfolds a wide canvas for the business organization to paint upon. Distinctive Management Issues for a Globalizing Firm, 1. Competition – enhanced in number and degree. 2. Focus – need for sharper focus. 3. Competitive advantage. 4. Major operations issues of a globalizing firm. 5. Logistics. 6. Organization.

Globalization - Location Locating Business Internationally as a Strategy Taking business overseas can by itself be a significant aspect of a firm’s strategy. A firm can take its unique product or service to a foreign country and make a lot more profit because that country lacks in those unique services / utilities that the product / service provides.

Location Strategy, International Strategy: There is neither the impetus to lower the costs nor is “local customization” an absolute necessity; while pricing can be significantly higher than in the domestic market. Multi-domestic Strategy: If the market is considerably different in each country, extensive local customization may be required if the firm has to survive and be successful overseas. Global Strategy: This strategy essentially means that the firm produces in a country where the costs of production / operation are low; and uses those products for its customer around the globe. Transnational Strategy: The firm take advantage of the unique national competencies and set up units in countries / economies where such cost economies can be availed. The firm also makes sure that the operations are highly responsive to varying customer needs and that the skills and competencies developed in one economy are transferable to other economies

Globalization - Location Other reasons for locating Production / Operations overseas. Ease of doing business in a foreign country, Avoidance of political risk, Overcome tariff barriers and Gain access to technology.

Developing a Global Operations Strategy, when a firm has to develop a global operations strategy, it goes through the following stages, Define/ redefine costumer focus, study the competition, Choose the basis for competitive advantages, address and decide on the global operation issues, Fit in the operation decisions into existing mosaic or vice versa, Arrive at the global operations strategy, and lastly Results. A consideration of the strategic aspects of Operations is necessary before one proceeds towards the details of the design of the Production and Operations systems.