Operations Strategy

1. Operations Strategy

2. The Big Picture Corporate Strategy How the organization is going to pursue its mission. Operations Strategy Operations is organization’s core business function! Operations strategy is how that core business function is going to add value in support of the corporate strategy. It requires continuous, cross-functional interaction. The operations strategy should be customer driven.

3. Operations Strategy Operations strategyanswers the question: How can a firm’s operations function best contribute to the organization’s overall strategy? A firm’s “operations function” is it’s key business. • The Operations Strategy is how you pursue the goals of adding value using your key business. Operations Strategy Short-Term Operations Decisions Long-Term Operations Decisions

4. Sonoco Products Co.Strategy without the glamour • Founded in 1899, it is a $4.8 billion global manufacturer of industrial and consumer products and provider of packaging services to customers in 85 nations. at 347 locations. • It has 347 locations (121 manufacturing plants in North America). • One key operations strategy was that it located in countries with favorable tax laws. • Another profitable strategy was taking advantage of exchange rate differences and a weakening dollar. • Going green: It went heavily into the recycling business and reducing its emissions and energy use. • It was named the top global packaging company for sustainability and corporate responsibility in the 2011 and 2012 Dow Jones Sustainability World Index.

5. Developing a Corporate Strategy Developing a corporate strategy involves three considerations: • Identifying a company’s Strengths and Weaknesses. • Monitoring the environment for trends, Opportunities & Threats. • Developing the core competencies S.W.O.T.

6. Core Competencies(What do you do well) • Core Competenciesare the unique resources and strengths that an organization possesses. • A Good Rule: Stick with what you do best! • Your corecompetencies should determine which core processes you emphasize.

7. Core ProcessesFour essential processes • Core Processes usually include: Supplier Relations Customer Relations Inputs Transformation Outputs Filling Customer Orders Developing New Products and Services • Most firms have all of these but focus on a subset of them, as determined by its core competencies (what it’s good at).

8. Global Strategies A global strategy may include buying foreign services or parts, and/or entering or expanding foreign markets. Two popular global strategies are: • Strategic Alliances with foreign companies • Joint ventures / Collaborative efforts • Technology licensing • Locating and operating abroad

9. Market Analysis Market Analysisidentifies your customers and their needs. It is accomplished in two parts: • Market Segmentation: Identifying groups of customers with enough common needs to warrant developing services and/or products for them. • Needs Assessment: Identifying the needs of each market segment. Needs include: • Service or product needs • Delivery system needs • Volume needs

10. Competitive Priorities • COST (Low Cost) • QUALITY • High-Performance Design • Consistent Quality • TIME • Fast Delivery • On-time delivery • Development speed • FLEXIBILITY • Customization • Variety • Volume Flexibility Most valued by firms buying from other firms

11. Corporate Strategy • environmental scanning • core competencies Arriving at the Competitive Priorities S.W.O.T. • Market analysis • segmentation • needs analysis • Relationships with Customers • Relationships with Suppliers • Developing new products and services • Filling Orders • Core processes • Global strategies Competitive priorities • Cost • Quality • Time • Flexibility

12. Law of Competitive Priorities • FAST • CHEAP • GOOD Pick any two! If you can make it fast and cheap, good and cheap, or fast and good, you will be very competitive. • Many companies do one of these, but the really good ones excel in two of these areas.

13. Competitive Capabilities • A firm’s Competitive Capabilities are the competitive priorities that a firm actually possesses and is able to deliver. • A company may not be capable of doing well in all competitive priority areas (cost, quality,time, and flexibility), but it may have the capability of doing well in at least one or two of these areas. • Likewise with core processes.

14. Competing on Cost • Low Cost means delivering a service or product at the lowest possible cost to the satisfaction of the customer. • For most products and services, low cost and high quality are mutually exclusive. • Consumer “satisfaction” means that the quality is acceptable to the consumer.

15. Qualityas aCompetitive Capability • Top Quality: Delivering an outstanding service or product. • Considerable interaction with the customers may be required to determine what that means, especially with service. • Consistent Quality: Producing services or products that meet design specifications on a consistent basis.

16. Time as aCompetitive Capability • Delivery Speed is quickly filling a customer’s order. • Lead Time is the time between receipt of an order and filling the order. • On-Time Delivery means meeting the delivery time promises. • Development Speedmeans quickly developing a new service or product. • Time-Based Competition is a strategy that focuses on development speed and delivery speed.

17. Flexibility as aCompetitive Capability • Customization means satisfying the unique needs of each customer by changing the service or product designs. • Variety involves handling a wide assortment of services or products efficiently. • Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.

18. Northrop Grumman Newport News Ship Building In March 2011, Newport News Shipbuilding, along with the shipbuilding sector of Northrop Grumman, spun-off to form a new company called Huntington Ingalls Industries. • The world’s only producer of full-sized aircraft carriers (super carriers) • Long lead times of 8 years or more often involve many changes. • Their processes have a high degree of flexibility to handle changes in design. • Flexibility in workforce skills as well as process flexibility is necessary.

19. Product Decisions • Process (What processes should be used to make the product?) • Location (Where should the company and its facilities be located?) • Layout (How should the production/service processes be arranged?) • Capacity (What size facility?)

20. Service or Product Development Strategies • Product Variety: Offering a wide assortment. • Design: Ease of use and desirable features • Innovation: Translate new technology into products • Service: Products with service packages added MARKET ENTRY • Market Leader: Being first to introduce new services and/or products • Middle of the Road: Wait for the leaders to introduce new services and/or products. • Laggard: Wait to see which new services and/or products catch on in the market.

21. Service Package • A Service Package is a collection of goods and services provided by a service process to its customers. • The service packages that come with the $200+ textbook that I didn’t require… • DVD • Solutions manual • Student CD • Instructor’s manual • PowerPoint Slides • Test Bank • Software • Lecture Notes • Website for students • Website for faculty

22. Product Life Cycle

23. Product Planning & Development Phase(Pre-production) • Product selection and design • Determine market feasibility • Quality level, # of models • Development • Process Design: Deciding how to make the product) • Supplier selection: (What materials & parts do we buy?) • Service package (What services should it include?) • Full Launch • Begin production, marketing & distribution processes

24. Service or product not viable Design Specifications are developed for new services or products Need to rethinkthe idea. Analysis A critical review of how it will be produced, resource requirements and capabilities. Post-launch review Development Cross-functional coordination, process design. Full Launch Sales & promotion Development Process The development process stage is the most important in the life cycle. More decisions are made here than any other phase. More coordination is required and more risk is involved.

25. ConcurrentEngineering Developing New Products and Services Buyers Major Customers Quality Specialists Product Engineers Suppliers Marketing I.T. Specialists Process Engineers • This is an essential cross-functional effort during the service and/or product development phase. • Insures a timely and well-coordinated process that brings value to the customer.

26. Product Introduction Phase • Product changes often occur. • Process changes may be necessary. • Supplier development and changes. • Product hopefully starts to show profitability. • 24 out of 25 new products never become profitable. • Operations must have a lot of flexibility during this phase. (low-volume, high flexibility)

27. Growth Phase • Production capacity changes to keep up with changing demand. • Fine tuning process and productivity • Concern for quality control • Quality problems are most likely to occur in this growth phase, especially in a rapid growth situation. • Forecasting demand

28. Maturity Phase • Growth slows, stops, and begins to decline. • Cost control & cost reduction • Competition is heavy, requiring cost control • Operations must work closely with marketing to reduce product options and/or add competitive features. • Production efficiency is essential to compete. • High-volume, Low flexibility

29. Decline Phase • Production phase-down • Product termination • Product support issues • Production has gone from a low-volume, highly flexible operation (introduction) to a high-volume, low flexibility operation (maturity) and back again to a low-volume operation (decline). • This requires continual change and adaptation by the operations function of the business throughout the life cycle of the product or service.

30. Life-Cycle Audit • A product’s life cycle is how long the product is on the market. • It is periodically done to determine the life-cycle stage of each product. • Some products have long life-cycles and others have short life-cycles. • Marketing strategy and production strategy change with each life cycle. ?

31. Market entry/exit strategies • Early Entry - Late Exit • Introduction thru Decline • Large, innovativemarket leaders with economies-of-scale for high-volume competition. • Early Entry - Early Exit • Introduction thru Late Growth • Smaller, innovative firms that can bring new ideas quickly to market but cannot compete in high-volume, low cost market. • Late Entry - Late Exit • Growth thru Decline • Larger, wait-and-see firms (laggards) that minimize risk by picking winners and having the economies of scale to compete well at high-volume.

32. Early Entry, Late ExitIntroduction phase Decline Phase • A common strategy for large companies that are innovative and market leaders. • Production strategies go through the entire spectrum. • Low volume High volume Low volume • High-cost production Low-cost production • Flexible production Inflexible production • Low efficiency High efficiency

33. Early Entry, Early ExitIntroduction phase Growth phase • Smaller, Innovative firms. • Rapid development of new productions. • Small firms don’t have the economies of scale to compete in a high volume, low cost, market, so they get out early. • They tend to get bought out or they sell or license their patents to larger companies.

34. Late Entry, Late ExitGrowth Stage Decline Stage • The opposite strategy of the early entry, early exit. • These are large firms that wait-and-see what new products or services are hot, and then jump in with similar products. • They may manufacture the items, buy out the small firms, or buy into the firms with the hot items.