Chapter 1. Strategy and Competition

1. Chapter 1. Strategy and Competition

2. Production Management 2 Strategy and Competition Functional Areas of the Firm

3. Production Management 3 Strategy and Competition Manufacturing All sectors of the economy are important and that domestic economic well-being depends upon properly linking and balancing the activities of these three sectors. Cohen and Zysman (1987), �Were America to lose mastery and control of manufacturing, vast numbers of service jobs would be relocated after a few short rounds of product and process innovation, largely to destinations outside the United States, and real wages in all service activities would fall, impoverishing the nation.�

4. Production Management 4 Strategy and Competition Strategic Dimensions (factors related to directly to the operations) Cost Product Differentiation Quality Delivery Speed Delivery Reliability Flexibility

5. Production Management 5 Strategy and Competition Issues on Operation Strategy Time Horizon Long term Decisions Locating and Sizing New Facilities Finding New Markets for Products Mission Statement : meeting quality objectives Intermediate Term Decisions Forecasting Product Demand Determining Manpower needs Setting Channels of Distribution Equipment Purchases and Maintenance Short Term Decisions Purchasing Shift Scheduling Inventory Control

6. Production Management 6 Strategy and Competition Focus Process Technologies Market Demands (Price, Lead Time, Reliability) Product Volumes Quality Levels Manufacturing Tasks Evaluation Cost Quality Profitability Customer Satisfaction Consistency Professionalism in the plant Product Proliferation Changes in the manufacturing task The manufacturing task was never made explicitly

7. Production Management 7 Strategy and Competition Competing in the Global Marketplace Why does one country become the home base for successful international competitors in an industry? Major Factors Historical Tax Structure National Character Natural Resources Government Policies Advantageous Macroeconomic Factors Cheap and Abundant Labor Management Practices Demand Conditions Related and Supporting Industries Firm Strategy, Structure, and Rivalry

8. Production Management 8 Strategy and Competition Strategic Initiatives: Business Process Reengineering (BPR) The idea that entrenched business processes can be changed and can be improved. The process is one of questioning why things are done a certain way, and not accepting the answer, �because that is the way we do it.� General Principles for BPR Several jobs are combined into one. Workers make decisions. The steps in the process are performed in a natural order. Processes should have multiple versions. Work is performed where it makes the most sense. BPR is concerned with business process flows rather than manufacturing process flows. The concept is not one of optimizing an existing process, but one of rethinking how things should be done from scratch. It is more revolutionary than evolutionary. To make BPR work, employees at every level have to buy into the approach, and top management must champion it. Otherwise, the BPR effort could be a costly failure.

9. Production Management 9 Strategy and Competition Just-In-Time (JIT) A philosophy of operating a company that includes establishing understanding and working relationships with suppliers, providing for careful monitoring of quality and work flow, and ensuring that product are produced only as they are needed. (Push System vs. Pull System) Advantages of JIT Eliminating WIP inventories results in reduced holding costs. JIT allows quick detection of quality problems. The most dramatic example of setup time reduction is the so-called SMED (single-minute exchange of dies) Contrasts between the conventional and JIT purchasing Large, infrequent vs. Small, frequent deliveries Multiple vs. Single sourcing Short-term vs. Long-term purchasing agreements Minimal vs. frequent information exchange The implication is that eliminating sources of uncertainty in the plant makes the inventory need disappear. Can one eliminate all sources of uncertainty in the manufacturing environment? What about consumer demand?

10. Production Management 10 Strategy and Competition Competing on Quality and Time-Based Competition Success in the market depends on two competitive factors; quality and time to market. A more appropriate measure of quality of the product may be reliability of the product after manufacture. Improving product quality can be achieved without much difficulty. However, total quality management must become ingrained into our culture in order to be truly world class. Quality management must expand beyond statistical measures, and quality must pervade the way we do business, from quality in design, manufacture, and building working systems with vendors, to quality in customer service and satisfaction. Time-based competitors focus on the bigger picture, on the entire value-delivery system. They attempt to transform an entire organization into one focused on the total time required to deliver a product or service. Their goal is not to devise the best way to perform a task, but to either eliminate the task altogether or perform it in parallel with other tasks so that over-all system response time is reduced. Becoming a time-based competitor requires making revolutionary changes in the ways that processes are organized.

11. Production Management 11 Strategy and Competition Process and Product Life Cycles

12. Production Management 12 Strategy and Competition Product/Process Matrix

13. Production Management 13 Strategy and Competition Learning and Experience Curves Learning Curve As workers gain more experience with the requirements of a particular process, or as the process is improved over time, the number of hours required to produce an additional unit declines. It models this relationship, and is a mean of describing dynamic economies of scale. Experience Curve Experience curves measure the effect that accumulated experience with production of a product or family of products has on overall cost and price. Experience curves are generally measured in terms of cost per unit of production. Discussion A learning curve strategy may not necessarily be the best choice over long planning horizons. Survival meant a break from the earlier rigid learning curve strategy to one based on innovation. Standardization and cost reduction based on volume production have been the keys to success for many companies. However, failure to achieve quick time-to-volume can spell disaster in a highly competitive marketplace.