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Ko ç Un iversity Graduate School of Business E MBA Program. OPSM 901: Operations Management. Session 1: The Process View Process Positioning Strategic Fit. Zeynep Aksin zaksin @ku.edu.tr. Key Principle of course: 1. The Strategic Role of Ops. “A company’s operations function is

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opsm 901 operations management

Koç University Graduate School of Business

EMBA Program

OPSM 901: Operations Management

Session 1:

The Process View

Process Positioning

Strategic Fit

Zeynep Aksin

zaksin@ku.edu.tr

key principle of course 1 the strategic role of ops
Key Principle of course: 1. The Strategic Role of Ops

“A company’s operations function is

either a competitive weapon

or

a corporate millstone.

It is seldom neutral.” [Skinner ‘69]

operations as a competitive weapon
Operations as a Competitive Weapon
  • Dell Computers

Innovative Supply Chain Strategy (direct model)

  • Southwest Airlines

Leader in lowfare flights, by elimination of all waste

  • Zara

More on this later today..

  • Vestel Durable Goods

Distribution optimization leads to increased customer satisfaction as well as lower costs

key principle of course 2 the process view of ops
Key Principle of Course: 2. The Process View of Ops

UL

Sup. WH

KA

Ind. Markets

WH

Sana KA: 64 days

Groceries:132 days

Shelf life: 120 days!

.

.

.

Sub. WH

76 days collection time

Groceries

Markets

Sales cost: 4%

Trade rebate: 12%

Logistics: complex

1997: 35000/76000 tons Sana and Aymar collected

consumer centric efficient sc
Consumer centric-efficient SC

Warehouse stock level

12% - 8%

UL

Make-to-order

120000-140000/180000 outlets

36 days collection time

Distributors

Groceries

Market

KA

Sana KA: 2 weeks

Consumer

Sales cost: 6%

Trade rebate: 5.2%

Logistics: simple

operations the process view what is a process

Process

Management

Information

structure

Network of

Activities and Buffers

Inputs

Outputs

Goods

Services

Flow units

(customers, data,

material, cash, etc.)

Labor & Capital

Resources

Operations & the Process View: What is a Process?
process

customer

customer

suppliers

Process
life is a process
Life is a process..
  • Projects: one time processes
  • Eating lunch at the cafeteria
  • EMBA program
  • Your career
  • Your life
what is operations management
What is Operations Management?
  • Management of business processes
  • How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs.
    • What is appropriate?
all managers are operations managers
All Managers are Operations Managers
  • All managers must transform inputs into outputs
  • Example: Accounting Manager
    • Inputs: data, information, labor
    • Transformation: application of accounting principles and knowledge
    • Outputs: accounting reports, knowledge of performance, ...
  • All managers have an “operation” to run
what defines a good process performance financial measures
What defines a “good process”? Performance: Financial Measures
  • Absolute measures:
    • revenues, costs, operating income, net income
    • Net Present Value (NPV) =
  • Relative measures:
    • ROI, ROE
    • ROA =
  • Survival measure:
    • cash flow
performance measurement
Performance Measurement
  • Basing performance measurement only on financial ratios may be deceiving in that it does not capture continuous improvement and innovation
  • The Balanced Score Card (BSC) system was developed by R. Kaplan ve D. Norton in 1992 (HBS 1,1992.)
  • The objective is to give managers measurements that reflect both financial and operational performance in a balanced way
balanced score card bsc
Balanced Score Card (BSC)
  • BSC, complements financial measures with
    • Customer satisfaction
    • Process
      • Throughput times
      • Defect rates, etc.
    • Learning and development

related measures that help to reflect future financial success

slide15

Objective

Measurements

Targets

Initiatives

BSC

Financial

How should our shareholders view us so that we can claim financial success

Customer

Processes

Vision

and

Strategy

Which processes should we perfect to be seen as successful by our customers and shareholders

How should customers view us so that we attain our vision

Learning and Development

How can we sustain learning and development to adhere to our vision

firms compete on product attributes this requires process capabilities
Firms compete on product attributes. This requires process capabilities.
  • Price (Cost) P
  • Quality Q
    • Customer service
    • Product quality
  • Time T
    • Rapid, reliable delivery
    • New product development
  • Variety V
    • Degree of customization

“order winners”

To deliver we need “capabilities”

process capabilities are affected by process structure and management
Process Capabilities are affected by Process Structure and Management
  • Process structure or architecture:
    • (1) inputs and outputs
    • (2) flow unit (“jobs”)
    • (3) network of activities & buffers
      • quantity & location
      • precedence relationships
    • (4) resource allocation
      • capacity & throughput
    • (5) information structure
  • Operations Planning & Control
  • Organization
fit between strategy and processes
Fit between Strategy and Processes
  • Processes must fit the operations strategy of the firm:

Competing on

-Cost (Southwest Airlines)

-Quality (Toyota)

-Flexibility (HP)

-Speed (McDonalds)

all require different process designs and different

measures to focus on.

Corporate StrategyKey Performance Indicators

Operations StrategyProcess Design& Improvement

linking the strategic role process view strategic operational audit

Existing

Desired

Measures

Product Attributes

P, T, Q, V

Feasible

Business Strategies

Desired

Business Strategy

Strategy Gap?

Capability Gap?

Desired

Capabilities

Existing

Capabilities

Marketing, …,

Financial Strategy

Operations Strategy

Process Attributes

C, T, Q, Flex

Operational Structure:

Processes & Infrastructure

Desired Oper’l Structure:

Processes & Infrastructure

Process Gap?

Linking the strategic role & process view: Strategic Operational Audit
slide21

Value/ Responsiveness

A

B

operations

frontier

C

High

Low

Cost

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry

High

Low

increasing customer value
Increasing Customer Value

Value

Değer Artırımı

High

Operations Frontier

A

B

C

Low

High

Low

Cost

lowering costs
Lowering Costs

Value

HIgh

Operations Frontier

A

B

Lowering Costs

C

Low

High

Low

Cost

classifying by degree of judgement
Classifying by degree of judgement

complexity vs. divergence

what is done? how is it done?

classification of processes by process architecture
Classification of Processes by process architecture
  • Project
  • Job Shop
  • Batch
  • Line Flow
  • Continuous Flow

Job Shop

Flow Shop

the job shop process
The Job Shop Process
  • Process Layout
  • One of a Kind Build
    • (To Customer Order)
  • Absence of Rigid Flow Pattern
  • Usually High Product Mix
process layout
Process Layout

Lathe#1

Lathe#2

Drill Press #1

Paint Machine

Lathe#3

Packaging Machine #1

Finish

Production

Drill Press #2

Lathe#4

Packaging Machine #2

Product #1735B: Start of Production

the flow line process
The Flow Line Process
  • Product Layout
  • Discrete Parts
  • Rigid Flow Pattern
  • Product Mix of Standard Products
product layout
Product Layout

Product #1735B

Start Production

Drill

Press #1

Lathe

Packaging Machine #2

Drill

Press #2

Paint Machine

Finish Production

classification of processes by positioning strategy
Classification of Processes: by Positioning Strategy
  • Functional Focus:
  • Product Focus:

Product1

A

B

Product2

C

D

= resource pool (e.g., X-ray dept, billing)

Product1

A

D

B

Product2

C

B

A

classification of processes by customer interface
Classification of Processes: by Customer Interface

Raw Material

Components

Semifinished

Finished

Make-to-Stock

Assemble-to-Order

SUPPLIER

CLIENT

Make-to-Order

Engineer-to-Order

Order

Forecast

shouldice business model
Medical

Simple hernias

Optimized process

Check-ups and follow-up

Social

Club Med like experience

Co-production at individual and cohort level

A network for life

Shouldice Business Model
shouldice patient experience
Shouldice Patient Experience

Low, both real and opportunity

COST

Low recurrence,

satisfaction with experience

QUALITY

Fast operation and recovery

SPEED

The process rules;

only simple hernias

FLEXIBILITY

comparison to general hospital

Shouldice: prepares

for the simplest

Hernia complexity

Comparison to General Hospital

General Hospital: prepares for the most complex

a product process matrix
A product/process matrix

High customization

Low volume

High unit margin

High standardization

High volume

Low unit margin

Product

Process

Flexible job

Rigid line flow

Industrialization

shouldice as a lean enterprise
Shouldice as a lean enterprise

Womack and Jones (2000) From Lean Production to Lean Enterprise, HBR March-April 1994

slide42

Shouldice Process Life Cycle

  • Birth of the Shouldice formula
  • Process selection, design,

and improvement

  • Innovation at the interfaces
  • Process overtaken (when?)
focus at shouldice the results
Focus at Shouldice: the results
  • Breakthrough service
  • High customer and employee satisfaction
  • Industrial approach
matching process choice with strategy product process matrix

Process

Flexibility

High

JOB SHOP

Jumbled Flow.

Process segments

loosely linked.

(Commercial Printer,

Architecture firm)

BATCH

Disconnected Line

Flow/Jumbled Flow

but a dominant flow

(Heavy Equipment,

Auto Repari)

Opportunity

exists.

Costs

LINE FLOWS

Connected Line

Flow (assembly line)

(Auto Assembly,

Car lubrication shop)

Continuous, automated,

CONTINUOUS

rigid line flow.

Out-of-pocket

Process segments tightly

FLOW

Costs

linked.

Low

(Oil Refinery)

Product

Variety

Low

High

Low Standardization

High Standardization

Commodity Products

Few Major Products

One of a kind

Low Volume

Many Products

High volume

Matching Process Choice with Strategy: Product-Process Matrix
why is profitability in textile so low when margins are so high
Why is profitability in textile so low, when margins are so high?

Perfect forecast

Excess demand

Excess stock

Expected demand

Actual demand

zara business concept
Zara Business Concept

Integrated fashion delivery: Fashion at low cost

Low Cost

  • Focus on getting it approximately correct
  • Define a fast process
  • Solve the material constraint
  • Constrain designers
  • Optimize the offer
  • Offer follow-up (next batch) and create customer flows

Fashion

  • Store experience
  • Copy fashion
  • Involve the customers and his group
  • Create a network/brand
zara customer offer product process attributes
Zara Customer Offer:Product/Process Attributes
  • Cost:
    • Low monetary cost
    • Low time cost “The Zara experience”
  • Quality:
    • Raw Material: poor/OK
    • Knit: poor
    • Look: grand
    • Customer satisfaction: fashion at low price
  • Time:
    • Fast copying of leading styles
    • Fast delivery in own stores
    • Limited editions
  • Variety/Flexibility:
    • Limited product variety: only what is on display
    • Every customer is participating in the process
    • Customer defines the next batch
classical textile business process 12 month lead time
Classical textile business process:12 month lead time

Design

Purchase

RM

Mfg

Dist

Sell

Discount

zara business process 5 day lead time
Zara Business Process: 5 day lead time

.

1.Scan

fashion

shows

2.Simplify hits

&

Library of designs

Purchase

RM

3.Final design of

Next batch

Mfg

Dist

Shopping

Experience

2.Shoppers and store mgrs.

PULL next design

Designers adapt

the design process
The design process

Creative design

Preliminary

designs

Final product

design

Traditional

Creative design

Preliminary

designs

Final product

design

Zara

Outsource

And scan

Copy and

simplify

Adapt and

optimize

accurate response
Accurate Response
  • Improving Forecasts

Total Sales

Initial Forecast

slide53

Accurate Response

  • Improving Forecasts

Total Sales

Updated Forecast, Incorporating 20% of Sales Data

slide54

Accurate Response

  • Improving Forecasts

Total Sales

Updated Forecast, Incorporating 80% of Sales Data

zara a approach to newsboy losses
Zara’a Approach to Newsboy Losses

Excess stock and unmet demand are avoided by

stopping production when market saturates

Expected demand

Actual demand

Small batches

disrupti ve technological change
Disruptive Technological Change

Performance

Zara Quality

Freshness

Zara

M&S

Time

industrialization 1 standardizing
Industrialization 1: Standardizing

Product

High

Customization

Some

Customization

High

Stardardization

Process

Flexible

Job Shop

Batch Flow

Rigid

Line Flow

industrialization 2 flexibility
Industrialization 2: Flexibility

Product

High

Customization

Some

Customization

High

Stardardization

Process

Flexible

Job Shop

Batch Flow

Rigid

Line Flow

strategic value gained
Strategic Value Gained

Product

High

Customization

Some

Customization

High

Stardardization

Process

Flexible

Job Shop

Batch Flow

Rigid

Line Flow

textile apparel industry history
Textile Apparel Industry: history
  • 1920s M&S: Investment in technical part of the design; high quality products
  • After World War II: Les Nouvelles Galeries offered novelty at low prices
  • Mid-70s Benetton: process reversal and color flexibility; outsourcing of design, manufacturing, retail
  • Gap Inc. and C&A: position between low-end mass merchandisers and higher-end department stores
  • Mid-80s Zara: brand consistency and very fast product cycles
  • Mango : shopping experience
  • H&M: Zara fashion at C&A price
for next time
For next time
  • Read the case TEMSA
  • Think through the questions at the end of the case (in the section “What to do next?)