02SMR Ses2 Ver 1-2
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Strategic Management of Resources Session 2 Choices Affecting Affecting Structure
Strategic Management of Resources Session Session 1: Aligning Aligning Resource Resources s with with Strat Strategic egic Plans Plans Session Session 2: Choices Choices Affectin Affecting g Operati Operations ons Structur Structure e Sessio Session n 3: Choic Choices es Affect Affectin ing g Infrast Infrastruc ructur ture e Session 4: Con Session Configu figuring ring and Integ Integrati rating ng Oper Operating ating Processes Session Sessio n 5: Su Suppl pply y Chain Chain Ma Manag nagem ement ent Session Sessi on 6: Con Configu figuring ring and Integ Integrati rating ng Desig Design n and and Development and Cost Management Processes Sess Se ssio ion n 7: Pr Proj ojec ectt Mana Manage geme ment nt Sessio Ses sion n 8: 8: Me Measu asurem rement ent Man Manag ageme ement nt Sess Se ssio ion n 9: Ch Chan ange ge Man Manag agem emen entt
Strategic Management of Resources, ver. 1.2—October 2002
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Strategic Management of Resources Session Session 1: Aligning Aligning Resource Resources s with with Strat Strategic egic Plans Plans Session Session 2: Choices Choices Affectin Affecting g Operati Operations ons Structur Structure e Sessio Session n 3: Choic Choices es Affect Affectin ing g Infrast Infrastruc ructur ture e Session 4: Con Session Configu figuring ring and Integ Integrati rating ng Oper Operating ating Processes Session Sessio n 5: Su Suppl pply y Chain Chain Ma Manag nagem ement ent Session Sessi on 6: Con Configu figuring ring and Integ Integrati rating ng Desig Design n and and Development and Cost Management Processes Sess Se ssio ion n 7: Pr Proj ojec ectt Mana Manage geme ment nt Sessio Ses sion n 8: 8: Me Measu asurem rement ent Man Manag ageme ement nt Sess Se ssio ion n 9: Ch Chan ange ge Man Manag agem emen entt
Strategic Management of Resources, ver. 1.2—October 2002
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Objectives of Session 2
Explain what operations strategy is and understand how it is developed Know how strategic operating decisions are made based on process or product choices, volume and variety options, and product factors Identify and understand the content of structural choices
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Operations Strategy Corporate Strategy Focus: Survival
Business Strategy Focus: Distinctive competence in the field • Cost leadership • Product Product different differentiatio iation n • Focus Focus (cost (cost or differen differentiati tiation) on)
Manufacturing Operations Strategy Focus: Competitive Strategies Cost
Flexibility
Quality
Delivery
Other Operations Strategies Marketing Finance Human Resource Engineering
Policy Service-enhanced product or delivered service
Satisfied customer
Source: Stonebraker, Peter W. and Keong Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
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Focus of Session 2 Manufacturing Operations Strategy Focus: Competitive Priorities Cost Flexibility Quality Delivery Levels of Operation
Management Function
Top management General staff Specialists staff Functional activities
Capability building • Planning • Fitting Implementation • Direction • Control
Critical Resources Land Capital Labor Knowledge
Decision Focus Structure • Organizational structural design • Capacity strategies • Facilities strategy • Technology Infrastructure • Organizational infrastructure design • Workforce involvement • Operation systems configuration
Source: Stonebraker, Peter W. and Keong Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
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Critical Choices Focus decisions
Process-focused
Product-focused
Customer-focused
Product factors decisions
Product volume, variety, profile, and range
Types of processes
Product life cycle
Product or service matrix
Market exit and timing
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Operations Strategy Choices Structure decisions include
Organizational structural design
Capacity strategies
Facilities strategy
Technology
Infrastructure decisions include
Strategic Management of Resources, ver. 1.2—October 2002
Organizational infrastructure design Workforce involvement Operation systems configuration
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Content of Operations Strategy Decision Focus Structure
Skinner (1969) • Plant and equipment
Hayes and Wheelwright (1989) • Capacity • Facilities • Technology
Infrastructure
• Production planning and control • Organization and management • Labor and staffing • Product design and engineering
• Production planning and control • Quality • Organization • Workforce • New product development • Performance measurement systems
Buffa (1984)
Fine and Hax (1985)
• Capacity location • Product or process technology • Vertical integration
• Capacity • Facilities
• Implications of operating decisions • Workforce and job design • Position of production system
• Product quality • Human resources • Scope of new products
• Processes and technologies
Source: Stonebraker, Peter W. and Leong, G.K., Operations Strategy (Prentice-Hall, 1994). Reprinted with permission.
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Definition of Volume and Variety
Product volume— Refers to the overall quantities of a particular product or product family in a market niche Product variety— Refers to the number of end items that are possible for a product or product family
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Volume and Variety Matrix High
1 Job shop y t ei r a V
2
Batch
3
Line
4 Continuous High
Low
Volume Source: Hill, Terry, Manufacturing Strategy: Text and Cases, 2nd ed., (Irwin McGraw-Hill, 1994). Reprinted with permission.
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Product Range Niche 1
Same products or product
Niche 2
families Niche 3
Different volumes and varieties of products will result.
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Product Grouping Questions
What are the overall firm strategy and marketing strategy?
What market niches are being served?
What products are being sold into those niches?
What are the order winners and qualifiers for products in each niche? What are the current and expected volumes and varieties for products in each niche? How should we create product groupings? What are the manufacturing strategies for each product grouping?
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Order Winners and Qualifiers Order winners, qualifiers, and nonissues determine the formulation of the planning and control system.
Niche 1
Niche 2
Niche 3
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Product Profiling Product profiling seeks to determine the degree of fit between the deployment choices of the firm and the current and expected volumes and varieties of products in each market niche.
Deployment choices
Expected volumes and varieties Strategic Management of Resources, ver. 1.2—October 2002
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Template for Product Profiling Volume and Variety 1 Issues Products and Markets Type of product Product variety Product volume Amount of change required Need for flexibility Order winners
Job Shop
2
3
4
Batch
Line
Continuous
Special High Low High High Cost/price, flexibility,quality, delivery
Standard Low High Low Low Price
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc., 1989. Adapted with permission of McGraw-Hill, Inc.
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Product Profiling 2 Volume and Variety 1 Issues Products and Markets Type of product Product variety Product volume Amount of change required Need for flexibility Order winners
Job Shop
2
3
4
Batch
Line
Continuous
Special High Low High High Delivery, quality, product design, flexibility
Standard Low High Low Low Price
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc., 1989). Reprinted with permission of McGraw-Hill, Inc.
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Product Profiling 3 Volume and Variety Issues Products and Markets Type of product Product variety Product volume Amount of change required Need for flexibility Order winners
1
2
Job Shop
Batch
3 Line
4 Continuous
Special High Low High High Delivery, quality, product design, flexibility
Standard Low High Low Low Price
Source: Adapted from Hill, Terry, Manufacturing Strategy: Text and Cases ( Irwin McGraw-Hill, Inc., 1989). Reprinted with permission of McGraw-Hill, Inc.
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Stages of the Product Service
Birth of the Delivery System
Design and process technology selection
Design of the delivery system
Start-up of the delivery system
Growth of volume
Stable state
Decline and renewal of the system
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Product and Service Portfolio Matrix Low 4
kr a M
G t e
ht w or
High 5
Question marks
h gi H
7
w o L
Star performers
6
Dogs
Cash cows Source: Hedly, Barry, “Strategies and the Business Portfolio,” Long Range Planning, February 1977.
Market Share
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Market Entrance and Exit Timing Timing of Market Exit e c n ar t t
n E
a M f o g in mi T
e kr
e m 4 ul o V f o th w or G
Stable State
3
Standardized high volume
Blunder
1
p U t r a t S
Decline and Renewal
2
Innovative
Flexible, then shifts toward standardization and high volume
Strategic Management of Resources, ver. 1.2—October 2002
Stonebraker, Peter W. and Keong Leong, G., Operations Strategy, (Prentice-Hall, 1994). Reprinted with permission.
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Product Life Cycle The life cycle defines development of a product or service in four phases.
s el a
More stable design with fewer models Higher volumes
s t c u Low volumes
Lots of new Very few models features and options, leading to lower volumes per product type
d o Rapidly r changing P variety
Introduction
High volumes
Growth
Maturity Decline
Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998 ).
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Questions at Introduction Phase Morestabledesign with fewer models Highervolumes Highvolumes
s e l a s t c u d Lowvolumes o r P Rapidly
Very fewmodels
changing variety
Introduction
Growth
Maturity
Lots of new featuresand options, leading tolower volumesper producttype
Decline
What product or service will be offered?
What is the design of the product or service?
What is the expected market for the product or service?
What volume and process capacities are required?
What level of process technology is appropriate?
What types of equipment and labor force should be selected?
How should the production or service delivery system be organized?
What information system should be chosen?
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Questions at Growth Phase More stable design with fewer models Highervolumes Highvolumes
s e l a s t c u d Lowvolumes o r P Rapidly
Very fewmodels
changing variety
Introduction
Growth
Maturity
Lotsofnew featuresand options, leading tolower volumesper producttype
Decline
What facility and process upgrades are required?
How will production or service delivery be scheduled?
How will performance be evaluated?
How will the distribution system be organized?
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Questions at Maturity Phase More stable design with fewer models Highervolumes Highvolumes
s e l a s t c u d Lowvolumes o r P Rapidly
Very fewmodels
changing variety
Introduction
Growth
Maturity
Lotsofnew featuresand options, leading tolower volumesper producttype
Decline
What process efficiencies are necessary?
What product or service features are required?
What market repositioning is appropriate?
What follow-on product or service should be considered?
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Questions in the Decline Phase More stable design with fewer models Highervolumes Highvolumes
s e l a s t c u d Lowvolumes o r P Rapidly
Very fewmodels
changing variety
Introduction
Growth
Maturity
Lotsofnew featuresand options, leading tolower volumesper producttype
Decline
What is the salvage value of the facility?
How much repair parts stock should be produced?
How can the effects on employees be minimized?
What are the long-range responsibilities for the product or service, process technology, and production system residues?
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Life Cycle and Manufacturing Deployment Start-up of operations
Growth of volume
Stable state
Decline and renewal
Product Service Volume
Low
Variety
Unique products or services
Increasing
High volume
Declining
Increasing Emergence of High standardization a dominant standardization design
Process Technology Organization
Innovation Integration
Fixed-project job shop High Low
Small batch
Medium Medium
Line flow assembly process Medium Medium
Line flow assembly process Low High
Industry Factors Structure
Small competitors
Competitive Priority
Flexibility
Consolidation Few large and fallout companies Quality and Price/cost and flexibility delivery
Survivors Price/cost
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy, (Prentice-Hall, 1994). Reprinted with permission.
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Manufacturing Strategy Choices Structure—Session 2
Manufacturing Operations Strategy Focus: Competitive Priorities Cost Flexibility Quality Delivery Levels of Operation
Management Function
Top management General staff Specialists staff Functional activities
Capability-building • Planning • Fitting Implementation • Direction • Control
Decision Focus
Critical Resources Land Capital Labor Knowledge
Organizational structural design Capacity strategies Facilities strategy Technology
Structure • Organizational design • Capacity strategies • Facilities strategy • Technology Infrastructure • Organizational design • Workforce involvement • Operation systems configuration
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Examples of Structural Choices
Organizational design: Which of five forms fit needs
Capacity strategies: utilization, number of shifts, degree of overtime, amount of subcontracting, etc.
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Examples of Structural Choices (cont.)
Facility size, design, location, cost, and range of products manufactured Technology, specialization, degree of automation, technologies employed, capability, and output rate
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Organizational Design Organizational design focuses on the decisions by Operations Management about the features and linkages of the organization. It has two aspects:
Mechanisms that define the features
Mechanism that link the parts
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Five Forms of Organization The five forms of organization design are
Simple
Functional
Divisional
Conglomerate
Hybrid
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Characteristics of Simple Design
Small in size
Less than four levels
Little formalization
Low complexity
Centralized authority
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Characteristics of Functional Design
Used in larger organizations Defined staff functions and line organization
Requires functional specialists
Less centralization
Higher formality of functional design
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Characteristics of Divisional Design
Great horizontal differentiation
Made up of self-contained business units
Different products or services
Differing level of process
Different locations
Decentralized authority
Possibly redundant technical and administrative functions
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Characteristics of Conglomerate Design
Little task or output dependency
Receives resources from conglomerate
Returns revenue to conglomerate
Independently functioning groups
Distribution of risk over several business units High complexity
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Characteristics of Hybrid Design
Integrated functional designs
Duality of responsibility
Decentralization
Very low level of formality
Highly complex
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Capacity Strategy Capacity strategy is the process of identifying, measuring, and adjusting the limits of the transformation process to support competitive priorities such as
Cost
Quality
Delivery
Flexibility
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Capacity Strategies
Lead strategy Capacity is added in anticipation of increased demand.
Lag strategy Capacity is added only after demand increases are well known.
Tracking strategy Capacity is added in small increments to follow demand patterns closely.
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Plant and Facility Decisions The four major decisions associated with facilities are
Size
Location
Focus
Layout
Strategic Management of Resources, ver. 1.2—October 2002
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Facility Location Decisions Cost factors
Facility costs
Taxes
Local labor rates
Utility costs
Transportation costs
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Facility Location Decisions (cont.) Qualitative factors
Proximity to customers
Proximity to suppliers
Availability of labor, transportation, power supply, and utilities
Quality of life
Legal issues
Special incentives and community attitudes
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Plant Focus The concentration of work in a plant “on a limited, concise, manageable set of products, technologies, volumes, and markets precisely defined by the company’s competitive strategy, its technology, and economics” Competitive Strategy
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A Plant Can Focus on: Product
Process
Order Winners (Customer focus) Strategic Management of Resources, ver. 1.2—October 2002
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Product Focus Product focus means that the plant produces a single product or product line.
Strategic Management of Resources, ver. 1.2—October 2002
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Order-Winner Focus Order-winner focus means a plant concentrates on output that provides a certain strategic orderwinning characteristic.
Customer Focus Strategic Management of Resources, ver. 1.2—October 2002
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Fixed-Position Layout Raw Materials Workers
Grinders
Drills
Cutters
Welding Machines Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998).
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Process or Functional Layout Lathe
Assemble
Drill
Weld
Source: Stonebraker, Peter W. and Keong Leong,.G., Operations Strategy (Prentice-Hall, 1994).
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Product Layout Line 1 WS11
WS12
WS13
WS14
WS15
Raw Materials Storage
Finished Materials Storage Line 2 WS21
Product A
Product B
WS22
WS23
WS = Work Station
Source: Stonebraker, Peter W. and G. K. Leong, Operations Strategy (Prentice-Hall, 1994).
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Cellular Layout
C-Shaped Cell
U-Shaped Cell
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Group Technology
Identifies similarity of manufactured parts
Establishes common routings
Classifies parts – Size – Geometry – Function
Facilitates cellular layout
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Focused-Factory Process A focused factory structures its capabilities to be consistent with a single market’s order winners and order qualifiers.
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