Operations Strategy

 Definition of Strategy

 (By Alfred Chandler)

Strategy is the determination of basic long term goals and
objectives of an enterprise and adoption of actions and
allocation of resources necessary for these goals.

 (By Henry Mintzberg)

Strategy is a pattern in the stream of actions or decisions.
There are deliberate strategies and emergent strategies.
Eg: Case study of Honda entering US motorcycles market.
 Major Components of Strategic
Management Process
 1) Defining the mission & objectives of the organization

 2)Scanning the environment (internal & external)

 3)Deciding on an organizational strategy appropriate to its

strengths & weaknesses, taking into account emerging
opportunities & possible threats to the organization.

 4) Implementing the chosen strategy.

 Operations & Manufacturing Strategy

 An integral part of overall organizational

strategy.
 Operations & Manufacturing strategy in
earlier decades.
 O & M strategy in today’s competitive global
market
 Fundamental strategic competitive options

1) Meaningful differentiation
2) Cost leadership
 Fundamental strategic competitive options

Meaningful Differentiation
 Being different and superior in some aspect of the business that has
value to the customer.
 Customer- orientedness.

Flexibility – A vital differentiation strategy / Today’s market requirement.

FLEXIBILITY
FLEXIBILITY
 Comparison: Traditional vs. New approach
(Approaches to Meaningful differentiation through Product
Availability)

Old approach
 Keeping buffer stocks of finished goods & other materials
 Invest in more machinery, hire more people, get more materials &
increase production capacity

Consequence
 Increased costs
 Longer lead times.
 Increased wastages.
 Confusion in operating system
 Failure to meet customer’s changing needs.
 Comparison: Traditional vs. New approach
(Approaches to Meaningful differentiation through Product
Availability)

New Approach
 Continuous improvement to reduce to lead
time & delivery time.
 Sticking to the scheduled production to
ensure timely supply.
 Improvement in quality.
 Improved machinery maintenance, improved
design of products & process.
 Comparison: Traditional vs. New approach
(Approaches to Meaningful differentiation through Product
Availability)

Consequences (By-products)
 Improved reliability in terms of deliveries & performance quality.
 Simplicity in the system.
 Reduced costs
 Reduced product variability
 Improved flexibility (Time, product mix volumes)
 Improved company/ brand image.
 Cost Leadership
“It is offering the product/ service at the lowest price in the
industry through cost reduction. “

The Traditional Approach to Cost reduction

 Control on cost related to direct labour.

 Reduction in budgetary allocations (HRD, training, vendor

development etc) ref: single loop/ double loop.
 Defer investments in machines & replacements.

 Reduction of indirect labour expenses thus support.

 Reduce inventories of raw materials.

What would be the consequences due to this traditional

approach???
 Cost Leadership

The Modern Approach to Cost reduction

 Improve quality of design
 Reduce cost of input material and processing and packaging.
 Improve the processes, increase the yields and reduce the
rework and rejections
 Reduce the need to have inventories by reducing the internal
and external lead times.
 Use technology to simplify the processes, procedures and
confusion and the resultant wastes
What would be the result in the modern approach???
 Cost Leadership
Results of Traditional approach.
 Effects on manpower- Depletion of the skills, reduction in
motivation.
 Vendor feeling alienated & increase in vendor related problems.
 Machinery getting spoilt at an accelerated rate.
 Delivery and quality gets effected adversely.
 Customer dissatisfaction and consequences.
 Cost Leadership
Results of Modern Approach
 Lean and flexible operation.
 Better product/service quality.
 Better time discipline & enhanced responsiveness to the
customer.
 Improved market performance.
 Improved profits to invest back in better technology, improved
machines, better training of manpower, better support to vendors
and dealers, more service to the customer.
Kenichi Ohmae’s Key Success
Factors

The following are the key success factors

for any business:
1) Product performance.
2) Technology leadership
3) New product introduction
4) Access to key decision-makers or key influencers.
5) Deliver Service.
 SWOT Analysis
 Before implementing relevant strategies in a company,
one must analyze the strength and weakness of the
company.
Eg: 100 year old Indian Co.
 Opportunities- events currently occurring or potential
events where a company may exploit its strengths.
 Strengths- Activities, resources, system, procedures,
technology, knowledge base & skills in which the Co.
is distinctly better than as compared to its competitors.
Strengths
Quality
Cost Structure
Motivation
Resource Availability
Technology
Flexibility
Capacity
Skills
Weaknesses?

Management Systems
Industrial Relations
Employee age
Equipment age
Threats & Opportunities
Population characteristics
RBI intervention
Interest Rates
Exchange rates
Improved communications
Competitor’s plans
New competitors
New technologies
New products
New Markets
Government policy changes
 Five Forces Model

Concept by Michael E Porter

“The stronger each of these five forces is, the
more difficult it will be for the company to raise
prices and make profits.”
“A strong force is equivalent to a threat, a weak
force is equivalent to an opportunity.”
 Five Forces Model

 E.g. Toyota production system.

 Relationship of Operations strategic
actions with other areas of management
 Supportive strategic actions
 All functional strategies to serve the organizational interest.

GM

Human Resource Research &

Marketing Logistics Finance/ Accounting
Development Development
 Past basic tenets of operations
management
 Need to address basic issues
 Role of operations management today.
 Globalization

Various operational management issues when a company

decides to globalize.

 Worldwide competition
 “Customer orientedness” & “Focus”
 Other major operations issue:
Technology
Location
Orientation
Logistics
Organization
Competitor activity
 Globalization
Defining/ Redefining the
customer and the focus

Choice of the basis for

competitive advantage

Addressing the Global Operations

Issues

Fitting the above operations

decisions into the existing mosaic

Global Operations Strategy &

Related decisions

Results

Developing a Global Operations Strategy

 Internet Assignments

1) Find two companies with entry level job listings related to

the production and operations management function.

1) The institute for Operations Research and Management

Sciences (INFORMS) is a professional organization for
people from industry and academics who are interested in
operations research. Visit the web site ( www.informs.org )
and locate the web pages for jobs. Describe two jobs that
sound interesting to you.