MBA607_Operations Management (1)

MASTER OF BUSINESS ADMINISTRATION SEMESTER-II OPERATIONS MANAGEMENT MBA607 1 CU IDOL SELF LEARNING MATERIAL (SLM)

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CHANDIGARH UNIVERSITY Institute of Distance and Online Learning Course Development Committee Chairman Prof. (Dr.) Parag Diwan Vice Chancellor, Chandigarh University, Gharuan, Punjab Advisors Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Programme Coordinators & Editing Team Master of Business Administration (MBA) Bachelor of Business Administration (BBA) Coordinator – Dr. Rupali Arora Coordinator – Dr. Simran Jewandah Bachelor Master of Computer Applications (MCA) of Computer Applications (BCA) Coordinator – Dr. Raju Kumar Coordinator – Dr. Manisha Malhotra Bachelor Master of Commerce (M.Com.) of Commerce (B.Com.) Coordinator – Dr. Coordinator – Dr. Aman Jindal Master Minakshi Garg of Arts (Psychology) Coordinator – Dr. Bachelor of Science (Travel & TourismManagement) Samerjeet Kaur Master of Arts Co-ordinator – Dr. Shikha Sharma (English) Coordinator – Dr. Ashita Bachelor of Arts (General) Chadha Co-ordinator – Ms. Neeraj Gohlan Academic and Administrative Management Prof. (Dr.) R. M. Bhagat Prof. (Dr.) S.S. Sehgal Executive Director – Sciences Registrar Prof. (Dr.) Abhishek Prof. (Dr.) Inderpreet Kaur Executive Director – Management Director – IDOL Prof. (Dr.) Manaswini Acharya Executive Director – Liberal Arts © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS Printed and Published by: SCHOOLGURU EDUSERVE PVT LTD B-903, Western Edge II, Western Express Highway, Borivali (E), Mumbai - 400066 Call Us: +91 22 4896 8005 Mail Us: [email protected] For: CHANDIGARH UNIVERSITY Institute of Distance and Online Learning

CONTENT Unit -1 Introduction to Operations Management-I.............................................................. 4 Unit 2: Introduction to Operations Management-II...........................................................22 Unit 3: Business and Operations Strategy-I........................................................................ 41 Unit 4: Business and Operations Strategy-II.......................................................................59 Unit 5: Production Management.......................................................................................... 78 Unit 6: Plant Location..........................................................................................................113 Unit 7: Manufacturing System............................................................................................141 Unit 8: Manufacturing and services Industry-I................................................................ 165 Unit 9: Manufacturing and services industry-II............................................................... 183 Unit 10: Operations Theories..............................................................................................200 3 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT -1 INTRODUCTION TO OPERATIONS MANAGEMENT-I Structure 1.0 Learning objectives 1.1 Introduction 1.2 Definitions 1.3 Nature of Operations Management 1.4 Scope of Operations Management 1.5 Tools for Operations Management 1.6 Industry Best Practice 1.7 Operations Strategy 1.8 Summary 1.9 Keywords 1.10 Learning activity 1.11 Unit end questions 1.12 References 1.0 LEARNING OBJECTIVES After studying this unit, you will be able:  State the basics concepts of Operations Management  Explain have knowledge of Scope and basic practices of Operations Management  Helps to learn about the latest trends in Operations Management 1.1 INTRODUCTION Operations management is chiefly concerned with planning, organizing and supervising in 4 CU IDOL SELF LEARNING MATERIAL (SLM)

the contexts of production, manufacturing or the provision of services. As such, it is delivery- focused, ensuring that an organization successfully turns inputs to outputs in an efficient manner. The inputs themselves could represent anything from materials, equipment and technology to human resources such as staff or workers. Examples of the types of duties or specialist positions this encompasses are procurement (acquiring goods or services from external sources), managing relations with those involved in processes and improving a company’s sustainability with regard to their use of resources. There are two key terms that can help answer the question of what operations management is more precisely: supply chain management and logistics. Operations management has firm foundations in both areas. For example, understanding global trends in supply chain management in order to meet client demand is often critical. With logistics the careful and considered use of resources, as well as cost-effectiveness, has become increasingly important in an era in which resources can often be in short supply and customer expectations have skyrocketed. 1.2 DEFINITIONS Operations management researches efficiencies in planning, organizing, and supervising in production and manufacturing. It is delivery-focused, ensuring that an organization successfully turns inputs to outputs in an effective manner. The inputs themselves could represent anything from materials, equipment, and technology to human resources such as staff or workers.\" - MIT Sloan School of Management \"Operations management is the business function responsible for managing the process of creation of goods and services. It involves planning, organizing, coordinating, and controlling all the resources needed to produce a company’s goods and services. Because operations management is a management function, it involves managing people, equipment, technology, information, and all the other resources needed in the production of goods and services.\" – Inform IT \"Operations management is the administration of business practices to create the highest level of efficiency possible within an organization. It is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization. Operations management teams attempt to balance costs with revenue to achieve the highest net operating profit possible.\" – Investopedia 1.3 NATURE OF OPERATIONS MANAGEMENT The nature of production or operations can be better understood by viewing the 5 CU IDOL SELF LEARNING MATERIAL (SLM)

manufacturing function as: (i) Production/operations as a system, (ii) Production/operations as an organisational function, (iii) Production/operations as a conversion or transformation process and (iv) Production/operations as a means of creating utility. These distinct views are discussed in the following section.  Production/Operations as a System This view is also known as “systems concept of production”. A system is defined as the collection of interrelated entities. The systems approach views any organisation or entity as an arrangement of interrelated parts that interact in ways that can be specified and to some extent predicted. Production is viewed as a system which converts a set of inputs into a set of desired outputs. A production system has the following elements or parts: (i) Inputs, (ii) Conversion process or transformation process, (iii) Outputs (iv) Transportation subsystem, (v) Communication subsystem and (vi) Control or decision-making subsystem.  Production/Operations as a Conversion/Transformation Process The conversion or transformation sub-system is the core of a production system because it consists of processes or activities wherein workers, materials, machines and equipment are used to convert inputs into outputs. The conversion process may include manufacturing processes such as cutting, drilling, machining, welding, painting, etc., and other processes such as packing, selling, etc. Any conversion process consists of several small activities referred to as “operations” which are some steps in the overall process of producing a product or service that leads to the final output. 6 CU IDOL SELF LEARNING MATERIAL (SLM)

 Production/Operations as a Means of Creating Utility: Production is defined as the process of adding to the value of outputs or the process of creating utility in outputs. “Utility” is the power of satisfying human needs. During the process of converting the raw materials into finished goods, various types of utilities are created while adding value to the outputs. These Types of utilities are:  Form utility: This is created by changing the size, shape, form, weight, colour, smell of inputs in order to make the outputs more useful to the customers. For example, iron ore is changed to steel, wood is changed to furniture, etc.  Place utility: This is created by changing the places of inputs or transporting the inputs from the source of their availability to the place of their use to be converted into outputs. For example the iron ore and coal are transported from the mines to the steel plant to be used in the conversion process.  Time utility: This is created by storage or preservation of raw materials or finished goods which are in abundance sometime, so that the same can be used at a later time when they become scarce due to higher demand exceeding the quantity available.  Possession utility: This is created by transferring the possession or ownership of an item from one person to another person. For example, when a firm purchases materials from a supplier, the possession utility of the materials will increase when they are delivered to the buying firm. 1) Service utility: Which is the utility created by rendering some service to the customer. For example, a doctor or a lawyer or an engineer creates service utility to a client/customer by rendering service directly to the client/customer.  Knowledge utility: 7 CU IDOL SELF LEARNING MATERIAL (SLM)

This is created by imparting knowledge to a person. For example, a sales presentation or an advertisement about some product communicates some information about the product to the customer, thereby imparting knowledge. Scope of Production and Operation Management Production and operations management concern with the conversion of inputs into outputs, using physical resources, so as to provide the desired utilities to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability. It distinguishes itself from other functions such as personnel, marketing, finance, etc., by its primary concern for ‘conversion by using physical resources.’ Following are the activities which are listed under production and operations management functions: 1. Location of facilities 2. Plant layouts and material handling 3. Product design 4. Process design 5. Production and planning control 6. Quality control 7. Materials management 8. Maintenance management. Location of facilities for operations is a long-term capacity decision which involves a long term commitment about the geographically static factors that affect a business organization. It is an important strategic level decision-making for an organization. It deals with the questions such as ‘where our main operations should be based?’ Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work centers and equipment in the conversion process. The overall objective of the plant layout is to design a physical arrangement that meets the required output quality and quantity most economically. According to James Moore, “Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipment’s and all other supporting services along with the design of best structure to contain all these facilities”. 8 CU IDOL SELF LEARNING MATERIAL (SLM)

‘Material Handling’ refers to the ‘moving of materials from the store room to the machine and from one machine to the next during the process of manufacture’. It is also defined as the ‘art and science of moving, packing and storing of products in any form’. It is a specialized activity for a modern manufacturing concern, with 50 to 75% of the cost of production. Product design deals with conversion of ideas into reality. Every business organization have to design, develop and introduce new products as a survival and growth strategy. Developing the new products and launching them in the market is the biggest challenge faced by the organizations. Process design is a macroscopic decision-making of an overall process route for converting the raw material into finished goods. These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities. Production planning and control can be defined as the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the progress of products according to orders. Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are, to where we want to go. Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw material to finished products. Scheduling determines the programmer for the operations. Scheduling may be defined as ‘the fixation of time and date for each operation’ as well as it determines the sequence of operations to be followed. Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has already been planned under ‘Routing’ and ‘Scheduling’. Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of quality in a product or service’. It is a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the source, relies on effective feedback system and corrective action procedure. Quality control can also be defined as ‘that industrial management technique by means of which product of uniform acceptable quality is manufactured’. It is the entire collection of activities which ensures that the operation will produce the optimum quality products at minimum cost. The main objectives of quality control are: To improve the companies income by making the production more acceptable to the customers i.e., by providing long life, greater usefulness, maintainability, etc. To reduce companies cost through reduction of losses due to defects. To achieve interchange ability of manufacture in large scale production. To produce optimal quality at reduced price. To ensure satisfaction of customers with productions or services or high-quality level, to build customer goodwill, confidence and reputation of manufacturer. To 9 CU IDOL SELF LEARNING MATERIAL (SLM)

make inspection prompt to ensure quality control. To check the variation during manufacturing. Materials management is that aspect of management function which is primarily concerned with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view. The main objectives of materials management are:  To minimize material cost.  To purchase, receive, transport and store materials efficiently and to reduce the related cost.  To cut down costs through simplification, standardization, value analysis, import substitution, etc.  To trace new sources of supply and to develop cordial relations with them in order to ensure continuous supply at reasonable rates.  To reduce investment tied in the inventories for use in other productive purposes and to develop high inventory turnover ratios. 1.4 SCOPE OF OPERATIONS MANAGEMENT Operations management has been gaining increased recognition in recent years because of the following reasons: (i) The application of operations management concepts in service operations. (ii) The growing importance of quality. (iii) The introduction of operation management concepts to other areas such as marketing and human resources and (iv) The realization that the operations management function can add value to the end product. 1.5 TOOLS FOR OPERATIONS MANAGEMENT All quality management and improvement movements share the same basic foundation, regardless of what your company calls its quality program (some companies spend more time coming up with clever names for the program than actually implementing it). This foundation is built on continuous improvement and statistical analysis. 10 CU IDOL SELF LEARNING MATERIAL (SLM)

Several tools are commonly used to support this foundation. (Do be aware that they may be called by different names.)  Process flow diagram: This diagram is at the heart of continuous improvement. It represents everything that happens in a process, and you must complete it before embarking on process improvement. The initial process flow diagram is necessary to understand what’s actually being done and provides a document that you can use to communicate process changes. Figure 1.1 Process flow diagram  Histogram: You may remember the histogram from school because it’s a basic method to display data. The histogram simply displays the frequency of different measurements and shows their distribution. Figure 1.2 Histogram For example, you can use a histogram to show the distribution of test grades to students. A range of the students’ scores is plotted on the x-axis, and the frequency of those grades is usually represented by a bar chart on the y-axis. The histogram is very useful to identify any outliers from the rest of the data.  Pareto chart: Another common bar chart is the Pareto chart. In this chart, the events are displayed on the x-axis, and the number of occurrences is displayed on the y-axis. The Pareto chart allows you to instantly identify the vital few events that are causing most of your problems.  Ishikawa diagram: The Ishikawa diagram (often called a fishbone diagram because 11 CU IDOL SELF LEARNING MATERIAL (SLM)

of its resemblance to a fish skeleton) is one of many cause-and-effect tools. The diagram starts at the head with a problem statement. Running along the spine are possible causes for the problem. Figure 1.3 Ishikawa diagram  Failure mode and effects analysis (FMEA): You can use this tool to identify the root cause of a problem. It’s a very structured approach that begins by identifying all possible things that can go wrong, or the failure modes of your process or product. Figure 1.4 FMEA After you identify the failure modes, you rank each one according to the likeliness of it occurring, its impact if it did occur, and the likelihood of it being discovered before reaching the customer. You calculate a risk priority number (RPN) from these rankings, which can help prioritize the critical failure modes.  Run chart: This chart is a simple but powerful tool used to monitor a process over time. You can use it to identify changes in mean measurement and trends that may occur. Unlike the control chart discussed next, the run chart doesn’t require any statistical analysis. 12 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 1.5 Run chart  Control chart: Statistical process control (SPC) is a statistical technique used to monitor and control processes. The most common SPC tool is the control chart, which is usually a line graph showing a particular measurement taken over time. Figure 1.6 Control chart The control chart is a simple visual tool you can use to monitor a process to see whether it’s performing as expected. Using the recorded data from a run chart, you can calculate upper and lower control limits. You plot these limits on the control chart and compare them to additional measurements. A measurement that falls outside the limit indicates that something has happened to the process, and you may need to take action. 1.6 INDUSTRY BEST PRACTICE 13 CU IDOL SELF LEARNING MATERIAL (SLM)

In How Can Functions of the Operations Manager Increase Productivity, George Root III, business writer for the Houston Chronicle, sets the context for the work Operations Managers perform: “An operations manager takes on tasks designed to improve productivity and assist in the growth of the organization. Some of the functions directly affected by the operations manager are purchasing, manufacturing, shipping, packaging, human resources, company finance, and computer support. To understand the job a production manager is required to do, you need to understand how the functions of an operations manager increase productivity.” Operations Managers are responsible for, and work in conjunction with, many aspects of the company; their skill-set must reflect both a breadth and depth of knowledge from a myriad of areas. Root highlights several best practices used by operational managers to increase productivity, decrease waste, and generate profit. 1. Equipment Upgrades - One of the responsibilities of an operations manager is to analyze work functions and determine what equipment upgrades would improve productivity. 2. Communication Coordination - Improved communication within an organization can increase productivity. When information is sent from one department to another quickly and accurately, it can speed up the pace at which the company can operate and ensures that all necessary parties get the information they need to be productive. 3. Revenue Collection - The operations manager is in charge of billing and revenue collection. By analyzing revenue collection procedures, the operations manager can create ways of collecting revenue quickly to make sure the company has cash on hand. 4. Training - Operational managers work with the human resources department and departmental managers to develop more efficient ways for employees to do their jobs. Analyzing work functions is one of the many tasks that an operations manager performs each day. Those working in operations management must engage in all types of critical analysis with a particular emphasis on effective decision-making to meet the needs of stakeholders and the goals of the company. Bringing innovation and cutting-edge best practices to the areas of quality management, inventory control, delivery, supply chain, and information management, is what makes the difference between a marginally successful company and a company that dominates their share of the marketplace. 1.7 OPERATIONS STRATEGY Operations strategy is only one part of overall business or corporate strategy, but it’s crucial for competitiveness and success. Without a strong operations strategy, companies fail to keep 14 CU IDOL SELF LEARNING MATERIAL (SLM)

up with changing markets and lose out to more strategic competitors. Many companies, big and small, have struggled with operations strategy, often lacking in comparison with technologically savvy competitors. For example, Amazon, while constantly advancing technology such as drones for delivery, has pushed aside myriad brick-and-mortar retailers. To be effective and competitive, all parts of a company must work together. All departments should contribute to the company mission and have strategies underlying the overall corporate/business strategy. In addition to having an operations strategy, they should also have functional area strategies in finance, IT, sales, marketing, human resources, and possibly other departments, depending on the type of business. “An operations strategy should guide the structural decisions and the evolution of operational capabilities needed to achieve the desired competitive position of the company as a whole,” says Tim Laseter in his article \"An Essential Step for Corporate Strategy.” These days, however, it’s not enough to simply follow best practices. Companies must innovate, not just play catch-up to practices already mastered by competitors. Authors Steven C. Wheelwright and Robert H. Hayes categorized types of organizations based on a company’s attitude toward operations: Core Operational Strategy Areas Different sources use different terms to describe strategy areas. Here’s one way to categorize core strategies:  Corporate: Overall company strategy, driving the company mission and interconnected departments  Customer-Driven: Operational strategies to meet the needs of a targeted customer segment  Core Competencies: Strategies to develop the company’s key strengths and resources  Competitive Priorities: Strategies that differentiate the company in the market to better provide a desired product or service  Product or Service Development: Strategies in product design, value, and innovation A company’s key success factors (KSFs) pertain to competitiveness, such as a company’s attributes, resources, capabilities, and competencies. By identifying these, a company can 15 CU IDOL SELF LEARNING MATERIAL (SLM)

focus on the issues that matter most and measure them with key performance indicators (KPIs). Another way to frame strategic areas is by these “distinctive” competencies:  Price  Quality, such as performance, features, aesthetics, and durability  Service  Flexibility  Tradeoffs, or competing on one or two distinctive competencies at the necessary expense of others Author Terry Hill used the terms order qualifier and order winner. An order qualifier means a company or product has a characteristic that allows it to be a viable competitor. An order winner is a characteristic that causes customers to choose it over competitors. 1.8 SUMMARY  A critical function of operations management relates to the management of inventory through the supply chain. To be an effective operations management professional, one must be able to understand the processes that are essential to what a company does and get them to flow and work together seamlessly. The coordination involved in setting up business processes in an efficient way requires a solid understanding of logistics.  An operations management professional understands local and global trends, customer demand and the available resources for production. Operations management approaches the acquisition of materials and the use of labor in a timely, cost-effective manner to deliver customer expectations. Inventory levels are monitored to ensure excessive quantities are on hand. Operations management is responsible for finding vendors that supply the appropriate goods at reasonable prices and have the ability to deliver the product when needed.  Another large facet of operations management involves the delivery of goods to customers. This includes ensuring products are delivered within the agreed time commitment. Operations management also typically follows up with customers to ensure the products meet quality and functionality needs. Finally, operations management takes the feedback received and distributes the relevant information to 16 CU IDOL SELF LEARNING MATERIAL (SLM)

each department to use in process improvement.  Operations managers are involved in coordinating and developing new processes while reevaluating current structures. Organization and productivity are two key drivers of being an operations manager, and the work often requires versatility and innovation. 1.9 KEYWORDS  Capacity planning—The process of determining the production capacity needed by an organization to meet changing demands for its products. Different types of capacity exist. For example, design capacity is the maximum amount of work that an organization is capable of completing in a given period; effective capacity is the maximum amount of work that an organization is capable of completing in a given period due to constraints such as quality problems, delays, and material management.  Efficiency—Performing activities at the lowest possible cost.  Enterprise resource planning (ERP)—Large, sophisticated software systems used for identifying and planning the enterprise-wide resources needed to coordinate all activities involved in producing and delivering products.  Forecasting—The process of predicting future events, including product demand.  Just-in-time—A philosophy designed to achieve high-volume production through elimination of waste and continuous improvement. 1.10 LEARNING ACTIVITY 1. Take two organizations and draw their competitive strategy. ___________________________________________________________________________ ______________________________________________________________ 2. Discuss and Define the Competitive Capabilities and Core Competencies for organization. ___________________________________________________________________________ ______________________________________________________________ 1.11 UNIT END QUESTIONS A. Short Descriptive Type Questions 17 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Describe Operations management? 2. Define operations management 3. Illustrate the scope and objective of operations management? 4. How operations management helps in industry best practices. 5. Explain operations strategy B. Long Descriptive Type Questions 1. Discuss the function of an operations manager differ from the function of a marketing manager or a finance manager? How are these functions similar? 2. Discuss the operations management field related to the fields of human resources, information systems, or accounting? 3. Analyze the difference between the terms “production management” and “operations management”? 4. Describe the nature of operations management in the following organizations. In doing this, first identify the purpose and products of the organization; then use the four decision types to identify important operations decisions and responsibilities. a. A college library b. A hotel c. A small manufacturing firm 5. Write a short paper on some of the challenges facing operations management in the future. Use newspapers and business magazines from the library or the Internet as your primary sources. C. Multiple Choice Questions 1. Operations strategy is only one part of overall business or corporate strategy, but it’s crucial for …………… and success. a. Competitiveness b. Competency c. motivations 18 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Success 2. A system is defined as the collection of interrelated ………. . a. entities b. system c. forms d. technology 3. To be effective and competitive, all parts of a company must work ……….. a. together b. simultaneously c. with planning d. none of these 4. Operations management has been gaining increased recognition in recent years because of the following reasons: a. The application of operations management concepts in service operations. b. Thedecreasing importance of quality. c. The misinterpretations of operation management concepts to other areas such as marketing and human resources and d. All of the above. 5. The process of determining the production capacity needed by an organization to meet changing demands for its products. a. Capacity Planning 19 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Product Planning c. Process Management d. Supply Chain 6. The \"father\" of scientific management is a. Michael Schumacher. b. Frederick W. Taylor. c. Eli Whitney. d. Henry Ford. 7. The three major business functions necessary to all organizations are a. Marketing, finance/accounting, production/operations. b. Finance/accounting, personnel, operations. c. Marketing, finance/accounting, research & development. d. Marketing, production, operations. 8 Which of these is NOT one of the basic functions of the management process. a. Inspecting b. Controlling c. Staffing d. Leading 2 Which of these statements accurately captures a current trend in operations? 20 CU IDOL SELF LEARNING MATERIAL (SLM)

a. There is increased focus on local markets and local competition. b. Products and services are designed more quickly and by teams. c. Jobs are increasingly specialized as workers focus on basic assembly tasks. d. Cost competition is more important than any other basis for competition. 10 The service sector constitutes what percentage of employment in the United States? a. Between 75% and 85% b. Between 65% and 75% c. Between 55% and 65% d. Between 45% and 55% Answers 1. a 2. a 3. a 4. a 5. a 6. b 7. a 8. a 9. b 10. a 1.12 REFERENCES  Stevenson W.J. (2018). Operations Management. New Delhi: Tata McGraw Hills.  Chase, Jacobs, Aquilano & Aggarwal. (2005). Operations Management. New Delhi: Tata McGraw Hills.  John O. McClain and L. Joseph Thomas. (1986). Operations Management. New Delhi: Prentice Hall of India.  Crandall, R. E. (2014) Principles of Supply Chain Management, 2nd edn, CRC Press.  Hayes, R. H. and Wheelwright, S. C. (1984) Restoring Our Competitive Edge, New York, John Wiley.  Slack, N., Chambers, S. and Johnston, R. (2007) Operations Management, 5th edn, Harlow, Pearson Education Limited. 21 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 2: INTRODUCTION TO OPERATIONS 22 MANAGEMENT-II Structure 2.0 Learning objectives 2.1 Introduction 2.2 Operations Strategy as a Competitive Weapon 2.3 Distinctive Competencies 2.4 Time as a Distinctive Competency 2.5 Traditional View of Competitiveness 2.5.1 Cost Leadership 2.5.2 Product Differentiation 2.6 Modern View of Competitiveness 2.6.1 Quality 2.6.2 Time 2.7 Importance of Competitiveness in Operations Strategy 2.8 Operation Linkage between Corporate 2.8.1 Corporate strategy provides focus to design operations strategies 2.8.2 Involvement of top management 2.8.3 Communication strategy and coordinated effort 2.8.4 Different Strategies for Different Operations 2.9 Operations Strategy Framework 2.10 Summary CU IDOL SELF LEARNING MATERIAL (SLM)

2.11 Keywords 2.12 Learning activity 2.13 Unit end questions 2.14 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able: • Explain the meaning of competitiveness • Identify the different distinctive competitiveness • Discuss the traditional and modern views of competitiveness • Justify the importance of competitiveness in operation strategies • Understand the key issues of corporate and operations strategies • Explain the formulation of strategic planning • Identify the operations strategy frame work • Discuss the operations function positioning decision • Explain the modern view of organizational strategies 2.1 INTRODUCTION Understanding competitiveness and its importance in operations strategies Competition and market conditions in the industry guide the general thrust of the operations process, which provide the basis for determining the organization’s strategy. A careful analysis of market segments and the ability of the competitors to meet the needs of these segments will determine the best direction for focusing an organization’s efforts. In doing so, competitive priorities should be established in the various areas of an organization. These will help the managers identify their abilities or competencies, which will arm the organization with the competitive edge. Operations strategies drive a company’s operations, the part of the business that produces and distributes goods and services. Operations strategy underlies overall business strategy, and both are critical for a company to compete in an ever-changing market. With an effective ops 23 CU IDOL SELF LEARNING MATERIAL (SLM)

strategy, operations management professionals can optimize the use of resources, people, processes, and technology. In the book Operations Strategy, authors Nigel Slack and Michael Lewis define the term. “Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy,” they write. Technology and business models are rapidly changing, so businesses must keep pace and look to the future. “Those who get stuck on their own paradigms…perish,” says Tim Lewko, CEO and Managing Partner of Thinking Dimensions Global. This article will provide an overview of operations strategy including purpose, examples, types, process, and how to write a plan. You’ll also hear in-depth insights from seven professionals, including a look at what the future may bring. 2.2 OPERATIONS STRATEGY AS A COMPETITIVE WEAPON The operations function has great value as a competitive weapon in a company’s strategy and consequently plays an important role in implementing a strategy. The operations function establishes the desired level of quality as a product is manufactured or as a service is provided. Often it is responsible for the largest portion of the company’s human and capital assets. Thus much of a product’s cost is incurred within operations, and this cost affects the price that must be charged and the profit margin that can be achieved. Finally, the ability of the operations functions to perform determines, to a great extent, the ability of the company to have sufficient products available to meet delivery commitments. 2.3 DISTINCTIVE COMPETENCIES One way to compare manufacturing among industrial centers is to examine the varying competitive priorities, such as, quality, performance, price, adaptation, after sales service, etc. Competitiveness or competitive advantage denotes a firm’s ability to achieve market superiority over its competitors. In the long run, a sustainable competitive advantage provides above-average performance. A strong competitive advantage is derived from an organization’s competitive priorities, or rather distinctive competencies. A distinctive competency should have six (6) characteristics: i. It is driven by customer wants and needs. ii. It makes a significant contribution to the success of the business. 24 CU IDOL SELF LEARNING MATERIAL (SLM)

iii. It matches the organization’s unique resources with the opportunities in the environment. iv. It is durable and lasting and difficult for competitors to copy. v. It provides a basis for further development. vi. It provides direction and motivation to the entire organization. Hence, we can conclude that distinctive competencies can be defined as those special attributes or abilities possessed by an organization that give it a competitive edge. In effect, distinctive competencies relate to the way that organizations compete. The most effective organizations seem to use an approach that develops distinctive competencies based on customer needs as well as on what the competition is doing. Merely matching a competitor is not sufficient, it is necessary to exceed the quality level of the competitor. Depending on these distinctive competencies any company can achieve competitive advantage through acts of innovation and new ways of doing things, such as new product designs, production technologies, training programs, quality control techniques, or new way to manage supplier relationships. It is also to be noted that mere competence does not constitute a competitive advantage. The best performing company will be the one that can generate greatest customer value and sustain it over time. For example Virgin cola was marketed in a premium price of Tk.15 per can, which is still the cheapest drink in canned form, whereas the other contemporary drinks cost at least Tk.20 per can. Actually, virgin succeeded to fulfill the customer need not only through its price but also through its form which makes the customer feel distinctive from others. However, the differentiation in the form gave virgin brand distinctive competencies and market superiority over other brands in the market. Four (4) Distinctive Competencies /Competitive Priorities The four distinctive competitive priorities can be characterized as follows: 1. Cost Efficiency (Low product price): A company that emphasizes cost efficiency will see that its capital, labor and other operating costs are kept low, relative to other similar companies. 2. Quality (Product performance): A company that emphasizes quality will consistently strive to provide a level of quality that is significantly superior to that of its competitors, even if it has to pay extra to do so. 3. Dependability (reliability, timely delivery): A company that stresses dependability 25 CU IDOL SELF LEARNING MATERIAL (SLM)

Competitive Definition Some ways of creating c Priority a n Unit cost of each product / • Redesigning of products b e Cost Efficiency service, including labor, material, New production technologies r and overhead costs • e l • Increase in production i rate e d • Reduction of scrap • Reduction of inventories Customers’ perceptions of • Use of CAD / CAM u p degree of excellence exhibited by Improve product / o service in terms of : n products • appearance, malfunction or defect rates, performance t Quality /services and o function, war, endurance ability, h after-sales service a v Fast delivery • Larger finished-goods e inventories, effective i t scheduling system s goods available for customers, or to deliver its goods or services on schedule, if it is at all possible. 4. Flexibility (new products or change in output volume): A company that develops flexibility can quickly respond to competitors’ changes in product design, product mix, or production volume by changing their own. 26 CU IDOL SELF LEARNING MATERIAL (SLM)

Dependability • Faster production rates (Delivery performance) • Quicker shipping methods On-time delivery • More realistic promises • Better control of production of orders • Better information systems Ability to quickly change • Change in type 2.4 production process used of TI production to order products M /services and other production Multi-skilled workers E Flexibility volumes, customer • AS responsiveness • Reduction of amount of A work in process through JIT DI • Increase in production ST capacity IN C TIVE COMPETENCY Apart from the four factors (Cost efficiency, quality, dependency and flexibility), time is emerging as a critical dimension of competition in both manufacturing and service industries. In any industry the firm with the fastest response to customer demand has the potential to achieve overwhelming market advantage. In an era of time-based competition, a firm’s competitive advantage is defined not by cost but by the total time required to produce a product or service. Firms able to respond quickly have reported growth rates over three times the industry average and double the profitability. Thus the payoff for quick response is market dominance. These basic strategic choices, then, set the tone for the shape and content of the operations function and what it accomplishes. A conversion process designed for one type of focus is often ill suited for success in another, alternative focus. 2.5 TRADITIONAL VIEW OF COMPETITIVENESS The traditional literature on competitiveness suggests that a firm can possess two basic types 27 CU IDOL SELF LEARNING MATERIAL (SLM)

of competitive advantages: i. Cost leadership ii. Product differentiation 2.5.1 Cost Leadership Many firms gain competitiveness by establishing themselves as low-cost leaders in the market. These firms produce high volumes of mature products and achieve their competitive advantage through low prices. Such firms often enter markets that were established by other firms. They emphasize achieving economies of scale and finding cost advantages from all sources. Low cost can result from high productivity and high capacity utilization. More importantly, improvements in quality lead to improvements in productivity, which in turn lead to lower costs. Thus a strategy of continuous improvement is essential to achieve a low- cost competitive advantage. For example in the 1980’s GQ group in Bangladesh introduced Econo ballpoint pen to the market at a cost of Tk. 3 per unit. This introduction brought a prompt change in consumers’ satisfaction and consumption level. The reason behind this is their quality product in low cost which shook the market of the other existing ball point pens, even Red Leaf and Staedtler, the two product leaders. Thus Econo’s low cost resulted in high productivity and the greatest market share. 2.5.2 Product Differentiation Product differentiation refers to any special features (e.g. design, cost, quality, ease of use, convenient location, warranty, etc.) that cause a product to be perceived by the buyer as more suitable than a competitor’s product or service. To achieve differentiation, a firm therefore must be unique in its industry along some dimensions that are widely valued by customers. It selects one or more attributes that customers perceive as important and positions itself uniquely to meet those needs. As a result, it can command premium prices and achieve higher profits. However, a firm that uses differentiation cannot ignore costs. It must achieve a cost position at par with its competitors and reduce costs in all areas that do not affect differentiation. Examples of Horizontal Product Differentiation Choosing between different mineral water brands. The customer doesn’t know the real difference but chooses one anyway. Two ice-cream stalls selling similar ice-creams, but the customer chooses the one closer to 28 CU IDOL SELF LEARNING MATERIAL (SLM)

them because s/he is indifferent between them. Examples of Vertical Product Differentiation Intel i3 and Intel i5. The customer clearly knows the difference between the two and chooses one according to his preference. Choosing Duracell over other batteries because the customer believes that it lasts longer. 2.6 MODERN VIEW OF COMPETITIVENESS More recently, the modern view towards competitive advantage has been focused on adopting more Quality-based and Time-based competitiveness. However, at the same time keeping in mind cost-efficiency and product differentiation. 2.6.1 Quality This focuses on satisfying the customer by integrating quality into all phases of the organization. This includes not only the final product or service that is provided to the customer, but also the related processes such as production, design, and after-sales service. 2.6.2 Time It focuses on reducing the time required to accomplish various activities. By doing so, organizations seek to improve services to the customer, and to gain a competitive advantage over rivals who take more time to accomplish the same tasks. 2.7 IMPORTANCE OF COMPETITIVENESS IN OPERATIONS STRATEGY As we have defined earlier, the competitiveness of a firm is its ability to achieve market superiority over other competitors. Operations strategy, on the other hand, is a collective pattern of coordinated decisions for the formulation, reformulation, and deployment of the organization’s resources. These decisions provide a competitive advantage in support of the overall strategic initiative of the firm or strategic business units. Operations strategy is a pattern of decisions made over time. These decisions focus on resource configuration and deployment. For example, how many work shifts, which type of machinery, what kind of reporting structure, and which type of information to use are all decisions about how to use resources. The resulting configurations of the firm’s resources must provide or support the firm’s strategic advantage in the market place. So for the survival of the firms, considerations of competitive advantage in operation strategy are very important. 29 CU IDOL SELF LEARNING MATERIAL (SLM)

2.8 OPERATION LINKAGE BETWEEN CORPORATE Largely because of foreign competition and the technological explosion, there is a growing recognition that a firm competes not only with new products, creative marketing, and skillful finance, but also with unique competencies in operations. The organization that can offer superior products and services at lower prices is a formidable competitor. It is clear that the operation function has an important influence on the cost, quality, and availability of the company’s goods or services. Therefore, it is an organization’s operations that determine its distinctive competencies. Whatever the type of organization, top management is responsible for relating the organization’s efforts to its long-term future, setting a corporate strategy. Putting it in a different way, their responsibilities include determining the organization’s mission (the broadest expression of the direction in which a company will apply its efforts), monitoring and adjusting to changes in the environment, and of identifying the organization’s distinctive competencies. Corporate strategy is a long-term master plan of how the company will pursue its mission. It establishes the general direction in which the company will move. Operations strategy specifies how operations can achieve the organization’s overall goals, within the framework of corporate strategy. Therefore, the operations strategies are in more detail than the corporate strategy and therefore allows every level of management to do their best to achieve the organization’s mission. 2.8.1 Corporate strategy provides focus to design operations strategies Corporate strategy is an outcome of scan of the socio-econo-political environment plus the market in which the organization functions or planning to function. In brief, it is the goal or target that it wants to achieve in the long run. The goal determines the techniques, called competitive priorities that would be used in competition. Nature of the competitive priorities selected determines the operations strategy that would come into play in behalf of the corporate strategy. 2.8.2 Involvement of top management Top managers formulate strategies to provide more definitive direction and guidance to the organization. In formulating strategies, top managers establish corporate objectives and make broad-reaching decisions on such matters as the breadth of the product line the company will choose to offer, the geographical scope it will try to serve, the types of social involvement in which the company will engage, the amount of resources that will be committed to various company endeavors and the performance objectives for such matters as the company’s market share, growth, and profitability. 30 CU IDOL SELF LEARNING MATERIAL (SLM)

2.8.3 Communication strategy and coordinated effort Communication Strategy is vital to achieve a coordinated effort. It is logical that decisions and actions within a company will be better coordinated and will be more consistently directed toward the company’s strategic goals if the company’s strategy is explicitly recognized. Objectives and policies that are consistent with the overall strategy should, therefore, be formulated, communicated, and recognized throughout the organization. Operations managers and managers in all parts of the company must formulate plans and make decision within the context of the corporate strategy and policies if they are to achieve a unified effort towards corporate objectives. Strategies and tactics for the functional areas must be formulated to be consistent with corporate objectives and strategy. This process results in a hierarchy of lower-level objectives aligned to carry out the corporate strategy. 2.8.4 Different Strategies for Different Operations Different companies in the market produce different kinds of products and services. Each product has its own specialty. So keeping that in mind the strategy of different operations should be different to accommodate the different circumstances and objectives. Table 2.2.1 highlights different strategies for different operations. Table 2.2.1 Different strategies for different operations Type ofType of Product Typical ProcessTypical Characteristics of Market Strategy Operation Characteristics Service/ Make to order asUse of broadly skilledAbility to provide desired Project customer workers, general purposefeatures, to perform a specifies equipment, emphasis onquality job, and to achieve good initial planning, quality, reasonable delivery times. flexibility. Continuous/ Standardized Use of specialized workers,Market research to ensure Process equipment, automation,desirability of features; emphasis on cost-efficiencyselling an already and good distribution system designed to make items readily product, and the available desirability of the price, 31 CU IDOL SELF LEARNING MATERIAL (SLM)

availability, service Strategic Planning & Strategy Formulation The best way to determine an organization’s strategy is to observe what the organization actually accomplishes over time. Strategic planning is built on a few fundamental concepts. Here current decisions are based on future desired conditions and results. Strategic planning is a process. It embodies a philosophy and provides a linkage or structure within the organization. Strategic planning is the process of thinking through the current mission of the organization and the current environmental conditions facing it, then setting forth a guide for tomorrow’s decisions and results. Operations managers introduce strategic plans to their work-areas for production and operations, and then identify several competitive pressures that managers can turn into operating advantages for their firms. In the operations function, strategic planning is the broad, overall planning that precedes the more detailed operational planning. In the organization the operations strategic plan is depended upon as the basis for operational planning of facilities and operational planning for the use of these facilities. Therefore, it is important to note that operational planning should not be done in vacuum. It must come under the umbrella of an effective strategic planning. There are three contrasting modes of strategic planning: Entrepreneurial mode, where one strong, bold leader takes planning action on behalf of the production/operations function. Adaptive mode, where a manager’s plan is formulated in a series of small, disjointed steps in reaction to disjointed environment. Planning mode, which uses planning essentials combined with the logical analyses of management science. The key point in strategic planning approaches is that the operations strategies must be consistent with the overall strategies of the firm. Here, in-group sessions or individually, analysts assess environmental considerations together with the organization’s current production/operations position, thus forcing management to formulate strategic options for operations. 32 CU IDOL SELF LEARNING MATERIAL (SLM)

Environmental Assessment Organization’s Position Broad economic assumption Statement of mission ↓ ↓ Key governmental/regulatory threats Interrelation set of financial and non- ↓ financial objectives ↓ Major technological forces Statement of strengths and weaknesses ↓ ↓ Significant marketing opportunities/threats Forecast of operations: profits and cash flows ↓↓ Explicit competitive strategies for eachMajor future programs major competitor ↓↓ STRATEGIC OPTIONS Strategic options (at least two) Requirements for implementing each strategy Contingency plans 2.9 OPERATIONS STRATEGY FRAMEWORK Operations strategy, for both manufacturing and services, tries to link the policy decisions associated with operations to the market place, the environment, and the company’s overall goals 33 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 2.1 Operation strategy framework 2.10 SUMMARY  Competitiveness or competitive advantage of a firm denotes its ability to achieve market superiority over its competitors.  In other words how effectively an organization meets the needs of customers relative to other organizations of the same specialization represents its competitive advantage.  Characteristics of competitive priorities are product performance, low product price, dependability and flexibility.  The management effort towards improvements in quality lead to improvements in productivity, which in turn lead to lower costs.  Cost is a vital factor for surviving in the market. Therefore many firms gain competitiveness by establishing themselves as low cost leaders in the market.  Operations strategies drive a company’s operations, the part of the business that produces and distributes goods and services. Operations strategy underlies overall business strategy, and both are critical for a company to compete in an ever-changing market. With an effective ops strategy, operations management professionals can optimize the use of resources, people, processes, and technology.  In the book Operations Strategy, authors Nigel Slack and Michael Lewis define the term. “Operations strategy is the total pattern of decisions which shape the long-term 34 CU IDOL SELF LEARNING MATERIAL (SLM)

capabilities of any type of operations and their contribution to the overall strategy,” they write.  Technology and business models are rapidly changing, so businesses must keep pace and look to the future.  “Those who get stuck on their own paradigms…perish,” says Tim Lewko, CEO and Managing Partner of Thinking Dimensions Global.  This article will provide an overview of operations strategy including purpose, examples, types, process, and how to write a plan. You’ll also hear in-depth insights from seven professionals, including a look at what the future may bring. 2.11 KEYWORDS  Lean systems—Sometimes synonymous with just-in-time, it is a philosophy that takes a total system approach to creating efficient operations through the elimination of waste.  Location analysis—Identifying the best location for facilities.  Mass customization—The ability of a firm to highly customize its goods and services at high volumes through its operations management function.  Operations management (OM)—The business function that refers to the transformation process of converting raw materials into finished goods and services; OM used to be called production and operations management (P&OM) or just production. As the field evolved from being primarily tactical (e.g., making inventory and scheduling decisions on the manufacturing floor) to being strategic (today there are many CEOs from the OM field), the term moved to focus on the broad notion of operations rather than mere production.  Product design—The process of deciding on the unique and specific features of a product.  Process selection—The process of identifying the unique features of the production process that will give the product its unique characteristics. Process selection typically goes hand in hand with product design, as we need to create a process that gives rise to the particular product design desired. 2.12 LEARNING ACTIVITY 1. As a manager, do you agree with the causes of poor competitiveness traced out? If 35 CU IDOL SELF LEARNING MATERIAL (SLM)

yes, than how will you handle the problems to overcome the situation? If no, then give reasons to support your opinion. ___________________________________________________________________________ ______________________________________________________________ 2. Define your production/operation strategy. Describe how your strategy leads your organization to a competitive advantage. ___________________________________________________________________________ ______________________________________________________________ 2.13 UNIT END QUESTIONS A. Short Descriptive Type Questions 1 Define Competencies 2 Define quality 3 Define time view of competitiveness 4 Define time as distinctive competitiveness 5 Define strategy. B. Long Descriptive Types Questions 1. Discuss the term competitiveness? 2. Suppose you are a production manager in a finished leather based goods industry. Earnings of your company have been reduced this year. Your top level management asked you to find the reasons for incurring less profit and how to overcome such types of problems. How would you analyze the situation to make your recommendations? 3. Elaborate the considerations of competitiveness important for operation strategy? 4. ‘Competitiveness is driven by customer wants and needs’- Explain. 5. Give a real life example of competitive advantage of an organization which is difficult to copy. C. Multiple Choice Questions 36 CU IDOL SELF LEARNING MATERIAL (SLM)

1. This focuses on satisfying the customer by integrating quality into all phases of the organization a. Total Quality Management b. Quantity c. Time d. Warranty 2. The ……….. function has great value as a competitive weapon in a company’s strategy and consequently plays an important role in implementing a strategy. a. Operations b. Productions c. Supply chain d. None of these 3. It focuses on reducing the …….. required to accomplish various activities. a. Time b. Quality c. Product d. Quantity 4. Objective of Work Study is to improve --------- 37 a. Cycle time b. Productivity c. Production CU IDOL SELF LEARNING MATERIAL (SLM)

d. All of the above 5. Organizational models are a. multinational model b. international model c. global organizational model d. All of the above 6. Productivity increases when a. outputs decrease while inputs remain the same. b. inputs increase while outputs remain the same. c. inputs decrease while outputs remain the same. d. inputs and outputs increase proportionately. 7. The capital investment each year in the United States usually a. remains constant. b. decreases. c. increases. d. decreases unless favorably taxed. 8. Which appears to provide the best opportunity for increases in productivity? a. management b. raw materials 38 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Labor d. Capital 9. The person who introduced standardized, interchangeable parts was a. Adam Smith. b. W. Edwards Deming. c. Eli Whitney. d. Henry Ford. 10. The person who developed plant-wide quality control systems was a. Eli Whitney. b. Henry Ford. c. Frederick Taylor. d. W. Edwards Deming Answers 1. a 2. a 3. a 4. b 5. d 6. c 7. c 8. a 9. C 10. d 2.14 REFERENCES  Stevenson W.J. (2018). Operations Management. New Delhi: Tata McGraw Hills.  Chase, Jacobs, Aquilano & Aggarwal. (2005). Operations Management. New Delhi: Tata McGraw Hills.  John O. McClain and L. Joseph Thomas. (1986). Operations Management. New Delhi: Prentice Hall of India.  J. A. Buzacott, J. G. Shanthi Kumar, Stochastic models of manufacturing systems, Prentice Hall, 1993.  D. C. Montgomery, Statistical Quality Control: A Modern Introduction, 7th edition, 2012. 39 CU IDOL SELF LEARNING MATERIAL (SLM)

 R. G. Poluha: The Quintessence of Supply Chain Management: What You Really Need to Know to Manage Your Processes in Procurement, Manufacturing, Warehousing and Logistics (Quintessence Series). First Edition. Springer Heidelberg New York Dordrecht London 2016. 40 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 3: BUSINESS AND OPERATIONS STRATEGY-I Structure 3.0 Learning Objective 3.1 Introduction 3.2 Developing Operations Strategy 3.3 Putting operations into the loop 3.4 Planning operational objectives effectively 3.4.1 Getting started with shared vision 3.5 Developing your action plans 3.6 Operations strategy and action plan checklist 3.7 Elements of operation strategy 3.8 Summary 3.9 Keywords 3.10 Learning Activity 3.11 Unit end questions 3.12 References 3.0 LEARNING OBJECTIVE After studying this unit, you will be able:  Explain Operational strategy and types of the same  State Elements of operations strategies  List of Learning the Developing actions plan 41 CU IDOL SELF LEARNING MATERIAL (SLM)

3.1 INTRODUCTION Most companies have a strategic plan. However, over the years I have seen it time and again. Strategy, although perceived by some as defined, is largely misunderstood across the organization, not tied-in to operations and therefore poorly executed in operations and as a result ignored as the hour-to-hour, crisis-to-crisis mode of management becomes more firmly entrenched. Does your company have an operations strategy developed and being executed to carry the strategic plan? In all likelihood, the answer is no. The most common missing ingredient to success in companies I have seen over the years is a well-planned and defined action plan for improvement that is being consistently and constantly well-executed. The symptoms can vary but, in essence, what is missing are: well- defined and agreed-upon business goals, operational objectives, action plans and performance measures. As a result, some functions within the company are often diametrically opposed to one another and operate in a way that makes meaningful business performance improvement nearly to outright impossible. Companies need a way to focus and stay focused. They need, in effect, a well-defined and well-executed strategy and action plan. No strategic plan in and of itself can help a company change and move ahead to capture more market share, improve products, increase customer satisfaction, or whatever is recommended within the context of a strategy. 3.2 DEVELOPING OPERATIONS STRATEGY Effective strategic business planning requires a dynamic, methodical process that keeps the organization focused on the right issues and actions. This means management must diligently define and redefine the four essential components of a successful strategy and tactical actions: 1. Strategic goals, which are brief statements of what top management wants to achieve in terms of growth, products, markets, profits and the like. 2. Improvement objectives, which are specific and measurable performance improvements set within certain timeframes and tied to specific strategic goals. 3. Action plans, which translate objectives into a specific set of steps, responsibilities, schedules and cross-functional teams for implementing the plans to achieve the objectives. 4. Performance measures, which provide quantitative means of reviewing, evaluating 42 CU IDOL SELF LEARNING MATERIAL (SLM)

and updating actions, improvement objectives, strategic goals, and process performance. Done well and in concert, these four components allow an organization to think and manage strategically, to formulate objectives and action plans that mesh with strategic goals and to continually measure process performance results and to evaluate where there is need for further changes. If a strategic plan is not translated and executed in this way, a company misses the opportunity to focus its entire organization on specific objectives and actions and to develop common values and beliefs. Taking these steps requires courage, confidence, hard work and persistence, but the rewards can be nothing less than a winning strategy for your company and a focus on vision and a common purpose for the entire organization. 3.3 PUTTING OPERATIONS INTO THE LOOP It’s been observed many times that top management feels far more compelled to focus on – and far more comfortable with – issues involving marketing, sales and finance than it does operations. Even if a company has actually developed objectives and actions plans for operations, it seldom has specific strategic impact results in mind. Operational goals are, instead, couched in traditional performance measures that may have no correlating connection to the right goals, objectives and action plans. In today’s manufacturing environment, where supply chain management and lean manufacturing can contribute so much to customer satisfaction, working capital performance, lead times and profits, operations can no longer be left out of the strategic planning loop. It is very common to find manufacturing companies operating with an implicit strategy that everyone “sort of knows.” Worse, when senior management is questioned about business strategy, what often emerges is that only a generic strategy exists. But an unarticulated, generic business strategy is just not good enough. In fact, it can be a critical mistake. Clearly, manufacturing and supply chain management is where “big money” is spent and where major contributions in market share, inventories, customer service, lead times, profits and many other important measures of business performance must be achieved. Now, and in the coming years, operations can no longer be left in a reactive mode to respond to whatever whims that keep changing direction. Operations is clearly an area where profits can be made or lost. 43 CU IDOL SELF LEARNING MATERIAL (SLM)

3.4 PLANNING OPERATIONAL OBJECTIVES EFFECTIVELY The very essence of planning operational objectives effectively is a continual process of ensuring that operations is constantly and consistently doing the “right things right.” This process involves continuously reassessing current strategies including objectives, action plans, and measurements. It also involves developing new or modified objectives, action plans and measurements, whenever needed. Effective strategic operations planning must continually and systematically perform the following two tasks:  Reassess the current strategies, objectives, action plans and performance measurements, and examine how well they are reflected in the company’s overall strategic plan.  Develop new or modified objectives, action plans and performance measurements that are well-connected to the overall strategic plan. Like any continuous process, effective operational strategy planning must always be asking:  “Where do we want and need to go?” and,  “How are we going to get there?” These questions are defined in concrete terms as you connect business strategy with operations strategy to form an overarching competitive strategy for increasing sales, profits, ROA, ROE, stockholder value, and market share (see Figure 1). Once these goals are defined or redefined, you need to ask, “What operational performance improvements will be needed and when to achieve the strategy?” Figure 3.1 Developing the Tactical plan for actions To answer this question, you must be able to define quantifiable performance improvement objectives and timeframes in such areas as delivery improvement, cost reduction, decreased working capital, cycle time reduction, increased throughput, product improvement, quality improvement, supplier performance and management development. 44 CU IDOL SELF LEARNING MATERIAL (SLM)

This is the hard part. Defining the right objectives and developing and implementing the “right” action plans are the focal points of an effective planning process. Here you need to be very specific with objectives, such as decreasing order-to-delivery cycle time by a certain minimum amount, introducing a specific product at a certain target price, decreasing costs by a certain percentage, and/or reducing inventories to a specified level. The next task is to define the action plans you’ll need. You’ll need to define steps, resources and timing. For example, you could plan to redesign the process of information and material flow to reduce order-to-delivery cycle times by 60 percent over the next six months, or introduce a methodology to decrease inventories by 35 percent in six months. Action plans need to define the what, who, why, where, when and how. They need to be specific, for an objective, and set to established time frames. You also need to assign certain people to be accountable for the results, and you’ll need to define how those results are to be measured. Measurements are a key step in this continuous process and a step just as critical as any of the others. Measurements start the feedback of information in each reassessment cycle of goals, objectives and action plans. They continually ask: “How are we doing?” Next, you need to answer the question, “What operational process performance metrics are best to monitor our achievement toward realizing our company’s business strategy?” A good performance measurement system will tell you how effectively your action plans have been in reaching objectives and goals. It is also part of the continuous monitoring of how the company in general is doing operationally. A system for measuring overall business performance should have early warning signals. Measurement complements diligent management with precise, well-considered communications and clear feedback on are you doing the “right things right.” It is always critical to address two issues: 1. Get early warning on process performance appropriate metrics to remain proactive; and, 2. Be careful that management directives do not encourage action that is counter to your desired performance and overall strategy. 3.4.1 Getting started with shared vision To create a shared vision, you need to analyze your current situation and reach a better understanding of your company’s strengths and weaknesses as well as the internal and 45 CU IDOL SELF LEARNING MATERIAL (SLM)

external factors that affect the company’s performance. Senior management cannot ask too often the questions that help keep everybody on track, including, first of all, questions that focus on your customers:  What do our customers value in supplier operational performance?  Are our customer’s wants and needs changing or going to change?  How can we help our customers be more competitive and profitable?  What is our current performance compared to what our customers need, want and value?  What are our strengths and weaknesses compared to our competitors’ strengths and weaknesses? Top management also needs to continuously ask how the organization is going to effectively manage issues and responsibilities such as:  How do we remain competitive now?  How can we surpass the competition?  Are our current improvement initiatives appropriate to match our objectives?  Have we achieved the intended measurable results from our improvement initiatives?  What should we do differently to achieve the results we need?  What results can we achieve in six months or sooner?  What results can we achieve in the longer term?  What are the primary reasons for us to pursue lean supply chain management and what will the benefits be? Answering these questions can help top management teams focus on the important issues. Then comes the hard work: Ask your entire top management team to answer the following seven questions and then get together for an open discussion. These questions may uncover the divisions and differences amongst your managers on key issues of beliefs, values and vision: 1. What specific customer satisfaction improvement action items need to be initiated 46 CU IDOL SELF LEARNING MATERIAL (SLM)

immediately? 2. What measurable results must be achieved and when? 3. What specific business process improvements will we achieve over the next six months (12 months, 18 months, 24 months)? 4. In what three areas have we achieved breakthrough business results? 5. What five immediate actions are required to initiate, invigorate or enhance our operational performance? 6. Do we have clear, time-phased, measurable objectives for operational performance improvement, and is accountability clear? 7. What outside consulting assistance is needed to assist our organization to more quickly achieve business goals? With rare exceptions, every CEO I have asked to perform this test has been very surprised at the diversity of opinion and the intensity with which those diverse opinions are held. Discussing these questions has led to some very stormy sessions. Those very differences, however, show everyone the need to mutually define and implement an effective operational improvement strategy. While an immediate, easy consensus is unlikely, the process of thinking, discussing and reaching a conclusion is in itself a good learning experience and a major advance toward an essential singleness of purpose and vision for the entire management team. Getting the entire management team to focus on doing the “right things right” is no easy task. Few organizations have evolved to the point where doing the “right things right” is part of their routine organizational behavior. It is more likely to be the case that the management team, at least in part, is doing the “wrong things right.” This behavior happens for many reasons, not the least of which is driven by performance measurement, discussed more thoroughly in one of my other white papers. After successfully working out solutions to the preceding seven questions, the management team should have a common, agreed-upon direction for running the business. But just because everyone seems to understand where the company is going does not mean that the organization knows what to do next. Once the high-level assessment and agreement on a new direction is completed, it is time to start defining how to self-fund the entire improvement effort. This self-funding can come 47 CU IDOL SELF LEARNING MATERIAL (SLM)

from current inventory, which is a sure cash generator for most, then reassessing major business processes, making sure to reduce non-value-added activities and cycle times whenever possible. The redesign should convey to management how these changes affect issues like cost, quality, cycle time, customer satisfaction and competitive advantage. Finally, the team must develop objectives, action plans, assign resources and establish how to measure the success of these plans. Figure 3.2 Requirement for action objectives 3.5 DEVELOPING YOUR ACTION PLANS Operations strategy and overall business strategy are inextricably linked. While a well- defined operations strategy will not guarantee success by itself, not having one will almost certainly guarantee failure. It has been demonstrated time and again that an operations strategy and the requisite skills to develop and implement that strategy are absolutely critical for achieving any lean supply chain objectives. The prerequisite for action plans is specific improvement objectives tied directly to business goals. Requirements for action objectives are:  Specific  Vital  Feasible  Linked  Assigned 48 CU IDOL SELF LEARNING MATERIAL (SLM)

 Dated  Measurable A specific action plan defines the sequence of time-phased activities or tasks and the resources necessary to reach the desired objective. In addition, each activity and task required to achieve the objective has a person who is accountable for it. Everything required to achieve the objective is well-defined and set within a time frame with clear lines of accountability. Figure 3 is a format that I have found useful for documenting action plans. Action plans can integrate operations with business strategy and they can provide a practical focus for shared vision. They can do this in several different ways including:  Traversing silos within organization  Minimizing tunnel vision  Providing a structure for solving problems  Encouraging people to think creatively in developing solutions  Driving the entire organization to come to grips with the real opportunities that require solving problems  Providing a methodology for conflict resolution  Establishing common values and beliefs across the organization  Creating a way for everyone to get on the “same page” and rapidly move forward. Figure 3.3 Strategic action plan 49 CU IDOL SELF LEARNING MATERIAL (SLM)