Chapter 2, Operations StrategyChapter 2, Operations Strategy

INTRODUCTIONINTRODUCTIONtoto

Operations ManagementOperations Management

5e, SchroederCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2-2

OutlineOutline

1.1. McDonald’s Operations StrategyMcDonald’s Operations Strategy2.2. Global Scope of Operations and Supply Global Scope of Operations and Supply

ChainsChains3.3. Supply Chain StrategySupply Chain Strategy4.4. Operations Strategy ModelOperations Strategy Model5.5. Emphasis on Operations ObjectivesEmphasis on Operations Objectives6.6. Linking StrategiesLinking Strategies7.7. Environmental and Sustainable OperationsEnvironmental and Sustainable Operations

2-3

Operations StrategyOperations Strategy

““Operations strategy is a Operations strategy is a consistent pattern of consistent pattern of business decisionsbusiness decisions for the transformation for the transformation system and associated supply chain that are system and associated supply chain that are linked to the business strategy and other linked to the business strategy and other functional strategies, leading to a competitive functional strategies, leading to a competitive advantage for the firm.”advantage for the firm.”

2-4

McDonald’s Operations StrategyMcDonald’s Operations Strategy

Mission: fast, quality, low costMission: fast, quality, low cost

Objectives: process, quality, capacity, Objectives: process, quality, capacity, inventoryinventory

Strategic decisions: process, quality, capacity, Strategic decisions: process, quality, capacity, inventoryinventory

Distinctive competence: continuous Distinctive competence: continuous improvement of the transformation processimprovement of the transformation process

2-5

Global Scope of Operations Global Scope of Operations and Supply Chainsand Supply Chains

““Traditional” versus “Global” company, Traditional” versus “Global” company, i.e.,i.e., companies operating in one country vs. those companies operating in one country vs. those operating in many.operating in many.Characteristics of the “Characteristics of the “Global CorporationGlobal Corporation” ” are different from the traditional company.are different from the traditional company.Operations must have a global distinctive Operations must have a global distinctive competence.competence.

2-6

Characteristics of “Characteristics of “Global CorporationsGlobal Corporations””

Facilities & plants located worldwide, not country by Facilities & plants located worldwide, not country by country.country.Products & services can be shifted among countries.Products & services can be shifted among countries.Sourcing is on a global basis.Sourcing is on a global basis.Supply chain is global in nature.Supply chain is global in nature.Product design & process technology are global.Product design & process technology are global.Products fit global tastes.Products fit global tastes.Demand is considered on worldwide basis.Demand is considered on worldwide basis.Logistics & inventory control is on worldwide basis.Logistics & inventory control is on worldwide basis.Divisions have world-wide responsibility.Divisions have world-wide responsibility.

2-7

Supply Chain StrategySupply Chain StrategyShould aim at achieving a competitive advantage for Should aim at achieving a competitive advantage for the entire supply chain.the entire supply chain.Two type of supply chain strategies:Two type of supply chain strategies:– Imitative products (Imitative products (e.ge.g. commodities). commodities)

Predictable demandPredictable demandEfficient, low-cost supply chainEfficient, low-cost supply chain

– Innovative products (Innovative products (e.ge.g. new technologies). new technologies)Unpredictable demandUnpredictable demandFlexible, fast supply chainFlexible, fast supply chain

Firms must choose the right supply chain for each Firms must choose the right supply chain for each product or group of products and not use “one size product or group of products and not use “one size fits all” strategy.fits all” strategy.

2-8

Operations Operations Strategy Model Strategy Model (Figure 2.1)(Figure 2.1)

Consistent pattern of decisions

Internalanalysis

Externalanalysis

Mission

DistinctiveCompetenceObjectives

(cost, quality, flexibility, delivery)Policies

(process, quality, capacity, and inventory)

Operations Strategy

Business strategy

Functional strategies inmarketing, finance,engineering, human

resources, andinformation systems

Results

Corporate strategy

2-9

Distinctive CompetenceDistinctive Competence•“Something an organization does better than any competing organization that adds value for the customer.”•“Something that operations does better than anyone else.”

2-10

Operations Strategic ObjectivesOperations Strategic Objectives

CostCostQualityQualityDelivery Delivery – TimeTime– ReliabilityReliability

FlexibilityFlexibility– Schedule Schedule – Product changeProduct change

How does a firm use them to gain a competitive How does a firm use them to gain a competitive advantage, and how do they trade-off?advantage, and how do they trade-off?

2-11

Examples of Important Strategic Decisions in Operations Examples of Important Strategic Decisions in Operations (Table 2.3)(Table 2.3)

Strategic Decision Decision Type Strategic Choice Process Span of process

Automation Process flow Job specialization Supervision

Make or buy Handmade or machine–made; flexible or hard automation Project, batch, line or continuous High or low specialization Centralized or empowered workers

Quality Systems Approach Training Suppliers

Prevention or inspection Technical or managerial training Selected on quality or cost

Capacity Facility size Location Investment

One large or several small facilities Near markets, low cost or foreign Permanent or temporary

Inventory

Amount Distribution Control Systems

High or low levels of inventory Centralized or decentralized warehouse Control in great detail or less detail

2-12

Linking Operations to Business StrategiesLinking Operations to Business Strategies

Business strategy alternativesBusiness strategy alternatives– Product imitatorProduct imitator

Operations must focus on keeping costs low. Operations must focus on keeping costs low. – Product innovatorProduct innovator

Operations must maintain flexibility in processes, labor Operations must maintain flexibility in processes, labor and suppliers. and suppliers.

Order qualifiers and winnersOrder qualifiers and winners– Qualifiers: why you consider the product/serviceQualifiers: why you consider the product/service– Winners: why you choose the product/serviceWinners: why you choose the product/service

2-13

Linking Operations to Business StrategiesLinking Operations to Business Strategies

Business strategy alternativesBusiness strategy alternatives– Product imitatorProduct imitator

Order winner = price (keep cost low)Order winner = price (keep cost low)Order qualifiers = flexibility, quality, deliveryOrder qualifiers = flexibility, quality, delivery

– Product innovatorProduct innovatorOrder winner = flexibility (rapid introduction of Order winner = flexibility (rapid introduction of new products)new products)Order qualifiers = cost, delivery, quality Order qualifiers = cost, delivery, quality

2-14

Environment & Sustainable Environment & Sustainable OperationsOperations

Sustainability: minimizing or eliminating the Sustainability: minimizing or eliminating the environmental impact of operations.environmental impact of operations.The ‘greening’ of operations.The ‘greening’ of operations.

• Product developmentProduct development• Sourcing Sourcing • ManufacturingManufacturing• PackagingPackaging• Distribution Distribution • TransportationTransportation• ServicesServices• End-of-life management (e.g. recycling)End-of-life management (e.g. recycling)

2-15

SummarySummary

• McDonald’s Operations StrategyMcDonald’s Operations Strategy• Global Scope of Operations and Supply ChainsGlobal Scope of Operations and Supply Chains• Supply Chain StrategySupply Chain Strategy• Operations Strategy ModelOperations Strategy Model• Emphasis on Operations ObjectivesEmphasis on Operations Objectives• Linking StrategiesLinking Strategies• Environmental and Sustainable OperationsEnvironmental and Sustainable Operations

2-16

End of Chapter Two