Strategies for Operations Strategy

DEFINITION OF STRATEGY:

The pattern of most important objectives, goals and purposes and the fundamentals, plans, policies and philosophies for achieving those goals, that are declared in such a way as to define what business the firm is engaged in, and what kind of organization it is or would like to be.

OPERATION MANAGEMENT:

Operations management is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient in terms of using as little resource as needed, and effective in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labors and energy) into outputs (in the form of goods and services).

OPERATION STRATEGY:

There are two types of operations strategy:

• They have a particular essence, a blend or fusion of building blocks that give each a unique composition customized to the embeddedness of the situation; and
• These various operations strategies have a number of tactical factors or contingency issues that influence the deployment of the strategy and also act as management levers to enhance its competitive ability.

The operations strategy cannot be designed in a vacuum. It must be linked to the customers and other parts of the enterprise and the supply network.

        (Alan Rushton and John Oxley 1989)

The operations strategy has an important role in coordinating the operational goals to those of the organization. However, the objectives will change over time; hence the need for the operations strategy to anticipate future needs. In this way it acts as a portfolio that can adopt to the changing product and the service combination needs of the final customer.

SUCCESS FOR OPERATION STRATEGY:

The keys to competitive success for the operations strategy lie in:

• To know the requirement of markets
• Identifying the priority choices
• Understanding the consequences of each choice
• Appreciating the various trade-offs

TECHNOLOGY:

Technology is the survival of the fittest. Know a day’s every firm is trying to get new environment which is surrounded by vast eruptions of not only nuclear power but also technological power as well. Globalization has led Managers to become more fully equip and face their competitors’ fiercely with strong and analytical based marketing strategies.

The number of world-class competitors is increasing at an alarmingly rate and to gain the upper edge a firm has to develop an internal system so strong that it can leave its competitors far behind in the race and earn the loyalty of not only its existing customers but also take over the new market successfully. In order to penetrate into the market successfully organizations are realizing that strong engineering, design, and manufacturing functions are necessary.

So where it all did began… that organizations began to realize the customer needs and fulfill them according to their demand. No longer was the customer dumb but the integral force behind an organization’s position in the market, the organization soon learnt to cater to its needs and specifications, designing and engineering customer specific goods available within time and at cost effective prices.

It was in the early 1980’s that demand for new products escalated and manufacturing organizations soon realized that in order to meet the ever changing customer needs they need to become flexible and responsive in modifying existing products and processes. As manufacturing capabilities improved in the 1990’s, managers realized that materials and service inputs from suppliers had a major impact on their organization’s ability to meet customer needs. This led to an increase focus in the supply base and the organizations sourcing strategy. Managers also realized that producing a quality product was not enough. Getting the products to customers when, where, how, and in the quantity that they want, in a cost-effective manner, constituted an entirely new type of challenge. More recently the era of the “Logistics Renaissance” was also born, spawning a whole set of time-reducing information technologies and logistics networks aimed at meeting these challenges.

As a result of these changes, organizations now find that it is no longer enough to manage their organizations. They must also be involved in the management of the network of all upstream firms that provide inputs (directly or indirectly), as well as the network of downstream firms responsible for delivery and after-market service of product to the end customer. From this realization emerged the concept of the “supply chain management”.

        (Stephens 1992)

Supply chain management is the back-bone of operations management without it the flow of products from producer to customer would in fact collapse. To better understand the operations management and how strategies are applied to it to get the competitive advantage over other firms let us take an example of FedEx Business Logistics Services and Laura Ashley

EXAMPLE OF FEDEX BUSINESS LOGISTICS SERVICES & LAURA ASHLEY:

The United Kingdom-based garment and home furnishing company Laura Ashley had severe financial problems in the early 1990s. The company had grown rapidly since Bernard and Laura Ashley started production in 1953 of hand-printed scarves, and by 1990 Laura Ashley employed more than 8000 people and owned or leased about 550 retail shops in 27 countries. The company also supplied a number of franchise shops in other countries. Total sales in 1990/1991 were about GBP 325 million, more than 40% of which came from North America.

        (Stephens 1992)

Poor logistics performance was recognized as a major cause of the above-mentioned financial difficulties. Laura Ashley had serious problems in servicing its customers worldwide. The company could not get products from distribution centre’s to stores quickly enough to avoid stocking out on major items. Laura Ashley had seven distribution centers around the world, but they were largely unconnected by management information systems. Overall stock availability was only about 80%, although inventory costs were high. The transport system was inefficient and spread over eight principle carriers.

In 1992, Laura Ashley decided to hand over the global logistics functions to Federal Express’s newly formed business logistics division. The two companies signed a 10-year contract. All in-house logistics operations were transferred to Business Logistics. The 300 Laura Ashley employees from distribution centre’s and distribution all become employees of Business Logistics. Laura Ashley’s distribution centre in Newton, Wales, was transferred to Business Logistics, and the remaining six centres’ were closed. The higher efficiency of a single-hub distribution system more than offset the extra transport costs.

The new contract targets a 10% reduction of distribution costs in the first year. Beyond cost savings, the new system will be more reliable, with frequent store deliveries. The target is to be to supply shops anywhere in the world within 24 or 48 hours, depending on location. A further advantage is access from the individual stores to Business Logistics on-line information system, which provides data on which products are in stock, expected dates for receipt of out-of-stock items and the location of all items in-transit. The partnership with Business Logistics has enabled Laura Ashley to re-launch its catalog mail order business.

CAPACITY

Maximum output or producing ability operating at capacity

Capacity of service firms is constrained by…

• Time
• Labor
• Equipment
• Facilities

Four ways to manage constrained capacity

• Amount of capacity needed
• The timing of changes
• Need to maintain balance throughout the system
• Flexibility of facility and workforce

Capacityuse existing resources more efficiently

• Extend hours of operation
• Staff work more efficiently during peak times
• Reduce service levels or offer smaller range of options during peak times
• Improve customer service

Vary capacity to meet demand

• adjust the firm’s resources to match demand
• What could be done during peak periods?
  i.   use part-time/casual employees
  ii.  share or rent extra facilities or equipment
  iii.  cross-train (multi-skill) employees
  iv.  outsource some functions i.e. reservations

(Robert B. Hanfield & Ernest L. Nichols)

What could be done during off-peak periods?

• Schedule down-time
• Reduce staff numbers

LOCATION:

The marking out of the boundarier, oridentifying the place or site of, a piece of land, according to the description given in anentry, plan, map, etc.

The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service.

Every firm/business looks for location that will help them to expand their markets. Location decision represents a key part strategic planning process of virtually every organization.

Need for Location Decisions

• Marketing Strategy
• Basic Cost of a Business
• Expand of business
• Depletion of Resources

Nature of Location Decisions

• Importance of strategic
• Entail a Long term commitment/costs
• Impact on investments, revenues, and Operations
• Supply chains
• Goals/objectives
• Profit potential
• No single location may be better than others
• Make right decision to choose perfect location
• More Options
• Expand existing facilities
• Addition of new facilities
• Shifting

Objectives of Location Decisions

• Decide on the criteria
• Identify the important factors(location of markets or Raw materials)
• Develop location alternatives
• Evaluate the alternatives
• Make selection

Trends in Locations

• Foreign producers locating in U.S.
• “Made in USA”
• Currency fluctuations
• Just-in-time manufacturing techniques
• Micro factories
• Information Technology

EXAMPLES OF VARIOUS COMPANIES:

Let us consider some examples of various companies which have taken location under account in order to grow

Nike and Reebok, the two largest athletic footwear companies, look to contractors in Asia to manufacture their shoes. Sourcing from Asia offers advantages of low cost and flexibility,

When FedEx opened its Asian Hub in Subic Bay, Philippines, in the 1990’s it set the stage for its new “round-the-world” flights linking its Memphis and Paris package hubs to Asia.

When Mercedes announced its plan to build its first major overseas plant in Vance, Alabama, it completed a year of competition among 170 sites amongst 30 states and two countries.

When Hard Rock Café opened in Moscow in late 2002, it ended three years of advanced preparation of a Russian food supply chain.

PROCESS:

Hammer and chamhy’s defines process as a collection of activities that’s takes one or more kinds of input which generate an output that is of value to the customer.

        (Hammer & chamhy’s 1993)

The various kinds of business process are:

Supporting processes:- this include IT support, recruitment, Accounting.

Operational processes:- operational processes are manufacturing, purchasing, sales, marketing.

Core process:- Add direct value to the customer in term of products or services,

• Corporate Governance: one can define corporate governance as the culture of company which includes rules, policies, and customs. They also manitain relationship with management board of director, shareholder and stakeholder (Employees, bank, supplier, customer etc).
• Strategic Management: strategic mangement provides overall directions of an organisation. The aims and objectives, developing polices and plans to achieve these objectives. This Managemrial top level actitvity is usually performed by CEO (Chief Executive Officer) and the exclusive team.

LAYOUT:

In operations management strategy there are four types of Layouts:

• Facility Layout and Basic Formats
• Process-oriented Layout
• Layout Planning
• Service Layout

Facility layout

Facility layout can be defined as the process by which the placement of departments, workgroups within departments, workstations, machines, and stock-holding points within a facility are determined.

Process-Oriented Layout

• Design places departments with large flows of material or people together
• Dept. areas have similar processes
• Used with process-focused processes

Product-Oriented Layout

• Facility organized around product
• Design minimizes line imbalance

Types: Fabrication line; assembly line

Retail Service Layout

• Goal–maximize net profit per square foot of floor space.
• Services capes

EXAMPLES:

Examples of companies who have employed layout strategies

In 1995, Toshiba was the market leader in portable computer sales worldwide. The company used layout strategy in its Ome factory in Japan.

Total Quality Management(TQM)

Definition

“TQM is a complete re-organizing of the work process and the workplace by application of principles of “teamwork’ and work “teams” that are supposed to involve the worker and give them greater control in their work.”

Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback. TQM requirements may be defined separately for a particular organization or may be in adherence to established standards, such as the International Organization for Standardization’s ISO 9000series. TQM can be applied to any type of organization; it originated in the manufacturing sector and has since been adapted for use in almost every type of organization imaginable, including schools, highway maintenance, hotel management, and churches. As a current focus ofe-business, TQM is based on quality management from the customer’s point of view.

Business Process Outsourcing

Business process outsourcing (BPO) is the act of giving a third-party the responsibility of running what would otherwise be an internal system or service. For instance, an insurance company might outsource their claims processing program or a bank might outsource their loan processing system. Other common examples of BPO are call centers and payroll outsourcing.

Typically, companies that are looking at business process outsourcing are hoping to achieve cost savings by handing the work to a third-party that can take advantage of economies of scale by doing the same work for many companies. Or perhaps the cost savings can be achieved because labor costs are lower due to different costs of living in different countries.

In exchange for the potential cost savings, the company in question must relinquish control over an aspect of their business which explains why business process outsourcing is often reserved for non-critical, non-core type of work.

REFERENCES:

1. Philip B. Schary and Tage Skjott-Larsen, Managing the global supply chain management, Munksgaard International Publishers Limited (pages 16, 24 and 38)
2. Alan Rushton and John Oxley, Handbook of Logistics and Distribution Management, 1st published in 1989 by Kogan Page Ltd (pgs 74-76)
3. Ronald H. Ballou, 3rd edition Business Logistics Management, Prentice hall (pages 44, 56 and 171)
4. Robert B. Hanfield & Ernest L. Nichols, JR. Introduction to Supply Chain Management (pgs9-22, 45-56)
5. William J.Stevenson 9th edition Operation Management(International student edition with global readings)(pgs361-367,227-229)
6. http://www.netmba.com/operations/project/cpm/
7. http://www.ganttchart.com/Ganttwith%20DependenciesExample.html

BIBLIOGRAPHY:

1. Philip B. Schary and Tage Skjott-Larsen, Managing the global supply chain management, Munksgaard International Publishers Limited (pages 16, 24 and 38)
2. Alan Rushton and John Oxley, Handbook of Logistics and Distribution Management, 1st published in 1989 by Kogan Page Ltd (pgs 74-76)
3. Ronald H. Ballou, 3rd edition Business Logistics Management, Prentice hall (pages 44, 56 and 171)
4. Robert B. Hanfield & Ernest L. Nichols, JR. Introduction to Supply Chain Management (pgs9-22, 45-56)
5. http://www.netmba.com/operations/project/cpm/
6. http://www.ganttchart.com/Ganttwith%20DependenciesExample.html
7. Heinrich, Claus E. Adapt or die: transforming your supply chain into an adaptive business network. Hoboken, N.J: J. Wiley & Sons; 2003.
8. Fredendall, Lawrence D. Basics of supply chain management. Boca Raton: St. Lucie Press; 2001
9. Hugos, Michael. Essentials of supply chain management. Hoboken, NJ: John Wiley & Sons; 2003
10. David Simchi Levi, Philip kaminsky, and Edith Simchi Levi. Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. Irwin McGrawHill, 2000.
11. Sunil Chopra and Peter Meindel. Supply Chain Management: Strategy, Planning, and Operation, Prentice Hall of India, 2002.