OPERATIONS STRATEGY

Module 5
 achieving sustainable alignment by balancing market
requirements & operations resources

The process of achieving sustainable

alignment of market requirements with
operations resources

The process of using substitutes The process of implementing

for strategy operations strategy
 WHAT IS SUSTAINABLE ALIGNMENT?
 The process of continually reconciling operations resources with
market requirements to achieve a degree of alignment or fit
 The process of achieving the alignment between parts of the firm
responsible for marketing activities and those responsible for
resource management activities is difficult, since
 Uncertain nature of the market does not provide the clear objectives to
develop the operations resources
 Operations capabilities or constraints of operations resources may not be
always predictable
 Since different parts of the firm are engaged in pursuing
different objectives there arises lack of alignment between
market requirements and operations resources
 Alignment means a balance between required market
performance and actual operations performance
So when an alignment is achieved, customers do not expect
levels of operations performance which the firm is unable to
supply - IDEAL SITUATION
WHAT IS SUSTAINABLE ALIGNMENT? A
CONCEPTUAL MODEL
 Nature and level of market requirements - reflect
customers’ needs or shaped by firm’s marketing activity
 Strength of brand or reputation
 Degree of differentiation
 Extent of market promises

 Leveland nature of firm’s operations resources and

process capabilities
 Ability of operations to achieve competitive objectives
 Efficiency with which operations utilizes resources
 Ability of firm’s resources to align with business processes
SHOULD OPERATIONS RESOURCES ALIGN
WITH THE MARKET OR VICE VERSA?
 Task of achieving alignment can be two ways
 Firms can identify market requirements and align
operations resources to match them
 Traditional top down hierarchy of strategies
 Operations to analyze resources and find market
opportunities that align with the resources
 Alignment is both static and dynamic
 How well is the resources aligned to market needs
 What changes in resources are required to align with
changing market needs
‘Fit’ means that the operations resources and processes are aligned
with the requirements of its markets.
‘Fit’ can also mean that market requirements are moved to exploit
operations resource capabilities

Market requirements

fi t
e of
Lin

Operations resource capability

 ‘Fit’ operations resources to market
requirements

Market
segmentation

Operations
Operations Operations Market
strategy
capabilities performance positioning
decision
objectives
areas

Competitor
activity

State market
… to Make requirements
in terms of Define
enhance strategic Understand
operations competitive
core operations markets
performance position
capabilities decisions
objectives
 ‘Fit’ market positioning to operations
resources capabilities

Tangible and
intangible
resources

Operations Potential
Operations strategy Operations
capabilities market
decision Performance
positioning
areas

Operations
processes

Make Define market

Understand Identify core appropriate potential of Determine
resources and capabilities strategic operations competitive
processes operations performance position
decisions
DIFFERENT CONCEPTS / APPROACHES
 Static [defensive] Vs Dynamic [offensive]
[ check pg 239 of operations strategy by Nigel slack:
Pearson publication]
 Tight alignment vs loose alignment

 Achieving alignment at different levels

 Single loop vs double loop

ACHIEVING ALIGNMENT AT DIFFERENT
LEVELS
 Fit between market requirements and operations
capabilities
 If the requirements placed by the market on operations
is not demanding, then the level of operations
capabilities is not high.
 More demanding the market is, then level of operations
capabilities is high
 Achieving alignment is a necessity, not sufficient
condition for successful operations strategy
 Firms would achieve alignment at a level that implies
some degree of long term competitive success (Eg.
Philips plastic tape deck mechanism)
ACHIEVING ALIGNMENT AT DIFFERENT
LEVELS

 Refer the graph showing the alignment between

market and operations capabilities
 Firms would assume that Point B is more desirable
than Point A, since aligning at a higher level signifies
a financially successful position
 High levels of market performance, achieved through
high level of operations capability will be more
difficult for the competitors to match
Excessively tight ‘fit’ can increase the risks of misalignment between market
requirements and operations resource capability
Tight fit
fi t
of
e
iL n
Market requirements

Movement in market requirements

and operations resources produces
misalignment

Level of operations resource capability

TIGHT ALIGNMENT AND LOOSE
ALIGNMENT
 Tight alignment
 Well defined statement of market requirements and a narrow
set of operations capabilities
 Markets and operations resource capabilities may
change over time
 Markets are dynamic and exhibit unexpected changes
 Operations resource capabilities can show unexpected
movements, may be at a slower pace
 Ifthe alignment between market requirements and
operations capabilities is very narrow, there can be
always a possibility that the two can get misaligned
 TIGHT ALIGNMENT AND LOOSE
ALIGNMENT
 Strategies
should be formed repeatedly over time to
address changes in both market requirements and
operations resources
 Many big companies have gone into oblivion as they did not
review their operations strategies time and again (Eg. Kodak)
 These companies might have aligned market and operations
capabilities at one point of time but failed to realign as both
the market and operations capabilities changed
 A broader (loose) set of capabilities and market relationships
can provide some stability
 Example could be Dell, Toyota
Excessively tight ‘fit’ can increase the risks of misalignment between market
requirements and operations resource capability
Loose fit
f fit
o
e
iL n
Market requirements

Looser fit between market

requirements and operations
resources preserves alignment

Level of operations resource capability

 STATIC AND DYNAMIC SUSTAINABILITY
 Static approach to sustainability means to develop
resources which are considered valuable
 Scarce, difficult to move, difficult to copy, or difficult to find
substitute for (eg. INTEL chips)
 Because they are difficult to replicate such resources act to
sustain competitive advantage
 Overall performance of a firm depends on how its strategy
takes into account the structure of the industry it is in
 Dynamic approach to sustainability
 Even in isolated markets, customer requirements evolve and
along with that operations capabilities need to evolve
 Operations can raise the barrier through innovation and change
to maintain sustainability (Eg. Philips plastic tape deck
mechanism)
SINGLE AND DOUBLE LOOP LEARNING
 Singleloop learning occurs when there is a repetitive
association between input and output factors
 Eg. Statistical process control – output from this can be used to
control supplier quality, manufacturing consistency, training
 Doubleloop learning questions fundamental objectives
and market positions and culture of the organization.
 Challenges existing operating assumptions and remain open to
changes in the competitive environment
 Anoperation needs both single loop learning to create
consistency and stability and double loop learning
develop internal and external objectives
 Single loop learning in operations

Examine the Compare this performance

performance of against objectives
operations processes

Operations Develop new insights and

innovation capabilities
 The potential limitations of single-loop learning

Compare this performance

Reduce performance of Performance objectives

operations processes less appropriate

Shifts in technology, processes or

markets, leading to improved
competitor performance
Operations Insights and capabilities
innovation less easy less useful
 Double-loop learning questions the appropriateness
of operations performance

Question the relevance of

Examine the Compare this performance objectives
performance of against objectives
operations processes

Develop new (more

relevant objectives)

Operations Develop new insights and

innovation capabilities
MODELS
 The hills framework

 The Platts Gregory procedure

 Prof Terry Hill framework of operations strategy formulation
Step 1 Step 2 Step 3 Step 4 Step 5

Corporate Marketing How do products Operations strategy

objectives strategy or services win
Process choice Infrastructure
orders?
• Growth •Product/service •Price •Process •
markets and technology Functional support
• Profit •Quality
segments
•
• ROI •Delivery speed
•Range •Trade-offs Operations
• Other • •Delivery embodied in planning and
Mix
‘financial’ dependability process control
measures •Volumes systems
•Product/service •Role of
•Standardisation range inventory • Work
or structuring
•Product/service •Capacity, size,
customisation •
design timing, location
•Innovation Payment
•Brand image
systems
•Leader or
•Technical •
follower
service
Organisational
structure
 THE PLATTS-GREGORY PROCEDURE
 Ken Platts and Mike Gregory incorporates a form of
prioritization based upon an assessment of relative
competitive performance
 Stage 1 involves developing an understanding of the market position
of the organization – it seeks to identify the factors that are required
by the market and then compares these to a level of achieved
performance
 Stage 2 seeks to identify the capabilities of the operation. Decision
categories are provided to help managers classify current operations
practice and then link these practices to the priorities identified in
stage 1.organisation
 Stage 3 encourages managers to review different options they have
for improvement and developing a new operations strategy – against
the backdrop of market criteria
 The Platts–Gregory procedure Prioritisation based
upon an assessment of
relative competitive
Opportunities and
performance
threats
The existing operation

What the market •Facilities

wants? •Capacity
•Features •Span of process What do we need to do
•Quality •Processes to improve the revised
•Delivery •Human resources operations strategy?
•Flexibility •Quality
•Price
•Control policies
•Suppliers Developing a new operations
How the operations •New products strategy against the
performs backdrop of market criteria
•Features
•Quality
•Delivery Identify the capabilities of
•Flexibility the organisation
•Price

Understanding of the market

position of the organisation
CHALLENGES
 What scope & unit of analysis- the scope of any
operation strategy analysis would cover all the resources
owned or controlled by firm
 What is operations? – the objectives, task & activities
defined as operations by any firm
 How explicit should strategy be?- whether it exist in
document alone or not. The degree to which it is made
explicit is itself a formulation decision
 What is the role & position of operation?

 How should emergent strategies be treated

[for further explanation: pg 253: Operations Strategy-

Nigel Slack]
NEW APPROACHES TO OS
TQM
 TQM is the integration of all functions and processes
within an organization in order to achieve continuous
improvement of the quality of goods and services. The
goal is customer satisfaction
 Leadership -Top management vision, planning and
support.
 Employee involvement - All employees assume
responsibility for the quality of their work.
 Product/Process Excellence- Involves the process for
continuous improvement.
 Meeting the needs & expectation of customers
 Covering all parts of organization
 Examining all costs related to quality especially failure
cost
 Getting systems & procedure that support improvement
TQM TOOLS
 Quality function deployment (QFD)
 Pareto charts

 Process charts

 Cause & effect diagrams

 Statistical process control

TQM ELEMENTS IN THE 4 OPERATION
STRATEGY DECISION CATEGORY
LEAN
 A way to eliminate waste and improve efficiency in a
manufacturing environment
 Lean focuses on flow, the value stream and eliminating
muda, the Japanese word for waste
 Lean manufacturing is the production of goods using
less of everything compared to traditional mass
production: less waste, human effort, manufacturing
space, investment in tools, inventory, and engineering
time to develop a new product
7 WASTES
 Overproduction – producing more than the customer orders or
producing early. Inventory of any kind is usually waste.
 Queues – idle time, storage, and waiting are wastes
 Transportation – moving material between plants, between
work centers, and handling more than once is waste
 Inventory – unnecessary raw material, work-in-process
(WIP), finished goods, and excess operating supplies
 Motion – movement of equipment or people
 Overprocessing – work performed on product that adds no
value
 Defective product – returns, warranty claims, rework and
scrap
LEAN TECHNIQUES
 5S
 Single Minute Exchange of Dies

 Kanban

 Cellular Manufacturing
5S
 Sort/segregate – when in doubt, throw it out
 Simplify/straighten – methods analysis tools

 Shine/sweep – clean daily

 Standardize – remove variations from processes

 Sustain/self-discipline – review work and recognize progress

Two additional Ss
Safety – build in good practices
Support/maintenance – reduce variability
KANBAN SYSTEM
 JIT
manufacturers utilize a concept known as
Kanban, which denotes a card or a visible signal.

 TaichiiOhno, the father of Toyota Production

System, conceived the logic of kanban as a
production control tool
LEAN ELEMENTS IN THE 4 OPERATION
STRATEGY DECISION CATEGORY
BPR
 Reengineering is the fundamental rethinking and
redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of
performance, such as cost, quality, service and speed.
 Business process re-engineering is required in two cases:

 The organization has discovered some breakthrough

methodology .
 The organization has failed to keep up to date with the
changing technologies.
ADVANTAGES
 Performance
 Radical Improvement

 Integrated Change

 People-Centred

 Process Based

 Focus on End-Customers
STRATEGY FOR IMPLEMENTING BPR
BPR ELEMENTS IN THE 4 OPERATION
STRATEGY DECISION CATEGORY
ERP
 The practice of consolidating an enterprise’s planning,
manufacturing, sales and marketing efforts into one
management system.

 Combines all databases across departments into a single

database that can be accessed by all employees
EVOLUTION
 1960s: software packages with inventory control
 1970s: MRP systems

 Production schedule with materials management

 1980s: MRPII systems

 Adds financial accounting system

 1990s: MRPII

 Integrated systems for manufacturing execution

 Late 1990s: ERP

 Integrated manufacturing with supply chain

ADVANTAGES
 Integrate financial information
 Integrate customer order information

 Standardize and speed up operations processes

 Reduce inventory

 Standardize Human Resources information

ERP MODULES
 Finance
 Material

 Sales

 Marketing

 Personnel
ERP Finance Module
 In This Data is collected From various functional
departments and generate financial reports ledger, Trail
Balance, Balance Sheets etc.

ERP HR(Human Resource) Module

 HR Module routinely maintain a complete employee
database including contact information, Salary details
Attendance, Promotions of all employees.
 Produce pay check Reports

 Maintain personnel Record

 Training

 Time and Attendance Benefits

ERP Purchasing Module
 Purchasing module is tightly integrated with the
inventory control and production planning Modules.

ERP Inventory Module

 Inventory Module facilitates processes of maintaining
the appropriate level of stock in a warehouse
PHASES OF ERP IMPLEMENTATION
 Initiation – develop business case, project scope, and
implementation strategy
 Planning – establish implementation team, determine goals
and objectives, establish metrics
 Analysis and process design – analyze and improve existing
processes, map new processes to be adopted by the system
 Realization – install a base system, customization, and test the
system
 Transition – replace the formal system with the new system,
data conversion
 Operation – monitor and improve system performance,
provide continued training and technical support
ERP ELEMENTS IN THE 4 OPERATION
STRATEGY DECISION CATEGORY
SIX SIGMA
 Six Sigma relies heavily on advanced statistical methods
that complement and reduce the process and product
variations. It is a new way of doing business that would
eliminate the existing defects efficiently and would
prevent defects from occurring
 Thus we can summaries that:
 it is a methodology for continuous improvement
 It is a methodology for creating products/ processes that perform at
high standards
 It is a set of statistical and other quality tools arranged in unique
way
 It is a way of knowing where you are and where you could be
 It is a Quality Philosophy and a management technique
 The term “sigma” is used to designate the distribution or spread about
the mean (average) of any process or procedure.
 For a process, the sigma capability (z-value) is a metric that indicates
how well that process is performing.
 The higher the sigma capability, the better.
 Sigma capability measures the capability of the process to produce
defect-free outputs. A defect is anything that results in customer
dissatisfaction.
 The term “Six Sigma” was coined by Bill Smith, an engineer with
Motorola
 Late 1970s - Motorola started experimenting with problem solving
through statistical analysis
 1987 - Motorola officially launched it’s Six Sigma program
 Thus Origin of Six Sigma is credited with Motorola the company that
invented Six Sigma
 In a process that has achieved six sigma capability, the
variation is small compared to the range of specification
limit.
 A six sigma process is one in which 99.9999966% of the
products manufactured are statistically expected to be free
of defects (3.4 defects per million).
Objectives:
 Reduction of defects & variablity

 Overall Business Improvement

 Reduce Costs

 Improve Cycle Time

 Increase Customer Satisfaction

METHODOLOGIES
DMAIC
DMAIC is used for projects aimed at improving an
existing business process

DMADV
DMADV used for projects aimed at creating new product
or process designs
SIX SIGMA ELEMENTS IN THE 4
OPERATION STRATEGY DECISION
CATEGORY
OS DEPLOYMENT
 Strategy Deployment is the process of executing
the strategy. Strategy is the high level vision and
orchestration necessary to fulfil organization's mission
and goals, and Deployment is taking the actions required
to implement that strategy successfully and repeatedly