Koç University
OPSM 301 Operations Management
Class 2:
Operations management strategy and
process selection
Chapter 2
Zeynep Aksin
zaksin@ku.edu.tr
Announcements
 Web page available through Courseware link
 Please get copies of the course pack from Xerox
for case assignments coming up.
 Will skip sections on global operations and
strategy implementation in Chapter 2
 Will cover Ch 7 p 254-263 today.
 OPSM elective course: Operations Strategy
Operations & the Process View:
What is a Process?
Information
structure
Inputs
Process
Management
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital
Resources
Organization Chart
Process
customer
customer
suppliers
What is Operations Management?
 Management of business processes
 How to structure the processes and manage
resources to develop the appropriate
capabilities to convert inputs to outputs.
– What is appropriate?
What defines a “good process”?
Performance: Financial Measures
 Absolute measures:
– revenues, costs, operating income, net
income
T
Ct
t
– Net Present Value (NPV) = 


1

r
t 0
 Relative measures:
– ROI, ROE
EBIT  Tax
– ROA = Average Total Assets
 Survival measure:
– cash flow
Firms compete on product attributes.
This requires process capabilities.
 Price (Cost) P
 Quality Q
– Customer service
– Product quality
“order winners”
 Time T
– Rapid, reliable delivery
– New product development
 Variety V
– Degree of customization
To deliver we need
“capabilities”
Fit between Strategy and Processes
 Processes must fit the operations strategy of the
firm:
Competing on
-Cost (Southwest Airlines)
-Quality (Toyota,Arçelik)
-Flexibility (HP)
-Speed (McDonalds)
all require different process designs and different
measures to focus on.
Corporate StrategyKey Performance Indicators
Operations StrategyProcess Design& Improvement
Performance Measures
Performance
Objective
Some typical Measures
Cost
Minimum delivery time/average delivery time,
utilization of resources, labor productivity, added
value, efficiency, cost per operation hour
Quality
Number of defects per unit, level of customer
complaints, scrap level, mean time between failures,
customer satisfaction scores
Speed
Customer query time, Order lead time, frequency of
delivery, actual versus theoretical throughput time,
cycle time
Flexibility
Time needed to develop new products/services, range
of products/services, machine change-over time,
average batch size, time to increase activity rate,
average capacity/maximum capacity, time to change
schedules
Linking the strategic role & process view:
Strategic Operational Audit
Existing
Desired
Feasible
Business Strategies
Strategy Gap?
Existing
Capabilities
Capability Gap?
Desired
Business Strategy
Processes & Infrastructure
Process Gap?
Product
Attributes
P, T, Q, V
Desired
Capabilities
Operations Strategy
Operational Structure:
Measures
Desired Oper’l Structure:
Processes & Infrastructure
Marketing, …,
Financial Strategy
Process
Attributes
C, T, Q, Flex
Mission/Strategy
 Mission - where you are going
 Strategy - how you are going to get there;
an action plan
Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing
Decisions
Operations
Decisions
Fin./Acct.
Decisions
Strategy vs. Operational Effectiveness:
The Operations Frontier as the minimal curve containing all current
positions in an industry
Responsiveness
A
B
operations
frontier
C
High
Low
Price
Video
 King Soopers Bakery
– How is bread made?
– How does the pastry production process
differ? Customized cakes?
– What are the different set-ups in each
process?
Classification Scheme for
Manufacturing Systems
 Organizing production processes:
Around the product or process?
 Discrete Part Manufacturing
– Job Shops
– Batch Production
– Mass Production
 Continuous Processes
A Spectrum of Production Processes
Part
Variety
Job
Shop
Batch Prod.
Mass Prod.
(Flow Line)
Contin
Flow
Proce
ss
Part Quantity
Fit of Process, Volume, and Variety (from Ch. 7)
Repetitive Process
(Modular)
Low-Volume
(Intermittent)
High Variety
One or few units per run,
high variety
(allows customization)
Changes in modules
Modest runs, standardized
modules
Changes in attributes
(such as grade, quality,
size, thickness, etc.)
Long runs only
Process focus
projects, job
shops,(machine, print,
carpentry)
Standard Register
Poor strategy
Repetitive
(autos, motorcycles)
Harley Davidson
High-Volume
(Continuous)
Mass Customization
(difficult to achieve,
but huge rewards)
Dell Computer Co.
Product focus
(commercial baked
goods, steel, glass)
Nucor Steel
Process-Focused Strategy Examples
Bank
Hospital
© 1995 Corel Corp.
© 1995
Corel
Corp.
Machine
Shop
© 1995 Corel Corp.
Repetitive-Focused Strategy - Examples
Fast
Food
Clothes
Dryer
McDonald’s
over 95 billion served
Truck
© 1995 Corel Corp.
© 1984-1994 T/Maker Co.
© 1995 Corel Corp.
Product-Focused Examples
Soft Drinks
(Continuous,
then Discrete)
Light Bulbs
(Discrete)
© 1995 Corel
Corp.
© 1984-1994 T/Maker Co.
Paper (Continuous)
© 1995 Corel Corp.
Mass
Flu Shots
(Discrete)
© 1995 Corel Corp.
The Job Shop Process
 Process Layout
 One of a Kind Build
– (To Customer Order)
 Absence of Rigid Flow Pattern
 Usually High Product Mix
Process Layout
Lathe#1
Drill
Press #1
Drill
Press #2
Lathe#2
Paint Machine
Lathe#3
Packaging Machine #1
Lathe#4
Packaging Machine #2
Product #1735B: Start of Production
Finish
Production
The Batch Flow Process
 Process Layout
 Work Flow in Lots
 Absence of Rigid Flow Pattern
The Flow Line Process




Product Layout
Discrete Parts
Rigid Flow Pattern
Product Mix of Standard Products
Product Layout
Product #1735B
Start Production
Lathe
Drill
Press #2
Drill
Press #1
Paint Machine
Packaging Machine #2
Finish
Production
Impetus for Strategy Change
 Changes in the organization
 Stages in the product life cycle
 Changes in the environment