Chapter 2 Operations Strategy and Competitiveness Strategic Planning A process for getting from where the company is today to where company would like to be in the future. A process for getting from “here” to “there.” Strategic Planning Steps Preparing a mission statement Creating a vision Setting goals Formulating strategies Designing tactics Evaluating process and taking corrective action Measuring results or outcomes Strategic Planning Steps Mission What is our business? (Who we are?) Focus is on “today” (Here!) Vision What we hope to be. Focus is on “future” (There!) Strategic Planning Steps Goals What we must do to achieve vision. Should be measurable. Strategies In broad terms, what must we do to achieve goal? Does not say how. Strategic Planning Steps Depends on opportunities and threats Conduct environmental scan Also depends on companies strengths (core competencies) and weakness Conducting an environmental scan and identifying companies strengths and weakness is a SWOT analysis. SWOT Internal S = Strengths W= Weakness External O = Opportunities T = Threats Strategic Planning Steps Tactics What must we do to make strategies work? Evaluation and corrective action Are tactic working? Are they moving you closer to achieving goal? If not, take corrective action by changing tactics. Strategic Planning Steps Outcome Outcome of strategic planning process Tells us if strategic planning process was successful. Was goal was achieved? If not, repeat. Example 1: Strategic Plan Mission Sue is a 17 yr. old high school senior Vision Be successful in business Goal Strategies Become a CFO of a major co. at 35 Get a business degree Tactics Go to CSUN, major in Finance, get internship with Fidelity Investments, become president of SFA, get 3.8 or better GPA Are tactics working? Evaluation/ Corrective action Outcome Position at age 35 Example 2: Strategic Plan Mission Ed is a 42 yr. old overweight male Vision Look better, feel better Goal Strategies Lose 80 lbs. in 6 mos. Diet, exercise Tactics Go on Jenny Craig diet, join 24 Hr. Fitness Center, get a trainer, go to gym 5 days/wk. Evaluation/ Corrective action Outcome Track weight loss weekly; adjust tactics if necessary Weight lost at end of 6 mos. Example 3: Strategic Plan Mission We are in business of selling men’s dress shoes in SFV Vision Expand market area to include So. Ca. Goal Strategies Capture 30% of So. Ca. market in 1 yr. Expand product line, increase marketing effort Tactics Carry women’s shoes; carry more shoe lines including athletic shoes and sandals; Advertise in major newspapers. Evaluation/ Are tactics working? Corrective action Outcome Market share 1 year from now Starbuck’s Strategic Plan Mission statement 'Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.‘ What’s wrong with Starbuck’s mission statement? Starbuck’s Strategic Plan Goal To establish Starbuck’s as the most recognized and respected brand in the world. What is requirement that goal should meet? Does Starbuck’s goal meet it? Starbuck’s Strategic Plan To achieve this goal, the Starbuck’s plans to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbuck’s brand through the introduction of new products and the development of new distribution channels. Starbuck’s Strategic Plan Are these steps strategies or tactics? Answer They are Strategies - board statement of what company will do to achieve goals, but doesn’t say how. Tactics would tell us, for example, how the company plans to expand retail operations. For example, open more retail stores in airports and malls. FedEx’s Mission FedEx provides access to a growing global marketplace through a network of supply chain, transportation, business and related information services. Lexus’ Mission Lexus has revolutionized the luxury motoring experience through its passionate commitment to the finest products and the most satisfying automobile ownership experience. We vow to value the customer as an important individual; to do things right the first time; and to always exceed expectations. We brought together these principles in the Lexus Covenant, which inspires our dealers and associates to treat customers as they would treat guests and to go to any lengths to serve them better. More on Lexus “In order to make certain that a Lexus is a Lexus no matter where it is built, the entire workforce at Cambridge was trained to follow the Passionate Pursuit of Perfection that drives Lexus associates worldwide.” Is there any connection between Lexus and McDonald’s? CSUN College of Business/Econ Mission The College of Business and Economics at California State University, Northridge is dedicated to educating the leaders of tomorrow. By offering a challenging curriculum, smaller class sizes, state-of-the-art facilities, and nationally recognized programs, the College offers a truly unique educational experience. Developing an Operations Strategy Operations Strategy is a plan for using the operational capabilities of a company to decide how it will compete. Will it compete on Price, Quality, Time, Flexibility? One, some or all? Competing on Price? Offering product at a lower price relative to competition Works if there are many competitors offering same product or service. If you of a product with a high degree of customization, does it make sense for you to compete on price? Must also have lower ??? relative to competitors. Competing on Quality? Quality of product Quality of service Both Does competing on quality mean that a company can’t compete on price because it, if it offers better quality, it will charge a higher price? Depends on how quality affects ??? If it increases ????, yes. If it decreases ???, not necessarily. Competing on Time? Time/speed one of most important competition priorities Time related issues involve Rapid delivery: Focused on shorter time between order placement and delivery On-time delivery: Deliver product exactly when needed every time Competing on Flexibility? Product flexibility: Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer Volume flexibility: Ability to ramp production up and down to match market demands Measuring Productivity Productivity is a measure of how efficiently inputs are converted to output. Output Productivity = Inputs Measuring Productivity Partial measures output/(single input) Multi-factor measures Uses some but not all inputs output/(multiple inputs) Total measure uses all inputs output/($ value of all inputs) Measures of Productivity Partial measures Multifactor measures Total measure Output Labor Output Machine Output Labor + Machine Output Energy Output Labor + Capital + Energy Goods or Services Produced $ value of all inputs used to produce them Examples of Partial Productivity Measures Labor Productivity Units of output per labor-hour Dollar value of output per labor-hour Machine Productivity Units of output per machine-hour Dollar value of output per machinehour Energy Productivity Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Numerical Example Output Labor Machine Units 500 x x Hours x 26 6 Cost/unit x $8 $3 Price/unit $15 x x Partial Measures Units Produced Labor Productivi ty Labor hrs. 500 Labor Productivi ty 19.3 26 Explain meaning? Partial Measures Dollar Value of Output Labor Productivi ty Labor hrs. 500 x $15/unit $7,500 Labor Productivi ty $288.46 26 hrs. 26 hrs. Explain meaning? Partial Measures Units Produced Labor Productivi ty Labor cost Units Produced (Labor hrs.) x (Labor cost/hr.) 50 Labor Productivi ty 2.4 26 x $8 Explain meaning? Partial Measures Units Produced Machine Productivi ty Machine hrs. 500 Machine Productivi ty 83.3 6 Explain meaning? Multi-factor MFP Units Produced Machine Cost Labor Cost Units Produced (Machine hrs.) x (Machine cost/hr.) (Labor hrs.) x (Labor cost/hr.) Multi-factor MFP Units Produced (Machine hrs.) x (Machine cost/hr.) (Labor hrs.) x (Labor cost/hr.) 500 6 x $3 26 x $8 2.21 Measuring Productivity Measure Outputs Inputs Partial Units or dollars Units or dollars Multi-factor Units or dollars Dollars Total Units or dollars Dollars Summary Output in units/Input in hrs. = Output per input hour Output in $/Input in hrs. = X Produced output worth $X per input hr. Output in units/Input in $ = Y Produced Y units per $ spent on input Output in $/Input in $ = Z Produced Z units per $ spent on input Bottleneck Operation Sanding Machine 50 units/hr Polishing Bottleneck operation 30 units /hr Improving Productivity Eliminate bottleneck operations Eliminate non-value added steps Use improved technology Improve quality Less rework More good units produced the first time Productivity should measure number of good units produced the first time