Introduction & Strategy Module

Introduction & Administrative
 www.kellogg.northwestern.edu/course/opns430/emp/vanmieghem/

What is operations
 Process view of Ops

What is a good operation?
 A Strategic Framework for Ops

Aligning strategy and operations:




Focus
Relationship between process choice and strategy
Shouldice Hospital
Wriston Manufacturing
Course: Goals and Overview



Operations as a managerial integration function
Evaluation and Improvement
Course is structured to answer:
1. What is an improvement?
 Strategic role of ops
2.
Where target improvements?
 Identify metrics by linking process flows with financial flows
3.
How improve?
 Improve each metric
© J. A. Van Mieghem
Slide 2
What is Operations?
“The planning and execution of work” (JVM 2008)
“Creation and delivery of products and services to customers” (JVM
2008)
3 Views of Operations
Competencies
Resources
Operations
Strategy
Processes
Max NPV
 Operations strategy is a plan for developing resources and configuring processes
such that the resulting competencies maximize NPV
© J. A. Van Mieghem
Slide 4
A process is a well-structured transformation of inputs into outputs
Inputs
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units/Entities
(customers, data,
material, cash, etc.)
Resources
Labor & Capital
© J. A. Van Mieghem
Slide 5
The three ‘colors’ of operational excellence
“The formal structures,
processes and systems through
which resources are managed
in support of the operating
system”

“The way assets and resources are
configured and optimised to
create value and minimise
losses”
Management
Infrastructure
Operating System
Mindsets,
Capabilities &
Behaviors

Source: John Drew
“The way people think, feel
and conduct themselves in the
workplace, individually and
collectively”
What defines a “good process”?
Delivered value / Supply chain surplus
Delivered value of process =
benefit to process customers – total process cost
Benefit driven by
customer value
Price p
(Cost)
Variety V
(flexibility)
Quality Q:
Time T:
•of product or outcome •Rapid, reliable delivery
•of service
•New product development
A question
 I am looking for a small batch of printed books
 Which location seems better: a printer in the US or in China?
© J. A. Van Mieghem
Slide 8
A question…
Competitive analysis: cost v. quantity
$25
Caxton Printers (Caldwell, Idaho)
$20
BioPrint (Minneapolis, MN)
Imaging Hawaii (Honolulu)
$15
Jostens (Topeka, KS)
Cost/book
AsianPrinting (middleman in L.A., CA)
$10
BookMasters (Grand Rapids, MI)
$5
Aomeiya (Shandong, China)
Lithopak (Shenzhen, China)
$1,000
2,000
3,000
4,000
5,000
Lotsize
© J. A. Van Mieghem
Slide 9
A question…
Competitive analysis: cost v. responsiveness
Responsiveness (weeks)
Caxton Printers (Caldwell, Idaho)
BookMasters
(Grand Rapids)
2
BioPrint (Minneapolis, MN)
Imaging Hawaii (Honolulu + Hong Kong)
3
Jostens (Topeka, KS)
AsianPrinting (middleman in L.A., CA)
BookMasters (Grand Rapids, MI)
Aomeiya
(Shandong)
7
8
Aomeiya (Shandong, China)
Lithopak (Shenzhen, China)
$25
$20
$15
$10
$5
Cost efficiency ($/book)
© J. A. Van Mieghem
Slide 10
What defines a good operation?
A good operation
structures the processes and resources to
align and adapt
the operational competencies
with the needs of the customer(s)
© J. A. Van Mieghem
Slide 11
A Framework for designing an Operations Strategy
and Structure
1.
competitive
strategy


2.
operational
competencies
What is the value proposition to our customers?
Rank (p, T, Q, V)
Given our strategic position, what must operations
do particularly well?


3.
Resources
& Processes
What is our strategic position: how do we compete
& provide value in the market?
Which competencies must ops develop?
Rank (c, T, Q, Flex)
Given needed competencies, how should
operations processes be structured to develop
competencies that support strategy?

Process choice (structure) and management
What defines a good operation?
Achieving alignment at Shouldice Hospital
© J. A. Van Mieghem
Slide 13
Wriston Manufacturing
Handouts to be distributed in class
© J. A. Van Mieghem
Slide 14
Wriston’s HED Division Plant Network
Exhibit 2A
Total Burden Rates
(total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0 Sandusky,
OH
Essex,
Canada
Detroit,
MI
Saginaw,
MI
Lima,
OH
Lebanon,
PA
Tiffin,
OH
Fremont,
OH
Maysville,
KY
Free capacity and Throughput
$200
$150
$100
$50
$0
Sandusky, Essex, Detroit,
OH
Canada MI
© J. A. Van Mieghem
Saginaw, Lima,
MI
OH
Lebanon, Tiffin,
PA
OH
Fremont, Maysville,
OH
KY
Slide 15
The Fundamentals:
Competitive Advantage through Tailored Operations
 Recall the two fundamental strategies:
2.
Doing the same things as rivals but better
Doing different things
Customization
1.
efficient
frontier
A
Cost efficiency
 Focused, tailored operations are more competitive than generics
 What is your plan to get to or push out the frontier?
© J. A. Van Mieghem
Slide 16
The Concept of Operational Focus
World-class
Flexibility
Emergency Room
(responsiveness)
One general
hospital
efficient frontier =
current state of
best practice
World-class
specialty non-emergency
Shouldice Hospital
Cost efficiency

A focused process attempts to deliver one specific and narrow customer value
proposition (i.e., its priority ranking is clear and constant for all patients)
–
It is optimized to deliver the needed competencies for one narrow patient segment
– Focus does not imply standardization: ER is focused on providing timeliness and
flexibility to patient needing emergency care
© J. A. Van Mieghem
Slide 17
Summary: Introduction & Strategy Module

Operations is the process of bringing goods and services to customers
 Process view = viewing an organization as a transformation of inputs into outputs through a
network of activities and buffers, utilizing resources, IT and mgt

A good operation maximizes value or supply chain surplus
 A strategic framework for operations for increasing the value of operations by aligning the
competencies of the operations structure (resources & processes) with corporate strategy

Aligning strategy and operations can be achieved through:
 Focus
 Process choice

Cases:
 Shouldice Hospital
 Wriston Manufacturing