Operations Management:
Introduction & Strategy Module


Introduction & Administrative
Key Principles of Course
» Strategic role of Ops
» Process view of Ops

Strategies, Competencies and Operations
» Product attributes and the Competitive Product Space
» Strategic Operational Audit
» Wal-Mart

Aligning strategy and operations:
»
»
»
»
S. Chopra/Operations/Strategy
Focus
Relationship between process choice and strategy
Shouldice Hospital
Wriston Manufacturing
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The Changing Environment
Product
Change
Mass
Customization
Invention
Mass
Production
Continuous
Improvement
Process Change
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Key Principle of course:
1. The Strategic Role of Ops
“A company’s operations function is
either a competitive weapon
or
a corporate millstone.
It is seldom neutral.” [Skinner ‘69]
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Key Principle of Course:
2. The Process View of Ops
 By
rethinking the IBM Austin assembly plant and
introducing cells,
– distance traveled by a card was cut from 1.5 miles to 200
yards
– floor space was reduced to half
– production tripled with about the same number of workers.
[Chicago Tribune, July 1992]
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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
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What defines a “good process”?
Performance: Financial Measures
 Absolute
measures:
– revenues, costs, operating income,
net income
T
Ct
– Net Present Value (NPV) = 
t

Relative measures:
t 0
1  r 
– ROI, ROE
EBIT  Tax
– ROA = Average Total Assets

Survival measure:
– cash flow
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Firms compete on product attributes.
This requires process competencies.
Product Attribute (External)
Process Competency (Internal)
Cost
Cost
Response time
Flow time
Variety
Flexibility
Quality
Quality
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Process Competencies are affected by
Process Structure and Management
 Process
structure or architecture:
– (1) inputs and outputs
– (2) flow unit (“jobs”)
– (3) network of activities & buffers
» quantity & location
» precedence relationships
– (4) resource allocation
» capacity & throughput
Operations Planning & Control
 Organization

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A Strategic Framework for Operations
Business
Strategy
Desired
Capabilities
Processes
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Operations
Structure
Resources
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A Strategic Framework for Operations
 Corporate
Strategy
 Business Unit Strategy
– Sales pitch used by sales (target segments).

Operations Strategy
– What must Operations do particularly well? What
capabilities must Operations develop?

Operations Structure
– How should Operations processes and resources be
structured to develop capabilities and support strategy?
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Wal-Mart
Corporate Strategy
(Gain competitive advantage by) providing customers access to quality
goods, when and where needed, at competitive prices
Operations Structure
Operations Strategy
– Short flow times
– Low inventory levels
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–
–
–
–
–
Cross docking
EDI
Fast transportation system
Focused locations
Communication between
retail stores
11
Wal-Mart (Resulting Benefits)
 Inventory
at retail stores turned over twice a week
(Industry averages once every two weeks)
 Improved targeting of products to markets
 Sales per square foot increased from $102 in 1985 to
$140 in 1991 to $455 in 2002 (Industry average
increased from $102 to $110 to $224)
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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
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Shouldice Hospital
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Wriston Manufacturing
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Focus and the Frontier
In the health-care sector
Responsiveness
World-class
Emergency Room
One general
facility
operations
frontier
World-class
(non-emergency)
Hospital
Cost efficiency
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Classification of Processes
by process architecture
 Project

Job Shop
Job Shop
 Batch

Line Flow

Continuous Flow
S. Chopra/Operations/Strategy
Flow Shop
17
Characteristics of Processes:
Job Shop vs. Batch vs. Flow Shop
Type of
Process
Product
Volume
Specialized
Equipment
Product
Variety
Machine
Setup
Frequency
Labor
Skills
Variable
Cost
Job Shop
Batch
Flow Shop
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Matching Process Choice with Strategy:
Product-Process Matrix
Process
Flexibility
High
JOB SHOP
Jumbled Flow.
Process segments
loosely linked.
(Commercial Printer,
Architecture firm)
BATCH
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
(Heavy Equipment,
Auto Repari)
LINE FLOWS
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
Low
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High Standardization
Commodity Products
High volume
High
Few Major Products
Many Products
Low Standardization
One of a kind
Low Volume
Product
Variety
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Learning Objectives
Operations & Strategy

An operation as a transformation process

Product Attributes / Process Competencies / Operations
structure

Link between business strategy, operations strategy, and
operations structure
– Strategy vs. Operational Effectiveness
– Operational Focus
– Process Classification and Relationship with strategy
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