Operations Strategy
There’s nothing here to take by storm; to strategy we
must conform.
Johann Wolfgang von Goethe (Faust,1808)
Competitive Strategy
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Principle 1 (Value Maximization) The goal of strategy
is to maximize the long run NPV of the organization.
Competitive strategy (Business Unit Strategy).
Relates a company to its environment. Strengths and
weakness of the company (the system) to be related
to opportunities and threatens in the environment
Chooses an attractive competitive position  by
offering a high customer value proposition.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
2
Competitive Strategy: Environmental Scanning
(Opportunities and Threats)
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Competitor activities
Complementor activities
Changes in consumer needs and preferences
Technological changes
Economic trends (GNP, unemployment, inflation,
interests, taxes, tariffs)
Legal, political, and environmental issues
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
3
Competitive Strategy: Competing Edges of the
System (Strengths and Weaknesses)
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Human Resources (cheap labor, skilled labor, etc.)
Technology, Facilities, and Equipment
Financial Resources
Customers
Product and Services
Suppliers (low material cost, reliable suppliers)
Management Practices (low overhead)
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
4
Customer Value Proposition
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Customer Value Proposition: a set of benefits that the firm
offers to customers.
Customers purchase based on the value they derive from
the product/service. This value is the greatest amount a
customer is willing to pay (the reservation price).
If this value > price, the customer enjoys positive net
value (consumer surplus). Customers will buy the
service/product that offers highest consumer surplus.
Zara's main business is the design, manufacture,
distribution and retailing of clothing. Differentiates itself
from rivals  timely fashion for the masses. The customer
value proposition  timely yet limited variety at modest
cost and quality.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
5
Financial, Marketing, and Operations Strategy
To execute its competitive strategy, an organization
further defines a
 Financial strategy: Source of financial resources and
use of funds (how invested).
 Marketing and sales strategy: how the market will be
segmented and how the product will be positioned
and promoted
 Operations strategy: Enabling the execution of the
competitive strategy- how to best deliver the CVP.
What Resources, what Processes, and what
Competencies.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
6
Mercedes-Benz
In 1993, Mercedes-Benz decided to build the first factory
outside Germany, in Tuscaloosa, AL to produce the M-class
(to cut tariff by 25%).
A Consolidation Center opened near the plant to manage the
parts/subassemblies from 65 suppliers.
A distribution network to transport the vehicles to 135 countries.
The firs car was sold in 97. Demand quickly surpassed all
forecasts and the capacity of 65,000.
The initial $300 million plant was expanded in 98-99 to 80,000
at a cost of $80 million; still insufficient. In 1999-2002, the
M-class was also produced by contract developer in Austria.
To produce R-class too in AL, a $600M expansion in 2004
doubled the factory size; 4000 workers, 160K vehicles per
year.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
7
Operations Strategy: Resource View
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Organization is a bundle of real recourses.
Real Resources
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Tangible real resources: human resources (people) and
capital resources (property, plant and equipment).
Intangible resources: relationships with suppliers or
customers, reputation and brands, technology and know
how.
To pay for the real resources, sell pieces of paper;
financial resources; securities.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
8
Mercedes' Bundle Of Real Assets
Mercedes' bundle of real assets includes real estate in
Alabama encompassing a plant with a variety of
production and support equipment, such as presses,
welding machines, and information systems. Staffed by
2000 employees. Its intangible assets include the
supply base relationships, the process and product
technologies, its knowledge of the local economic, legal,
and social environment, its connections with logistics
and transportation providers, ...
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
9
Operations Strategy: Resource View
1. How many resources should we invest in? The capacity,
in aggregate and per main resource type. MB, the
aggregate annual capacity was 65000 at 1993.
2. When should we increase or reduce resources? The
availability of capacity and the timing of capacity
adjustments. MB, 85000 in 99, 160000 in 2004.
3. What kinds of resources are best? HR or CR? To what
extent can a capital resource operate unsupervised? i.e.,
the level trade-off between capital and human. What
degree of flexibility is required? from single-task
(specialized) to multi-task (flexible)? How the 160K
capacity split into M and R-classes? Are the assets
specialized to produce one or flexible to produce both?
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
10
Operations Strategy: Resource View
4. Where should the plants be located and what is their
roles in the supply chain? How should the M-class plant
location be chosen and what responsibilities should it
have. Location decisions are part of network strategy
which also includes topology (FedEx: hub-and-spoke,
Car companies: tiered or tree) and configuration (
transportation modes). Also whether processes should
be standardized or localized; e.g., should Tuscaloosa
processes be similar to the German processes?
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
11
Operations Strategy: Process View
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The process view  how resources perform activities and add
value. A process is a network of activities with precedences.
By starting with inputs (customer demands) and ending with
outputs (served customer demands), the process view is
compatible with a customer-centric view of the world.
From this customer-centric view, value stream mapping
defines value from the perspective of the customer: a valueadded activity is an activity that benefits the customer.
The process view: a horizontal view of the organization that
cuts through functional silos ( finance, accounting,
production, marketing sales, etc). Inter-functional
relationships as well as the interfaces with external customers
and suppliers.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
12
Operations Strategy: Process View
1. Strategic sourcing decisions: make or outsourcing
decisions, supply network (how many suppliers and
how to manage them), vertical integration (how far
up and downstream?).
2. Which technologies ? Four types of technology:
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Coordination and IT: Centralized or distributed planning,
control? In planning phase  coordinate financial, sales,
marketing, and operations forecasts. In the execution
phase  making events happen at the right times.
Communication technology (e.g., Internet, RF) and
planning systems (e.g., ERP).
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
13
Operations Strategy: Process View
2. Technology
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Product technology: Is the product designed in modules
or as an integral system? Does the design take into
account manufacturability, testability, or reusability?
Process technology: The transformation process and
methods. The layout of the process in terms of the
physical arrangement and flow pattern of the unit loads,
i.e., job shop or flow shop.
Transportation technology: material handling in the
plant and transportation network throughout the supply
chain. Also includes how insurance policies are moved
between the different processing steps.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
14
Facility Layout : Job Shop
Output
Product 1
Input
Product 2
Operations Strategy: 1- Introduction
A
C
Ardavan Asef-Vaziri
B
D
Sep-09
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Job Shop
Functional layout: similar resources in the same
department. Ex. all press machines are located in
stamping department. Ex. Bakeries, law firms,
emergency rooms, repair shops.
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low volume, high variety customized products
flexible resources
skilled human resources
jumbled work flows
high material handling
large volume of inventories
long flow time
highly structured information system
high cost per unit of product but low investment
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
16
Facility Layout : Flow Shop
Product 1
A D B
Input
Product 2
Output
C B A
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
17
Flow Shop
Product layout or line layout: Resources are arranged
according to the sequence of the operations. Usually
requires duplication ( and investment) of a resource
pool; dedication of resources.
Discrete flow shop: assembly line
Continuous flow shop: beverage, chemical plant,
process plant.
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high standardization, high speed
low material handling
short flow time
low unit-processing costs
high investment cost; needs mass production.
special purpose equipment, and low skilled labor prevent
flexibility
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
18
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
Most processes fall somewhere on the continuum between
Job Shop and Flow Shop
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
19
Operations Strategy: Process View
3. How do we match demand to available supply? The
demand management includes demand planning and
forecasting as well as tactical capacity allocation and
order management; airlines, hotels, and car rental.
4. How and when do we improve and innovate in
products and processes? R&D, continuous
improvement, and learning throughout the
organization.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
20
The Competency View of Operations
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Values are a third factor that affect what an operation
(or an organization) can and cannot do.
Values are the standards by which employees set
priorities at every level. Some priorities are
programmed into a process but many are not. Ex.
whether an order or customer is attractive, whether
a suggestion to improve a product or process is
attractive, whether an investment is worth making.
As organizations become more complex, consistent
values are powerful mechanisms for employees to
make independent but consistent decisions.
Values constitute the organization’s culture
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
21
The Competency View of Operations
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The competency view characterizes the abilities of the
organization's resources, processes, and values.
Competencies determine the set of outputs that the
operation will be particularly good at providing.
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A premier management consulting company is good at
providing high quality customized advice.
An efficient operation such as McDonald's is good at
delivering inexpensive food quickly, but from a standard
and limited menu with a well-defined quality level.
Zara is good at quickly delivering a large selection of
new designs at a reasonable cost.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
22
Operations Strategy: Competency View
1. Cost, including input costs and resource costs. Is important in
low margin markets.
2. Response or lead time. The time needed to transform inputs into
outputs? Responsiveness is important due to changes in
customer preferences and technologies.
3. Quality. Quality refers to the degree of excellence of the process,
product, or service. It has design-related dimensions such as
performance and features, as well as process-related dimensions
such as durability and reliability. Is a key differentiator in luxury
and high precision businesses.
4. Flexibility, to change inputs, activities, volumes, or outputs.
Similar to quality, flexibility has several dimensions such as
scope flexibility (the selection or range of products and services
offered, including the level of customization), volume flexibility,
and robustness.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
23
The Competency View of Operations
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Foundations of competencies change over time; they
start in resources, gradually migrate to processes,
and eventually reside in values.
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Most of what gets done in start-up companies is attributable
to inputs and resources. Losing a person can be detrimental.
As activities become more recurrent, processes are defined.
As it becomes clear which business needs should be given
highest priority, values emerge.
With hundreds of new recruits and departures per
year, top management consulting companies remain
successful because their processes and values are so
strong that project staffing changes have little impact.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
24
A Framework For Operations Strategy
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Operations strategy could emerge from a giant
optimization model identifying the resources,
processes, and competencies to maximize NPV. Not
possible.
Principle 2 (Alignment) Operations strategy is a plan
for developing resources and configuring processes
such that the resulting competencies to align with
competitive strategy –customer value proposition - to
maximize NPV
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
25
A Framework for Operations Strategy
Max NPV
Competitive
Strategy
Competencies
Resources
Operations Strategy
Processes
(Asset Portfolio)
(Activity Network)
Sizing
Timing
Type
Location
How much
capacity to
invest in?
When increase
or reduce
resources?
What kinds of
resources are
best?
Where should
resources be
located?
Operations Strategy: 1- Introduction
Supply
Technology
Demand
Innovation
When outsource Coordination,
How match
How and when
& how manage product, process
demand to
to improve and
suppliers?
transportation available supply
innovate?
Ardavan Asef-Vaziri
Sep-09
26
A Framework For Operations Strategy
1. Organization  Customer value proposition for each
market segment?
2. Operations  Prioritize competencies for each market
segment?
3. Which resources and processes best provide that
competency prioritization? For each targeted
customer segment, how the asset portfolio (sizing,
timing, type, and location) and the activity network
(supply, technology, demand, and innovation
management) are configured?
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
27
Market Driven, Technology Driven Strategies
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This "top-down and outside-in" ensures that
operations reflect the intended market position.
Market driven strategy creates a customer-driven
organization.
In “a bottom-up and inside-out”, the building blocks
of strategy are not products and markets, but
processes and resources. The value proposition
offered to customers seeds in the operational
capabilities. The technology driven strategy creates a
resource-driven organization.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
28
Market Driven, Technology Driven Strategies
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Organizations must maintain alignment by adopting
both perspectives. In order to satisfy a new customer
need, the firm may need to build new competencies,
processes, and resources. Those operational
capabilities may later be used to invent new products
and services that may create new markets.
Honda's abilities and knowledge in high-performance
engine technology has been the driving force in
deciding which markets to enter and which products
to offer.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
29
Zara: Resource View
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High vertical integration  ownership allows tight
coordination. A design center, some manufacturing
facilities (also outsources locally), two major DCs, and
90% of 724 retail stores.
The design capacity of 11K new styles/yr by over 200
professionals is in line with the timely fashion (design
to rack of 3 weeks).
Owns two central warehouses in Spain. The recent
123,000 m2 DC has a capacity of 80K garments/hr.
Direct access to highway and RR and proximity to
airport favors fast handling of international cargo.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
30
Zara: Resource View
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Vertical integration  high ratio of tangible fixed
assets to sales of 34%. The average capacity
utilization is 50%, many facilities are single shift.
The supply network centered in Spain (25% from the
rest of Europe and 25% from the rest of the world).
The proximity of suppliers  inputs are received
quickly  fast speed-to-market. Local facilities are
used to produce the products with most demand
uncertainty and time-sensitivity, off-shoring for basic
products with more predictable demands. Industries
exercising (fast response times + high demand
volatility) experience low capacity utilization
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
31
Zara: Process View; Technology
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Postpone the dyeing of fabric: almost half the raw
materials are purchased undyed.
Short lead time for product with high variability in
their demand. Local manufacturing processes have
short setup times and run in small batches, while offshore manufacturing of more predictable demand can
have longer lead times.
Distribution is highly centralized to reduce the
number of stocking points and the associated
handling time and so that one store's upside demand
fluctuations can offset another's downside.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
32
Zara: Process view; Technology
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The hub and spoke system uses the appropriate
transportation mode (truck, RR, or air) depending on
the store location and the time-sensitivity. Frequent
deliveries with short lead times. It maximizes the
flexibility of inputs and increases responsiveness
while controlling working capital (inventory).
IT enables the daily information flow between store
managers (requesting products and providing
customer feedback) and design and production
(sharing information on upcoming products).
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
33
Zara: Process View; Demand
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Intentionally short style campaigns that are likely to
run out of stock create a scarcity image. Customers
visit stores frequently and are likely to buy what is
available at that moment because that particular
product may no longer be available next time. The
combination of short campaigns and limited inventory
reduces markdowns and leftovers.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
34
Zara: Process View; Innovation
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Fast new product design is a key enabler of Zara's
strategy. Ideas inspired by urban hot spots, fashion
shows, and store customers are transmitted to the
creative teams. Design style platforms are created
ahead of the season and are modified just before
production based on feedback from retailers regarding
the most recent fashion. This postponement of design
styling requires fast and efficient information transfer.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
35
Zara: Process View; Innovation
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A firm believer that people, cultures and generations
share a special sensitivity for fashion. Standardizes a
majority of its designs but allows some adjustments
to local taste. Zara originally insisted on a standard
set of sizes for all countries but had to add smaller
sizes for Japan and larger ones for the U.K. and Ger.
Has tailored the 8 drivers of its operations strategy to
its fast-fashion, cheap-chic value proposition.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
36
Should Every Retailer Adopt the Zara Model?
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Zara's operational system is not a panacea. Sweden's
Hennes & Mauritz AB competes with Zara. It produces
much fewer new styles per year with a much slower
design-to-rack time of 16 weeks.
Without the stringent speed requirement, H&M has
more leeway in configuring its operations; more
outsourcing and higher capacity utilizations resulting
in much lower fixed capital. The lower safety capacity
and responsiveness is replaced by higher safety stock
to buffer demand uncertainty.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
37
Should every retailer adopt the Zara model?
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The Zara model is not used in other industries such as
toy, cell phone, or auto manufacturing. Zara model
requires:
1. High customer willingness to pay for speed-to-market.
2. Short product life cycles with high demand uncertainty.
3. Low cost of excess capacity with low importance of scale
economies.
4. Low cost of stockouts and distribution relative to inventory
holding.
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Great operations strategies are tailored to each
company's competitive strategy. While companies
may share some elements, a complete tailored
operations system is unique
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
38
Competitive Product Space
Competitive Product Space: A representation of the
firm’s product portfolio in the four dimensional space:
Q, C, Var., Res.
Variety
Another firm: expensive and
customized products.
B
One firm: low cost and
standardized products
A
Cost Efficiency (1/cost)
Responsiveness
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
39
Strategic Positioning
Defines those positions that the firm wants to occupy in
its competitive product space. The current position,
direction, and goal position.
Responsiveness
B
A
High
Low
Price
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
40
Operational Effectiveness
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What distinguishes an effective business process?
Operational effectiveness: developing operations
strategy (resources, processes, values, competencies)
that support the strategic positioning (customer value
proposition) better than the competitors.
How does effective differ from efficient?
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Cost Efficiency: achieving an output with minimal level
of input and resources
Effective Process: supports execution of company’s
strategy
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
41
Focused Strategy, Focused Operations
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Focused Strategy: Committing to a limited,
congruent set of objectives in terms of demand
(product, market) and supply (input, technologies,
and volumes).
Aravind Eye Hospital, 100 cataract surgeries a day,
operational excellence, 40% gross margin, 70% of
patients pay almost nothing, and the hospital does
not depend on donations.
A focus process is not limited to a few products.
Focused process: one whose products all fall within
a small region of the 4 dimensional product space.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
42
Plant Within Plants (PWP)
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PWP: The business strategy is diverse. But the
entire business is divided into several mini-plants
each with focused processes. One PWP may focus on
low cost, the other on quick response.
To sustain competitive advantage, a firm must
ensure that its competitors are not able to imitate
its chosen position. An sculpture not a block.
Supporting the strategic position with multiple
mutually reinforcing activities creates a sustainable
competitive advantage. It is harder for competitors
to imitate an array of interlocked activities.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
43
Shouldice Hospital, Corolla, Ferrari
Corolla: flow shop, decentralized assembly plants
close to market, short flow time, low cost
Ferrari: job shop, only a single plant in Italy, longer
flow time, high cost
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
44
Focus and the Efficient Frontier in Health-care
sector
Responsiveness
World-class
Emergency Room
One general
Efficient operations
frontier
facility
World-class
(non-emergency)
Hospital
Cost efficiency
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
45
Strategic Positioning and Operational
Effectiveness
Firms located on the same ray share
strategic priorities.
World class firms are on the efficient
frontier.
Responsiveness
A
B
efficient
frontier
the minimal curve
containing all current
positions in an industry
C
High
Low
Price
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
46
Efficient Frontier
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Firms not on the EF, are not on strict trade-off, they
can make simultaneous improvement on more than
one dimension.
Firms on EF need to trade-off
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Trade-off: decreasing on one dimension to increase on
the other dimension.
World class firms also try to push the EF outward.
As technology and management practices advances, the
EF moves upward. But the impact is not the same in all
industries. Internet impact
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In book industry pushes EF along both the dimensions of
cost and variety
In grocery increases the quality of service to customers,
but increases the cost and reduces the responsiveness and
variety
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
47
Strategic Positioning and Operational
Effectiveness
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Strategic positioning defines the direction of the
improvement from current position, and thus the
position on the EF the company wants to occupy.
Operational effectiveness measures the distance of
the current position to the operations frontier along
the direction of improvement. To bring a company
closer to a frontier or to push the frontier. (direction
is not horizontal)
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
48
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
Operations Strategy: 1- Introduction
– Cross docking
– EDI
– Fast transportation
system
– Focused locations
– Communication between
retail stores
Ardavan Asef-Vaziri
Sep-09
49
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 (Industry average increased from
$102 to $110)
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
50
Tailor Operations; Strategic Fit
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Tailoring  fitting the operational system to
competitive strategy.
Frederick Winslow Taylor (the father of scientific
management); there is a "one best way" to configure
any operation.
No, the best operations configuration depends on the
Strategy + Market.
Strategic Operational Audit Does operations
competencies fit with competitive strategy? Where
can improvements be made?
Top-down and bottom-up perspectives simultaneously
and can be performed in three steps.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
51
The Strategic Operational Audit
1.
2.
3.
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Understand your customer & your competitive
strategy  CVP the current operational system;
resources, processes, and competencies.
Apply the resource & process views (bottom-up) 
the value propositions the current competencies can
support. Apply the market (top-down) to specify the
competencies, the best-aligned processes and
resources, needed to execute the current strategy.
The gaps between the current state and where we
should be to ensure strategic alignment. Gap
reducing actions to improve strategic alignment.
These actions involve changing the competitive
strategy and/ or changing the operations strategy.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
52
Strategic Operational Audit
Deliverable
Value
Propositions
Strategy Gap?
Value
Proposition
Market
view
Resource
view
Competency Gap?
Competencies
Resources
&
Processes
Resource & Process Gap?
Operations Strategy: 1- Introduction
Needed
Competencies
Needed
Resources &
Processes
Ardavan Asef-Vaziri
Sep-09
53
The Product-Process Matrix


Whereas the strategic operational audit is a highlevel
tool for improving fit, the product-process matrix
focuses on the match between process technology
and delivered product attributes.
The product-process matrix starts by evaluating the
promised value proposition and the process used to
deliver value. It verifies alignment along one
dimension, often by comparing the degree of variety
in the value proposition with the degree of process
flexibility. This combination is then represented by a
covered area in the matrix where the distance to the
diagonal represents the degree of misalignment.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
54
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 Repair)
FLOW SHOP
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
High
Low
High Standardization
Commodity Products
High volume
Few Major Products
Operations Strategy: 1- Introduction
Many Products
Low Standardization
One of a kind
Low Volume
Ardavan Asef-Vaziri
Sep-09
Product
Variety
55
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 Repair)
FLOW SHOP
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
A similar graph can
be prepared to
show the
relationship
between process
flexibility and cost,
or process
flexibility and
response time, but
not for quality.
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
High
Low
High Standardization
Commodity Products
High volume
Few Major Products
Operations Strategy: 1- Introduction
Many Products
Low Standardization
One of a kind
Low Volume
Ardavan Asef-Vaziri
Sep-09
Product
Variety
56
The Product-Process Matrix


Positions outside the diagonal signal misalignment.
Threestar chefs who serve simple meals (burritos and
tacos) with their highly flexible job shop process incur
high opportunity costs. Substantial savings would
result from changing resources (including chefs) and
streamlining the process into a flow shop.
Asking Chipotle's to change its menu daily would
require high changeover costs. Asking it to deliver a
three-star dining experience is virtually impossible.
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
57
Historical Development of OM
1765: Factory System (Adam Smith, James Watt)
1810: American System of Mfg (Whitney’s interchangeable
parts)
1890s: Bicycle boom (sheet metal stamping, electrical
resistance welding). Scientific Management  Time &
motion studies (Frederick Taylor 1900s)
1913: Mass Production (Henry Ford’s Moving Assembly Line)
1927: Flexible Mass Production (Alfred Sloan & GM). Statistical
Quality Control (Walter Shewhart at Bell Labs, 1930s)
Hawthorn Studies (Elton Mayo at Western Electric, 1930s)
1970: Toyota Production System (Taiichi Ohno)
1980s-now: Ops in the spotlight. Manufacturing Strategy
Paradigm (HBS). Lean Ops: JIT, CAD/CAM, CIM, FMS, TQM,
business reengineering
Operations Strategy: 1- Introduction
Ardavan Asef-Vaziri
Sep-09
58