Chapter 2
Operations
Strategy
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Strategy Formulation
1. Define a primary task
2. Assess core
competencies
3. Determine order
winners & order qualifiers
4. Positioning the firm
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Competing on Cost
Eliminate all waste
Invest in
 Updated facilities & equipment
 Streamlining operations
 Training & development
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Competing on Quality
Please the customer
 Understand customer
attitudes toward and
expectations of
quality
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Competing on
Flexibility
Produce wide variety of
products
Introduce new products
Modify existing
products quickly
Respond to customer
needs
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Competing on Speed
Fast moves
Fast adaptations
Tight linkages
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Operations Role in
Corporate Strategy
Provide support for overall
strategy of a firm
Serve as firm’s distinctive
competence
Must be consistent
Must be consistent with overall
strategy
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Operations
Strategy at
Wal-Mart
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Operations
Strategy at
Wal-Mart
Wal-Mart
Mission
Provide value for our customers
Competitive
Priority
Low prices, everyday
Operations
Strategy
Low inventory levels
Short flow times
Operations
Structure
Linked communications
between stores
Fast transportation
system
Enabling Process
and Technologies
EDI/satellites
Cross-docking
Focused
locations
Figure 2.1
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Strategy and the
Internet
 Create a distinctive
business strategy
 Strengthen existing
competitive advantages
 Integrate new and
traditional activities
 Must provide a unique
value to the customer
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Strategic Decisions in
Operations
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Strategic Decisions in
Operations
Products
Services
Capacity
Human
Resources
Facilities
Sourcing
Processes and
Technology
Quality
Operating
Systems
Figure 2.2
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Products & Services
Make-to-order
 Made to customer specifications
after order received
Make-to-stock
 Made in anticipation of demand
Assemble-to-order
 Add options according to
customer specification
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Processes & Technology
 Project
 One-time production of product to
customer order
 Batch production
 Process many jobs at same time in batch
 Mass production
 Produce large volumes of standard
product for mass market
 Continuous production
 Very high volume commodity product
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Product-Process Matrix
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Product-Process Matrix
High
Continuous
Production
Volume
Mass
Production
Batch
Production
Projects
Low
Low
Figure 2.3
Standardization
High
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Service-Process Matrix
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Service-Process Matrix
Low
Labor
Intensity
Service
Factory
Mass
Service
Service
Shop
Professional
Service
High
High
Customization
High
Figure 2.4
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Capacity & Facilities
How much capacity to provide
Size of capacity changes
Handling excess demand
Hiring/firing
workers
Need for new
facilities
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Facilities
Best size for facility?
Large or small facilities
Facility focus
Facility location
Global facility
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Human Resources





Skill levels required
Degree of autonomy
Policies
Profit sharing
Individual or team
work
 Supervision methods
 Levels of
management
 Training
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Quality
 Target level
 Measurement
 Employee involvement
 Training
 Systems needed to ensure quality
 Maintaining quality awareness
 Evaluating quality efforts
 Determining customer perceptions
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Sourcing
Degree of vertical
integration
Supplier selection
Supplier
relationship
Supplier quality
Supplier
cooperation
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Operating Systems
 Execute strategy daily
 Information technology
support
 Effective planning & control
systems
 Alignment of inventory
levels, scheduling
priorities, & reward systems
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Strategic Planning
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Strategic Planning
Mission and
Vision
Voice of the
Business
Marketing
Strategy
Corporate
Strategy
Operations
Strategy
Voice of the
Customer
Financial
Strategy
Figure 2.5
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Policy Deployment
Hoshin planning
Focuses employees on common
goals & priorities
Translates strategy into
measurable objectives
Aligns day-to-day decisions with
strategic plan
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Derivation of an Action Plan
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Derivation of an Action Plan
Reduce production
cycle time by
30%
Reduce queue
time by 50%
Reduce setup
time by 50%
Cut lot sizes in
half
Increase electronic
transactions by 30%
Reduce business
cycle time by 50%
Redesign supplier
quality reporting process
Reduce
purchasing
cycle time by
30%
Set up supplier
education groups
Reduce supplier
base by 50%
What
Who
When
Measure
Resource
Improve
work
flow
Billy
Wray
9-1-03
Average
queue
time per
job
$5,000
...
...
...
...
...
...
...
Figure 2.6
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Balanced Scorecard
 Finance — How should we look to our
shareholders?
 Customer — How should we look to our
customers?
 Processes — At which business
processes must we excel?
 Learning and Growing — How will we
sustain our ability to change and
improve?
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Mobil’s Strategy Map
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Mobil’s Strategy Map
Revenue Growth Strategy
Finances
Customers
Processes
Volume growth
Net margin
Nongasoline products &
services
More premium brands
Delight the customer
Win-win dealer
relations
Clean/safe/fast
Develop business skills
Create new products &
services
Convenience store
Learning and
Growth
Personal growth
Align goals
Build best-in-class
franchise
Teamwork, quality
Functional excellence
Strategic & job skills
Deliver products on
spec, on time
Inventory management
Process improvement
New technology
Figure 2.7
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Issues and Trends
 Global markets,
sourcing,
operations
 Virtual companies
 Greater choice
 Emphasis on
service
 Speed and
flexibility
 Supply chains
 C-commerce
 Technological
advances
 Knowledge
 Environment
and social
responsibilities
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The Changing Corporation
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The Changing Corporation
CHARACTERISTIC
20TH CENTURY
CORPORATION
Organization
Focus
Style
Source of strength
Structure
Resources
Operations
Products
Reach
Financials
Inventories
Strategy
Leadership
Workers
Job expectations
Motivation
Improvements
Quality
The Pyramid
Internal
Structures
Stability
Self-sufficient
Physical assets
Vertical integration
Mass production
Domestic
Quarterly
Months
Top-down
Dogmatic
Employees
Security
To compete
Incremental
Affordable best
21ST CENTURY
CORPORATION
The Web
External
Flexible
Change
Interdependencies
Information
Virtual integration
Mass customization
Global
Real-time
Hours
Bottom-up
Inspirational
Employees, free agents
Personal growth
To build
Revolutionary
No compromise
Table 2.1
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