Business Systems Operations Management

Transcription

1 Business Systems Operations Management Facilitator: Dr. Jonathan Farrell 1 This Evening s s Program The Concept of Strategy Competitive Dimensions of Operations How does Operations Strategy fit with the organisation s Corporate Strategy? Operations Management and Services Service Strategy Case Study Oxygen Business Solutions 2 1

2 y What is Strategic Planning? The allocation of resources to programmed activities calculated to achieve a set of business goals in a dynamic competitive environment. * Source: Daniel H. Gray. Uses and Misuses of Strategic Planning Harvard Business Review.. January - February Why Plan? Would you tell me please, which way I ought to go from here? asked Alice. That depends a good deal on where you want to get to. said the Cat. I don t much care where -, said Alice Then it doesn t matter which way you go. said the Cat. from Alice In Wonderland 4 2

3 The Essentials Of Planning Focus Direction Navigation Resources Continuous Monitoring and Improvement 5 Strategy Planning is Not Difficult... It Can be Broken Down into Quantifiable Steps It Can Be Used At All Levels Within the Organisation The Techniques Can Be Learnt Quickly and Easily It Begins with the Mission Statement 6 3

4 Strategy Plan Formulation Mission A definitive statement which answers: What is our business? What should it be? What will it be? It should have relevance for a 3-5 Year time-frame. Each part of the organisation should have a Mission Statement, concordant with the organisation s overall Mission. 7 Mission Statement We will be the leading provider of selected products in every market we choose to compete 8 4

5 Another Mission Statement The Mission of the US Marine Corps is to: Make America s Marines to win the Nation s battles and create quality citizens. Optimize the Corps operating forces, support and sustainment base, and unique capabilities. Sustain our enduring relationship with the U.S. Navy. Reinforce our strategic partnerships with our sister Services. Contribute to the development of joint, allied, coalition, and interagency capabilities. Capitalize on innovation, experimentation, and technology. * *Marine Corps Strategy 21 November Generic Strategies Overall Cost Leadership Relatively high market share Mature industry Specific advantage e.g. privileged access to raw materials Heavy capital investment requirements Differentiation Design, brand image Customer service Features Dealer network Focus Customer group Product line Geographic market Michael Porter 10 5

6 Operations Strategy Products Services Processes and Technology Capacity Human Resources Quality Facilities Sourcing Operating Systems 11 Operations Strategy It must support and align with the organisation s overall strategic planning There may be conflicts with over functional area planning these can only be resolved at the top (strategic) level Important to understand how an organisation s strategic planning is formulated 12 6

7 How is operations strategy different from operations management? Operations Management Operations Strategy Product/service design Product/service innovation Process design / Layout Technology Process technology strategy Job design Capacity management Planning & Control JIT / MRP Human resource strategy Capacity location, planning and dynamics Organisation and systems development Inventory control Quality control Supply network strategy Performance and improvement strategy 13 Four Stage Model of Operations Hayes and Wheelwright Stage 1 Stage 2 Stage 3 Stage 4 Ops function redefines industry Increasing Contribution of Operations Ops function best in industry Ops function as good as competitors Ops function does just enough Internally Externally Internally Externally neutral neutral supportive supportive 14 7

8 The Stage 1 Organisation Keep the costs down Produce goods / services in a timely, cost-effective manner Receive and deliver the stuff on time so that the (internal and external) customers don t complain Meet daily production / order targets Operations strategy is a millstone 15 The Stage IV Organisation Clear operations strategy Meet (exceed) customer needs Creates positioning relative to competitors Support and enhance business strategy Competitive asset Contribute to and sustain long-term competitive edge 16 8

9 Operations strategy is.. the decisions which shape the long-term capabilities of the company s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources 17 The Strategic Role of the Operations Function The 3 key attributes of operations Implementing Supporting Driving Operations Contribution be Dependable Operationalise strategy explain Practicalities be Appropriate Understand strategy Contribute to decisions be Innovative provide Foundation of strategy Develop long-term Capabilities 18 9

10 Operations Strategy Often the driver of corporate strategy Emergent as opposed to the result of strategy planning From Best Practice to New Practice Operations-based competitive advantage is sustainable: Operations are often invisible, therefore difficult to copy Values, skills, technological capabilities, systems, customer and supplier relationships, org. culture etc Dynamic nature 19 Operations Creating Competitive Advantage 1. Positioning 2. Capabilities - Secure competitive advantage through speed, quality, dependability, flexibility, innovation - Based on customer needs not being met by competitor - Process-based e.g. mass production - Systems-based e.g. activity based costing - Organisation-based e.g. quicker up the learning curve - Combination of pre-existing capabilities 3. Examples: Wal-Mart, Southwest, APM, Crown, Honda, Federal Express, Toyota 20 10

11 Some Dimensions for Developing Operations Strategy Focus Lean Production Time Based Operations Flexibility Mass Customization 21 The Concept of Focus small size high productivity low cost As the number of products / services produced decreases by half, productivity is increased by 30 per cent; costs are decreased by 17 per cent; capacity break even is lowered See: G. Stalk Jr, Time -- The Next Source of Competitive Advantage, Harvard Business Review, vol. 66, no. 4, 1988, pp

12 Operations Focus Advantages 1. Improved flow of materials 2. Reduced production cycle time 3. Increased job specification 4. Clearer cost accounting 5. Better customer focus 23 Operations Focus Disadvantages 1. Reduced economies of scale 2. Cyclical or seasonal products 3. Impact on workforce career path 4. Negative effect on innovation through combination of capabilities 24 12

13 Lean Production 25 A Lean Enterprise Group of synchronised companies, focussed on the value chain Individuals - alternating career paths Functions - schools Companies - focussed, part of value chain Collective Competitive Advantage 26 13

14 Lean Production - Advantages fewer employees lower inventory levels use less space lower capital expenditure develop new products more cheaply and faster have suppliers do more of the new product engineering produce fewer defects 27 Lean Production - disadvantages share with suppliers the profits generated by improvements difficult to gather information from point of sale unable to control supply and distribution channels 28 14

15 Time Based Operations 29 Time Based Operations Faster cycle of production Rapid response to customers Expanding variety Increasing innovation All of these bring the operation closer to the customer, and help reduce the planning loop 30 15

16 Distinguishing Features Length of the production runs -small aiming at one Organisation of the process - by product rather than by process technology Complexity of scheduling - keep simple; aim to schedule on the shop floor 31 Flexibility 32 16

17 Types of Flexibility Mix flexibility - Large number of products produced at any one time New Product flexibility - Rapid introduction of new products Volume flexibility - Ability to vary production with no impact on efficiency and quality Delivery time flexibility 33 Factors Affecting Flexibility Production technology Production management techniques Relationships with subcontractors and suppliers Human resource management Product development processes Accounting and information systems 34 17

18 Flexible Operations Scale related costs 15 to 25 per cent decline with each doubling of volume Variety related costs 20 to 35 per cent increase for each doubling in variety 35 Economies of Scope The traditional company attempts to gain economies of scale from large production volumes. The character of the new operations technologies enables greater product [and service] variety to be produced without cost increases. This is the concept of economies of scope - multiple products and services can be produced in combination at a lower cost than they could if produced separately

19 Mass Customisation 37 Customisation means manufacturing a product or delivering a service in response to a particular customer s needs,, and mass customisation means doing it in a cost-effective way. Source: B. J. Pine ll, D. Peppers and M. Rogers, Do You Want to Keep Your Customers Forever?, Harvard Business Review, vol. 73, no. 2, 1995, pp

20 Just in Time 39 Just In Time Inputs supplied exactly as needed Outputs supplied exactly as needed Advantages: Low inventory High quality Customer satisfaction 40 20

21 How to Develop Operations Strategy 41 Strategic Match Technology Production management Supplier relations Human resource management What the company achieves Levels of: Efficiency Quality Flexibility Fit What the market requires Levels of: Efficiency Quality Flexibility customers competitors Product development regulation Source: F. F. Suarez, M. A. Cusamano and C. H. Fine, An Empirical Study of Flexibility in Manufacturing, Sloan Management Review, vol. 37, no. 1, Fall 1995, pp

22 Place of Fit Operations Strategy has to be developed in relation to Process and Product or Service characteristics 43 Process pattern mixed one or few project Product Mix high volume std products job shop batch flow line flow line flow line flow continuous continuous flow 44 22

23 Process pattern mixed one or few project Product Mix high volume std products job shop batch flow line flow line flow line flow line flow continuous continuous flow Bidding; delivery; product design flexibility Quality (product differentiation); output vol flexibility Management Challenges Price 45 Process pattern mixed line flow line flow continuous one or few project job shop batch flow Bidding; delivery; product design flexibility Product Mix line flow Quality (product differentiation); output vol flexibility line flow Management Challenges high volume std products continuous flow Price Mgmt Challenges Scheduling; materials handling; shifting bottlenecks Employee motivation; balance; maintaining flexibility Capital exp - big chunk capacity; techn change; matls mgt; vertical integ 46 23

24 Process pattern mixed line flow line flow continuous one or few project job shop batch flow Out-of-pocket costs Bidding; delivery; product design flexibility Product Mix line flow Quality (product differentiation); output vol flexibility Opportunity costs line flow Management Challenges high volume std products continuous flow Price Mgmt Challenges Scheduling; materials handling; shifting bottlenecks Employee motivation; balance; maintaining flexibility Capital exp - big chunk capacity; techn change; matls mgt; vertical integ 47 Operations Strategy as a Function of Performance Objectives 1. Cost 2. Quality 3. Speed (both manufacture & delivery) 4. Dependability 5. Flexibility - product -mix - volume 48 24

25 An operation contributes to business strategy by achieving five "Performance Objectives" Doing things RIGHT Doing things FAST Doing things ON TIME CHANGING what you do Doing things CHEAPLY Gives Gives Gives Gives Gives a QUALITY advantage a SPEED advantage a DEPENDABILITY advantage a FLEXIBILITY advantage a COST advantage 49 Operations Strategies for Competing On Quality Get close to the customer Total Quality Management Statistical Process Control Organisation focus 50 25

26 Operations Strategies for Competing On Speed Fast development of new offerings Fast delivery ex stock Tight linkages between operation and its suppliers and customers Facilities location 51 Operations Strategies for Competing On Dependability Externally Keep to published hours of operation Availability of parking for customers where necessary Keep to appointment times for services Reliable distribution channels on-time delivery Internally reliable delivery of product / service from one workstation to the next 52 26

27 Operations Strategies for Competing On Flexibility Produce a wide variety of products Introduce new products quickly Quick change tooling Modular production Lean Operations 53 Types of Flexibility Mix flexibility - Large number of products produced at any one time New Product flexibility - Rapid introduction of new products Volume flexibility - Ability to vary production with no impact on efficiency and quality Delivery time flexibility 54 27

28 Operations Strategies for Competing On Cost Eliminate all waste JIT to minimise inventories Line operations High investment Focus Organisation focus 55 Operations strategy decision areas and their impact New product/service development Vertical integration strategy Facilities strategy Technology strategy Workforce and organisation strategy Capacity adjustment strategy Supplier development strategy Inventory strategy Planning and control systems Improvement process strategy Failure prevention and recovery Q S D F C 56 28

29 Operations Strategy in a Services Environment Four factors to consider: Target Market(s) Service Concepts Operating Strategy Service Delivery System 57 Service Strategy Target Market Segments What are common characteristics of important market segments? What dimensions can be used to segment the market - demographic, psychographic? How important are the various segments? What needs does each have? How well are these needs being served, in what manner, by whom? 58 29

30 Service Strategy Service Concepts What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed? 59 Service Strategy Operating Strategy What are important elements of the strategy: operations, financing, marketing, organisation, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers? 60 30

31 Service Strategy Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors? 61 The Strategic Service Concept System elements Structural Delivery system Facility design Location Capacity planning Managerial Service encounter Quality Managing capacity and demand Information Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management: Operations, Strategy and Information Technology, 3rd ed., McGraw Hill, New York, 2001, p. 84,

32 System Elements - structural Delivery system front & back office, automation, customer participation Facility design size, aesthetics, layout Location demographics, single or multiple sites, competition, site characteristics Capacity planning managing queues, number of servers, accommodating average or peak demand 63 System Elements - managerial Service encounter service culture, motivation, selection & training, employee entitlement Quality measurement, monitoring, methods, expectations & perceptions, service guarantee Managing capacity & demand strategies for altering demand & controlling supply, queue management Information competitive resource, data collection 64 32

33 Case Study Oxygen Business Solutions 65 Oxygen Business Solutions Some Interesting Discussion Points Cost Focus versus Customer Focus Service Level Agreements Providing Customer Oriented Services Defining Services The Cost of Services Service Delivery the Reliance on Resources 66 33

34 Where is Oxygen Business Solutions Now? Services: Specialist Business Consulting Applications Support Services (particularly SAP) Implementation Services 150 staff in Sydney, Melbourne, Brisbane, Canberra, Auckland & Wellington, 70+ Clients in addition to CHH Acquired by UXC Limited in February 2006 Revenue: $30 million in FY2006 (est.) For more information: