Operations Strategy

By
Prof. S P Sarmah
 Development of Corporate strategy

• The first step in developing a corporate strategy is to

determine the objective of the company.
• Typical corporate objectives are
▪ Growth
▪ Survival
▪ Profit
▪ Return on Investment etc.

➢ The marketing strategy represents the plans of the

market in which the company will compete and the
type of products that will be sold in those market.
 Contd.
• Marketing strategy are such as
▪ Product market and segments
▪ Range
▪ Mix
▪ Volume
▪ Standardization versus customization
▪ Level of innovation
▪ Leader versus follower alternatives
 Operations (Manufacturing) Strategy

• Operations strategy is the process of making

appropriate decisions in the operations
function on the basis of inputs from the
corporate strategy
• Translating corporate strategy to operations
strategy boils down to making appropriate
choices with respect to product portfolio,
processes, technology, capacity and supply
chain
 Need for operations strategy
• Competitive dynamics and expectations of
customers change with time
• Due to the changes in the market place,
competitive priorities for an organization is
likely to change
– While it was customary for people to book for
passenger cars and wait for few months to get
delivery of the car, to day a car manufacturer can
not afford to make a customer wait for that long
time.
 Contd.
• Need a mechanism to systematically
respond to these changes in the most
effective way.
• Need to tune their operations to match with
the competitive priorities
 Strategy formulation process
• Step1: Understand the competitive market
dynamics
• Step2: Identify order qualifying and order
winning criteria
• Step3: Identify strategic options for
sustaining competitive advantages
• Step4: Device the overall corporate strategy
• Step5: Arrive at the operations strategy
 Order qualifier and Order winners

• Order qualifying attributes are the set of

attributes that customers expect in the
product or service they consider for buying
• Order winning attributes have the potential
to sufficiently motivate the customers to
buy the product or service.
– What constitute order winning and order
qualifying might change from time to time
Linking manufacturing strategy with order
winning criteria

• Order winning attributes include efficient

consumer response, speed, variety and
convenience etc.
• Once the order winning criteria are known,
manufacturing can develop strategy that will be
successful
▪ The first step is the process choice
determination
▪ The second step is the choice in
infrastructure
Operational excellence: Performance
measures
• It provides critical linkage between order winning
and order qualifying attribute and choices made in
operations
• Performance measure helps organization to
evaluate how well the operations system is
responding to the requirement at the market place.
• It serves as a useful purpose in comparing
performances amongst the competitors and for
bench marking
• Measure for operational excellence are say Cost ,
Quality, Delivery and Flexibility
Operations strategy options: Product portfolio

• Product portfolio pertains to decision on

– What product the organization wants to produce
– The number of variation in each product line
– The extent of customization offered to customers
• Product portfolio as a strategic option
- Wide product portfolio: Overall strategic
objective is to provide highly differentiated set of
products and services to the customers
- Narrow product portfolio: Overall strategic
objective is one of cost leadership
Operations strategy option: Process choices
• Mainly three types of flow happen due to
process choices
– Continuous stream lined flow
– Intermittent or batch flow
– Jumbled flow
• Choice of process will be consistent with
product portfolio decision.
- A manufacturer emphasizing on production
volumes, fewer varieties and less cost will
make process choices pertaining to continus
stream lined flow (Hero Honda)
 Operations strategy options: Supply
chain issues
• Two types of supply chain can be configured
– Efficient supply chain: Objective is cost
optimization and better utilization of resources in
employed in supply chain operations. It is
typically used in functional products (m/c tools,
engineered equipments)
– Responsive supply chain: the key objective is to
develop a capability to respond fast to the market
requirement. Typically used in case of innovative
products
 Operations strategy options: Capacity
• Capacity decision influences the cost of
goods and services offered in three ways
– Accrued cost advantage due to economies of
scale
– Ability to spread fixed cost over a large
capacity
– Additional cost advantages in procuring items
for production
Operations strategy options: Technology
choices
• Using new technology options for manufacturing
processes organization can
– React faster to customer need
– Manage a wide portfolio of product offerings
and yet maintain high level of productivity
• Organizations making a strategic choice to operate
in the manufacture of mid volume, mid variety
products could utilize new technology.
 Emerging trend of manufacturing and its
implication

• Trend 1: Globalization of Indian economy

– Cost pressure from overseas players and large
scale dumping of goods from low production
cost country
– Chinese manufacturers are major threat to
Indian manufacturing firms as they have
installed large capacity
– Falling of prices in the white good industry e.g
5 kg washing machine price falls from Rs 8000
in 2003 to s 6000 in 2005
 Emerging trend of manufacturing and its
implication (Contd.)
• Implications due to globalization
– Indian manufacturing firms need to equip
themselves with the required operations
management practices to enlarge the global
trading opportunities
– Operations management practices in the
country should focus on providing other
benefits in addition to narrowing down cost
differentials with China
Emerging trend of manufacturing and its
implication (Contd.)
• Trend 2: Outsourcing a major wave
– Business process outsourcing is an arrangement
by which some of the business processes are
done by a third party on behalf of the
organization
• Implications: Quality consideration must be
checked with stringent norm since entire
operations pertaining to a business process
is outsourced
Emerging trend of manufacturing and its
implication (Contd.)
• Trend 3: Collaborative commerce through
internet
– It has opened up new areas for considerations
in operations management particularly in
procurement and supply management and new
product development.
– Organizations are benefitting from gretaer
efficiency and lower cost
 Summary
• Development of an effective manufacturing strategy
must be done in conjunction with the corporate and
marketing strategy.
• Further, the manufacturing process choice and
infrastructure strength must be considered when
corporate strategy is being developed.
• This will allow the proper use of manufacturing
strategy for a competitive advantage.
• The production planning and control system must be
designed to complement the corporate strategy and
to provide additional competitive advantages.
THANKS