Chapter I

Chapter 1.
Strategy and
Competition
Strategy
1. Enterprise Strategy - Vision
– Mission statement
– Goals
1. Corporate Strategy
– Businesses
– Market
1. Business Strategy
– Competitive Dimensions
1. Functional Area Strategy

– Marketing
– Finance
– Operations
28.08.2006 M I-2
Functional Areas of the
Firm
Operations Marketing
Finance
Operations Strategy
“… is about getting the work done
quickly efficiently, without error, and
at low cost.”
Operations and Supply Management – The Core, Jacobs & Chase
28.08.2006 M I-4
Operations Strategy
Strategy Exampl
Process e
Customer More
Needs Product
Corporate Increase Org.

Strategy Size
Operations Increase Production

Strategy Capacity
Decisions on Processes
and Infrastructure Build New
Factory
28.08.2006 M I-5
A Framework for
Operations Strategy
Mission STRATEGIC LEVEL
Cost TACTICAL LEVEL
Objectives
Quality
Delivery Speed
Reliability
Flexibility Volume
New Product
Customization
Management Levers OPERATIONAL LEVEL
Facilities New products
Capacity Process Technology
Vertical Integration Human resources
Quality Management Inventory Management
Supply Chain relationships Production Planning and Scheduling
The Elements of Production
and Operations Strategy
Operations Analysis
…The tools for achieving the targets
set by operations strategy
28.08.2006 M I-8
Topic Areas in Operations
Analysis
 Forecasting
 Aggregate Planning
 Inventory Control: Deterministic Environments
 Inventory Control: Stochastic Environments
 Supply Chain Management
 Production Control Systems: MRP and JIT
 Operations Scheduling
 Project Scheduling
 Facilities Planning
 Quality and Assurance
 Maintenance and Reliability
Relevance to Production
Product (urun)… an item that satisfies
the market’s/costumer’s need
Production (uretim)… the act of

making products
– Manufacturing (imalat)
– Service (hizmet)
28.08.2006 M I-10
Importance of Production
Planning
 Manufacturing in the developed countries
has declined, but it is still crucial
– Certain industries relate to national security
– Employment opportunity
– Manufacturing firms are lifeblood for financial service
and consulting companies
– Harbor for Innovation
A Crucial Component of
Production: Inventory
Transformation
Inputs Process Outputs
(raw material, goods,
customers) services
Resources:
labor & capital
A transformation process is defined as a

use of resources to transform inputs into
some desired outputs
Inventories are created and used at all

stages
28.08.2006 M of the transformation process I-12
Value of Inventory –
Examples from the US Economy
 Inventories as a percentage of GDP is
declining, but the figures are still
significantly high:
– In the U.S., the value of inventories and related
costs of the firms exceeded $1 trillion by 2000.
 Many unnecessary cost components and
inefficiencies:
– Grocery industry can save up to $30 billion (10%
of the annual operating cost)
– A typical cereal box takes more than 3 months to
get from the factory to the supermarket
Examples *
 P&G estimated $65 million in an 18-month

supply chain initiative with its retailers by
jointly creating business plans
 National Semiconductors reduced the
distribution cost by 2.5%, decreased
delivery lead time by 47%, and increased
sales by 34% by closing 6 warehouses
around the globe and air-freighting
microchips to customers from a new
centralized distribution center in Singapore.
 Decline of K-Mart and rise of Wal-Mart in 13
years!!
* Designing and Managing The Supply Chain, D. Simchi-Levi, P. Kaminsky, E. Simchi-

Levi
The Product & Process
t s o C gni r ut caf una M Life-Cycle Curves
The Product/Process
Matrix
Product Few of each Low volume; High volume; Very high
Mix custom many products several major volume;
products commodity
Process
Pattern
Flexibility (High)
Job Shop Aerospace Unit Cost (High)
(very jumbled) Commercial Printer
Industrial Machinery
Batch Flow Apparel
(less jumbled) Machine tools
Drugs, specialty chemicals
Worker-paced line Electrical and
flow electronics
Machine-paced line Automobile

Flexibility (Low)
flow Tire and rubber Unit Cost (Low)
Steel products
Continuous, Major chemicals
automated, rigid flow Paper, oil,
steel brewers,
PROCESS FLOW
STRUCTURES
 Job shop Production of small batches of a large number of
different products.
– ex. Airplane manufacturers, Commercial Printing firms.
 Batch shop Production of a relatively stable line of products
typically in batches.
– ex. Electronic devices, Bakery.
 Assembly Line Production of discrete parts moving from
workstation to workstation at a controlled rate.
– ex. Automobile manufacturer, home electronics manufacturer.
 Continuous Flow Conversion or further processing of
undifferentiated materials.
– ex. Petroleum refinery, Beverage factory.
Product Process Matrix
High
Exhibit Low Multiple Few Major
Exhibit Volume,
6.10 Volume, Products,Products,
6.10 High
One of a Low Higher
Standar
Kind Volume Volume Flexibility (High)
d-
Commercial ization Unit Cost (High)
Job
Printer
Shop These
French Restaurant These
are
are thethe
Batch Heavy major
Equipment
major
stages
stages
Assembly Automobile of
of
Line Assembly product
product
Burger King
and
and
Continuous Sugar process
process
Flow Refinery Flexibility (Low)
life
life
Unit Cost (Low)
cycles
cycles
Job Shop vs. Assembly
Line
Characteristic Job Shop Assembly Line
Product Large variety & Low variety &
low volume high volume
Equipment type General purpose Specialized equip
& layout by function by use in
production line
Flexibility High Relatively low
Material handling Mobile Conveyor,
relatively fixed
Worker skills High Low
I-19
Job Shop vs. Assembly
Line
Characteristic Job Shop Assembly Line
Priority Planning Complex and Complex but only
done repeatedly done once
Product High: drawings & Low: due to
documentation work orders standard items
Work load Variable Stable
Costs High unit cost, High overhead,
job cost system product cost sys.
Forecasting Product family Individual item
I-20
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Chapter 1.

1. Functional Area Strategy

Corporate Increase Org.

Operations Increase Production

Production (uretim)… the act of

A transformation process is defined as a

Inventories are created and used at all

 P&G estimated $65 million in an 18-month

* Designing and Managing The Supply Chain, D. Simchi-Levi, P. Kaminsky, E. Simchi-

Machine-paced line Automobile

Forecasting Product family Individual item

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