operations-management-1224231817886462-9

OPSM 901: Operations Management: 

OPSM 901: Operations Management Session 1: The Process View Process Positioning Strategic Fit Ko ç Un iversity Graduate School of Business E MBA Program Zeynep Aksin zaksin @ku.edu.tr

Key Principle of course: 1. The Strategic Role of Ops: 

Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone . It is seldom neutral.” [ Skinner ‘69 ]

Operations as a Competitive Weapon: 

Operations as a Competitive Weapon Dell Computers Innovative Supply Chain Strategy (direct model) Southwest Airlines L eader in lowfare flights, by elimination of all waste Zara More on this later today.. Vestel Durable Goods Distribution optimization leads to increased customer satisfaction as well as lower costs

Key Principle of Course: 2. The Process View of Ops: 

Key Principle of Course: 2. The Process View of Ops UL Sup. WH WH Sub. WH KA Ind. Markets Groceries Markets . . . Sana KA: 64 days Groceries:132 days Shelf life: 120 days! 76 days collection time Sales cost: 4% Trade rebate: 12% Logistics: complex 1997: 35000/76000 tons Sana and Aymar collected

Consumer centric-efficient SC: 

Consumer centric-efficient SC UL Distributors Groceries Market KA Consumer Sana KA: 2 weeks 36 days collection time Warehouse stock level 12% -  8% Sales cost: 6% Trade rebate: 5.2% Logistics: simple 120000-140000/180000 outlets Make-to-order

Operations & the Process View: What is a Process?: 

Operations & the Process View: What is a Process? Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management

Organization Chart: 

Organization Chart

Process: 

Process customer customer suppliers

Life is a process..: 

Life is a process.. Projects: one time processes Eating lunch at the cafeteria EMBA program Your career Your life

What is Operations Management?: 

What is Operations Management? Management of business processes How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. What is appropriate ?

All Managers are Operations Managers: 

All Managers are Operations Managers All managers must transform inputs into outputs Example: Accounting Manager Inputs : data, information, labor Transformation : application of accounting principles and knowledge Outputs : accounting reports, knowledge of performance, ... All managers have an “operation” to run

What defines a “good process”? Performance: Financial Measures: 

What defines a “good process”? Performance: Financial Measures Absolute measures: revenues, costs, operating income, net income Net Present Value (NPV) = Relative measures: ROI, ROE ROA = Survival measure: cash flow

Performance Measurement: 

Performance Measurement Basing performance measurement only on financial ratios may be deceiving in that it does not capture continuous improvement and innovation The Balanced Score Card (BSC) s ystem was developed by R. Kaplan ve D. Norton in 1992 ( HBS 1,1992 .) The objective is to give managers measurements that reflect both financial and operational performance in a balanced way

Balanced Score Card (BSC): 

Balanced Score Card (BSC) BSC, complements financial measures with Customer satisfaction Process Throughput times Defect rates, etc. Learning and development related measures that help to reflect future financial success

BSC: 

BSC Vision and Strate gy Finan cial Customer Processes Learning and Development Objective Measurements Targets Initiatives How should our shareholders view us so that we can claim financial success Which processes should we perfect to be seen as successful by our customers and shareholders How can we sustain learning and development to adhere to our vision How should customers view us so that we attain our vision

Firms compete on product attributes. This requires process capabilities.: 

Firms compete on product attributes. This requires process capabilities. Price (Cost) P Quality Q Customer service Product quality Time T Rapid, reliable delivery New product development Variety V Degree of customization “order winners” To deliver we need “capabilities”

Performance Measures : 

Performance Measures Performance Objective Some typical Measures Cost Minimum delivery time/average delivery time, utilization of resources, labor productivity, added value, efficiency, cost per operation hour Quality Number of defects per unit, level of customer complaints, scrap level, mean time between failures, customer satisfaction scores Speed Customer query time, Order lead time, frequency of delivery, actual versus theoretical throughput time, cycle time Flexibility Time needed to develop new products/services, range of products/services, machine change-over time, average batch siz e , time to increase activity rate, average capacity/maximum capacity, time to change schedules

Process Capabilities are affected by Process Structure and Management: 

Process Capabilities are affected by Process Structure and Management Process structure or architecture: (1) inputs and outputs (2) flow unit (“jobs”) (3) network of activities & buffers quantity & location precedence relationships (4) resource allocation capacity & throughput (5) information structure Operations Planning & Control Organization

Fit between Strategy and Processes: 

Fit between Strategy and Processes Processes must fit the operations strategy of the firm: Competing on - Cost (Southwest Airlines) -Quality (Toyota) -Flexibility (HP) -Speed (McDonalds) all require different process designs and different measures to focus on. Corporate Strategy  Key Performance Indicators  Operations Strategy  Process Design& Improvement

Linking the strategic role & process view: Strategic Operational Audit: 

Linking the strategic role & process view: Strategic Operational Audit Desired Business Strategy Operations Strategy Desired Capabilities Marketing, …, Financial Strategy Desired Oper’l Structure: Processes & Infrastructure Product Attributes P , T , Q, V Process Attributes C , T , Q, Flex Existing Capabilities Operational Structure: Processes & Infrastructure Existing Desired Feasible Business Strategies Strategy Gap? Measures Capability Gap? Process Gap?

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry: 

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Value/ Responsiveness operations frontier A B C Cost High Low Low High

Increasing Customer Value: 

Increasing Customer Value Value A B C Cost High Low High Low Operations Frontier Değer Artırımı

Lowering Costs: 

Lowering Costs Value A B C Cost High Low HIgh Low Operations Frontier Lowering Costs

Some process classifications and terminology…: 

Some process classifications and terminology…

PowerPoint Presentation: 

Low complexity, high divergence

PowerPoint Presentation: 

High complexity, low divergence

PowerPoint Presentation: 

High complexity, high divergence

Classifying by degree of judgement: 

Classifying by degree of judgement complexity vs. divergence what is done? how is it done?

Classification of Processes by process architecture: 

Classification of Processes by process architecture Project Job Shop Batch Line Flow Continuous Flow Job Shop Flow Shop

The Job Shop Process: 

The Job Shop Process Process Layout One of a Kind Build (To Customer Order) Absence of Rigid Flow Pattern Usually High Product Mix

Process Layout: 

Process Layout Lathe#1 Lathe#2 Lathe#3 Lathe#4 Product #1735B: Start of Production Drill Press #1 Drill Press #2 Paint Machine Packaging Machine #1 Packaging Machine #2 Finish Production

The Flow Line Process: 

The Flow Line Process Product Layout Discrete Parts Rigid Flow Pattern Product Mix of Standard Products

Product Layout: 

Product Layout Product #1735B Lathe Start Production Drill Press #2 Paint Machine Drill Press #1 Packaging Machine #2 Finish Production

Classification of Processes: by Positioning Strategy: 

Classification of Processes: by Positioning Strategy Functional Focus: Product Focus: A B C D Product 1 Product 2 A D B C B A Product 1 Product 2 = resource pool ( e.g. , X-ray dept, billing)

Classification of Processes: by Customer Interface: 

Classification of Processes: by Customer Interface SUPPLIER CLIENT Make-to-Stock Assemble-to-Order Make-to-Order Engineer-to-Order Raw Material Components Semifinished Finished Forecast Order

Shouldice Hospital Video Case: 

Shouldice Hospital Video Case

Shouldice Business Model: 

Shouldice Business Model Medical Simple hernias Optimized process Check-ups and follow-up Social Club Med like experience Co-production at individual and cohort level A network for life

Shouldice Patient Experience: 

Shouldice Patient Experience COST QUALITY SPEED FLEXIBILITY Low, both real and opportunity Low recurrence, satisfaction with experience Fast operation and recovery The process rules; only simple hernias

Comparison to General Hospital: 

Comparison to General Hospital Hernia complexity Shouldice: prepares for the simplest General Hospital: prepares for the most complex

A product/process matrix: 

A product/process matrix General Hospital: Variety & flexibility High cost Low margins Low Cost High margins Shouldice Hospital: Standardization Cost, speed, quality Process Flexible job Rigid line flow Product High customization Low volume High unit margin High standardization High volume Low unit margin Industrialization

Shouldice as a lean enterprise: 

Shouldice as a lean enterprise Shouldice General Hospital Focus on low risk cases No focus, multiple goals Clear single value prop. Confusion of value prop. Predictable process Unpredictable process Strive for perfection Strive for threshold perf. Eliminate waste Tolerate some excess Manage patient flows View patients as functional tasks Pull patients into process Push patients through process Womack and Jones (2000) From Lean Production to Lean Enterprise, HBR March-April 1994

PowerPoint Presentation: 

Shouldice Process Life Cycle Birth of the Shouldice formula P rocess selection, design, and improvement Innovation at the interfaces Process overtaken (when?)

Focus at Shouldice: the results: 

Focus at Shouldice: the results Breakthrough service High customer and employee satisfaction Industrial approach

Matching Process Choice with Strategy: Product-Process Matrix: 

Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repari) LINE FLOWS (Auto Assembly, Car lubrication shop) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket Costs High Low High Matching Process Choice with Strategy: Product-Process Matrix

Marks & Spencer vs. Zara: 

Marks & Spencer vs. Zara

Why is profitability in textile so low, when margins are so high?: 

Why is profitability in textile so low, when margins are so high? Expected demand Actual demand Perfect forecast Excess demand Excess stock

Zara Business Concept: 

Zara Business Concept Low Cost Focus on getting it approximately correct Define a fast process Solve the material constraint Constrain designers Optimize the offer Offer follow-up (next batch) and create customer flows Fashion Store experience Copy fashion Involve the customers and his group Create a network/brand Integrated fashion delivery: Fashion at low cost

Zara Customer Offer: Product/Process Attributes: 

Zara Customer Offer : Product/Process Attributes Quality: Raw Material: poor/OK Knit: poor Look: grand Customer satisfaction: fashion at low price Cost: Low monetary cost Low time cost “The Zara experience” Time: Fast copying of leading styles Fast delivery in own stores Limited editions Variety/Flexibility: Limited product variety: only what is on display Every customer is participating in t he process Customer defines the next batch

Classical textile business process: 12 month lead time: 

Classical textile business process: 12 month lead time Design Purchase RM Mfg Dist Sell Discount

Zara Business Process: 5 day lead time: 

Zara Business Process: 5 day lead time 1.Scan fashion shows 2.Simplify hits & Library of designs Purchase RM 2.Shoppers and store mgrs. PULL next design Designers adapt Shopping Experience 3.Final design of Next batch . Mfg Dist

The design process: 

The design process Creative design Preliminary designs Final product design Final product design Preliminary designs Creative design Outsource And scan Copy and simplify Adapt and optimize Traditional Zara

Accurate Response: 

Accurate Response Improving Forecasts Initial Forecast Total Sales

PowerPoint Presentation: 

Accurate Response Improving Forecasts Updated Forecast, Incorporating 20% of Sales Data Total Sales

PowerPoint Presentation: 

Accurate Response Improving Forecasts Updated Forecast, Incorporating 80% of Sales Data Total Sales

Zara’a Approach to Newsboy Losses: 

Zara’a Approach to Newsboy Losses Expected demand Actual demand Small batches Excess stock and unmet demand are avoided by stopping production when market saturates

Disruptive Technological Change: 

Disrupti ve Technological Change Time Performance Zara Quality Freshness M&S Zara

Zara as a lean enterprise: 

Zara as a lean enterprise Zara M&S Clear focus on one customer type and one process No focus, multiple and simultaneous goals Unique and clear value prop. Confusion of implicit value proposition Predictable process Unpredictable and fuzzy process Strive for perfection Satisfied with threshold performance Eliminate waste Tolerate some excess Manage customer flows View customers as a sequence of tasks Pull customers into process Pushes customers through the system

Industrialization 1: Standardizing: 

Industrialization 1: Standardizing High Fashion Marks &Spencer Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Industrialization 2: Flexibility: 

Industrialization 2: Flexibility High Fashion Zara Marks &Spencer Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Strategic Value Gained: 

Strategic Value Gained High Fashion Out of price! Zara Marks &Spencer Out of Fashion ! Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Textile Apparel Industry: history: 

Textile Apparel Industry: history 1920s M&S: Investment in technical part of the design; high quality products After World War II: Les Nouvelles Galeries offered novelty at low prices Mid-70s Benetton: process reversal and color flexibility; outsourcing of design, manufacturing, retail Gap Inc. and C&A: position between low-end mass merchandisers and higher-end department stores Mid-80s Zara: brand consistency and very fast product cycles Mango : shopping experience H&M: Zara fashion at C&A price

For next time: 

For next time Read the case TEMSA Think through the questions at the end of the case (in the section “What to do next?)