Operations Management

(1)

Unit 1 Overview of Operations Management

Structure:

1.1 Introduction Objectives

1.2 The Meaning of Operations Management Aspects of Operation Management

Scope of Operations Management 1.3 Evolution of Operations Management 1.4 Operations Function

Resources in Operating Systems Role of Operations in an Organisation 1.5 Current Trends in Manufacturing in India 1.6 World-class Manufacturing Practices 1.7 Services as a Part of Operations Service and Manufacturing Organisations

1.8 Operations Management-A Systems Perspective 1.9 Challenges in Operations Management

Quality Management Issues Lead Time Issues

Labour Productivity Issue

1.10 Emerging Trends in Business 1.11 Summary 1.12 Terminal Questions 1.13 Answers 1.14 Case Study 1.15 Glossary

1.1 Introduction

Operations Management deals with designing and managing products, processing, and servicing. Manufacturing, service, and agriculture are the major economic activities in any country. In India, manufacturing and servicing together constitute nearly 75% of the Gross Domestic Product (GDP). In recent years, growth in GDP has been primarily due to the growth in these sectors of the economy. Therefore, managing manufacturing and service operations are important economic activities. Utilising appropriate Operations Management Unit 1 .: 2

(2)

methods for planning and control of operations in manufacturing and service

organisations can result in significant productivity improvements and cost savings. It can also positively influence the overall health of the economy. „Operations Management‟ is a discipline that focuses on this aspect.

Operations Management (OM) is important for both society as well as organisation because the consumption of goods & services is an integral part of our society. Operations Management is responsible for creating goods and services. Hence, operations are the core function of an organisation.

Learning Objectives:

After studying this unit you will be able to:

 Define “Operations Management” and its meanings, aspects and scope.

Distinguish between functions and activities of operations managers/ personnel. 

Distinguish between servicing operations and manufacturing operations. 

Explain the manufacturing trends in India and compare with World class 

manufacturing trends.

Explain the emerging business trends in Operations Management. 

Discuss the role of services as a part of Operations Management. 

Identify the challenges in Operations Managements. 

1.2 The Meaning of Operations Management

Operations Management is a systematic approach to all the issues pertaining to the transformation process that converts inputs into useful outputs, and fetches revenue to the organisation. Operations Management, deals with the production of goods &

services. The variety and types of goods & services that we see everyday are produced under the supervision of operations managers. A modern industrialised society cannot exist without effective management of „operations‟.

Operations Managers

Operations managers have important positions in every company. They are collectively responsible for producing the supply of products in a manufacturing business. This group also includes those managers at the corporate level (example, Vice President) who are overall in charge or are holding staff functions related to operations such as: Operations Management Unit 1 .: 3

(3)

The Plant Manager 

Production Manager 

Inventory Control Manager 

Quality Manager 

Line Supervisors 

1.2.1 Aspects of Operation Management

The focus of the Operations Management is on the various aspects of design in the transformation process as well as planning and operational control.

A systematic approach involves understanding the issues and problems, establishing measures of performance, collecting relevant data, using scientific tools & techniques and solution methodologies for analysing and developing effective as well as efficient solutions to the problem at hand. Another aspect of Operations Management pertains to addressing several issues that an organisation faces. These issues vary markedly in terms of the time horizon, the nature of the problem to be solved and the commitment of the needed resources.

For example, performing the task even though the machine breaks down or during shortage of time or taking decisions on critical issues related to product and service require greater commitment of time and resource.

Operations Management provides alternative methodologies to address such wide-ranging issues in an organisation. Through careful plan and control of the operations, the organisation can keep „costs‟ to the minimum and definitely below „revenues‟ obtained from the market. In order to ensure this, an appropriate performance evaluation system is required, the development of which is also the job of Operations Management. 1.2.2 Scope of Operations Management

The scope of Operations Management ranges across the organisation and is vast. It commences with the selection of location followed by activities such as acquisition of land, constructing building, procuring and installing machinery, purchasing and storing raw materials and converting them into saleable products.

(4)

Quality management, maintenance management, production planning and control, methods improvement and work simplification and other related items come under the scope of operations management.

Operations Management personnel are involved in activities such as: Product and service design.



Process selection, selection & management of technology. 

Design of work systems. 

Location planning. 

Facilities planning and quality improvement of the organisation

 ‟s products or

services, which mostly involve relatively longer-term decisions. Self Assessment Questions

1. Operations Management, deals with the production of ________ and _______.

2. Through careful plan and control of the __________, the organisation can keep ______ to the minimum and definitely below „revenues‟ obtained from the market.

(5)

1.3 Evolution of Operations Management

During the Industrial Revolution in the 1770s, it was common for one person to be responsible for making a product, such as horse-drawn cart or a piece of furniture, from start to finish. Modern machines were not available.

Innovations in the 18th century replaced human power with machine power. Craft production was slow and costly in the early days. Many companies emerged, each with its own set of standards. Factories began to spring up and grow rapidly, providing jobs for countless people. In spite of changes, management theory and practice did not progress well. Enlightenment and more systematic approach to management were essential.

Scientific Management movement

Scientific Management brought an extensive change to the management of factories. Frederick W. Taylor1, headed the Scientific Management

(6)

movement along with Frank Gilbreth, Henry Gantt, Harrington Emerson and Henry Ford. Taylor‟s methods emphasised on maximising outputs but they were not popular with workers as the latter felt they were exploited. To improve efficiency of operations, Ford adopted Scientific Management. He introduced Mass Production and division of labour in the automobile industry. These concepts helped Ford to increase the production rate at his factories as he used the readily available inexpensive labour. Both Taylor and Ford were despised by many workers, because they held workers in such low regard, expecting them to perform like robots. This paved the way for the human relations movement.

The Human Relations movement

While the Scientific Management movement heavily emphasised on the technical aspects of work design, the human relations movement emphasised the importance of the human element in job design. Lillian Gilbreth, a psychologist, worked with her husband, Frank Gilbreth, focusing on the human factor in work. Many of her studies in the 1920s dealt with worker fatigue. During the 1930s, Elton Mayo‟s studies at

Hawthorne division of Western Electric revealed that, in addition to the physical and technical aspects of work, worker motivation is critical for improving productivity. Decision Models and Management Science

The factory movement was followed by the development of several quantitative

techniques. In 1915, a mathematical model for inventory management was developed. In the 1930s, three co-workers at Bell Telephone Labs - Dodge, Romig and Shewart – developed statistical procedures for sampling and quality control.

The Computer Revolution

Development in communications technologies and computer has allowed companies to easily manage international operations and to work on projects in globally dispersed teams. Extensive use of e-mail allows employees to quickly and cheaply communicate with vendors and customers, resulting in fast decisions and improved operational performance. New technologies are forcing organisations to change the ways they do business and conduct their operations. These technologies, in turn, have created additional challenges for operations managers.

(7)

Self Assessment Questions

3. Innovations in the 18th century replaced ________ with _________.

4. In the 1930s, three co-workers at Bell Telephone Labs ______,______ and _________ developed statistical procedures for sampling and quality control

.

1.4 Operations Functions

An operating system is a group of resources combined to provide goods or services. For example, bus/taxi services, motels, dentists, fire services, retail organisations, hospitals, builders are all operating systems.

1.4.1 Resources in Operating Systems

Operations managers are principally concerned with the use of physical resources. Therefore, the focus is on a physical view of operating systems and concentrating on the physical resources used by the system, which for convenience is categorised as follows:  Materials: The physical items consumed or converted by the system like raw

materials, fuel, and indirect materials.

 Machines: The physical items used by the system, example plant, tools, vehicles, buildings, and so on.

 Labour: The people who provide or contribute to the operation of the system, without which neither machines nor materials are effectively used.

Functions

The examples given above illustrate the variety of systems that may be considered as operating systems. A simple categorisation these systems would distinguish between goods-producing and service-producing systems. The function of an operating system is a reflection of the purpose it serves for its customer, i.e. the utility of its output to the customer. Four principal types of systems that can be identified, they are:

 Manufacture: The principal common characteristic is that something is physically created, i.e. the output consists of goods which differ physically – in form or content – from the input materials to the system.

 Transport: The principal common characteristic is that a customer or something belonging to the customer is moved from place to place.

(8)

 Supply: Unlike in manufacture, goods output from the system are physically the same as the inputs to the system. There is no physical transformation and the system function is primarily one of change in possession utility of a resource.

 Service: There is a change in state of utility of a resource, that is, the state or conditions of physical outputs differ from inputs.

Many organisations comprise several systems with different functions. For example, an airline depends on operating systems that serve the purposes of transport, supply and service where as a typical manufacturing organisation will have internal transport and service systems.

1.4.2 Role of Operations in an Organisation

Operations functions help to appreciate the role of operations in an organisation and its relationship with other functional areas of business. Every organisation has a few important activities to be performed. This includes:

Operations  Marketing  Finance 

Human Resource Management 

Operations manage the „conversion‟ process in the organisation. The marketing function, understands the customer‟s needs, creates a demand for the products and services, and satisfies the customers‟ requirements by delivering the right products and services at the right time, and at the right place. Finance estimates the activities related to operations and marketing. Every organisation employs a number of people who have varied skills, backgrounds, and work requirements. Human Resources Management function deals with the issues related to them.

Every organisation has five layers of functions/activities that make up its „Value Chain‟. These five layers are:

 Customer layer: This layer consists of the customer and dealers/ retailers.

 Layer of Innovation: This layer consists of innovative strategies and Research and Development.

(9)

 Core Operations layer: This layer consists of fabrication, machining, assembly, testing and service delivery system.

 Supplier layer: This layer consists of suppliers, sub-contractors and other service providers.

 Operations Support layer: This layer consists of marketing, maintenance, quality, costing planning, tooling, material, IT, design and industrial engineering.

Core operations layer represents the manufacturing setup in case of a manufacturing organisation. In every organisation, other activities, represented by operations support layer, interact with the core operations layer and provide a variety of support services. Issues in Operations Management

The two major issues in Operating Management are: Design



Operational Control Analysis 

These two issues help you in assessing Operations Management functions better. Design issues relate to configuration of the operations system and provide an overall frame work under which the operations system functions. Design issues in Operations Management lay down the overall constraints under which the operations system functions. For example, once the capacity of the resources to be used in the system is decided, it sets limits for the actual use of the system in operation.

Once the design choices are exercised, Operations Management amounts to putting the available resources to best use and handling various issues. The available capacity, for example, can be better utilised by planning production and carefully scheduling

operations so that idle time is minimised. Further, required capacity and material could be estimated and made available through purchasing and scheduling procedures. All these constitute operational control decisions in Operations Management.

Every issue addressed in design is inevitably addressed once again in operational control. The context, however, differs between the two. Design issues often turn out to be strategic in nature. Strategic decisions frequently involve large capital outlay and are taken with critical inputs from an operations strategy process. The top management take such decisions to Operations Management Unit 1 .: 9

(10)

improve the competitiveness of the organisation. On the other hand, operational control issues are tactical, repetitive and routine in nature. Lower level operations managers and production supervisors often make such decisions.

Operational decision can be long term, short term or medium term. Table 1.1 gives a comparison of operational decisions.

Table 1.1: Comparison of Operational

Decisions Long term

Short term Medium term

Operations decision taken once in five to ten years.

Operations decisions are taken for the short run of a week or less.

Operations decision taken in fixed cycles of one year.

Decisions of multiple levels and huge capital outlay are taken.

Decisions include detailed scheduling of operations, quality management and control and reacting to

disruptions and changes in plans.

Business plan with specific targets of sales, The annual business production planning, master production scheduling and material and capacity

requirements planning are done.

Unit 2 Frameworks for Operations Management

Structure: 2.1 Introduction Objectives

2.2 Operations as Systems The Systems View

Operations as Transformation Systems 2.3 Dimensions of Competitiveness

2.4 Operations Mix: the Six P.s of Operations 2.5 Porter.s Value Chain

2.6 Order Winners, Order Qualifiers, and the Kano Model 2.7 Product Life Cycle

2.8 Volume Variety Matrix and Product Process Matrix 2.9 Quality and Productivity

2.10 Universal Principles 2.11 Summary 2.12 Terminal Questions 2.13 Answers 2.14 Case Study 2.15 Glossary 2.1 Introduction

By now you must be familiar with the basic concepts of operations management. This unit

explains the partnership between operations and marketing, which is crucial to the success of any organisation.

(11)

. Identifying potential customers, seeking to understand their needs, and encouraging them to use the product or service

. Providing the product or service efficiently and effectively

. Managing the organisation.s finances to ensure continuing success

You can refer to these three activities as marketing, operations, and finance. Even though the first and last activities are usually named in even a small organisation, it is comparatively rare, outside manufacturing companies, for the operations function to be identified. Various organisations resolve issues

Operations Management Unit 2 .: 22

related to operations in an informal way. This may be sufficient. However, an organisation of any size needs to take these three activities very seriously irrespective of what they are called. Typically, in a manufacturing organisation, these three activities are in a state of tension. Thus marketing seeks to advance service and to offer a greater variety of product choice to the

customer. Operations or production seeks to improve competence by reducing inventories and by longer runs of fewer products. This conflicts with marketing objectives. Finance seeks to reduce cost, by restricting inventories and by reducing expenses on machines and staff. This conflicts with both marketing and operations objectives.

The typical contradictions between these activities are no longer as strict as was once thought. With the use of Just-In-Time (JIT) inventory systems and such other flexible manufacturing systems, it is now often possible to have,

. Low inventories . High quality products . Good customer service . High productivity

. Relatively low investment in machines

Marketing and operations are, or should be, equal partners in the success of the organisation. In this view, although from different perspectives, they share numerous common reference

frameworks. We consider each in the following sections. Learning Objectives:

This unit of operations management familiarises you with partnership between operations and marketing and different frameworks available for the operations management. After reading this unit, you will be able to:

. Discover the relation between operations and marketing . Explain system view of operations

. Explain dimensions of competitiveness . Analyse the six P.s of operations mix . Explain Porter.s value chain

. Explain order winner, order qualifier and Kano model . Describe product life cycle stages

. Differentiate between volume variety and product process matrix . Differentiate Quality and Productivity

. List out the universal principles 2.2 Operations as Systems 2.2.1 The Systems View

A system can be defined as a group of entities together with the association among them. This simple definition contradicts its importance for the Operations manager or for management in general. It is essential for an Operations manager to have a systems view because he or she must be able to see the entire process, from concept to completion. The entire process chain may include outside suppliers, service delivery and back-up, and the information flows that are

required for the same.

Systems can be described as having either open or closed features. These describe the extent to which communications and interactions take place freely across the system boundaries.

(12)

Boundaries are not just material, like the walls of a particular functional area. They can also be invisible, and represent, for example, the authority exercised by a manager. In today.s business world, there is often a global dimension with international companies. Nowadays, the diversity of boundary crossing communications is increasing continually.

An open system has some boundary regulations. System thinkers argue that every system needs inputs of resources to produce outputs of goods or services. Without these resources, the system falls down. What is in debate is the level of control or limitation of freedom placed on a system boundary. A totally closed system exists only as an abstract model.

Systems and sub-systems can be grouped along the open-closed band, and recognised as a .relatively-open. or a .relatively-closed. system. There are expenses and threats involved with all points on the band. When there are more controls on a boundary, the costs are greater. Similarly, when a boundary is more open, potential loss through theft or mistreatment is greater.

Figure 2.1 gives a pictorial representation of systems showing closed and open features. Controlled interaction

with the environment Free interaction with environment Closed system Relatively closed or Relatively open system Open system No inputs Known and defined inputs Known, unknown and unpredicted inputs No outputs Known and defined outputs varied outputs

Figure: 2.1 Open and Closed System Features

The boundaries around systems and sub-systems tend to be defined by the degree of professional control over the resources being used. Free

movement of resources and easy communications recommends a more open system. Controlled access and controls tend more towards a closed system. Closed systems are more expensive to maintain. In severe cases it leads to failure of the system as it is cut off from its environment. Likewise, the more closed a system is, the more likely it becomes ill-adapted to the changing world around it.

Activity 1:

Think of a hospital. On what basis you call it a closed system? On what basis you call it an open system? Why does it need to be open in some respects and closed in others? Indicate operations management issues which arise when we look at these features.

2.2.2 Operations as Transformation Systems

(13)

components with significant communication relation. Each component and its pathway itself are of interest to the Operations manager.

If we need to create a new operational system or resolve a problem in an active system, the construction of a simple systems diagram showing these components significantly assists our understanding.

Figure 2.2 illustrates a basic input-transformation-output model. Input(s) Transformation Output(s)

Figure 2.2: The Basic Input-Transformation-Output Model

In operations management terms, inputs are resources which are introduced into the system in an organised and controlled way. These inputs include: materials, capital, equipment, personnel, energy, skills and time.

The transformation procedure consists of the use of manufacturing or service operations which change or employ the input resources to add value.

The outputs of the system include products and services with the right quality, in the right quantity and at the right time.

2.3 Dimensions of Competitiveness

Operations management plays a key tactical role inside an organisation. In his book1 argues that there are five performance objectives which allow an operations-based advantage to be gained:

. Doing things correct results in a quality benefit . Doing things quick results in a speed benefit . Doing things on time results in a reliability benefit . Changing what you do results in a flexibility benefit . Doing things inexpensively results in a cost benefit

To have an edge over competition, it would benefit organisations if they consider the following six dimensions of competitiveness:

. Price: For any market there can be only one least price contestant. If some contestant reduces the price less than the existing least price contestant then he will become the least price contestant. The difference between cost and price (i.e., margin) is as significant as the least price. Efficient operations can make a huge difference to the margin.

1 The Manufacturing Advantage . Achieving Competitive Manufacturing Operations by Nigel Slack (1991)

Quality: Quality is one of the most important factors of competitiveness. Quality and price are related two ways. Higher quality typically means that a higher price can be asked. Oddly perhaps, a higher-quality product can often mean lower cost though less waste, rework, and returns. . Delivery: Delivery time and delivery consistency are operations-driven dimensions with major impact for marketing. Frequently being able to deliver ahead of the competition and with greater reliability can command a price payment.

. Speed: Closely related to delivery is speed. What is meant by speed in this circumstance is reduced time to bring new products to market, or to devise and make products faster than a competitor is able to do so.

. Design: Design is what includes .that little something special. to a product or service. Design may be observed as an aspect of quality, but it is so significant to marketing and operations that we look at it individually. Good design is not just the work of a motivated artist. It requires co-operation from both marketing and co-operations.

. Flexibility: Flexibility is a calculated approach aimed at gaining an advantage in an increasingly competitive world. In fact, flexibility is regarded as one of the few remaining .order winners.. There are different types of flexibility:

a. To modify easily from making one product to another within a standard range. b. To change volumes easily.

c. To bring in new products easily. Self Assessment Questions

(14)

1. The three basic activities of organizations are ______, ______ and ____. 2. ________ seeks to reduce cost.

3. ____ and ____ should be, equal partners in the success of the organisation. 4. There are _________ dimensions of competitiveness.

5. _________ closely related to delivery.

6. ______ and ____ are operations-driven dimensions with major impact for marketing. Operations Management Unit 2

.: 27

2.4 Operations Mix: The Six P¡¯s of Operations

Operations mix are the elements of the operations involved in service and manufacturing

organisations which convert raw materials into finished products. Similar to the marketing mix, the operations mix offers an easy-to-remember frame of reference. It also offers an integrated

package of the factors that should be measured together when designing a new or revised operation. The source of the operations mix is not clear, but an early version was developed by Professor Keith Lockyer of Bradford Management Centre (1988).

The six elements of operations mix are:

. Product: For convenience we refer to .product. but .service. could be evenly applicable. In operations, it is the design and quality of the product or service that is vital. Product design is the essential interface between marketing and operations.

. Process: Suppliers, either internal or external, provide the inputs and customers, either internal or external, receive the outputs. Feedback must function in between customers and the process. It should also function between process and suppliers. Recently, in operations management, attention has been given to .process. from the perspectives of quality and time.

. Place: In operations, .place. means location and layout. Discovering the location is a classic problem of operations management. Having decided on the location, attention turns to layout of the factory or office.

. Programmes: .Programmes. in operations means the schedules and plans under which operations are performed. In manufacturing operations, such programmes are comparatively standardised. They range from the manufacture plan to material requirements plan, capacity plans, and detailed shop floor schedules.

. Procedures: Procedures cover .how should it be done.. This is a conventional field of study for operations managers, with its recent origins in the work of Frederick Taylor and the founders of motion study, such as Frank and Lillian Gilbreth. Whatever the task, there is a best and safest way of performing it; the issue is therefore how this best and safest way is to be determined. . People: Last but not the least, comes people. People drive all the other five Ps, indeed their contribution is growing rather than declining.

Activity 2:

Most operations-based organisations are part of a .supply chain.. The six elements of operations mix transform raw materials into finished products when performed in a chain fashion. Select an everyday product such as news paper and draw out the chain which results in the final product reaching the customer. Then consider:

. What each stage requires from the previous stage . What performance measures are critical at each stage . What communication channels are used between each stage . What distribution channels are used

. What quality requirements are needed at each stage 2.5 Porter¡¯s Value Chain

The proposal of the value chain is based on the process view of organisations. The idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and utilization of resources such as capital, labour, resources, equipment, buildings, land, administration and supervision. How value chain activities are carried out determines costs and affects profits.

(15)

. Inbound Logistics . includes associations with suppliers and contain all the activities required to receive, store, and distribute inputs.

. Operations . includes all the activities essential to convert inputs into outputs (products and services).

. Outbound Logistics . includes all the activities necessary to collect, store, and distribute the output.

. Marketing and Sales . includes activities notify buyers about products and services, encourage buyers to purchase them, and assist their purchase.

. Service . includes all the activities required to keep the product or service working efficiently for the buyer after it is sold and delivered.

Secondary activities are:

. Procurement . It is the purchase of inputs, or resources, for the firm.

. Human Resource Management . It consists of all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying off personnel.

. Technological Development . It pertains to the equipment, hardware, software, measures and technical knowledge brought to bear in the firm's transformation of inputs into outputs.

. Infrastructure . It serves the company's needs and ties its various parts together. It consists of functions or departments such as accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management.

Figure 2.3 gives us a clear idea of the primary and secondary activities of Porter.s Value Chain. Figure 2.3: Porter¡¯s Value Chain

2.6 Order Winners, Order Qualifiers and the Kano Model

For a specific product, some of the dimensions of competitiveness are more important than others in a specific market during a specific time. Hence, it is useful to differentiate between so-called order winners and order qualifiers.

An order qualifier is your ticket to go into the race. An example of an order qualifier is the quality assurance standard ISO9000, currently stipulated by many international companies. An order winner is what lets you to take off the award. An illustration of an order winner is the operating system of Apple computers.

An optional way of looking at the competitive dimensions is through the Kano model3. Kano is a Japanese quality specialist who believes that product characteristics can be classified into .must be., .more is better., and .delighters..

Figure 2.4 depicts the Kano model which shows the degree of achievement of customer satisfaction. Delighters More is better Must Be Neutral Delight Absent Fullfilled Degree of Achievement Dissatisfaction Customer Satisfaction

(16)

Figure 2.4: The Kano Model The Kano model:

. Helps to explain requirements. If requirements are satisfied, they contribute to customer classification, neutrality, or satisfaction.

. Identifies the ¡°Must Be¡± needs, which the client expects. If they are unfulfilled, the customer is dissatisfied. However, even if they are entirely satisfied, the customer is not particularly satisfied. An example of a Must Be need is airline safety.

3 Joiner, 1994.

. Identifies the ¡°More Is Better¡± needs, which have a linear effect on customer satisfaction: The more these needs are met, the more satisfied customers are. An example is low-priced airline tickets.

. Identifies ¡°Delighter¡± needs, which are those that do not cause dissatisfaction when not present but satisfy the customer when they are. An example is serving hot chocolate chip cookies during an airline flight.

. Helps in the prioritization of needs . for example, Must Be needs are usually taken for granted unless they are absent. These needs are to be taken care first.

2.7 Product Life Cycle

The Product Life Cycle (PLC) is a widespread phenomenon. Marketers regularly identify four or five stages through which a product passes. The relating of marketing strategy with life cycle stages is well established. But operations also can be connected to the life cycle stages. Figure 2.5 shows the combination of both marketing and operations implication of the various stages in a life cycle.

X-Axis Y-Axis

Development Growth Maturity Decline Operations implications Product design Limited focused variety Varieties develop Product improvement and cost cutting Reduction in variety Product quality Process Place People Price Delivery

Quality through design Quality through conformance Job shop? Batch? Line? Line but with

(17)

no further Investments (?) Location is the priority Layout of process is the priority Workplace layout is the priority

Innovation Flexibility Consistency Flexibility High Reduction to retain or to gain market share Competing through price Making money as long as possible through pricing for maximum profit without further investment Not critical Becoming critical

Critical Less critical

Figure 2.5: The Product Life Cycle: Operations Implications Operations Management Unit 2

.: 33

The product goes through development, growth, maturity, and decline phases. Several products may travel through PLC in a few weeks, others may take decades. If you demonstrate a graph of volume versus time, the characteristic shape of a PLC is a stretched out S. In its development stage, small quantities are produced and the importance is given to design and innovation. As it reaches this growth step, large quantities are produced at a smaller unit price. This levels out in the maturity step. You can see the implications for operations management at all stages of the life cycle as mainly process, procedures and delivery mechanisms should change.

Corresponding with each stage of the PLC, we comment on some features of competitiveness. In addition, to make the connection with the next section, we comment on process. Process in this circumstance means the way in which operations are actually arranged and the suitable selection of technology. We are not suggesting all products evolve through having to adopt particular technologies or layouts at various stages of their PLC. However, one particular choice of layout or technology will probably be compatible with marketing strategy at various stages of the PLC. An Operations manager should appreciate that he or she needs to settle in right through the PLC. You should refer to section 2.4 and 2.8 to get a better understanding of the operations

implications.

2.8 Volume Variety Matrix and Product Process Matrix

A most practical method of viewing operations management is through the product process matrix4. Figure 2.6 shows the product dimensions of volume and variety and its ordering along the horizontal axis, and ordering of the process on the vertical axis from project to continuous flow.

4 Hayes and Wheelwright, 1984 Operations Management Unit 2 .: 34

(18)

Civil engineering building Heavy engineering Printer

Expensive restaurant Insurance policy processing Electronic components Food manufacturers Newspaper

Fast food outlet Car manufacture Botting Oil refinery Project Job shop Batch Cell Assembly line Continuous flow Unique, one-off Low volume Repetitive limited variety High volume standardised PROCESS PRODUCT

Figure 2.6: The Product Process Matrix

In brief, we can elucidate process types as follows. The project form of process takes resources to the project, rather than taking the project to the place of work. A typical case is a civil engineering project, such as

constructing a bridge. On a lesser scale, the start of a new product has similar characteristics.

In a job shop work is ordered around related skills; in a factory all the lathes may be assembled together; or in an office all the accountants work in the same section.

In batch processes, the outline order is similar to the job shop but more concentration is paid to the flow of work. Here, as the name suggests, work is done in batches. In an office, application forms for admittance to

university, for example, are processed in groups.

An assembly line takes specialisation further and tends to be more highly mechanized as is suitable to superior volumes. The car assembly line is the typical case, but offices too may have assembly lines for cheque approval. Finally, continuous flow processes are found in the chemical industry. Operations Management Unit 2

.: 35

A cell is an intermediate stage between batch and assembly line. In a cell, all the machines needed for a particular product or assembly are ordered in sequence close to one another so that .one-piece flow. is possible.

We can also use the product process matrix to visualise suitable approaches to scheduling, this is central to operations management.

2.9 Quality and Productivity

Progressively, managers understand that quality and productivity are partners and not

substitutes. As Deming (1986) has pointed out, enhanced quality cuts fault rates. Cutting fault rates means less waste, enhanced efficiency, reduced cost, reduced prices. It expands markets

(19)

and creates more work. Improving quality and productivity have rightly become a central concern for operations manager.

Operations managers have realised that they cannot accomplish quality and productivity goals by themselves. An entire organisational effort is required. Quality received a huge boost in the late 1980s with the extensive implementation of Total Quality Management (TQM). This was possibly one of the most important developments for operations manager.

Similar to quality, and related to it, productivity is an essential concern of operations

management. Productivity is of particular importance to marketing and finance. Even though, productivity can be defined in common terms as being the ratio of outputs to inputs, it is suitable for us to start looking at productivity by first looking at changes in profitability from one period to the next. An accountant would view a change in profitability from one period to the next resulting from a change in revenues and/or a change in costs.

Changes in income result from changes in product quantities and/or from changes in product costs. Similarly changes in costs result from changes in resource quantities and form changes in resource costs. Figure 2.7 shows the accountants view of profit change.

Operations Management Unit 2 .: 36 Change in product volumes Change in revenue Change in product prices Change in profit Change in resource volumes Change in cost Change in resource prices (costs)

Figure 2.7: Profit Change: The Accountant¡¯s View

This finishes the standard accounting vision. Management accountants will seek to understand variations from budgets by variances in each of these four areas. Operations managers are usually more concerned in productivity change. We may note that a change in productivity results from changes in the ratio of product quantities to changes in resource quantities. This uses the parallel definition of productivity as being outputs/inputs. Similarly we can view a change in price recovery as resulting from a change in the ratio of product prices to changes in resource prices.

Thus price over-recovery replicates a situation where prices of products are increased more than the costs of resources, and price under-recovery replicates the situation where the organisation absorbs some of the cost increases and does not increase the cost of its products by as much as resources costs have risen.

2.10 Universal Principles

We have seen the variations in processes, automation and scheduling in the volume variety and product process matrix. You could ask if there are principles of operations management that apply across the entire product process matrix.

Schonberger and Knod (1994) present one of the most useful lists of principles, applicable both to service and manufacturing operations. They challenged that these principles can make a massive difference to any

(20)

operations-based organisation. They compiled a list of principles. According to them, organisations involved in the service and manufacturing sector should:

. Get to understand and team up with the next and last customer

. Become committed to repeated, quick improvement in quality, cost, lead time, flexibility, inconsistency, and service

. Accomplish unfilled purpose via shared information and team participation in forecasting and implementation of change

. Get to understand the competition and the world-class leaders

. Cut the number of product or service components or operations and number of suppliers to a few good ones

. Arrange resources into multiple chains of customers, each focused on a product, service or customer family; create cells, flow lines and plants-in-a-plant

. Constantly invest in human resources through cross training, education, job and career path rotation, and improved health, safety and security

. Preserve and improve present equipment and human work before thinking about new

equipment; mechanize incrementally when process inconsistency cannot otherwise be reduced . Look for simple, flexible, movable, low-cost equipment that can be acquired in multiple copies, each assignable to focused cells, flow lines and plants-in-a-plant

. Make it easier to make/provide goods or services without error or process variation . Cut flow time (waiting time), distance and inventory all along the chain of customers . Cut set-up, changeover, get-ready and start-up times

. Function at the customer.s rate of use, reduce cycle interval and lot size . Trace and own quality, process and problem data at the workplace

. Make sure that front line improvement teams get first chance at problem solving before staff experts

. Cut transactions and reporting Operations Management Unit 2 .: 38

Self Assessment Questions State whether True or False:

7. Order qualifier is your ticket to go into the race. 8. Kano is a Chinese artist.

9. Product life cycle has five stages.

10. Cell is an intermediate stage between batch and assembly line.

11. Price over-recovery replicates a situation where prices of products are increased more than the costs of resources.

12. Operating system of Apple computers is an example of order qualifier. 2.11 Summary

Partnership between operations and marketing is crucial to the success of an organization. There are many frameworks exist to manage the operations. A system view is very important for the operations manager since he has to visualize the operations from concept to completion.

Dimensions of competitiveness are essential to survive in the business world. Like marketing mix, the operations mix offers an easy-to-remember frame of reference. It also offers an integrated package of the factors that should be measured together when designing a new or revised operation. Value chain process is necessary for success of any organisation, how value chain activities are carried out determines costs and affects profits. For a specific product, some of the dimensions of competitiveness are more important than others in a specific market during a specific time. Hence, it is useful to differentiate between so-called order winners and order qualifiers5 .Kano model classified product characteristics into must be., .more is better., and .delighters.. The PLC is a widespread phenomenon. A most practical method of viewing operations management is through the product process matrix6. Quality and productivity are partners in the success of an organisation and not substitutes.

2.12 Terminal Questions

(21)

5 Hill, 1993

6 Hayes and Wheelwright, 1984 Operations Management Unit 2 .: 39

2. Explain operations as systems with open and closed features. 3. Describe the six dimensions of competitiveness.

4. Describe operations mix.

5. Explain Porter.s value chain model in detail.

6. What are order winners order qualifiers? Explain with examples 7. Explain Kano model in detail.

8. Describe the different stages of PLC with diagram.

9. Explain Volume variety matrix and Product process matrix. 10. Describe Quality and Productivity role in an organisation. 11. List out five of the universal principles.

2.13 Answers

Answers for Self Assessment Questions 1. Operations, Marketing and Finance 2. Finance

3. Marketing and Operations 4. Six

5. Speed

6. Delivery time and Delivery consistency 7. True 8. False 9. False 10. True 11. True 12. False

Answers for Terminal Questions 1. Refer section 2.1 2. Refer section 2.2 3. Refer section 2.3 4. Refer section 2.4 5. Refer section 2.5 6. Refer section 2.6 7. Refer section 2.6 8. Refer section 2.7 9. Refer section 2.8 10. Refer section 2.9 11. Refer section 2.10 2.14 Case study

Beating the Budget with the Product Life Cycle Client Organization

A renowned U.S. Home Fashion company had just closed down their trade operations in favour of shifting to a licensing organization working with U. S. manufacturers and marketers of Home Decorating and Furnishing products.

Client Objective

The objective was to educate the corporate account executives and staff about the ¡°Product Life Cycle¡± and how they might use this knowledge in working with licensees to increase sales and profitability for both the company and the licensees.

Provide a basic understanding of Marketing and the Product Life Cycle.

Help the participants recognize the various stages of the life cycle and the steps that can be undertaken to extend the life and revenue stream.

(22)

What was done?

A participative training program was undertaken that involved everyone in the company. Real life examples were analyzed and used by the participants in an experiential process.

Questions:

1. Map different stages of Product Life Cycle with this case study. 2. Find out the possible outcomes of this case study.

Operations Management Unit 2 2.15 Glossary

Term Description

Price over-recovery

Replicates a situation where prices of products are increased more than the costs of resources. Price under-recovery

Replicates the situation where the organisation absorbs some of the cost increases and does not increase the cost of its products by as much as resources costs have risen.

Flexibility

The quality of being adaptable or variable. Phenomenon

A remarkable development Lot size

Measure or quantity increment acceptable to or specified by the party offering to buy or sell. Problem data

Data which gives definition of the problem. References

1. Contemporary Marketing, by David L. Kurtz, H. F. MacKenzie, Kim Snow. 2. http://www.themanager.org/pdf/ValueChain.PDF

3. Operations Management, by C. Donald J. Waters, Donald Waters. 4. The Manufacturing Advantage . Achieving Competitive Manufacturing Operations by Nigel Slack (1991)

Unit 3 Competitiveness and Strategies

Structure: 3.1 Introduction Objectives 3.2 Productivity

Different Types of Productivity 3.3 Competitiveness

Competitive Dimensions of Operations 3.4 Strategy

3.5 Business Strategy and Operations Strategy Operations Strategy model

3.6 Global Environment of Competition Global Competition

Quality, Customer Service and Cost Challenges Advanced Technologies 3.7 Summary 3.8 Terminal Questions 3.9 Answers 3.10 Case study 3.11 Glossary 3.1 Introduction

(23)

By now you must be familiar with the frameworks of Operations Management. This unit

familiarises you with competitiveness and strategies of organisations with respect to operations management.

Each competing organisation in the industry has a competitive strategy1. Some of the basic questions businesses need to consider are:

„h What factors drive competition in the industry we are concerned with?

„h What are our competitors doing to gain an advantage and how can we best respond? 1 Reference: www.12manage.com/methods_porter_competitive_advantage.html Operations Management Unit 3

.: 43

„h How do we, as an organisation, position ourselves to compete in the long run?

There is an increasing awareness that operation strategies should lead to global competitiveness and not merely limit to the firm.s products and services. This can be done by contributing

distinctive capability (or competence) to the business and continually improving the products and processes of the business.

Operations are either a competitive weapon or a corporate milestone. Operations should be fully connected with business strategy. Operations strategies and decisions should fulfil the needs of the business and should add competitive advantage to the firm.

We have seen that wealth can only be created by operations that are productive in relation to a known market, with the required financing and human resources. This means that all of the functions of the firm must be well coordinated to earn revenue and have a competitive advantage. The cross functional coordination of decision making is facilitated by an operations strategy that is developed by a team of managers from across the entire business.

Learning Objectives:

After studying this unit you will be able to: „h Define productivity and its importance.

„h Explain about the global environment of business and competition.

„h Analyse why some companies are more successful at competing than others. „h Discuss how effective strategies can lead to competitive organisations. „h Explain how organisations can improve productivity.

3.2 Productivity

.Productivity., in business, is a measure of performance of a company, in terms of how effectively and efficiently it is using its resources. Productivity is related to Operations Management as it focuses on maximising its resources. utilisation. In the larger context of the organisation, strategy can either be to differentiate its products without specific focus on the cost, or to focus on being a low-cost producer without a particular emphasis on differentiated product. In either case, the cost of operations are key to

.winning. in the market, because even for a highly differentiated product, the demand will be under threat if the costs of operations are so high as to push the product prices beyond the customers. value perception.

Productivity directly influences the cost of operations. Productivity can be simply defined as the ratio of outputs to Inputs. In general, the output is referred to in terms of the value of the products or services produced by the company, while the input can be a number of factors invested in: raw materials, capital, labour, energy, etc, or a combination of them. Thus,

Labour Productivity = Output of Products / Labour Input On the other hand, 2

Overall Productivity = Output of products / All Resources used

Hence, a company in order to optimise its cost levels, and effectively create a competitive advantage should improve its productivity levels.

3.2.1 Different Types of Productivity

Productivity can be divided into three types. They are: 1. Technological Productivity

(24)

3. Managerial Productivity

Technological Productivity is the level of output received after using any technology or device within a certain period of time. Adopting new technological advancements, for example, CAD (Computer-aided Design) and CAM (Computer-aided Manufacturing), can enhance the Technological Productivity.

Employee Productivity is the level of output received from the employees within a certain period of time. Good training to the employees, encouraging multi-skilled labours, introducing new tools, encouraging participation in Managerial decisions in the company can achieve good Employee Productivity.

2 For more information on different kinds of Productivity please visit www.alison.com Operations Management Unit 3

.: 45

Managerial Productivity is the level of output received from Managers within a certain period of time. Managerial productivity can be achieved if the Managers crave for quality rather than quantity. They should also encourage employees to participate in the decision-making issues related to the company. Managers should also cultivate the habit to reward the employees for their performance and should adopt some managerial techniques to improve the Productivity. Thus the Productivity of any company or organisation depends on both people and operations variable which in turn improves business competitiveness.

Self Assessment Questions

1. Operations strategies and decisions should fulfil the needs of the business and should add ______________ to the firm.

2. Productivity is related to Operations Management as it focuses on ___________ its resources.. 3. Productivity can be simply defined as the ratio of ________________.

Activity 1:

Visit the branch of Britannia foods in your area and create a report on how productivity influences the cost of operations.

3.3 Competitiveness

Competitiveness of a firm is simply its propensity and ability to compete with other firms in the industry. An average company tries to survive in the market whereas a highly competitive

company fights the competition and tries even to change the .rules of the game.. Competition has become the major challenge as more and more companies are entering in contest, and trying to corner larger market shares for themselves in their product markets. The size of the .market. remains more or less the same, but the number of firms competing for their individual shares are increasing rapidly. In countries like India and China, where the markets for many products / services are still growing, the markets offer hope and scope for the firms to succeed and operate profitably, provided they plan properly and execute them effectively.

Today, the importance of competitive advantage for a firm could be greater. All well-run firms are constantly striving for and working towards attaining competitive advantage and sustaining it in the long run. This is important in order to run their organisation profitably in a highly competitive and fast-changing market. These are done through formulation of well thought-out competitive strategies and implementing them effectively.

3.3.1 Competitive Dimensions of Operations

Some of the factors that influence the competitive position of a firm can be listed under the following categories:

„h Cost / Price: Large segments of most markets, especially in less developed countries like India ¡V buy solely on the basis of price. Hence, manufacturers or service providers need to focus on being low-cost producers. Typically, such products are like commodities.

„h Quality: Many people prefer products that are superior in quality, in terms of reliability or performance or durability. For manufacturers, quality can be introduced either through product design or through superior process. However, too much emphasis on quality or attributes of a product would render the product over-priced.

„h Delivery speed: Ability of a company to deliver a product quickly could give the company an edge in the market.

(25)

„h Reliable delivery: This refers to the ability of a company to deliver its product or offering as per commitment made to the customer. Often, this aspect becomes more important than the .speed of delivery..

„h Flexibility in supply: The ability of a company to adjust or respond to sudden changes in demand would give it considerable advantage in the market, since market demands are unpredictable and companies experience sudden surges or fall in demand. Hence, a company with the flexibility in operations can either leverage the situation of excess demand or effectively cope with the sudden fall in demand such that it maintains its inventory or capacity costs at low levels.

„h Flexibility in new product introduction: Another important aspect of .flexibility. that company should have is to introduce new products or in offering a variety of products. A company which is able to switch to new products, or from one existing product to another, enjoys market advantage. Operations Management Unit 3

.: 47 Activity 2:

Visit any supermarket and note the competitive strategy they use to compete with the other supermarkets in the area.

4. Competitiveness of a firm is simply its propensity and ability to __________ with other firms in the industry.

5. _________,______,_____,______,____,___ are the factors that influence the competitive position of a firm.

3.4 Strategy

Essentially, developing a competitive strategy means - developing a broad formula for how a business is going to compete, what its goals should be, and what policies are needed to carry out these goals.

Competitive Strategy can be defined as a combination of the goals which the organisation works towards achieving and the policies it needs to implement to attain these goals. Different

terminologies may be used by different firms, such as: ¡§mission¡¨ or ¡§objectives¡¨ or ¡§goals¡¨; ¡§tactics¡¨ or ¡§operating policies¡¨ or ¡§functional policies¡¨. The figure shown below (Figure 3.1), which can be called the Wheel of Competitive Strategy3, is a method that can be clearly used to articulate the key aspects of a firm.s competitive strategy.

3 Reference: www.scribd.com/doc/6283720/Competitive-Strategy Operations Management Unit 3

.: 48 Goals Definition of how the business is going Objectives for profitability, growth, market Product Line Finance R&D Purchasing Labour Manufacturing Distribution Sales Marketing Target Markets

Figure 3.1: The Wheel of Competitive Strategy

The inner circle of the wheel, also called the .hub., broadly identifies the organisation.s goals, i.e., it defines how the organisation intends to compete in the marketplace, and also outlines its specific economic and noneconomic

(26)

objectives. The spokes of the wheel indicate the key operating

policies, with which the firm desires to achieve these objectives. Depending on the nature of the business, management specifies or articulates these objectives. Once they are defined clearly, the concept of strategy can be used to guide the overall behaviour of the firm. At the broadest level, formulating a competitive strategy involves considering four key factors that define what a company can successfully accomplish. This is depicted in Figure 3.2.

The firm.s strengths and weaknesses are its profile of assets and skills relative to competitors, including aspects such as financial resources, Operations Management Unit 3

.: 49

technological posture and brand identification. The personal values of an organisation are the motivations and needs of the key executives and other personnel who must implement the chosen strategy. The strengths and weaknesses of the organisation, together with its values, determine the internal limits of the industry.s opportunities.

Figure 3.2: Key Factors of Competitive Strategy

The threats to the organisation, together with its inherent risks and potential rewards, determine the competitive environment the organisation forms a part of. Societal expectations reflect the impact on the company of such things as government policy, social concerns, evolving mores, and many others.

How effective an organisation.s competitive strategy is, can be identified by checking its proposed goals and policies for consistency with the below mentioned points:

„h Organisation.s goals are achievable. „h Key operating policies address these goals. „h Key operating policies complement one another.

„h Goals and policies are in sync with industry opportunities.

„h Goals and policies can be accomplished with available resources. „h Goals and policies relate to societal concerns.

„h Goals and policies match the availability of resources to the company with respect to its competitors.

„h Timing of the goals and policies reflect the organisation.s ability to be flexible. „h Goals are well defined by the key implementers.

„h There is a link between the goals, policies, and values of the key implementers to ensure commitment.

„h There is sufficient managerial capability to allow for effective implementation. Self Assessment Questions

6. Competitive Strategy is a combination of the ________for which the firm is striving, and the _________through which it is seeking to get there.

7. Industry opportunities and threats with its attendant risks and potential rewards define the________________________.

3.5 Corporate/Business and Operations Strategy

The Corporate strategy defines the long term vision of a company. The business strategy of an individual business of a corporate entity follows from the corporate strategy. Most large

corporations pursue several businesses representing different industries and operating in different markets. Each business has to find its own way of competing in its markets. Three different types of .Generic. strategies can be pursued by businesses. They are:

„h Low Cost strategy. „h Differentiation Strategy.

„h Niche strategy which can be either low cost or differentiation in approach.

Operations strategy specifies how the firm employs its production capabilities to support its corporate strategy.

(27)

.Mission., .Distinctive Competencies., .Objectives. and .Policies. form the heart of operations strategy. Figure 3.3 depicts:

„h The Inputs and Outputs of the operations strategy.

„h The hierarchy of strategies in a typical multi-business firm. Operations Management Unit 3

.: 51

Corporate & Business Strategy Operations Strategy Mission Distinctive Competence Objectives

(cost, quality, flexibility & delivery)

Policies

(process, quality systems, capacity, & inventory Results Internal Analysis External Analysis Consistent pattern of decisions Functional strategies in marketing, finance, engineering, human resources, and information systems

Figure 3.3: Operation Strategy Model

Decisions in the four parts of operations ¡V process, quality, capacity and inventory ¡V are outcomes of the strategy formulation, and are connected with other functions in the business ¡V such as marketing and finance. The role of Operations Strategy in relation to other functional strategies in any of the businesses of the firm is given below:

Operations mission

Every business operations should have an articulated .Mission. along with other functional strategies that is connected to the business strategy as well. For example, if the business strategy is product leadership, the operations Operations Management Unit 3

.: 52

mission should focus on new product introduction and develop the needed flexibility to adapt product to the changing needs of the market. If the company chooses to follow other strategies ¡V such as market or price leadership ¡V the corresponding operations missions would be different. Thus, the operations mission is derived from the business strategy adopted.

Distinctive competence

Distinctive competence refers to the company.s ability to carry out a (business) process better than the competitors. The competence could be derived either from .unique. resources (capital or human) or from .unique. capabilities (sometimes leading to a patent).

The distinctive competence of the company should be commensurate with the .mission. of operations. Developing the distinctive competence refers to developing a business process in an area (for example, in quality assurance) which is different from the mission of the operations (say, excelling in new-product innovation). Similarly, the distinctive competence must be valued by

(28)

other functional areas such as marketing, finance, etc., so that it gets all-round support from the entire cross-section of the business, as a basis for obtaining competitive advantage.

Sometimes, a business strategy may be derived from a company.s distinctive competence (existing or planned) and the company may work towards matching the market to it. A company, in order to compete effectively ¡V would need not only a suitable market segment but also a unique capability to service the market segment. Thus, it is seen that .distinctive competence. is an essential pre-requisite for working on a successful business strategy.

Operations objectives

The third element of Operations Strategy is operations objectives. There are four common objectives, they are:

„h Cost „h Quality „h Delivery „h Flexibility

The company.s .Mission. is logically converted into objectives in the above mentioned areas. To be strategic in nature, these objectives should be long-term (5 to 10 years).

Operations policies

This relates is the fourth element of the Operations Strategy. Policies are normally broad guidelines that the company develops in keeping with their strategies and value systems. These policies assist decision-makers (including the senior most management levels) in arriving at decisions. Operations policies should generally be developed for each decision categories (process, quality systems, capacity, and inventory), and should be integrated with other functional decisions and policies.

Linking strategies

Operations Strategy should also be linked with other parts of the whole business, such as marketing and financial strategies. Table 3.1 shows how two diametrically opposite business strategies give rise to different functional strategies4:

Table 3.1: Comparison of Business Strategies Strategy A Strategy B Business Strategy Product Imitator Product Innovator Market Conditions Price sensitive Mature Market High Volume Standardised product Product-features sensitive Emerging Market Low Volume Customised Product Operations Mission

Emphasise low-cost for mature products Emphasise flexibility to introduce new products Distinctive Competence Operations

Low cost through superior process technology and vertical integration

Fast and reliable new-product introduction through product teams and flexible automation 4 Refer book on ¡§Contemporary Concepts and Cases: OPERATIONS MANAGEMENT¡¨ ¡V International Edition - by author Roger G. Shroeder ¡V page 28

Operations Policies Superior process

(29)

Dedicated automation Slow reaction to changes Economy of scale Workforce involvement Superior products Flexible automation Fast reaction to changes Economies of scope

Use product development teams Marketing Strategies

Mass distribution Repeat sales

Maximising of sales opportunities National sales force

Selective distribution New-market development Product design

Sales made through agents Finance Strategies

Low risk

Low profit margins Higher risks

Higher profit margins

Thus, it is seen that not only the Operations Strategy gets dictated by the overall business strategy of a company, but also that the other functional strategies need to be in line with the Operations Strategy.

Focused operations

Whichever type of strategy the company follows, it has to ensure that the operations function is carried out in a .focused. manner through a coordinated set of policies.

8. The Corporate Strategy defines the _________vision of a company. 9. _______________________.form the heart of operations strategy.

10. ____, ____, _____, and _____ are the .four common objectives of Operations.. Activity 3:

Visit two supermarkets and compare their business strategies. 3.6 Global Environment of Competition

A company should be very effective in its operational performance and should have good strategy, to perform well. It is very difficult for a company to outperform others merely on the strength of its operational effectiveness.

For example, Japanese companies had developed substantial competitive advantage mainly due to their far superior manufacturing techniques and practices. In course of time, American

companies caught up with the Japanese in respect of manufacturing expertise, and overhauled them in performance with the help of superior strategies.

Business Strategy is a company.s plan as to how it will compete in the market place. However, the competitive environment is constantly changing. This could be largely attributed to the emergence of new technologies in almost all industries. Therefore, a company needs to be alert and have the ability to adjust to the changing environment in order to remain competitive. Future business conditions across the world can be estimated by understanding the present conditions. Some of the business conditions that affect the current business scenario are as follows:

„h Global competition as prevailing today.

„h Customers. increasing demand for quality, customer service and low price. „h Rapid onset of new and advanced technologies.