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Strategic Management of Resources
Session 2
Choices Affecting Structure
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Strategic Management of Resources
Session 1: Aligning Resources with Strategic Plans
Session 2: Choices Affecting Operations StructureSession 3: Choices Affecting Infrastructure
Session 4: Configuring and Integrating Operating
Processes
Session 5: Supply Chain ManagementSession 6: Configuring and Integrating Design and
Development and Cost Management Processes
Session 7: Project Management
Session 8: Measurement ManagementSession 9: Change Management
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Objectives of Session 2
Explain what operations strategy is andunderstand how it is developed
Know how strategic operating decisions
are made based on process or productchoices, volume and variety options, and
product factors
Identify and understand the content ofstructural choices
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Operations Strategy
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
Corporate Strategy
Focus: Survival
Service-enhanced product or delivered service Satisfied customer
Policy
Manufacturing Operations Strategy
Focus: Competitive Strategies
Cost Flexibility Quality Delivery
Other Operations
Strategies
Marketing
Finance
Human Resource
Engineering
Business Strategy
Focus: Distinctive competence in the field
Costleadership
Product differentiation Focus (cost or differentiation)
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Focus of Session 2
Manufacturing Operations Strategy
Focus: Competitive Priorities
Cost Flexibility Quality Delivery
Levels of
Operation
Management
Function
Critical
Resources
Decision
Focus
Land
Capital
Labor
Knowledge
Structure Organizational
structural design Capacity strategies Facilities strategy Technology
Infrastructure Organizational
infrastructure design Workforce involvement Operation systems
configuration
Capability building Planning Fitting
Implementation Direction Control
Top management
General staff
Specialists staff
Functional
activities
Source: Stonebraker, Peter W. and Keong Leong, G., Operations Strategy (Prentice-Hall, 1994).
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Critical Choices
Focus decisions Process-focused
Product-focused
Customer-focused
Product factors decisions Product volume, variety,
profile, and range
Types of processes
Product life cycle Product or service matrix
Market exit and timing
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Operations Strategy Choices
Structure decisionsinclude Organizational
structural design
Capacity strategies
Facilities strategy
Technology
Infrastructuredecisions include Organizational
infrastructure design
Workforce
involvement
Operation systems
configuration
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Content of Operations Strategy
Source: Stonebraker, Peter W. and Leong, G.K., Operations Strategy (Prentice-Hall, 1994). Reprinted with permission.
Fine and
Hax (1985)
Decision
Focus
Skinner
(1969)
Hayes and
Wheelwright(1989)
Buffa
(1984)
Product quality
Humanresources
Scope of newproducts
Infrastructure
Structure
Productionplanning andcontrol
Organizationandmanagement
Labor andstaffing
Product designand engineering
Productionplanning andcontrol
Quality
Organization
Workforce
New productdevelopment
Performancemeasurementsystems
Implications ofoperatingdecisions
Workforce andjob design
Position ofproductionsystem
Capacity
Facilities
Processes andtechnologies
Plant andequipment
Capacity
Facilities
Technology
Capacitylocation
Product orprocesstechnology
Verticalintegration
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Definition of Volume and Variety
Product volumeRefers to the overall quantities of a
particular product or product family in a
market niche
Product variety
Refers to the number of end items that arepossible for a product or product family
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Volume and Variety Matrix
Variety
Volume
1
3
4
2
Job shop
Batch
Line
Continuous
Source: Hill, Terry, Manufacturing Strategy: Text and Cases, 2nd ed., (Irwin McGraw-Hill, 1994). Reprinted with permission.
Low High
High
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Product Range
Same products
or productfamilies
Different volumes and varieties of products will result.
Niche 1
Niche 2
Niche 3
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Product Grouping Questions
What are the overall firm strategy and marketing
strategy? What market niches are being served?
What products are being sold into those niches?
What are the order winners and qualifiers for products
in each niche? What are the current and expected volumes and
varieties for products in each niche?
How should we create product groupings?
What are the manufacturing strategies for each
product grouping?
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Order Winners and Qualifiers
Niche 1
Niche 2
Niche 3
Order winners,qualifiers, and non-
issues determine
the formulation of
the planning and
control system.
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Product Profiling
Product profiling seeks to determine the degree of
fit between the deployment choices of the firm andthe current and expected volumes and varieties of
products in each market niche.
Deployment choices
Expected
volumes and
varieties
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Template for Product Profiling
Volume and Variety
1 2 3 4
Issues Job Shop Batch Line Continuous
Products and Markets
Type of product Special Standard
Product variety High Low
Product volume Low High
Amount of change required High Low
Need for flexibility High Low
Order winners Cost/price, Price
flexibility,quality,delivery
Source: Adapted fromHill, Terry,Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc.,1989. Adapted with permission of McGraw-Hill, Inc.
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Product Profiling 2
1 2 3 4
Issues Job Shop Batch Line Continuous
Products and Markets
Type of product Special Standard
Product variety High Low
Product volume Low High
Amount of change required High Low
Need for flexibility High Low
Order winners Delivery, quality, Price
product design,flexibility
Volume and Variety
Source: Adapted fromHill, Terry,Manufacturing Strategy: Text and Cases, ( Irwin McGraw-Hill, Inc.,1989). Reprinted with permission of McGraw-Hill, Inc.
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Product Profiling 3
1 2 3 4
Issues Job Shop Batch Line Continuous
Products and Markets
Type of product Special Standard
Product variety High Low
Product volume Low High
Amount of change required High Low
Need for flexibility High Low
Order winners Delivery, quality, Price
product design,flexibility
Volume and Variety
Source: Adapted fromHill, Terry,Manufacturing Strategy: Text and Cases( Irwin McGraw-Hill, Inc.,1989). Reprinted with permission of McGraw-Hill, Inc.
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Stages of the Product Service
Birth of the Delivery System
Design and process technology selection
Design of the delivery system
Start-up of the delivery system Growth of volume
Stable state
Decline and renewal of the system
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Product and Service Portfolio Matrix
Low High
Mark
etG
rowth
High
Low
Question
marksStar
performers
Dogs Cash cows
Market Share
Source: Hedly, Barry,
Strategies and the
Business Portfolio,Long-
Range Planning, February
1977.
4 5
7 6
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Market Entrance and Exit Timing
Stable State Decline and Renewal
1 2
34
Timi n
g
ofMa
rket
Entrance
Growt
hofVolume
Start-
Up
Blunder Standardized
high volume
Innovative
Flexible, then
shifts towardstandardization
and high volume
Timing of Market Exit
Stonebraker, Peter W. and
Keong Leong, G., Operations
Strategy, (Prentice-Hall,
1994). Reprinted with
permission.
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Product Life Cycle
Prod
ucts
ales
Low volumes
Rapidlychangingvariety
More stable design
with fewer models
High volumes
Very few models
Growth Maturity DeclineIntroduction
Higher volumes
Lots of newfeatures andoptions,leading tolowervolumesper producttype
Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998).
The life cycle defines development of a product or service in four phases.
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Questions at Introduction Phase
What product or service will be offered? What is the design of the product or service?
What is the expected market for the product or service?
What volume and process capacities are required?
What level of process technology is appropriate?
What types of equipment and labor force should be selected? How should the production or service delivery system be organized?
What information system should be chosen?
Productsales
Lowvolumes
Rapidlychangingvariety
More stable designwith fewer models
Higher volumes
High volumesVery fewmodels
Lots of newfeatures andoptions,leadingto lowervolumes perproduct type
Growth Maturity DeclineIntroduction
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Questions at Growth Phase
What facility and process upgrades are required?
How will production or service delivery be scheduled?
How will performance be evaluated? How will the distribution system be organized?
Productsales
Lowvolumes
Rapidlychangingvariety
More stable designwith fewer models
Higher volumes High volumes
Very fewmodelsLots of newfeatures andoptions,leadingto lowervolumes perproduct type
Growth Maturity DeclineIntroduction
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Questions at Maturity Phase
What process efficiencies are necessary?
What product or service features are required?
What market repositioning is appropriate? What follow-on product or service should be considered?
Productsales
Lowvolumes
Rapidlychangingvariety
More stable designwith fewer models
Higher volumes
High volumes
Very fewmodelsLots of newfeatures andoptions,leadingto lowervolumes perproduct type
Growth Maturity DeclineIntroduction
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Questions in the Decline Phase
What is the salvage value of the facility?
How much repair parts stock should be produced?
How can the effects on employees be minimized?
What are the long-range responsibilities for the product orservice, process technology, and production system residues?
Productsales
Lowvolumes
Rapidlychangingvariety
More stable designwith fewer models
Higher volumes
High volumes
Very fewmodels
Growth Maturity DeclineIntroduction
Lots of new
options,leadingto lowervolumes per
features and
product type
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Product ServiceVolume Low Increasing High volume Declining
Variety Unique
products or
services
Increasing
standardization
Emergence of
a dominant
design
High
standardization
Process TechnologyOrganization Fixed-project
job shop
Small batch Line flow
assembly
process
Line flow
assembly
process
Innovation High Medium Medium LowIntegration Low Medium Medium High
Industry FactorsStructure Small
competitors
Consolidation
and falloutFew large
companiesSurvivors
Competitive
PriorityFlexibility Quality and
flexibility
Price/cost and
deliveryPrice/cost
Life Cycle and Manufacturing Deployment
Growth of
volumeStable state Decline and
renewal
Start-up of
operations
Source: Stonebraker, Peter W. and Keong Leong, G., OperationsStrategy, (Prentice-Hall, 1994). Reprinted with permission.
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Manufacturing Operations Strategy
Focus: Competitive Priorities
Cost Flexibility Quality Delivery
Levels ofOperation
Management
Function
CriticalResources
DecisionFocus
Land
Capital
Labor
Knowledge
Structure Organizational design Capacity strategies Facilities strategy
TechnologyInfrastructure Organizational design Workforce involvement Operation systems
configuration
Capability-building Planning Fitting
Implementation
Direction Control
Top management
General staff
Specialists staff
Functional
activities
Manufacturing Strategy ChoicesStructureSession 2 Organizational structural design
Capacity strategies Facilities strategy Technology
E l f St t l Ch i
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Examples of Structural Choices
Organizational design:Which of five forms fit needs
Capacity strategies:utilization, number of shifts,
degree of overtime, amount
of subcontracting, etc.
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Examples of Structural Choices (cont.)
Facility size, design, location,
cost, and range of products
manufactured
Technology, specialization,
degree of automation,
technologies employed,
capability, and output rate
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Fi F f O i ti
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Five Forms of Organization
The five forms of organization designare Simple
Functional Divisional
Conglomerate
Hybrid
Ch t i ti f Si l D i
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Characteristics of Simple Design
Small in size Less than four levels
Little formalization
Low complexity
Centralized authority
Ch t i ti f F ti l D i
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Characteristics of Functional Design
Used in larger organizations Defined staff functions and line
organization
Requires functional specialists Less centralization
Higher formality of functional design
Ch t i ti f Di i i l D i
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Characteristics of Divisional Design
Great horizontal differentiation Made up of self-contained business units
Different products or services
Differing level of process Different locations
Decentralized authority
Possibly redundant technical and
administrative functions
Ch t i ti f C l t D i
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Characteristics of Conglomerate Design
Little task or output dependency Receives resources from conglomerate
Returns revenue to conglomerate
Independently functioning groups
Distribution of risk over several business
units
High complexity
Ch t i ti f H b id D i
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Characteristics of Hybrid Design
Integrated functional designs Duality of responsibility
Decentralization
Very low level of formality
Highly complex
C it St t
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Capacity Strategy
Capacity strategy is the process of identifying,measuring, and adjusting the limits of the
transformation process to support competitive
priorities such as Cost
Quality
Delivery
Flexibility
C it St t i
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Capacity Strategies
Lead strategyCapacity is added in anticipation ofincreased demand.
Lag strategyCapacity is added only after demandincreases are well known.
Tracking strategyCapacity is added in small increments tofollow demand patterns closely.
Pl t d F ilit D i i
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Plant and Facility Decisions
The four major decisions associated withfacilities are Size
Location
Focus
Layout
Facilit Location Decisions
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Facility Location Decisions
Cost factors Facility costs
Taxes
Local labor rates Utility costs
Transportation costs
Facility Location Decisions (cont )
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Facility Location Decisions (cont.)
Qualitative factors Proximity to customers
Proximity to suppliers
Availability of labor,
transportation, power
supply, and utilities
Quality of life
Legal issues
Special incentives andcommunity attitudes
Plant Focus
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Plant Focus
The concentration of work in a plant on a limited,concise, manageable set of products, technologies,
volumes, and markets precisely defined by the
companys competitive strategy, its technology, and
economics
Competitive
Strategy
A Plant Can Focus on:
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A Plant Can Focus on:
Product
Process
Order Winners(Customer focus)
Product Focus
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Product Focus
Product focus means that the plant produces
a single product or product line.
O d Wi F
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Order-Winner Focus
Order-winner focus means a plant concentrates on
output that provides a certain strategic order-winning characteristic.
Customer Focus
Fixed Position Layout
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Fixed-Position Layout
Raw Materials
Grinders
CuttersDrills
Welding Machines
Workers
Source: Adapted from CPIM Systems & Technologies Review Course (APICS, 1998).
Process or Functional Layout
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Process or Functional Layout
Lathe Drill
Assemble Weld
2-47
Source: Stonebraker, Peter W. and Keong Leong,.G., Operations Strategy (Prentice-Hall, 1994).
Product Layout
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Product Layout
WS = Work StationProduct A Product BSource: Stonebraker, Peter W. and G. K. Leong, Operations Strategy (Prentice-Hall, 1994).
Line 2
WS12 WS13 WS14 WS15
WS22
Line 1
WS11
WS23WS21
FinishedMaterials
Storage
RawMaterials
Storage
Cellular Layout
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Cellular Layout
U-Shaped CellC-Shaped Cell
Group Technology
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Group Technology
Identifies similarity of manufactured parts Establishes common routings
Classifies parts
Size
Geometry
Function
Facilitates cellular layout
2-50
Focused Factory Process
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Focused-Factory Process
A focused factory structures its capabilities tobe consistent with a single markets order
winners and order qualifiers.
Focused Factory
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Focused Factory
Entire factory focused on a limited set ofProducts
Technologies
VolumesMarkets
Defined by the companys competitive
strategy