L1,2,3,4 - OM and Op. Strategy - Developing resources and processes for strategic impact, Process analysis - Analyzing operational capabilities
Improving bottleneck capacity
Add resources, balance, avoid rework, make batches
Apple vs Samsung
Apple has lower CCC, they are focused on customer needs, product design and development. The rest is outsourced. They also have retail stores to get closer to customers. Samsung is, besides that, focused on materials, components, but they also outsource a lot of things but they cover a much larger part of supply chain. Apple doesn't stock inventory, it is handled by their suppliers. Apple gets money immediately from their stores. Samsung is vertically integrated.
Operations management levers
Are used to influence indirectly the 4 competitive dimensions (cost, quality, flexibility and cost). They are capacity, material flows, information flows and quality/accuracy of process). Bottom up approach-build capabilities
Flow rate depends on
Available inputs, capacity and demand
Elan producing Bikes
Bottom up approach failed, obsolete capabilities not matching the production needs- they wanted to produce alu bikes with old rog equipment. Failed bottom-up approach
Servitization
Building service activities to support a firm's product offerings - fleet management
Business Functions
Marketing and Sales, Finance, and Operations Management
Inputs to be transformed
Materials, information, customers
Little's Law
I=R*T (works on average in unstable conditions)
Strategic positioning - Redesign process
If we are close to the frontier, why don't we push even further? Change the industry standard and try new technology. OM can help by planning - introducing novelties and forecasting consequences.
Managing flow rate
Improve BN capacity, improve BN utilization
Increasing process capacity
Increase bottleneck capacity, balance the work between resources, making batches of products
3 operational measures of process performance
Inventory (how many flow units are in the process), flow rate (rate at which flow units enter or leave the process), flow time ( time a unit spends in the process)
Paths to take to increase profitability
Low cost (low variability, low inventory, high utilization) High sales(high variability, high inventory, low utilization) In both cases we want short flow time
Horizontal perspective of operations strategy
Market requirements (what the customer wants) Operations capabilities (match operations capabilities with market requirements)
Theoretical Flow Time
Minimum amount of time required for processing a typical flow unit without any waiting - only value adding activities
Elan sailboats
No company should neglect any of 4 attributes in order to be competitive on the market, but there must be a strategic tradeoff. Also competitiveness analysis needs to be done in relative terms - compare ourselves to competitors. Mass customization - mix between mass production and customized products.
top-down perspective of operations strategy
Operations strategy should follow the business strategy (What the business wants operations to do)
Resource Utilization (how much time the resource is utilized)
Process capacity/Resource capacity
Order Qualifiers
characteristics that customers perceive as minimum standards of acceptability to be considered as a potential for purchase
Inventory Turnover (annual turns)
R/I = 1/T
Managing flow time
Reducing TFT (shorten the non-value-adding activities), work faster, do it right the first time, focus on product which take less time, do several activities at the same time, reduce the waiting time
Process
A sequence of activities linked to one another which result in valuable information for decision making. They are behind every function in a company. In processes, inputs are transformed into outputs.
Operations strategy - strategic trade-offs - Product-process attributes
A tradeoff between time, quality, flexibility and cost in order to reach competitive advantage
Effect of variability & capacity utilization on waiting
Variability has a major influence on waiting time. It means unexpected demand, customer-specific processing time and long waiting. The more variability, the less stable process. Working at capacity of 100% results in waiting times close to infinity. Extra capacity needs to be there in emergency call centers.
Bottom-up perspective of operations strategy
What day to day experience suggests operations should do (develop capabilities to make business strategy work)
Value Stream Mapping
a graphical way to analyze where value is or is not being added as material flows through a process
Constrained process
Capacity constrained (lack of input or capacity) Demand constrained (lack of demand)
Order Winners
Characteristics of an organization's goods or services that cause it to be perceived as better than the competition
Dell's revolution in the PC market.
Dell reduced its days inventory significantly and reduced the cash conversion cycle. They were turning sales into cash much faster. Dell took advantage of the Internet and came up with direct-to-customer business model. Dell eliminated the distribution channels. Dell gave the choice to customize your own computer and wait only a couple of days.
Resources - Inputs to enable transformation
Facilities, people, knowledge, machines
Performance Measures
Financial(CCC - very aggregated), customer satisfaction, operational
Actual Flow Time
Flow time including waiting - also non-value adding activities
Strategic positioning - Overcome inefficiencies
Follow what the competitors are doing and compare in terms of both attributes. How can we improve our inefficiencies and get closer to the industry frontier.
Outputs
Goods and services
Production
The creation of goods and services - transformation
Cash Conversion Cycle (CCC)
The length of time required for a company to convert cash invested in its operations to cash received as a result of its operations. First we have cash, then we invest it in in our acc. payable to pay our suppliers, we build products (inventory), then we sell and later our customers pay (acc. receivable). Negative - we pay our suppliers late and the customers pay us immediately or even pre-hand.
Capacity
The maximum rate at which the resource can process the units. It determines the flow rate. Equal to the bottleneck capacity.
Bottleneck
The slowest resource of the process. Determines the process capacity. Has to be fully utilized.
Strategic positioning - Making Operational Tradeoffs - Deustche
Tradeoff between responsiveness (time) and cost efficiency. How to balance product attributes? There will be a tradeoff.
Improve BN utilization
match supply and demand better (flatten the demand), take care of bottleneck (avoid starvation or blocking - keep inventories in front of BN station), reduce set-ups and set-up times (setting up, loading)
lead time
the time needed to respond to a customer order
Flow time efficiency
theoretical flow time/actual flow time