Operations Strategy (Slack and Lewis) Chapter 4-8

What is capacity?

"the maximum level of value-added activity over a period of time that the operation can achieve under normal conditions".

How is process technology strategy defined?

"The set of decision that define the strategic role that direct and indirect process technology can play in the overall operations strategy of the organization and set out the general characteristics that help set out the general characteristics that help to evaluate the alternative technologies."

Why is do or buy the most critical purchasing and supply decision?

(When whole operations are considered, it is referred to as vertical integration) -The decision to do or buy something has profound effect on all operations performance objectives. -The decision has both strategic and operational aspects to it

What are pros/cons of doing development in-house?

+Easier to control resources +Stronger familiarity with the rest of products/processes -Is more of a fixed cost

Why is timing important when concerned with capacity changes?

- time lag/lead time between when we make a decision and its fully 'online'. -need to make these decisions before we know demand. -market response -competitive response

What are causes of supply chain dynamics?

-Demand forecast updating (orders are based on demand + replenish inventory) -Order batching (orders batches for economic order quantities) -Price fluctuations (promotions) -Rationing and shortage gaming (order more than they need)

What factors influence the choice of what type of relationship?

-How the firm intends to differentiate itself through its market positioning -Likely competitive behavior -Economies of scale (and lack thereof) -Transaction cost levels -Resource deficiencies

Market requirements: Considerations related to quality and development:

-Key difference in judging how development processes satisfy market needs -Customers do not necessarily know what they want from something that does not exist -easier to distinguish in hindsight

How do we evaluate feasibility?

-What technical or human skills are required to implement it? Are these available? -What amount of resources are required to implement it? -Cash requirements? -Can we cope with the degree of change in resource requirements?

The two views of improvement are ..

.. radical exploration or incremental exploitation Radical - breakthrough ideas, explosive sprints, abrupts, step change, long-term benefits Incremental - small continuous change with existing resources, processes and knowledge. Marathon, painless, immediate benefits

Fast response Low T/P time Deployed inventory flexible suppliers This is a .. ?

.. responsive supply chain objective

How can one characterize process technologies?

1. By what it processes (ex material, information, customers) 2. Primary capabilities (thinking, seeing, communicating) 3. Scale, automation and coupling (go from low to high)

What are the 8 stages of Bohn's? (form of knowledge)

1. Complete ignorance (nowhere) 2. Awareness (tacit) 3. Measurement (written) 4. Control of the mean (written and in hardware) 5. Process capability (hardware and operating manual no reinventing wheel) 6. Process characterization (optimize and fine-tune process) 7. Know how (scientific models) 8. Complete knowledge (hypothetical) Komma-ihåg: With complete ignorance we are not aware of measurements. But we control mean of process capacity and characterization thus know how to reach complete knowledge.

What is included in actions?

1. Few relationships 2. Information transparency 3. Dedicated assets 4. Joint problem solving 5. Joint coordination of activities

How can we manage supply chain dynamics?

1. Information sharing -final demand -supply problems 2. Channel alignment -adjust schedules, material movement, pricing, sales and stock levels 3. Operational efficiency -All operations reduce complexity, costs and throughput time

Operations resources What factors should be considered related to location of capacity?

1. Land and facilities investment (critical) 2. Resource cost (labor, energy, transport) 3. Community factors

What is supply network configuration?

Determining its overall patterns. It includes reconfiguring the network to change the relationship between the stages. Ex retail from tech.

What are the benefits of taking a supply network perspective?

1. Puts the operations into its competitive context and supports understanding supplier and customer behavior. Looking at our organization we can better understand the behaviors that affect the context 2. Helps to identify the key players in the network 3. Tends to shift towards long term 4. Changing nature of the 'supplier-buyer' relationship - organizations often compete as well as collaborate 5. Helps us ask important questions: -How can my operation help my customer's operation be more effective? This helps us understand our customer better and make our more valuable -How can my supplier's operation help my operation be more effective?

Market requirements: What factors should be considered related to location of capacity?

1. Required service levels 2. Suitability of the site itself 3. Image of location

Examples of supply chain risks:

1. Supply distruptions -Natural disasters -Pandemics -Industrial dispute -War and terrorism 2. Supply delays -High capacity utilization at supply source -Inflexibility of supply source -Poor quality or yield at supply source -International travel/transport 3. Systems breakdowns -Upgrading information infrastructure -Cyber attacks 4. Forecast inaccuracy -Long lead times, harder if product variety -Seasonality -Short life cycles -Bullwhip effects 5. Loss of intellectual property -Overlapping supply base in global sourcing -Weaker IP enforcement regimes increase this risk 6. Procurement problems -Exchange rate risks -Raw material increases -Weak contracting capability 7. Inventory costs -Rate of product obsolescence -Inventory holding cost

What 5 factors govern the speed and extent of adoption of new process technologies?

1. Technical feasibility - it must be developed and modified to suit its context. Can we do what we want to with it? 2. Enhancement of strategic capabilities - are we willing to accept adoption risks associated with technology may vary depending on the impact on strategic objectives and capabilities. Can work in any direction ofcourse 3. Benefits to the operation - although cost saving is main reason for process technology we can have other performance objectives like speed, flexibility that drive adoption 4. Labour market dynamics - existence or not of skilled labor 5. Social and regulatory acceptability - government and regulatory authoirties can intervene to promote or control technology adoption

What is high coupling? High scale? High automation?

1. Technology is integrated 2. Few large units of technology 3. Process (tech+humans) has low acuity (skarpsinne) and judgement

How do we set improvement priorities for performance objectives?

1. The importance of each performance objective. 2. Your performance in each of these performance objectives

If we apply the traditional decision area of capacity onto development, what are we deciding on?

1. The overall level of activity that an operation can support AND 2. how that level of support can be changed to respond to likely changes in demand. Its both the level and the changes in that level.

Why is flexibility becoming increasingly important?

1. The pace and magnitude of environmental change 2. The increasing complexity and interconnecteness of products and services

What is included in attitudes?

1. Trust 2. Sharing success 3. Long-term expectations 4. Multiple points of contact 5. Joint learning

If we apply the traditional decision area of network onto development, what are we deciding on?

1. What do we do in-house/outhouse? 2. How to manage the relationships between the actors in the network 3. How to involve customers in the development

Why are location of capacity decisions made?

1. there are changes in demand for goods and services 2. there are changes in the supply of input resources. These decisions are critical to get right since it can be hard to change them.

What is Bohn's eight scale of process knowledge?

A way to identify particular stages or forms of knowledge in within process knowledge.

If we apply the traditional decision area of organization onto development, what is important to know?

A key consideration in assessing the effectiveness of development organization is particularly dependent on two things. First, SPECIALIZATION - encourage depth of knowledge and technical understand. Secondly, INTEGRATION - allowing integrating smaller component or subsystem. The issue is balancing the business function with the project.

Where do you want to be in the importance-performance matrix?

Appropriate. We also have excess, improve and urgent.

What are the factors defining the vertical integration decisions?

Direction (back-/forward integration), balance (exclusive or non-exclusive) and extent (how far we are integrated).

What are the elements of partnership relationships that determine the closeness of relationships?

Attitudes and actions. Closeness is understood as degree of intimacy, understanding and mutual support

Operations resources: What should be considered?

Availability of capital - a first important point. And this is how ops strategy has ties to financial strategy. Cost structure of capacity increment - For example We have volume on X and cost and revenue of Y axis. Capacity can only be increased in chunks. The cost increases step wise as we increase capacity. This will go into deciding capacity. How big steps do we need to increase capacity to meet forecasted need of demand. Cost is made up of VC and FC. Capacity increase is made in increments. Economies of scale - important. Economies of scale means that as we increase our volume the cost per unit decrease. Its important to consider what is here known as the nominal capacity limit, the limit to capacity that we are facing. We are often able to extend capacity beyond this nominal limit. But beyond economies of scale diseconomies of scale kick in, if you build a too large factory due to complexity, managing means that unit cost increase. And often these unit costs are best represented by a band rather than a clean line hence the grey chaded bank. Flexibility of capacity provisions - how flexible can we be when we increase capacity. Is flexibility restricted when we increase capacity

Is lean and TQM a strategic or operational focus?

They are examples of pre-packaged operational approaches to improvement

Which degrees of trust are there?

Calculative trust Cognitive trust Bonding trust We move downwards towards higher degree of closeness as we move from based on knowledge to based on feelings, with time and from cumulative positive experiences.

Sidenote - what is important to remember about capacity?

Capacity is not the same as output, there may not be sufficient demand to operate at full capacity and for another point in some high-contact operations demand cannot exceed capacity. We have to be careful here - its not the same thing.

What are the three timing/generic capacity strategies?

Capacity leading strategy Capacity lagging strategy Capacity smoothing strategy

What is capacity strategy?

Capacity strategy defines the operations overall scale, the number and size of different site, the specific activities allocated to and the location of each site.

Market requirements: Considerations related to cost and development:

Cost of developing products and services is divided into input, labour, overhead -Cost is driven by the other performance objectives• -Quality: "error-free" processes reduce reworking concepts and designs -Speed: fast development can use resources for shorter periods -Dependability: provides stability, allowing for efficient resouce planning and prevents launch date slippage -Flexibility: can ensure the most appropriate design options are chosen, preventing costs of changing direction

Why is there a risk for under-resourcing development capacity?

Demand for development capacity is uneven, whereas capacity is relatively fixed. This under resourcing can in itself create a vicious cycle.

What are some pros/cons to in-house/out-house related to speed?

Do it yourself in-house supply +Can mean closer synchronization of schedules, which speed up throughput of materials and information -If the operation has external customers, internal customers may get low priority Buy it / outsources supply +Speed of response can be built into the contract +Commerical pressures will encourange performance -There may be significant transport/deliver delays

What are some pros/cons to in-house/out-house related to flexibility?

Do it yourself in-house supply +Closeness to the real needs of a businesss can alert the in-house operations that change is required -Ability to respond may be limited by the scale and scope of internal operations. Maybe it doesn't have enough capacity to ramp up. Buy it in outsources supply +External suppliers are likely to be larger and have wider capabilties than in-house suppliers, gives them more ability to respond to changes -There may be a need to balance the conflicting needs of different customers. Someone else might be even better customer than you.

What are some pros/cons to in-house/out-house related to dependability?

Do it yourself in-house supply +Easier to communicate internally can help dependable delivery and information on potential delays -If the operation has external customers, internal customer may get low priority Buy it in outsources supply +Late delivery penalties in the contract can encourage good delivery performance -Distance and organizational barriers may inhibit communication

What are some pros/cons to in-house/out-house related to costs?

Do it yourself in-house supply +Give the potential for sharing some cost (eg R&D, logistics) +Do not require the margin required by outside supliers, which can be captured internally -Relatively low volumes may mean that it is difficult to gain economies of scale or the benefits of process innovation Buy it in outsources supply +outsources companies can gain economies of scale +outsources companies are motivated to reduce their own costs since it directly impact their profit -extra cost of communication and coordination with external

What are some pros/cons to in-house/out-house related to quality?

Do it yourself in-house supply +origins of quality problems are usually easier to trace +improvements can be more immediate - there is a risk of complancency. If im the internal supplier I assume I will always have the business so don't need to try to hard. Buy it / outsourced supply +suppliers may have specialized knowledge +suppliers are motivated by market pressures. If they are not performing well they will loose the business. -communication of quality problems may be more difficult

What are the operations considerations related to in-house/out-house?

Do we want to do it ourself our outsource it? We assess the attractiveness of in-house/out-house. For example consider: -Availability of suppliers capabilities and capacity -Purchasing skills and knowledge -Relative cost of doing or buying -Effect on customer delivery -Potential for operations improvement - what is the most attractive proposition for us over time?

To get a match, a functional product should be matched with .. supply chain objective

Efficient

Market requirements: Considerations related to dependability and development:

Fast product and service development that cannot be relied on to deliver innovations dependably are not fast at all •Lack of dependability adds to the uncertainty surrounding the development process •Dependable processes give stability and minimize development uncertainty •Still, unexpected disruptions will always occur and the more innovative the development, the more likely they are to occurr -hence the key need for flexibility

What characterizes a responsive supply chain objective?

Fast response Low T/P time Deployed inventory flexible suppliers

What are the technology evaluation criteria for screening concepts?

Feasibility - how difficult is it? (INVESTMENT) Acceptability - how worthwhile is it? (RETURN) Vulnerability - what could go wrong? (RISKS)

Market requirements: Considerations related to flexibility and development:

Flexibility is the ability of the development process to cope with external (market requirement change) or internal (superior materials/tech solutions) change One of the biggest benefits from development flexibility is that it can reduce development risk

Market requirements: What should be considered?

Forecast level of demand - what do we think of demand going forward. It is crucial input in deciding how big we should be Uncertainty of future demand - we know forecast is not entirely correct. It should have an impact on overall level of capacity. Consequences of over or under supply - if we have too much what is the consequences then, obviously it will cost how important is that for us and the customers. And what if we undersupply, what is the consequences of that? Will it make customers leave us or what will happen. Change in future demand - do we foresee any gradual- or step changes that help us determine how we should reason around capacity

Whats the role of inventory in supply chain dynamics?

Inventory has a uncoupling effect on the operations in the supply chain. This increase the efficiency for that specific part of the chain, but limits effectiveness in the whole chain.

What is improvement sequences?

Here we look at the sand cone model, a theory of which sequence a operation should improve. It shows how quality (error-free/reliable) is the foundation, on that we build dependability, then speed (tpt lower), flexibility (reduce change over time) and lastly costs. order: QDSFC (Quality of Ds in San Fran City :)

What are the strategic considerations related to in-house/out-house?

How much of the supply network do we want to own? We assess the strategic attractiveness of our position in the supply network. For example: -Supply network structure -Strategic ambition -Capabilities acquisition -Risk of knowledge leakage -Profitability potential

What does improvement strategy concern?

How organizations can shape the routines that encourage the ongoing development of their operations

Chapter 7 starts

Improvement strategy

To get a match, a responsive supply chain objective should be matched with .. product

Innovative

What is the strategic improvement cycle?

It takes a strategic approach to improvement. We start with an intended market position, and this bottom-up DIRECTs the operation's performance and prioritization leading us to the operation's resources and processes. The resources and processes DEVELOP capabilities from learning. These capabilities are DEPLOYed to reach the company's market potential.

What is the Fisher matrix?

Its about match supply networks objectives with market requirements/nature of demand. Supply chain objectives are either 1. responsive 2. efficient Nature of demand is either 1. Functional products 2. Innovative products

What is process knowledge?

Its central to developing operations capabilities (as seen in strategic improvement cycle). Involves understanding the relationship between how we design/run processes and how they perform.

What is benchmarking?

Learning from other organizations in other industries. It allows us to judge how well we are doing to set performance standards. Can also help us find new ideas from stimulating creativity. Its not a day-to-day method for driving operations improvements.

What characterizes an efficient supply chain objective?

Low cost High utilization Min. inventory Low cost suppliers

Efficient SCO + functional product =

MATCH

When thinking of location of capacity, what two aspects must be considered?

Market requirements and operations resources.

How do we evaluate vulnerability

Market vulnerability (will it meet market needs? regulatory issues? social/political stakeholder issues? competitive response? timing? Resource vulnerability (critical resource dependencies?) Financial vulnerability (resulting from the two above)

What do we need to think about when making initial capacity level decisions?

Must be in accordance with: -market positioning strategy -what competitors do -time-scale

When thinking of overall level of capacity, what two aspects must be considered?

Operations resources and market requirements.

What characterizes a functional products?

Predictive Few changes Low variety Price stable Long lead-time Low margin

Chapter 8 starts

Product and service development and organization

What are advantages of fast development?

Products and services can be introduced to market faster and hence earn more revenue •Allows starting development later, to incorporate the most up-to-date information and reduce uncertainty •allows the introduction of new or updated products or services more often •affords more opportunities for innovation MORE REVENUE UP-TO-DATE -> REDUCED UNCERTAINTY MORE NEW/UPDATED PRODUCTS MORE OPPORTUNITIES

How has information-processing technology changed scale, automation and coupling?

Scale -> scalability (ability to shift to a different level of useful capacity quickly, cost-effectively and flexibly Automation -> analytical content (ability to integrate the flexible, intuitive and analytical abilities of humans) Coupling -> connectivity (ability to be platform independent, allowing communication between computing devices regardless of their specification)

If we have really flexible performance, what is the score of scale, automation and coupling?

Scale, automation and coupling = low

What is supply chain dynamics?

Small changes in demand at the end of the chain cause large fluctuations further back in the chain

What are the four stages of Nonaka and Takeuchi knowledge model?

Socialization (tacit - tacit) Externalization (tacit - explicit) Combination (explicit - explicit) Internalization (explicit-tacit) SECI - SEat CombI

Market requirements: Considerations related to speed and development:

Speed is becoming increasingly important

What is the difference between strategic and operational focus?

Strategic focus considers long-term, aggregated and abstract improvement. Whilst operational focus is more short term, specific and local (operational).

Which are the three interrelated levels that capacity decisions are made?

Strategic level - timescale of months-years Medium term level - timescale of weeks-months Short term level - timescale of minutes-hours-weeks

How is process technology defined?

The appliance of science to any operations process There is distinctions needed in: -direct/indirect processes (Direct -acts on the resources being transformed Indirect -help control and coordinate direct processes) -product/service

What capacity strategy is not applicable for product/service development?

The whole ethos is to antiqipate requirements and bring ideas to market quickly, this means that a capacity-lagging strategy is not practicle

How does technology change the product-process matrix?

They lead to market pressures, where there's competitive pressure to reduce costs and market fragmentation making flexibility more valuable. Scalability - many, small units Analytical content - high acuity and judgement connectivity - loose separated (coupling) It changes the nature of trade-offs, that still remain. This means that its the top right corner of the matrix that is still available. (low cost, high flexibility)

What is the capacity lagging strategy? Pros/Cons?

Timing the decision so that demand is always equal to or greater than capacity. We are increasing capacity so that we never have overcapacity. +unit costs are minimized +over capactity problems are minimized if forecasts are optimistic + capital spending is delayed - reduces revenue and risks customer satisfaction - no ability to exploit short-term increases in demand - undersupply position even worse if there are start-up problems.

What happens when there is too much/little capacity?

Too much capacity underutilizes capacity and drives up cost. Too little capacity limits the operations ability to serve customers and earn revenue. So getting capacity decision correct are really important. And it can be seen as the starting point for developing competitive organzaitions.

The two ingredients of supply relationships?

Transactional and partnership arrangement

What characterizes a innovative products?

Unpredictable Many changes High variety Price mark-downs Short lead-time High margin

If we apply the traditional decision area of technology onto development, what is important to know?

We are increasingly seeing reliance on computer based process technologies. Also knowledge management systems that help suggest solutions before they are developed.

In this new position in the product process matrix, what is it characterized by?

We are low on market requirements = high volume, low variety. High on flexibility = high flexibility, redundant capacity and high costs. We have left the 'classical' straight diagonal line

What is the capacity leading strategy? Pros/Cons?

We are timing the decisions so that there is always enough capacity to meet demand. + maximize revenue and customer satisfaction + Capacity cushion absorbs extra demand I forecasts are pessimistic +Start-up problems less likely to affect customers - utilization is always relatively low. - risks of even greater or permanent over capacity if demand don't reach forecast level. If we were optimistic. - capital spending early

What is the importance-performance matrix?

We evaluate how important a product feature is for customers and how we are doing relative to competitors. For customer: We check if the product group fulfills the descriptions we set for order-winners, qualifiers and less important. For competitors: we evaluate based on 'better than competitors', 'same as competitors' or 'worse than competitors'. From this we get a performance scale (competitors) and importance scale (customers).

How do we evaluate acceptability?

We look at both operations resource capabilities, market requirements and financials (return). Resources: scarce? movable? copyable? substitutable? Market: How does the technology affect performance objectives: quality, speed, dependability, flexibility, cost?

What is the capacity smoothing strategy? Pros/Cons?

We time our decisions so that current capacity plus accumulated inventory can always supply demand. We use inventory to sell when demand is larger than capacity. + maximizes revenue and customer satisfaction + utilization is high and costs are low + short-term demand surges can be met from inventories - cost of inventories increase working capital requirements - risk of product deterioriation and obsolence - not applicable for all operations. Far from all can build stuff, like services or fashion industry.

If we look top-down (bottom-up) on in-house/out-house decision what is the main considerations?

What kind of organization do we want to be? (short-term capacity and capabilities of the firm to perform a certain activity) These two meet to decide the operations scope: -> what do we want to do within the organization and what do our supplier need to help us with?

What are pros/cons of doing development subcontracted?

•Requires greater control (at a distance), often through contracts (which may hamper trust building) •More difficult to access tacit knowledge •Seen more as a variable cost