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Strategic Management of Resources

Session 2

Choices Affecting Structure

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Strategic Management of Resources, ver. 1.2October 2002 2-2Vis

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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


Focus: Competitive Priorities


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








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








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


More stable designwith fewer models

Higher volumes

High volumesVery fewmodels

Lots of newfeatures andoptions,leadingto lowervolumes perproduct type


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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



Higher volumes High volumes

Very fewmodelsLots of newfeatures andoptions,leadingto lowervolumes perproduct type


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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



Higher volumes

High volumes

Very fewmodelsLots of newfeatures andoptions,leadingto lowervolumes perproduct type


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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



Higher volumes

High volumes

Very fewmodels


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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Focus: Competitive Priorities


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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Strategic Management of Resources ver 1 2 October 2002V

Focused Factory

Entire factory focused on a limited set ofProducts

Technologies

VolumesMarkets

Defined by the companys competitive

strategy

02smr ses2 ver 1-2

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