Operations Management:
Introduction & Strategy Module


Introduction & Administrative
Key Principles of Course
» Strategic role of Ops
» Process view of Ops

Strategies, Capabilities and Operations
» Strategic Framework
» Wal-Mart

Aligning strategy and operations:
» Shouldice Hospital
» Focus
» Wriston Manufacturing
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Key Principle of course:
1. The Strategic Role of Ops
“A company’s operations function is
either a competitive weapon
or
a corporate millstone.
It is seldom neutral.” [Skinner ‘69]
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Key Principle of Course:
2. The Process View of Ops
 By
rethinking the IBM Austin assembly plant and
introducing cells,
– distance traveled by a card was cut from 1.5 miles to 200
yards
– floor space was reduced to half
– production tripled with about the same number of workers.
[Chicago Tribune, July 1992]
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Operations & the Process View:
What is a Process?
Information
structure
Inputs
Process
Management
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital
Resources
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What defines a “good process”?
Performance: Financial Measures
 Absolute
measures:
– revenues, costs, operating income,
net income
T
Ct
– Net Present Value (NPV) = 
t

Relative measures:
t 0
1  r 
– ROI, ROE
EBIT  Tax
– ROA = Average Total Assets

Survival measure:
– cash flow
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Firms compete on product attributes.
This requires process competencies.
Product Attribute (External)
Process Competency (Internal)
Cost
Cost
Response time
Flow time
Variety
Flexibility
Quality
Quality
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Process Competencies are affected by
Process Structure and Management
 Process
structure or architecture:
– (1) inputs and outputs
– (2) flow unit (“jobs”)
– (3) network of activities & buffers
» quantity & location
» precedence relationships
– (4) resource allocation
» capacity & throughput
Operations Planning & Control
 Organization

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What defines a good operation?
Achieving alignment at FedEx
2006 2005
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2004
Revenues 32,294 29,363
24,710
Income
1,440
3,014
2,471
8
A Strategic Framework for
Operations
Business
Strategy
Desired
Capabilities
Processes
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Operations
Structure
Resources
9
What defines a good operation?
Achieving alignment at IKEA
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Shouldice Hospital
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11
Wriston Manufacturing
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Wriston Manufacturing
Burden Rates (total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0
Sanduski
Detroit
Lima
Lebanon
Saginaw
Essex
Tiffin
Essex
Tiffin
Freemont
Maysville
Freemont
Maysville
Free capacity and Throughput
160
140
120
100
80
60
40
20
0
Sanduski
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Detroit
Lima
Lebanon
Saginaw
13
Focus and the Frontier
In the health-care sector
Responsiveness
World-class
Emergency Room
One general
facility
operations
frontier
World-class
(non-emergency)
Hospital
Cost efficiency
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Learning Objectives
Operations & Strategy

An operation as a transformation process

Product Attributes / Operational Capabilities

Process Drivers / Operations structure

Link between business strategy, operations strategy, and
operations structure
– Strategy vs. Operational Effectiveness
– Operational Focus
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