Operations Management: A supply chain approach

Operations Management: A supply chain approach Assignments University of Zurich Institute of Strategy and Business Economics Services- and Operationsmanagement Assignments Handouts Groups of 3-5 students will receive 3-5 papers, for which they will have to prepare a handout (max. 3 pages). Those handouts will be graded and have to be send by email to patricia.deflorin@isu.uzh.ch by the end of the prior week. Group-Presentation Every group will have to present one of the summarized papers in class (10min). Discussion & Co- Presentation For the other 2-4 papers the groups will have to prepare questions for the discussion as well as give a short feedback to the presenting group (approx. 5 min). FS10 / 2

Assignments 1. Please provide us with your name and E-Mail address. 2. On Thursday around 6pm you will receive an E-Mail with the following information: Papers and deadlines Size of groups Doodle Link (first comes first served) FS10 / 3 Example An example with 6 groups, where each group will have to prepare 4 handouts and 1 presentation. Gruppe Papers 1 Barney (1991) Powell (1995) Shah (2003) Deflorin (2010) 2 Skinner (1974) Ketokivi (2004) Shah (2007) Birkinshaw (2004) 3 Ferdows (1990) Laugen (2005) Scherrer (2009) Gupta (2006) 4 Roth (1992) Vereecke (2002) McLachin (1997) Raisch (2008) 5 Teece (1997) Cua (2001) Womack (1994) Benner (2003) 6 Jacobides (2006) Deflorin (2009) Womack (1996) Ferdows (1997) FS10 / 4

Example Doodle example FS10 / 5 Operations Management: A supply chain approach University of Zurich Institute of Strategy and Business Economics Services- and Operationsmanagement

Overview 1. Operation Strategy: Origins and New Directions 2. Determining Organizational Boundaries: Vertical Integration and Outsourcing 3. Designing and Managing Operating Networks 4. Creating an Edge through New Process Development 5. Sharpening the Edge: Driving Operations Improvement FS10 / 7 1. Introduction Operations includes all required activities to create and deliver a product or service, from procurement through conversion to distribution. can be a competitive weapon if designed and managed properly. Operations Strategy Is a set of goals, policies, and self-imposed restrictions that describe how the organization proposes to direct and develop all the resources invested in operations so as to best fulfill its mission. has to begin by specifying how it proposes to support that chosen form of competitive differentiation. FS10 / 8

2. The Concept of Strategy Three different types of management-related strategies 1. Corporate Strategy Focus on industries and markets Decisions on how to structure itself in order to attack those markets Decisions on how to acquire and allocate key corporate resources to various activities and groups 2. Strategic Business Units (SBU s): Focus on subsidiary division, or product line Specifies the scope of that business and its relation to the corporation Decisions on how to position itself within the particular industry FS10 / 9 2. The Concept of Strategy 3. Functional Strategies Four typical functional strategies: Marketing and sales Operations Financial and control Research and development. FS10 / 10

2. The Concept of Strategy The implementation of a strategy needs activities along horizontal and vertical dimensions. Vertical activities: relate a given function to the business as a whole or relate a sub function to the larger function (classical organizational relationship). Horizontal activities: activities that cut across multiple functions at fairly low levels in the organization. Require more coordination and consistency among functions than do vertical activities (e.g. quality improvement, product development). FS10 / 11 2.1. Strategy and Company Values The formulation and implementation of an effective strategy takes time. It requires the support and coordinated efforts of many people throughout an organization. Once in place a strategy is difficult to change. It has to be based on a set of values that are widely shared and expected to endure. The degree to which an organization is able to achieve consistency among diverse activities tends to be proportional to the coherence of its values and the extent to which they are shared. FS10 / 12

2.1. Company Values Operations is a major keeper of the company s values: Companies with good operations and most adept at translating operating capabilities into competitive success tend to be those that are characterized by shared and strongly held values. Operations can contribute substantially to the competitive success of a business It can also play an important role helping to support and enhance the values that provide the foundation for its strategies. FS10 / 13 Four stages of manufacturing competitiveness Internal External Neutral Stage I Stage II Supportive Stage III Stage IV Source: Hayes, Robert H., and Wheelwright, Steven C., "Restoring Our Competitive Edge: Competing Through Manufacturing". New York: John Wiley, 1984. FS10 / 14

Four stages of manufacturing competitiveness Stage I Internally neutral - "make the stuff" without any surprises Stage II Externally neutral: to be able to meet the standards imposed by major competitors. Adhering to industry practice and industry standards. Stage III Internally supportive: coordinated set of structural and infrastructural manufacturing decisions tailored to their specific competitive strategy. Stage IV Externally supportive: playing a key role in helping the whole company achieve an edge over its competitors. FS10 / 15 3. The Operations Edge Purpose of an operations strategy is to guide an operation organization in assembling and aligning the resources that will enable it to implement its company s competitive strategy effectively. Best practices are easily seeked out, e.g. mass production or lean production. FS10 / 16

3.1 Mass Production for Mass Markets Accepted ideas of mass markets or traditional American paradigm: key to low cost is standardization and high volume, work is done most efficiently when divided up, managers and staff experts should do the thinking for workers, processes were characterized by a certain amount of variation, communication within an organization should be controlled. FS10 / 17 Example: Ford s famous Model T FS10 / 18

3.1 Mass Production for Mass Markets Best manufacturing process was assumed to be based on long runs use equipment that was specialized for each stage of the process match the capacities as closely as possible and use inventories to buffer different stages. Work should be organized and conducted systematically, in a specified sequence and under tight supervision. Such practices defined the one best way to design any manufacturing or service delivery system. FS10 / 19 3.2. Lean Production Japanese circumstances: Short on capital few natural resources small, fragment markets forced to design new practices that reflected both the lack of resources and the chaotic conditions of their economic environment. lean production approach FS10 / 20

3.2. Lean Production The lean production system (1/2) Emphasis on reliability speed, and flexibility rather than volume and cost. People ought to be broadly trained, rather than specialized, and should work in teams to identify and solve operating problems. No amount of rejects acceptable, work tirelessly to eliminate them. Communication takes place informally and horizontally rather than via prescribed hierarchical paths. Equipment is of general purpose Organized in cells that produce a group of similar parts of products, rather than specialized by process stage. FS10 / 21 3.2. Lean Production The lean production system (2/2) Production throughput time more important than labor or equipment utilization. Inventory, like defects, was seen as a waste Supplier relationships should be long term and cooperative. Product development activities should be carried out concurrently, not sequentially and by cross-functional teams. FS10 / 22

3.2. Lean Production Many examples of lean production s power but also companies that have been disappointed by their lean production experience. Is it appropriate in all situations? How can a firm achieve any sort of advantage if its only goal is to be as good as its best competitors? FS10 / 23 3.3. A contingency theory of operations strategy: fit and focus One best way to manage operations? Many critics over the years, e.g. Wickham Skinner: Different business units have different strengths and weaknesses competition in different ways Different was of configuring, equipping, and managing an operations function result in different operating characteristics difficulties in achieving a given form of differentiation Seeking congruence ( fit ) between business unit s chosen approach and the way the operation s function is designed, organized, and managed. Source: Skinner (1969 and 1974) FS10 / 24

3.3. A contingency theory of operations strategy: fit and focus 1. Different approaches to competitive differentiation The critical element of an SBU s competitive strategy is how to differentiate its products and services. Companies can attempt to achieve a competitive advantage by Offering the lowest price Offering a higher quality Dependability or flexibility FS10 / 25 3.3. A contingency theory of operations strategy: fit and focus 2. Different operating systems have different characteristics Different uses imply different designs. A product functions and limitations reflect the decisions made by its designers. An operations organization inherent strengths and weaknesses reflect the influence of the design decisions made by its managers. An organization is able to do certain things easily and well, and other things only with difficulty, if at all. FS10 / 26

3.3. A contingency theory of operations strategy: fit and focus 3. An operations organization s priorities should reflect its SBU s competitive strategy An effective operations organization meets the needs of the SBU s competitive strategy. There is no one best way. One must make choices that reflect one s context, goals, resources and personnel. Translating a business strategy requires time and perseverance to ensure the desired operation edge. FS10 / 27 An Excursion: The Swiss Manufacturing Landscape in 2006 and 2009 IMSS (International Manufacturing Strategy Survey) Participating Countries Argentina Australia Belgium Brazil Canada China Czech republic Denmark Estonia France Germany Hungary India Iran Ireland Israel Italy Japan Mexico New Zealand Poland South Korea Spain Switzerland Taiwan The Netherlands FS10 / 28

Participating Industry Sectors 1. SIC 28 - Manufacture of fabricated metal products, except machinery and equipment (1) 26% (7) 10% (2) 35% (4) 7% (3) 15% 2. SIC 29 - Manufacture of machinery and equipment not elsewhere classified 3. SIC 31 - Manufacture of electrical machinery and apparatus not elsewhere classified 4. SIC 33 - Manufacture of medical, precision and optical instruments, watches and clocks (6) 4% (5) 3% 5. SIC 34 - Manufacture of motor vehicles, trailers and semi-trailers 6. SIC 35 - Manufacture of other transport equipment 7. Others FS10 / 29 Operations Strategy: Competitive Priorities Used factors Price Low price Quality Conformance quality Product design and quality Delivery Fast delivery Dependable delivery Flexibility Wide product range Order size flexibility Service After-Sales Service and technical support Innovation Innovative product High frequency of new product introduction FS10 / 30

Cluster Analysis: Procedure Identification of variables Analysis of outliers Hierarchical Clusteranalysis: Ward s Method Cluster-Center-Analysis: K-Mean Validation FS10 / 31 Strategic Clusters (2006) Cluster 1: Experts (#24) Cluster 2: Logistic Champions (#5) Taxonomy Cluster 3: Traditionalists (#10) Cluster 4: Service Deliverer (#18) F = Chi square p = Symp. sig. Price 4.08 (4) 3.80 3.90 (4) 3.28 (1, 3) F = 10.66 Standard Error 0.17 0.58 0.28 0.14 p = 0.014 Rank 5 6 5 7 Productdesign and -quality 4.42 3.80 4.70 4.50 F = 5.87 Standard Error 0.12 0.37 0.15 0.12 p = 0.118 Rank 2 6 2 1 Conformance Quality 3.71 4.20 4.30 3.89 F = 3.81 Standard Error 0.16 0.37 0.30 0.21 p = 0.282 Rank 8 3 4 4 Dependable Delivery 4.67 (4) 4.40 4.90 (4) 4.22 (1, 3) F = 9.24 Standard Error 0.10 0.24 0.10 0.17 p = 0.026 Rank 1 2 1 3 Fast Delivery 4.21 (4) 4.80 (4) 4.60 (4) 3.67 (1, 2, 3) F = 13.44 Standard Error 0.15 0.20 0.22 0.20 p = 0.004 Rank 3 1 3 5 Service 4.08 (3) 4.00 3.20 (1, 4) 4.33 (3) F = 11.59 Standard Error 0.16 0.55 0.25 0.14 p = 0.009 Rank 5 5 8 2 Wide Product Range 3.13 (3) 3.60 (3) 2.00 (1, 2, 4) 3.28 (3) F = 13.34 Standard Error 0.18 0.40 0.21 0.24 p = 0.004 Rank 10 8 9 7 New product introduction 3.38 (2, 3, 4) 1.60 (1, 4) 1.90 (1, 4) 2.78 (1, 2, 3) F = 34.19 Standard Error 0.12 0.24 0.10 0.15 p < 0.0001 Rank 9 10 10 9 Innovative Product 4.00 (4, 2) 2.40 (1, 3, 4) 3.50 (2) 3.44 (1, 2) F = 16.10 Standard Error 0.12 0.24 0.22 0.20 p = 0.001 Rank 7 9 7 6 Order Size Flexibility 4.13 (4) 4.20 (4) 3.70 (4) 2.33 (1, 2, 3) F = 30.28 Standard Error 0.15 0.37 0.30 0.16 p < 0.0001 Rank 4 3 6 10 (n=57) FS10 / 32

Discussion of Results (2006) The manufacturing strategy of Swiss companies can be divided into four strategy types: Experts, Logistic Champions, Traditionalists and Service Deliverer. All types comprise multiple competitive priorities which are aimed at simultaneously. The amount of opposed factors differs which reveals a different level of hybridization. The taxonomy can be verified through existing manufacturing strategy types, although the four types have similarities to strategies from different authors/studies. FS10 / 33 Discussion of Results (2006) The differentiation through multiple competitive priorities can lead to a strong market position. This result is a contradiction to the trade-off-assumption. All strategy types comprise companies having better performance indicators than their main competitors. A differentiation through a smaller set of competitive priorities can therefore be as successful as the one aspired by the Experts. This result is in line with the contingency assumptions and equifinality. FS10 / 34

Strategic Groups (2009)* Competitive Priorities Cluster Stucked Innovators Classics Mass Producer Low price 4.25 3.65 1.83 5.00 Conformance quality 4.00 4.24 4.67 3.00 Product design and quality 3.75 4.12 4.17 3.33 Fast delivery 4.00 4.53 4.67 4.00 Dependable delivery 3.50 4.35 3.33 4.67 Wide product range 3.75 4.29 3.67 2.33 Order size flexibility 3.00 3.76 2.33 1.67 After-Sales Service 2.00 3.82 2.83 2.33 Innovative product 2.75 4.12 3.33 3.33 Frequency of new product introduction 1.25 3.47 4.50 4.33 # 4 17 6 3 (n=30) FS10 / 35 * Preliminary Results Comparison of the Strategic Groups. possible explanations* From the Logistic Champions to the Mass Producers? Disregard of wide product range and order size flexibility and stronger focus on low price and fast delivery? From the Experts to Innovators? Instead a simultaneous differention on multiple factors such as quality, flexibility, low cost and innovation an increasing focus on innovation related factors? No Stucked-Strategy in the sample of 2006. Does the current economical situation lead to an increasing uncertainty of Swiss companies? No clear Service-Strategy in the sample of 2009. FS10 / 36 * Preliminary Results

Thank you for your attention! Questions? patricia.deflorin@isu.uzh.ch FS10 / 37