1. Operations Strategy/
Competitive Advantage
N.K.Agarwal

2. Production Function
• Operation/Production function essential to every
business
• Operations create wealth in a global economy
• Operation function responsible to make four key
decisions
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Process
Quality
Capacity
Inventory

3. Production Function
• Production function in manufacturing involves
– Transforming a set of inputs through a process into a
predetermined set of outputs

4. Production Manager
• Production / operations manager is the wealth
creator in the company
• Operations managers make
– Decisions regarding the operations function,
– Its interaction with other functions within the organisation
and the external environment, and
– Plan and control the production process
• In an efficient and effective manner

5. Major Decisions at Pizza USA
A Framework for OM
• Process
– How to produce & deliver
• Quality
– Criteria, measurement & process for achieving
• Capacity
– Physical facilities & labor
• Inventory
– What, when & how much?

6. Productive System
Means by which
Input resources
Are transformed to create
Useful goods (products) & services
As outputs.

7. AN OPERATING SYSTEM
Control (Feedback)
subsystem
Transformation
Output
Material
Products
Labour
Energy
Capital
Production process
(Converter)
Information
Information Processor
(controller)
Services
Information
Environment
Conversion subsystem
Inputs

8. Products and Services
• Products
– Tangible things that can be carried away with the person
• Services
– Intangible and perishable and are consumed in the process
of their production.

9. Characteristics of Products Vs Services
Products
Services
Intangible & perishable; consumed in the
process of their production
Can be produced to inventory for off-the- Availability achieved by keeping the
shelf availability
productive system open for services
Complex and interrelated processing
Simple processing
Tangible
Minimal contact with ultimate consumer High contact with clients/customers
Demand on system varies on weekly,
monthly or seasonal basis
Demand commonly variable on hourly,
daily and weekly basis
Markets served by productive systems
are regional,national or international
Markets served are usually local
Large units that can take advantage of
economies of scale
Location of system is in relation to
regional, national and international
markets
Relatively small units to serve local
markets
Location dependent on location of local
customers, clients & users

10. Production / Operation
Management (POM)
• Defined as
– Decision making in the operations function
– Integration of these decisions with other functions
– A transformation system that converts inputs into outputs
• In an efficient and effective manner

11. Interfacing with other systems
• Basic functional groups:
– Marketing
• Generates demand
– Finance
• Generates the capital
– Production
• Generates the supply of outputs.

12. Marketing and POM
• Marketing system
– Discovers and transmits the need of consumers to the total
organisation including the POM system
• Which supplies these needs.
– Translates the demand for future into units of production &
desired delivery schedules.

13. POM-Marketing interface
• Marketing furnishes data on:
– Size of market
– Volume of production needed to meet anticipated market
needs
– Desired inventories
– Anticipated changes in production of other products
– Anticipated delivery schedules: amount,location,timing
– Packaging needs

14. Conflicts between Marketing and
POM
• Unreasonable commitment to customers regarding
– Customisation
– Delivery schedule
– Order quantity

15. Production/Operation
Management
• POM system generally consists of:
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Forecasting facility requirement
Designing total production facility
Planning output levels
Planning inventory levels
Controlling work input
Controlling work output
Feedback
Replanning

16. Production/ Operation
Management
• POM
– Provides production facilities-plants,equipment and
personnel.
– Provides statistical quality control
– Sustains technological growth and improvement & economic
viability.

17. POM- Finance & Accounting
interface
• F&A Function
– Responsible for all cash flows between the organisation and
external environment.
– Interfaces from the inception of the idea of product through
its development stages till it is sold

18. POM-F&A Interfacing
• Important areas
– Accumulation of operating data to form a starting point for
standards
– Accumulation of cost data of a job, a time period or a
process
– Assignment of general costs to profit centres
– Determination of profit/loss of profit centres
– Determination of value of work-in-process (w-i-p)
– Determination of financial value of raw material & finished
goods inventories
– Providing status of jobs or w-i-p

19. POM- Information system
• Information function
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Incorporates policy information flow from management
Feedback information to management
Information from external environment, as well as
Internal systems within the organisation

20. POM-Information interfacing
• Information function interfaces in respect of
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Inventory control
Cost control
Reporting status on orders
Production schedules
Forecasting & scheduling material requirement
Control of w-i-p
Quality control
Preventive maintenance planning
Make or buy decision
Labour efficiency records

21. Operations Strategy
• Strategy formulation a process by which a firm
determines how it will compete in its industry
• It involves goal determination and the development of
policies for achieving these goals
• Some of these functional areas to define key
operating policies are
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Marketing
Sales
Target markets
Product line
Finance & control
Engineering and R&D

22. Operations Strategy
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Labour
Purchasing
Production
Distribution
• Purchasing, Production and Distribution must be
carefully related for the operation function
• Production stand alone can not work
– Purchasing provides the material inputs
– Physical distribution system actually involves additional
processing steps in the product flow
– Engineering, R&D and labour provide key inputs to the
operations function
• Product design and key process technology comes from
R&D function
– Labour provides a crucial input to the production

23. Operations Strategy
• All the activities in the line of material flow from
suppliers through fabrication and assembly and
culminating in product distribution must be integrated
for a sensible operational strategy formulation
• There are six major components to operations
strategy
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Strategic implications of operating decisions
Matching the productive system design to market needs
Capacity and location
Technological choices
The work force and job design
Suppliers and vertical integration

24. Enterprise Competitiveness and
the Operations Function
• Four dimensions of competitiveness that measure the
effectiveness of the operations function
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Cost
Quality
Dependability as a supplier
Flexibility/ service
• Cost
– Profitability is related to the difference between price and
cost
– To compete on the basis of price requires an operations
function capable of manufacturing at low cost

25. Enterprise Competitiveness and
the Operations Function
• The effects of location, product design, equipment
use and replacement, labour productivity, good
inventory management, employment of process
technology etc.,all contribute to the resulting costs
• Unit costs are usually reduced as experience is
gained through production
• However, a number of additional sources contribute
to this
– Improved production methods and tools, improved product
design, standardisation, improved material utilisation,
reduction of system inventories, improved layout and flow,
economics of scale and improved organisation

26. Enterprise Competitiveness and
the Operations Function
• Quality
• Product quality has often been cited as a reason for
preferring the products purchased by the customers
– Dominance by Japanese products
• Customers are often willing to pay more for or wait for
delivery of superior quality products
• Dependability of a Supplier
– Reputation for dependability of supply or even off-the-shelf
availability is often strong competitive weapon
– Customers may compromise on cost or even quality in order
to obtain on-time delivery when they need an item
– The scheduling and coordination of all elements of the
productive system determine its ability to produce on time

27. Enterprise Competitiveness and
the Operations Function
• Flexibility / Service
• Ability to be flexible will depend upon the design of
the productive system and the process technology
employed
• For large volume production of a standardised item,
perhaps it is not worthwhile
• A competitor could offer such flexibility and there may
a substantial market for him
• Ready availability of good service facility, spare parts
can be winners in the competitive market

28. Reference
• Production & Operations Management:
Aswathappa / Bhat
• Modern Production/Operations Management:
Buffa / Sarin
• Operations Management: Roger G. Schroeder

29. Thank You