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Operations
Strategy
Operations Strategy
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Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operations Strategy
Relevance & Context
Operations Strategy
Is a process by which key operations decisions are
made that are consistent with the overall strategic
objectives of a firm
Decisions in the operations function are made on the
basis of the inputs from the overall corporate strategy
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Order winners
Order Qualifiers
Firm level
Strengths &
Weaknesses
Corporate Strategy
Operations Strategy
Measures for
Operational Excellence
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operational Excellence
Performance Measures
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Japan@
U.S.*
37,000
850,000
30
81
337
6000
1#
25**
1.7
46
60
Operational Excellence
Performance measures
Quality
Cost
Quality Costs
Procurement costs
Delivery
Flexibility
Schedule adherence
Indirect Measures
Indirect labour to Direct labour ratio
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Air travel from Bangalore to Delhi: Indigo and Jet Airways differ
vastly in terms of the service offered
Computer manufacturers, Dell and Lenova: Overall strategic
objective of Dell appears to be one of providing highly
differentiated products, Lenova appears to emphasize on
robust and reliable computing power
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Capacity is defined as
maximum number of units of goods that can be
produced per unit time in the case of manufacturing
system
the maximum number of service offerings that can
be made per unit time in the case of a service system
Capacity decision influences the cost of goods and
services offered in three ways:
accrued cost advantage due to economies of scale
Ability to spread fixed costs over a larger capacity
additional cost advantages in procuring other factors
of production
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Breakeven analysis
F Fixed costs of production
v Variable cost of production of one unit
p Selling Price of one unit of the product
c Contribution of one unit of product towards the fixed
costs
S Sales volume (in terms of number of units)
BEPSales Sales volume required to achieve breakeven
Contribution Margin (c) = p v
BEPSales =
F
c
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Breakeven Analysis
Example 2.1
Solution
F Fixed costs of production = Rs. 30,000
v Variable cost of production of one unit = Rs. 10
p Selling Price of one unit of the product = Rs. 15
Therefore contribution of one unit of product towards the fixed
costs, C is computed as:
c = p v = 15 10 = Rs. 5
F 30,000
6,000 units
BEPSales =
c
5
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Breakeven Analysis
A graphical representation
Fixed cost
Variable cost
Total cost
Revenue
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1000
2000
3000
4000
5000
6000
7000
8000
Sales (Units)
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Cost
Flexibility
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operations Strategy
Chinese Phenomenon
When the vitrified-tile price in India was at INR 120 per square
feet, Chinese suppliers offered it at INR 30 per square feet.
Ciprofloxacin, an active pharmaceutical ingredient, costs INR
1,200 per kg in India, but can be bought at INR 1,000 per kg
from Chinese suppliers.
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operations Strategy
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operations Strategy
Implications
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
BPO applications in
Organizations: Process
STRATEGIC
PROCESSES
Vendor
Evaluation &
Selection Stores
Management
Consulting Services
Workflow Enhancements
Brand Management
Asset Mgmt.
Accounts
Receivables &
Payables
R& D
View
Change Management
New Product Development
E-business/E-governance
Manufacturing
Fabrication
Assembly
Testing
Warehouse
Management
Market Survey
Telemarketing
OPERATIONAL PROCESSES
ENABLING
PROCESSES
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Installation &
Servicing
Systems
Integration &
Consulting,
Operations Strategy
Implication
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
An example of Collaborative
commerce through the Internet
Global Health Care Exchange (GHX)
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Operations Strategy
Chapter Highlights
Operations Strategy
Chapter Highlights