S2 Operations Strategy PDF

Operations Strategy Fall 2024 Department of Business Administration UC3M Professor Gemma Berenguer  Type of decisions in OM Operations Management 2 Gemma Berenguer Today’s agenda Global operations Boeing Dell Zara (...

Operations Strategy Fall 2024 Department of Business Administration UC3M Professor Gemma Berenguer  Type of decisions in OM Operations Management 2 Gemma Berenguer Today’s agenda Global operations Boeing Dell Zara (Inditex) Reasons to globalize Logic of offshoring and outsourcing Supplier selection 3  Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components HEADQUARTERS SUPPLIER COUNTRY COMPONENT Latecoere France Passenger doors Labinel France Wiring Dassault France Design and PLM software Messier-Bugatti France Electric brakes Thales France Electrical power conversion system Messier-Dowty France Landing gear structure Diehl Germany Interior lighting Source: Jay Heizer, Barry Render and Chuck Munson "Operations Management: sustainability Copyright and supply © 2020, 2017, chainEducation, 2014 Pearson management". Inc. Pearson, 12th Edition.(chapter 2) 2-4  Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components HEADQUARTERS SUPPLIER COUNTRY COMPONENT Cobham UK Fuel pumps and valves Rolls-Royce UK Engines Smiths Aerospace UK Central computer system BAE Systems UK Electronics Alenia Aeronautica Italy Upper center fuselage Toray Industries Japan Carbon fiber for wing and tail units Fuji Heavy Industries Japan Center wing box Copyright © 2020, 2017, 2014 Pearson Education, Inc. 2-5  Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components HEADQUARTERS SUPPLIER COUNTRY COMPONENT Kawasaki Heavy Japan Forward fuselage, fixed Industries sections of wing Teijin Seiki Japan Hydraulic actuators Mitsubishi Heavy Japan Wing box Industries Chengdu Aircraft China Rudder Hafei Aviation China Parts Korean Airlines South Korea Wingtips Saab Sweden Cargo and access doors Copyright © 2020, 2017, 2014 Pearson Education, Inc. 2-6  DELL Direct business model No middlemen No warehouses Suppliers are close by Build-to-order strategy Production doesn’t begin until order is placed There is never more than 4 hours inventory on hand This leads to lower cost 7 Gemma Berenguer/MGMT 664 DELL Global Supply Chain Canada, Video cards U.S., CPUs, France, Windows, Soundcards China, Cases wt Power Korea, Japan Supply, Cables, RAM Chips, Network Cards, Monitors Dell Assembly Taiwan, Austin, Texas Mexico, Motherboard Keyboards, Mouse Thailand, Hard Drives Malaysia, CD-ROMs  Push/Pull view of a supply chain 9 Gemma Berenguer/MGMT 664  Push/Pull view of supply chain process Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative) Push/pull boundary separates push processes from pull processes 10 Gemma Berenguer/MGMT 664 DELL’s supply chain Before 2008 Focus on responsiveness In 2008, Dell enters retail channel The supply chain setup does not support low cost (online customers are less price-sensitive than retail customers) Need to re-engineer Segment supply chain using: Demand uncertainty Cost drivers Relationships with customers Customer value proposition Technology clock-speed 11 “When One Size Does Not Fit All”, MIT Sloan Management Review, 2012, Simchi-Levi, Clayton and Raven Cost-Responsiveness Efficient Frontier Responsiveness (=higher customization) High DELL’s position before 2008 Low Cost High Low 12  DELL customer driven supply chain segmentation Customer Type Strategy Push or Pull? Online sales Build-to-order PULL Popular online Build-to-stock PUSH-PULL Procurement, production sales and shipping to stocking points are all based on forecast; shipment to customer locations is based on realized demand Retail channels Build-to-Plan PUSH Strategy, procurement, production and shipment decisions are all based on forecast Enterprise clients Build-to-Spec PUSH-PULL Products are assembled to order using components ordered well 13 ahead of time, based on forecast “When One Size Does Not Fit All”, MIT Sloan Management Review, 2012, Simchi-Levi, Clayton Gemma Berenguer/MGMT 664 and Raven Production strategies Make To Assemble Make To Order To Order Stock Gemma Berenguer Operations Management MTO: Begin production ATO: Build modules MTS: Manufacture entire only after receiving a prior to receiving order; product prior to receiving customer order. assemble product after customer order. receiving customer order. Slower Response Time Faster Raw Inventory Finished Materials Goods High Labor Skill Level Low General 14 Type of Equipment Dedicated purpose Types of Processes PRODUCT STRUCTURE Few High volume, Low volume, Multiple major high standardi- low standardi- PROCESS products, products, zation, zation, one of a STRUCTURE: low volume higher commodity kind Gemma Berenguer Operations Management volume products Job Shop Disconnected Line Flow (Batch) Connected Line Flow (Assembly Line) Continuous Flow 15 Source: Link Manufacturing Process and Product Life Cycles by Robert H. Hayes and Steven C. Wheelwright, HBR, January 1979 Work Center / Job shop A collection of general purpose processing resources, together with a highly structured information Gemma Berenguer Operations Management processing system which allows those resources to be continuously recombined in the production of different outputs. 16 Manufacturing Cell / Batch Flow A somewhat standardized work center-- something intermediate between a work center and an assembly line. Similar equipment or functions are grouped together. Work frequently is processed in batches. 17 Assembly Line (Line Flow) Fixed resources, typically specialized or narrow in function, through which work flows in serial fashion. The system is balanced for a particular overall flow rate and a particular product mix, and only small variations around those nominal Gemma Berenguer Operations Management values are tolerable. 18 Continuous Flow An even more standardized product (vis a vis assembly line) where the product is not a number of discrete parts but rather a continuous flow of undifferentiated product. Gemma Berenguer Operations Management 19 A Continuum of Process Types PROCESS FLEXIBILITY Gemma Berenguer Operations Management Batch Shop Continuous Process Job Shop Assembly Line PRODUCT STANDARDIZATION 20 Types of Processes PRODUCT STRUCTURE Few High volume, Low volume, Multiple major high standardi- low standardi- PROCESS products, products, zation, zation, one of a STRUCTURE: low volume higher commodity kind Gemma Berenguer Operations Management volume products Job Shop Disconnected Line Flow (Batch) Connected Line Flow (Assembly Line) Continuous Flow 21 Source: Link Manufacturing Process and Product Life Cycles by Robert H. Hayes and Steven C. Wheelwright, HBR, January 1979 Zara “Fast Fashion” supply chain VIDEO: https://www.youtube.com/watch?v=qhCM0F81vEg Answer the following questions while watching the video: How often the assortment is modified in stores? How long are clothes warehoused? 22 What is behind Zara’s success? Stockout often Produce in the most expensive part of the world Redesigns apparel all time, which lead to demand uncertainty Does not advertise No product innovation No technology innovation Not a new niche Zara innovates through better supply chain management! 23  What is beyond Zara’s success? It transferred Dell’s build to order model to the apparel industry. It produces fashion to order Close production location (Spain and Mexico), short lead times Quantity decisions made days before sales Detailed product differentiation decision is postponed (design team develops platform models but holds off finalizing detailed designs) Few days of inventory 21-29 day cycle (from design to sales/discount) (6 months for others) 24 It pays with more expensive capacity, but the trade-off is favorable Gemma Berenguer  Comparing Inventory Sold Across a Season ZARA Sales GAP Time Source: Antonio Moreno, “Zara: An Integrated Store and Online Model (A),”. HBS No. 620-073. (Boston: Harvard Business School Publishing, January 2020) Zara vs GAP ZARA GAP Vertical integration Outsourcing part of the supply chain Short Manufacturing cycle Large production cycle Short Lead times Large lead times Small batch sizes and small inventory levels Large batch sizes and large inventory levels Not important sales Steep markdowns  Matching Supply Chains With Products Basics FUNCTIONAL PRODUCTS INNOVATIVE PRODUCTS EFFICIENT SUPPLY CHAIN Match Mismatch RESPONSIVE SUPPLY Fashion Mismatch Match CHAIN Products Efficiency vs Responsiveness Matrix Source: Marshall Fisher, “What is the right supply chain for your product?,” Harvard Business Review (March-April 1997): 83-93. Implementing Strategic Decisions TABLE 2.1 Operations Strategies of Two Drug Companies BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. COMPETITIVE PRODUCT DIFFERENTIATION LOW-COST STRATEGY ADVANTAGE STRATEGY Product Heavy R&D investment; extensive labs; Low R&D investment; focus on selection and focus on development in a broad range development of generic drugs design of drug categories Quality Quality is major priority, standards Meets regulatory requirements on a exceed regulatory requirements country-by-country basis, as necessary Process Product and modular production Process focused; general production process; tries to have long product runs processes; “job shop” approach, short- in specialized facilities; builds capacity run production; focus on high utilization ahead of demand Location Still located in city where it was founded Recently moved to low-tax, low-labor- cost environment Implementing Strategic Decisions TABLE 2.1 Operations Strategies of Two Drug Companies BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. COMPETITIVE PRODUCT DIFFERENTIATION LOW-COST STRATEGY ADVANTAGE STRATEGY Layout Layout supports automated product- Layout supports process-focused “job focused production shop” practices Human Hire the best; nationwide searches Very experienced top executives resources provide direction; other personnel paid below industry average Supply chain Long-term supplier relationships Tends to purchase competitively to find bargains Inventory Maintains high finished goods inventory Process focus drives up work-in- primarily to ensure all demands are met process inventory; finished goods inventory tends to be low Scheduling Centralized production planning Many short-run products complicate scheduling Maintenance Highly trained staff; extensive parts Highly trained staff to meet changing inventory process and equipment demands  Achieving Strategic Fit Responsive supply chain Responsiveness spectrum Extra reading: What is the right Efficient supply supply chain chain for Certain Implied your Uncertain demand uncertainty product? demand spectrum 30 Growth of World Trade Figure 2.1 Reasons to Globalize 1. Facilities closer to unique resources 2. Reduce costs and exchange rate risks 3. Improve operations 4. Understand markets 5. Improve products 6. Attract and retain global talent General Rationale for Offshoring Pro Con Cost reductions Transportation costs Proximity to local or new markets Lead times Domestic labor market Risks constraints Quality, including health, Operational hedge environmental and CSR Foreign trade barriers Currency, IP, political, competitive Domestic trade barriers Global operations’ complexity and social implications 33 Key issues in procurement 1. Purchasing function in-house or outsourced? Gemma Berenguer Operations Management 2. How many suppliers for each product category? 3. How to select a supplier based on multiple attributes 34 2. How many suppliers? Advantages of having a large supplier base More buying power Broadens the range of choices (prices, etc.) Risk diversification Gemma Berenguer Operations Management Examples (2002 data) Ford had 40,000 suppliers GM had 30,000 suppliers IBM had 15,000 suppliers Lockheed Martin had 37,000 suppliers 35  2. How many suppliers? (cont.) Advantages of having a small supplier base Less transaction costs Gemma Berenguer Operations Management More non-contractible investments such as quality, information sharing, design help and innovation 36 Gemma Berenguer/MGMT 664  2. How many suppliers? (cont.) Single-sourcing Contracts: - Buyback contract (allows to return unsold inventory at an agreed-upon price) Gemma Berenguer Operations Management - Revenue-sharing contract (low wholesale price and sharing fraction of retailer’s revenue) - Quantity-flexibility (quantity ordered can be changed) 37 Gemma Berenguer/MGMT 664 3. Supplier selection Attributes Product quality Lead time Delivery reliability Gemma Berenguer Operations Management Product costs Cost transparency Technical capabilities of the supplier Financial strength of the supplier Location of the supplier Development capabilities … 38 Rating Outsourcing Providers ▶Insufficient analysis most common reason for failure ▶Factor-rating method ▶Points are assigned for each factor for each provider ▶Weights are assigned to each factor Rating Provider Selection Criteria TABLE 2.3 Factor Ratings Applied to National Architects' Potential IT Outsourcing Providers OUTSOURCING PROVIDERS IMPORTANCE BIM S.P.C. TELCO FACTOR (CRITERION) WEIGHTS (U.S.) (INDIA) (ISRAEL) 1. Can reduce operating costs.2 3 3 5 2. Can reduce capital investment.2 4 3 3 3. Skilled personnel.2 5 4 3 4. Can improve quality.1 4 5 2 5. Can gain access to technology not in company.1 5 3 5 6. Can create additional capacity.1 4 2 4 7. Aligns with policy/philosophy/culture.1 2 3 5 Total Weighted Score 1.0 3.9 3.3 3.8 Score for BIM = (.2 * 3) + (.2 * 4) + (.2 * 5) + (.1 * 4) + (.1 * 5) + (.1 * 4) + (.1 * 2) = 3.9