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BOOK SUMMARY OPERATIONS STRATEGY
BY SLACK & LEWIS(4TH EDITION)
INHOUDSOPGAVE
CHAPTER 1: OPERATIONS STRATEGY .................................................................................................... 3
What are operations? ................................................................................................................................................... 3
The primary process ...................................................................................................................................................... 3
The 4 V’s of demand (see figure 1.3 on p.6) ......................................................................................................... 4
PART 2 CHAPTER 1: IMPORTANT ACCORDING TO LECTURER ......................................................................................4
Operations strategy versus operations management ..................................................................................... 4
4 perspectives on operations strategy (see also figure 1.5 on p.11) ......................................................... 5
The resource based view (RBV) ................................................................................................................................ 5
Extended resource based view (ERBV) .................................................................................................................. 5
What is operations strategy? ..................................................................................................................................... 6
Operations strategy: Content versus process...................................................................................................... 6
How is operations strategy developing? (read p.34-38 again) .................................................................. 7
CHAPTER 2: OPERATIONS PERFORMANCE ........................................................................................... 8
Introduction ...................................................................................................................................................................... 8
How can operations performance make or break any organization?..................................................... 8
What are operations performance objectives? .................................................................................................. 9
Do the role and key performance objectives of operations stay constant or vary over time? .... 11
Are trade-offs between operations performance objectives inevitable or can they be overcome?
............................................................................................................................................................................................... 11
What are the advantages and disadvantages of focused operations? .................................................. 12
CHAPTER 3: SUBSTITUTES FOR STRATEGYS...................................................................................... 13
The fads, fashion and ‘new’ approaches to operations................................................................................. 13
Total Quality Management (TQM) ........................................................................................................................ 14
Lean operations ............................................................................................................................................................. 15
Business process reengineering (BPR) ................................................................................................................ 16
Six Sigma .......................................................................................................................................................................... 17
Some common threads ............................................................................................................................................... 19
How do all the approaches fit into operations strategy? ............................................................................ 19
CHAPTER 4: CAPACITY STRATEGY ........................................................................................................ 19
What is capacity strategy? ....................................................................................................................................... 19
Capacity decision levels .............................................................................................................................................. 20
Overall level of operations capacity ..................................................................................................................... 20
The number and size of sites .................................................................................................................................... 21
Capacity change ............................................................................................................................................................ 21
Location of capacity .................................................................................................................................................... 23
CHAPTER 5: PURCHASING AND SUPPLY STRATEGY ........................................................................ 24
Purchasing versus supply strategy ........................................................................................................................ 24
The make or buy decision .......................................................................................................................................... 26
contracting and relationships ................................................................................................................................. 26
1
, Which type of arrangement? ................................................................................................................................... 29
Supply network dynamics ......................................................................................................................................... 29
Managing suppliers over time ................................................................................................................................. 30
purchasing and supply chain risk .......................................................................................................................... 30
CHAPTER 6:PROCESS TECHNOLOGY STRATEGY ............................................................................... 31
What is process technology strategy? .................................................................................................................. 31
Process technology should reflect volume and variety ................................................................................ 31
The product-process matrix ..................................................................................................................................... 32
The challenges of information technology (IT) ............................................................................................... 33
Evaluating process technology (NOT IN EXAM) ............................................................................................. 34
CHAPTER 7: IMPROVEMENT STRATEGY .............................................................................................. 34
operations improvement ........................................................................................................................................... 34
SETTING THE DIRECTION ........................................................................................................................................ 35
Developing operations capabilities....................................................................................................................... 37
Deploying capabilities in the market ................................................................................................................... 39
CHAPTER 8: PRODUCT AND SERVICE DEVELOPMENT AND ORGANISATION .......................... 40
The strategic importance of product and service development ............................................................... 40
Product and service development as a process................................................................................................ 40
A market requirements perspective on product and service development ......................................... 41
An operations resource perspective on product and service development ......................................... 43
CHAPTER 9: THE PROCESS OF OPERATIONS STRATEGY – FORMULATION AND
IMPLEMENTATION ...................................................................................................................................... 44
Formulating operations strategy .......................................................................................................................... 45
The role of alignment .................................................................................................................................................. 45
What analysis is needed for formulation (of operations strategy) ......................................................... 46
The challenges to operations strategy formulation ...................................................................................... 47
How do we know the formulation process is complete? .............................................................................. 47
Operations strategy implementation ................................................................................................................... 47
CHATPER 10: THE PROCESS OF OPERATIONS STATEGY – MONITORING AND CONTROL ... 49
What are the differences between operational and strategic monitoring and control? ............... 49
How is progress towards strategic objectives tracked? ............................................................................... 50
How can the monitoring and control process attempt to control risks? .............................................. 51
How does learning contribute to strategic control? ...................................................................................... 53
2
,BOOK SUMMARY OPERATIONS STRATEGY
BY SLACK & LEWIS
CHAPTER 1: OPERATIONS STRATEGY
WHAT ARE OPERATIONS?
“Operations” is the activity of managing the resources and processes that produce and deliver goods
and/or services.
• We’re always going to look from a input-transformation-output model
• Operations management focuses on the primary processes of the company, but:
o In many companies there are several primary processes
o There is not always a clear distinction between primary and secondary processes
o The importance of a specific production process can change over time
• This has some important consequences for how processes are being controlled and
organized.
o Threats in the environment can make an organization change its strategy and
therefore its primary processes and operations ! TomTom ! apps came ! starting
in the whole GPS market instead of only navigation systems.
•
• Operations managers are responsible for managing 2 interacting sets of issues:
o Resources ! Materials, information, people, technology and buildings etc.
o Processes ! how resources are organized to best create the required mix of
products and services
• 2 types of input resources:
o Transformed resources ! The resources that actually are being transformed
(materials, information, customers)
o Transforming resources ! The resources that transform the resources
(people, facilities)
THE PRIMARY PROCESS
The primary process of an organization includes all the resources and processes that are directly
linked to producing the products or services that can be considered vital for the long-term
sustainability of the organization
1. The primary process encompasses machines, equipment, technology, knowledge etc.
2. The output of the primary process often is a mix of physical products and a services
3. Reconciliation between market and available resources is an on going process
4. A change of strategy often has a (huge) impact on the primary process
3
, 5. The primary process of an organization can also be leading for the overall strategy of the
organization.
The supply network
The collection of operations (all suppliers, customers etc. for all the operations)
The hierarchy of operations (and levels of analysis)
1. Process level ! Network of individual units of resources (operational analysis)
2. Operation level ! A network of processes (strategic/operational analysis)
3. Supply network level ! A network of operations (strategic analysis)
THE 4 V’S OF DEMAND (SEE FIGURE 1.3 ON P.6)
Processes differ in the nature of demand for their products or services. 4 characteristics of demand:
1. Volume
a. High? ! High degree of specialization, systemization and standardization ! high
efficiency
b. Low? ! Less specialization and standardization ! lower efficiency
2. Variety
a. High? ! Wide range of activities, skills and technology ! generally higher costs
b. Low? ! Smaller range of activities, skills and technology ! generally lower costs
3. Variation
a. High? ! Hard to predict demand, so capacity cushion ! higher costs
b. Low? ! More predictable, less need for safety capacity ! lower costs
4. Visibility
The amount of value added by the operation that is experienced directly by customers
a. High? ! Process that directly act on customers (health care) ! Higher costs
b. Low? ! Processes that act on materials and information ! Lower costs
Implications of the 4 V’s
• All the V’s affect the way operations’ processes are managed
• Biggest implication of positioning an operation on the 4 V’s is costs
PART 2 CHAPTER 1: IMPORTANT ACCORDING TO LECTURER
OPERATIONS STRATEGY VERSUS OPERATIONS MANAGEMENT
1. Long-term focus / short-term focus
2. Higher level of analysis / lower level of analysis
a. High ! Decisions affecting wider set of the organizations’ resources
b. Low ! Managing recourses within and between smaller operations
3. Higher level of aggregation / lower level of aggregation
a. High ! Bringing together the details to look at broader issues
b. Low ! Focus on details on how are products and services produced
4. Higher level of abstraction / lower level of abstraction
a. High ! Deals with more abstract, intangible, less directly observable issues
b. Low ! Deals with more tangible and directly recognisable issues
4
, 4 PERSPECTIVES ON OPERATIONS STRATEGY (SEE ALSO FIGURE 1.5 ON P.11)
1. Operations strategy is a Top-down reflection of what the whole business wants to do
a. Corporate strategy
b. Business strategy
c. Functional strategy
2. Operations strategy is a Bottom-up activity where operations improvements cumulatively
build strategy
a. Emerging strategy ! evolving strategy over time ! based on consensus
3. Operations strategy involves translating Market requirements into operations decisions
a. Performance objectives: (areas of the market that need to be met)
(the priority per area differs per organization and operations process)
i. Quality
ii. Speed
iii. Dependability
iv. Flexibility
v. Cost
4. Operations strategy involves exploiting the capabilities of Operations resources in chosen
markets
a. What resources do we have and what actions do we take?
b. Depends on organizational capabilities, resources, routines and processes
i. How do resources interact with each other?
c. Also looking at: what are the intangible resources?
i. Supplier relationships
ii. Knowledge- and experience of technology sources and labour markets
iii. Process knowledge of day-to-day production
iv. New product development skills
v. Contacts and relations within the market that help understand trends and
specific customer needs
d. Combination of formal (tangible resources and processes) and informal (intangible
resources and processes) that help the organization to be effective
THE RESOURCE BASED VIEW (RBV)
SWOT has 2 types of schools:
1. Environmental ! Opportunities & Threats
2. Resource based ! Strengths & weaknesses
Resources are classified ‘strategic’ of they are:
a. Scarce
b. Imperfectly mobile ! difficult to move or trade (created in-house)
c. Imperfectly inimitable and imperfectly substitutable
EXTENDED RESOURCE BASED VIEW (ERBV)
This view suggests resources that provide sustainable competitive advantage can be sourced outside
the boundaries of a firm. The firm needs to have good relationships within the supply network for
the ERBV to work.
5
, WHAT IS OPERATIONS STRATEGY?
Operations strategy is the total pattern of decisions that shape the long-term capabilities of any type
of operation and their contribution to overall strategy, through the reconciliation (verzoening) of
market requirements with operations resources. The reconciliation is an on going process, because
operations recourses can never ‘perfectly’ be aligned with market requirements. The tension
between market requirements and operations recourses is central to the decisions that make up an
operations strategy.
OPERATIONS STRATEGY: CONTENT VERSUS PROCESS
Content ! Collection of decisions that are made to shape and develop long-term direction
Process ! The way in which operations strategies are formulated, the reconciliation of the
top-down and bottom-up perspectives
Content
The content of operations strategy is the interaction between the operation’s performance
objectives and the decisions that it takes concerning resource deployment. Important is:
• Understanding the relative importance of the operation’s performance objectives; and
• Understanding the influence on them of the decisions areas that determine resource
deployment
Operations strategy performance objectives
• (Understanding markets) performance objectives (speed, quality, cost, flexibility &
dependability) are influenced by
o Customer needs
o Market positioning
o Actions from competitors
• (Understanding resources and processes) operations strategy decision areas (capacity,
supply networks, process technology, development and organization) are based on, or
influenced by:
o Tangible and intangible resources
o Operations capabilities
o Operations processes
Decision areas
Set of decisions to manage the resources of operations.
• Capacity strategy ! What should be the overall level of capacity? How
many sites should we distribute the capacity across? What size should the sites be?
• Supply network strategy ! How operations are related to the interconnected
network of other operations (customers, suppliers and also their suppliers)
• Process technology strategy ! Choice and development of the systems, machines
and processes
• Development and organization ! Broad and long-term decisions on how the
operation is run on a continuing basis
6
,Structural and infrastructural decisions
• Structural decisions ! influence operations structure (Hardware)
o Influence the physical arrangement and configuration of operation’s resources
• Infrastructural decisions ! influence operations infrastructure (Software)
o Influence the activities that take place within the operation’s structure
All decisions consist of both types of decisions, sometimes more structural and sometimes more
infrastructural.
The operations strategy matrix (Fig.1.11 &1.12 p.31-33)
Operations strategy as the intersection of a company’s performance objectives with its decision
areas. The matrix can be (at least) used as a checklist of the issues that need to be addressed. Each
intersection needs to be included in the strategy, but of course not all have to be of equal
importance.
The success of effective operations strategy process is closely linked to the style and skills of the
leaders who do it.
HOW IS OPERATIONS STRATEGY DEVELOPING? (READ P.34-38 AGAIN)
Operations strategy as supply strategy
• At a strategic level of analysis, supply networks are an interconnected network of operations
• So then what is the difference between operations and supply strategy?
Operations strategy as functional strategy
• The frameworks, concepts, models and tools of operations strategy can form the basis of any
functional strategy.
• The application of operations strategy should be central to senior managers in any function
Operations strategy as the firm’s operating model (see figure 1.14 p.38)
2 concepts have emerged over the years:
1. Business model ! plan to make profit and generate revenue. Concerned with:
a. Value proposition
b. Targeting customer segments
c. Use of distribution channels
d. Relationships
e. Core capabilities
f. Configuration of activities
g. Partners
7
, h. Revenue streams
i. Cost structure
2. Operating model ! Clear ‘big-picture’ description of what the organization does,
across both business and technology domain. How is the overall business strategy achieved?
Concerned mostly with:
a. KPI’s
b. Core financial structure
c. Nature of accountabilities for products etc.
d. Structure of the organization
e. Systems and technologies
f. Processes responsibilities and interactions
g. Key knowledge and competence
Operations strategy as strategy execution
• Strategy formulation ! deciding what to do
• Strategy execution ! deciding how to do it
Strategy execution is the process of indirectly manipulating (similar to reconciling in the book) the
pattern of resource and market interactions an organization has with its environment, in order to
achieve its overall objective.
CHAPTER 2: OPERATIONS PERFORMANCE
INTRODUCTION
The performance of operations can be judged in terms of 5 objectives
Then we look at 3 related aspects that are fundamental to understand operations strategy:
1. How does the importance of different aspects of performance change over time (relative
importance of the operations resource perspective)
2. How are operations performances trade off against each other?
3. How can exceptional performance levels be reached?
HOW CAN OPERATIONS PERFORMANCE MAKE OR BREAK ANY ORGANIZATION?
Stakeholder perspective of operations performance
Every organization has stakeholders. These stakeholders have objectives and the organization needs
to set their operations performance objectives accordingly.
Dilemma is that the firm wants to maximize profit but also wants to maximize the satisfaction of the
needs of most stakeholder groups.
8
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