Operation Management

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The management of systems or processes that create goods and/or provide services.

OM effects:
- Company's ability to compete
- Nation's ability to compete internationally

Major Functional Areas of Organization

1. Finance
2. Operation
3. Marketing

The Goods-Services Continuum

Manufacturing or Services?

Production of goods- tangible output

Delivery of services - an act

Service job categories:

• Government
• Wholesale/retail
• Financial service
• Healthcare
• Personal services
• Business services
• Education

OM includes:

1. Forecasting
2. Capacity planning
3. Scheduling
4. Managing inventories
5. Assuring quality
6. Motivating and training employees
7. Locating facilities
8. Supply chain management
9. etc.

Types of Operation

 

Reasons Decline in Manufacturing Jobs

1. Productivity - increasing productivity allows companies to maintain or increase their output using fewer workers
2. Outsourcing - some manufacturing work has been outsourced to more productive companies

Challenges of Managing Service

- Service jobs are often less structure than manufacturing job 

- Customer contact is higher

- Worker skill levels are lower

- Service hire many low-skill, entry-level workers

- Employee turnover is higher

- Input variability is higher

- Service performance can be affected by worker's personal factor

Key Decisions of Operation Managers

1. WHAT (resource, amount)

2. WHEN (needed, schedule, ordered)

3. WHERE (work to be done)

4. HOW(design, resources allocated)

5. WHO (to do the work)

Operation Interfaces

Simple Product Supply Chain

Supply Chain: A sequence of activities an organizations involve in producing and delivering a good or services

Generating Alternative Strategic Using Portfolio Models

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BCG Model

1. Also known as growth-share matrix is a corporate planning tool.
2. Used to portray firm's brand portfolio or SBUs on quadrant along relative market share axis (horizontal axis) and speed of market growth axis (vertical axis). 
3. A business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio.
4. Suggest further investment strategies.

Understanding the tool

- A framework to evaluate the strategic position of the business brand portfolio and its potential.

- It classifies business portfolio into 4 categories based on industry attractiveness (growth rate of that industry) and competitive position (relative market share).

- These two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it.

- The general purpose of the analysis is to help, which brand the firm should invest in and which ones should be divested.

Relative Market Share - Higher corporate's market share resulting in higher cash returns. A firm that produces more, benefits from higher economies  of scale and experience curve.

Market Growth Rate - High market growth rate means higher earnings and sometimes profit but it also consume a lot of cash, which is used as an investment to stimulate further growth.

Dogs - Dogs hold low market share compared to competitors and operate in a slow growing market. In general, they are not worth investing because they generate low and negative cash returns. But this is not always the truth. Some dogs maybe profitable for long period of time, they maybe provide synergies for other brand or SBUs.

Therefore it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested.

Strategic choice: Retrenchment, divestiture, liquidation

Cash cows - Cash cows are the most profitable brand and shoul be 'milked' to provide as much caash as possible. The cash gained from cows should be invested into 'stars' to support their further growth.

Strategic choice: Product development, diversification, divestiture. retrenchment

Stars - Stars operate in high growth industries and maintain high market share. Stars both cash generators and cash users. Stars are expected to become cash cows and generate positive cash flows.

Strategic choice: Vertical integration, Horizontal integration, market penetration, market development, product development

Question Marks - Question marks are the brands that require much closer consideration. They hold low market share in fast growing markets consuming large amount of cash and incurring loses. It has potential to gain market share and become a star, which would later become cash cow.

Strategic choice: Market penetration, market development, product development, divestiture

Case Study: The Digital Age: Shall I Tag Along

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This case study is about Ambang Mata Sdn. Bhd. venturing in book publishing industry. They facing problem to encounter with digital era which is the existence of internet technology and e-marketing.

It has to renew its strategy in order to be sustain in the industry.

SWOT Analysis

TOW Matrics

The Business & Functional Level

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Business Level Strategy
- Refers to strategies that firms use to build competitive advantage.
- Focus on improving competitive position of a company's product or services within the specific industry or market segment that the company services.

Micheal Porter presented 2 generic business level strategies:

1. Cost leadership
2. Differentiation
3. Focus strategy

Cost Leadership Strategy

- It refers to the organization ability to produce a product or service at a cost below what competitors can achieve.

- Companies which utilize Cost Leadership Strategy would concentrate on providing a basic and standardized product or services that can be produced at a relative low cost and made available to a broad target market.

- Successful implementation requires a consistent focus on driving cost relatively lower to competitors' cost.

Example of Company:

• MyDin
• McDonald
• Dell
• Air Asia

Differentiation Strategy

- Consists of creating differences in the firm's products or services by offering something that is perceived industry wide as unique and valued by customers.

- Firms that use this strategy would emphasize brand image, unique styling, technology, features, a dealer network, customer service or innovative design.

- This strategy is based on assumption that customers are willing to pay a higher price for a product or service that is distinct or perceived to be unique from that of its rivals.

- Differentiation strategy create customer loyalty to a firm's products because customer perceived this products to be unique and as a result, are willing to pay more.

- Firms that use this strategy should constantly upgrade the differentiated features that customers value without significant cost increase.

Example of Company:

• Rolex
• FedEx
• Apple
• Sony
• Harley Davidson
• Louis Vuitton

Focus Strategy

- Based on the firm competing on a narrow scope within an industry where the firm selects a segment or group and tailors its strategy to serve them.

- The success of a focus strategy rest's on the firm's ability to identify segments that are not properly served or to find market segment that have unique needs or that are so specialized that broad-based competitors select not to serve them.

- Firms that follows focus strategy earn high profitability by meeting the needs of a particular buyer group, having the ability to attract a growing number of a new customers, and continuing to attract repeat customers.

Example of Company:

• GAP
• Ferrari
• Porsche  

Functional Level Strategies

- Actions taken at the functional or operation level and the must be in line or contribute towards the overall strategy of corporation.

- The functional strategies address problems commonly face by lower-level managers and handle activities considered relevant to achieve the business level and corporate level strategies.

- The functional level of organization is the level operating division and department.

- The Value Chain Analysis (VCA) is a systematic approach to examine the development of competitive advantage.

The Value Chain

- The value chain activities can be classified into two main categories, primary activities and support activities.

Corporate Level Strategy

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Different Levels of Strategies

1. Corporate Level Strategies
2. Business Level Strategies
3. Functional Level Strategies

Corporate Level Strategies

• for the benefit of the whole organization
• top management level
• for the welfare of the whole corporation in terms of its future
• to bring it to a higher position overall in terms of the group's share value, profit or any performance measures

Value Chain of Tesco

5 Porter Forces of Case Study : The Digital Age

The Tactical Level Strategies 

Strategic Planning Process

External Environmental Analysis

P - Political factors
E - Economic factors
S - Socio-culture factors
T - Technology factors
E - Ecological factors
L - Legal factors

Factors in the Industry Environment
1. Threat of New Entrants
2. Bargaining Power of Suppliers
3. Bargaining Power of Buyers
4. Substitute Products
5. Rivalry among Competitors

Internal Environmental Analysis

Functional areas:
- Management
- Marketing
- Finance
- Operation/production

Management
- five basic functions,

• planning
• organizing
• motivating
• staffing
• controlling

Marketing

-It refers to the exchange of products or services from the producer to the user. It begins with determining what users want and need or what services could be provided to create satisfaction.

• Price - The price of a product will effect the company's sales and total revenue.
• Place - Involves the business activities concerned with storing and transporting raw materials or finished products to consumers when needed
• Promotion - to bring about mutually satisfying exchange with the target market

Financial

5 major financial ratio

1. Liquidity ratio- current ratio, quick ratio
2. Leverage ratio - debt-to-asset-ratio, long-term-debt-to-equity-ratio
3. Activity ratio- inventory turnover. fixed asset turnover
4. Profitability ratio- gross profit margin, return on total asset
5. Growth ratio - sales, net income

Operation

- The process of transforming input/resources into products/output

Elements of Strategic Management

These are the terms we should know in Strategic Management

Competitive Advantage

"A firm is said to have competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player'" (Barney-1991)

• access to natural resources
• access to highly trained and skilled personal human resources

This is an example of competitive advantage in the existence industry:

1.  Strong research and innovation- Apple, Sony
2. Brand Popularity- Coca Cola
3. Superior product/ customer support- IKEA
4. Low pricing- Air Asia
5. Speed and time- Domino's, FedEx

Resource-based View (RBV)
-a firm's internal resources are most important in getting and sustaining company's competitive advantage

Industrial/ Organizational View
-the industry which the firm choose to compete has a stronger influence on the firm's performance than the firm's internal resources such as management, marketing and finance
-external resources

Resources and Capability

Resources - inputs (eg:equipments, HR, processes, patents, finances) into firm's production process.

1. tangible- asset, equipment, etc.
2. intangible- reputations, culture, patents, copyright, knowledge
3. HR- skills, intelligence, competencies, experiences

Capability - the firm;s capacity to transform into outputs valued by the customer which generate profit for the firm

Characteristics of Resources as a Sorce of Competitive Advantage

V-R-I-O

1. valuable
2. rare
3. hard to imitate or substitute
4. organized to be exploit 

Vision Statement

- a statement about what an organization wants to become

- must align with the core values of stakeholders

- a powerful motivatot

Mission Statement

- defines the long-term vision of the organizations in terms of what it wants to be and whom it want to serve 

- it should be clear and concise in order to distinguish it from any other firm

- has to be back up with specific objectives and strategies

 

components

products/service, markets, technology, concern for survival, growth and profitability, philosophy, self-concept, concern for public image, concern for employee

Objectives

- a desired or specific result of a planned activity that should be achieved by a specific time.

- short, medium, long-term

- should be measureable

Specific, Measurable, Achievable/attainable, Realistic, Time phase. (SMART)

Strategy

- a strategic master plan states how the corporation will achieve its mission and objective.

- its maximize competitive advantage and minimize competitive disadvantage

- it is concern with integrating company activities and allocating resources so that the present objective can be met.

Level Of Strategy

Stakeholders
Corporation

1. Stockholders
2. Customers
3. Employees
4. Communities
5. Government