OPERATIONS

UNIT 3BBME
WHAT DOES STRATEGIC PLANNING MEANS

strategic planning is a disciplined effort to produce

fundamental decisions and actions that shape and
guide what an organization is, what it does, and why
it does it, with a focus on the future.
• Sometimes the outside world forces such decisions on the organisation. Such
forces may include major shifts in the market, big changes in government
policy, and radical moves by competing organisations.
• As its name implies simply-strategic-planning.com will focus primarily on
‘strategic planning’. By this we have in mind any plan which looks forward
several years and which is concerned with massive factors only. The focus of
the decisions in the plan are the organisation as a whole in its environment as
a whole.
PURPOSE AND INTENT OF THE STRATEGIC PLANNING
PROCESS

• The Key features of strategic plans :

• Mission and objectives
• Environmental scan
• Strategic formalisation
• Strategic implementation
• Evaluation and control
MISSION AND OBJECTIVES

• Vision and mission often get switched around, but we

believe the best approach is to consider the vision as
"what we want to be like in the future" and the mission as
"what we must do to accomplish the vision."
ENVIRONMENTAL SCAN

• Analyze the strengths and weaknesses of the internal

organization environment, and the opportunities and
threats of the external marketplace environment. Gather
relevant economic, demographic, political, technological,
geographic, legal and trend data. Analyze the data and
present it to the group.
STRATEGIC FORMALIZATION

• Identify the gaps between the vision-mission statements (what we

hope to achieve) and the environmental scan (current realities).
• Develop strategies to close the gaps. This includes specific goals
with measurement, timing, and budget; strategies to reach each
goal; and who's going to be responsible for each goal and strategy.
Sometimes strategies and goals are further subdivided into
objectives (specific accomplishments planned for the next 12
months) and tactics (specific plans to accomplish the objectives).
STRATEGIC IMPLEMENTATION

• The strategic plan is implemented as planned, as closely

as possible. Objective forms of measurement track
progress and help people stay on course. Progress is
periodically reviewed.
EVALUATION AND CONTROL

• Typically strategic plans are created through a major

effort every five years, and updated with a review
process every 12 months or so.
WATCH A VIDEO

• McDonalds Global Strategy

• http://youtu.be/OCG7ScRP1ws
WATCH A VIDEO

• http://youtu.be/FaTtfxQEYMI
• Strategic Planning Process
COMPETITIVE ADVANTAGE AND COMPETITIVE SCOPE

• Porter's fives forces model is an excellent model to analyse factors that

affects a particular industry
• This is part of strategy formulation in strategic planning process
• It is connected to one another to measure competitive advantage in the
industry
THE MODEL
COMPETITIVE RIVALRY

If entry to an industry is easy then competitive rivalry is likely to be high

If it is easy for customers to move to substitute products for example from coke
to water then again rivalry will be high.
• competitive rivalry will be high if:
• • There is little differentiation between the products sold by
competitors.
• Competitors are approximately the same size of each other.
• • If competitors have similar strategies.
• It is costly to leave the industry (exit barriers)
POWER OF SUPPLIERS

• Suppliers are also essential for the success of an organisation as they provide
businesses with the resources they need to produce their products and
services
• Supplier power can come from:
• • If there is one or just a few suppliers that can provide the resources a
business needs.
• If it is expensive to move from one supplier to another (known also as
switching cost)
• If there is no other substitute for the product provided by the supplier.
POWER OF BUYERS

• Buyers or customers can exert influence and control over an

industry in certain circumstances.
• This happens when:
• • There is little differentiation over the product and substitutes can
be found easily by customers/buyers.
• Buyers/customers are sensitive to price fluctuations.
• Switching to another product is not costly for customers/buyers.
THREAT OF SUBSTITUTES

• Are there alternative products that customers can purchase instead of yours?
alternative products that offer the same benefit as your products?
• The threat from substitute (competitor) products is high when:
• • The price of the substitute (competitor) product falls.
• It is easy for consumers to switch from one substitute product to another.
• Buyers are willing to substitute products from different competitors.
THREAT OF NEW ENTRANT

• The threat of new organisations entering the industry is high when it is easy
for an organisation to enter the industry i.e. entry barriers are low.
• When a new business is deciding whether to enter an industry it will look at:
• How loyal customers are to existing products,
• How quickly it can achieve economy of scales
• Would it have access to suppliers and
• Would government legislation prevent them or encourage them to enter the
industry.
EXAMPLE

Martin Johnson is deciding whether to switch career and

become a farmer - he's always loved the countryside, and
wants to switch to a career where he's his own boss. He
creates the following Five Forces Analysis as he thinks the
situation through:
• This worries him:
• The threat of new entry is quite high: if anyone looks as if they're
making a sustained profit, new competitors can come into the
industry easily, reducing profits.
• Competitive rivalry is extremely high: if someone raises prices,
they'll be quickly undercut. Intense competition puts strong
downward pressure on prices.
• Buyer Power is strong, again implying strong downward pressure
on prices.
• There is some threat of substitution.
• Unless he is able to find some way of changing this situation, this
looks like a very tough industry to survive in. Maybe he'll need to
specialize in a sector of the market that's protected from some of
these forces, or find a related business that's in a stronger
position.
WATCH A VIDEO

Porter's Five Forces Model - Example: Mobile Phone Industry

http://youtu.be/h7ve8WhgF6c
Porter's Five Forces Model - Example: Airline Industry
http://youtu.be/hUWAwor9rcA
PAST YEAR QUESTION

•Porter’s model
GENERAL INFORMATION ON RATIOS

• When you pick up the published accounts of a company

for the first time, it can be an intimidating experience as
you are faced by page after page of numbers.
• Financial ratios provide you with the tools you need to interpret
and understand such accounts. They are essential if you want to
look in detail at a company's performance.
• financial reports of a business contain a wealth of financial
information, it is important to consider why we are analyzing and
interpreting the financial reports
• The users of financial reports are wide ranging
and include a variety of stakeholders:
investors, creditors, customers and employees.
What do such stakeholders want to know?
• Is the business profitable?
• Can the business pay its bills?
• How is the business financed?
• How does this year compare to last year?
• How does our performance compare with our competitors?
3 MAIN CATEGORIES OF RATIOS

• Profitability Ratios - these include the Return on Total Assets,

Return on Capital Employed, Net Profit Margin and Net Asset
Turnover and are used to assess how profitable the company is.
• Short-term liquidity ratios - these include the current ratio and the
acid test ratio and measure how easily the company can meet its
short-term financial commitments like paying its bills.
• Long-term liquidity ratios - these measures the extent to which
the capital employed in the business has been financed either by
shareholders or by borrowing and long term finance.
LIQUIDITY –SHORT TERM

• Current ratio
• This ratio is also known as the working capital ratio, and is used to
measure a business’s ability to pay its current liabilities from its
current assets
• current assets
current liabilities
LIQUIDITY – LONG TERM

Debt to Equity
• Debt to equity = Total liabilities
Equity closing balance
This ratio indicates how reliant on debt a business is in its operation.
• Return on Equity
• ROE = profit x 100
shareholder equity
it is the return made by the owners on their investment in the business. It is to
decide how to invest and which company to invest the amount in.
PROFITABILITY

• Gross profit ratio (GPR)

• This ratio is a measure of a business’s profitability before expenses. It is
calculated by dividing the value of gross profit by the value of sales. The result
is usually expressed as a percentage.
• Gross profit
• Net sales
• Profit ratio (NPR)
• This ratio is a measure of a business’s profitability after all expenses have
been paid. It is calculated by dividing the value of net profit by the value of
sales. The results is usually expressed in percentage.
• ____Profit______
• Net Sales
• Expenses
• This ratio shows the amount of expense in each dollar of income earned. Cost
control is needed to improve the expenses ratio.
• Operation expenses
• Net sales
THE CONCEPT OF PRODUCTION

The production process is concerned with transforming a range of

inputs into those outputs that are required by the market.
• The Input-Output (IPO) Model is a functional graph that identifies the inputs,
outputs, and required processing tasks required to transform inputs into
outputs.
• The inputs represent the flow of data and materials into the process from the
outside. The processing step includes all tasks required to effect a
transformation of the inputs. The outputs are the data and materials flowing
out of the transformation process.
• Example: A small engineering firm believes there are problems with its hiring
process. Several of the junior engineers that have been hired remained at the
firm for less than one year. This is a considerable cost to the firm, since
recruiting and training new engineers is time consuming and expensive. The
human resources manager decides to put together a group of people with
extensive experience hiring new engineers. One of their first tasks is to
produce an input-output model of the hiring process. They generate the
following.
PRODUCTION METHODS

• There are three main types of process:

• Job
• batch
• flow production.
JOB PRODUCTION

• Job or 'make complete' production is the creation of single items

by either one operative or a team of operative's
• Job production is unique in the fact that the project is considered
to be a single operation, which requires the complete attention of
the operative before he or she passes on to the next job.
INSIDE THE LEGEND OF THE ROLLS-ROYCE

• http://youtu.be/GaC3vDS0yZ8
BENEFITS OF JOB PRODUCTION

• The job is a unique product, which exactly matches the requirements of the
customer, often from as early as the design stage. It will therefore tend to be
specific to a customer's order and not in anticipation of a sale. For example,
someone doing a customised spray paint job on a motorcycle will first discuss
with a customer the sort of design he would like.
• As the work is concentrated on a specific unit, supervision and inspection of
work are relatively simple.
• Working on a single unit job, coping with a variety of tasks and being part of a
small team working towards the same aim would provide employees with a
greater level of satisfaction.
BATCH PRODUCTION

• Batches are continually processed through each machine before moving on to

the next operation
• The term batch refers to a specific group of components, which go through a
production process together. As one batch finishes, the next one starts.
• For example on Monday, Machine A produces a type 1 engine part, on
Tuesday it produces a type 2 engine part, on Wednesday a type 3 and so on.
All engine parts will then go forward to the final assembly of different
categories of engine parts.
THE BENEFITS OF BATCH PRODUCTION

• It is particularly suitable for a wide range of almost similar goods, which can
use the same machinery on different settings. For example batches of letters
can be sent out to customers of an insurance company.
• It economises upon the range of machinery needed
BATCH PROCESS- VIDEO

• http://youtu.be/cE104lVfor0
FLOW PRODUCTION

• Flow production is therefore Units are worked upon in each operation and a
continuous process of parts and sub-assemblies passing on from one stage to
another until completion.
• then passed straight on to the next work stage without waiting for the batch
to be completed.
• Achieving a smooth flow of production requires considerable pre-production
planning to make sure that raw materials are purchased and delivered just-in-
time, that sufficient labour is employed and that there is continuous attention
to quality throughout the production process.
FLOW PRODUCTION –VIDEO

• http://youtu.be/1PqzwhbcV04
THE BENEFITS OF FLOW PRODUCTION

• ease of using just-in-time techniques to eliminate waste and minimise costs

• labour and other production costs will be reduced through detailed planning
and the use of robotics and automation
• the need for storage space is minimal
MANAGEMENT OF THE PRODUCTION PROCESS

• The production process has to be managed in any organization. Some organization use different ways to
manage their production processes. This is done through the use of research and development of :
• product development
• Systems development
• Quality management
• Inventory control techniques
PRODUCT DEVELOPMENT

• Successful product development and engineering requires coordinated business processes, good design
collaboration infrastructures, uniform standards and the ability to translate customer needs into
product features quickly and faithfully.
• It’s easy to spot big problems like product failures or late launches, but a flawed development process
can also contribute to marginal problems like lower product quality or reduced returns on R&D
investments. Example , like Deloitte leverage a global network of more than 400 experienced Product
Development and PLM practitioners.
• Some companies that Deloitte Corp has helped in terms of their product development is :
• A global consumer health care company with 20 manufacturing locations faced a tangle of processes
and lack of collaboration. These factors led to “tribal knowledge,” limited data visibility and slower time
to market. Deloitte helped build a business case and roadmap; create data and process designs;
recommend and implement needed technology and define a governance model. The result was a
global, integrated PLM system that delivered a “single-source truth” across the entire product lifecycle.
SYSTEMS MANAGEMENT

• Managing business operations involving collecting and organizing a lot of information from all areas of
business. Technology is used to automate the collection and distribution of information and it
contributes tools that are used to make operations more efficient and meet quality standards. The tools
used are as following :
• Quality Control System
• Inventory Management System
• Scheduling and Dispatching System
QUALITY CONTROL SYSTEMS

• It is a term that relates to the characteristics of products and services.a product or production process is
one of quality if it :
• Meets legislated standards for product safety.
• Complies with industry standards
• Is cost effective
• Meets or exceeds customer expectations
• Business use technology as part of their QCS. Automated screening and testing technology is
cheaper and faster than inspection by people. The aim is to prevent substandard products
from leaving the business. Identification of defects provides the opportunity to take
corrective and preventative action.
• As food passes through machineries, metal dusts and shavings may enter the food.Food
producers have metal detectors at the end of the production line to scan products before
they are packed. Food producers use a range of techniques to detect foreign matter in
products such as inspection, ultrasound, filters and nuclear magnetic resonance.
• Laser measurement devices are able to scan an object in three dimensions.
The scanner compares the dimensions of a product with those required by
the design or customer specifications and identifies products that do not
comply.Precision cameras and scanning devices can create digital images of
products and materials as they move along a production line
WATCH A VIDEO

• U.S. Poultry Quality Control and Food Safety

• http://youtu.be/Jo5TPFU29YY
INVENTORY MANAGEMENT SYSTEM

• a process for managing and locating objects or materials. In

common usage, the term may also refer to just the software
components.
• Modern inventory control systems often rely
upon barcodes and radio-frequency identification (RFID) tags to
provide automatic identification of inventory objects.
• In an academic study performed at Wal-Mart, RFID reduced Out of Stocks by
30 percent for products selling between 0.1 and 15 units a day. Inventory
objects could include any kind of physical asset: merchandise, consumables,
fixed assets, circulating tools, library books, or capital equipment. To record an
inventory transaction, the system uses a barcode scanner or RFID reader to
automatically identify the inventory object, and then collects additional
information from the operators via fixed terminals (workstations), or mobile
computers.
• Inventory management software is made up of several key
components, all working together to create a cohesive inventory
for many organisations systems. These features include:
• Order management - Should inventory reach a certain threshold, a
company's inventory management system can be programmed to
tell managers to reorder that product. This helps companies avoid
running out of products or tying up too much capital in inventory.
• Asset tracking
• When a product is in a warehouse or store, it can be tracked via
its barcode and/or other tracking criteria, such as serial number, lot number
or revision number. Nowadays, inventory management software often
utilizes barcode, radio-frequency identification (RFID),
and/or wireless tracking technology.
• Service management
• Companies that are primarily service-oriented rather than product-oriented can use
inventory management software to track the cost of the materials they use to provide
services, such as cleaning supplies. This way, they can attach prices to their services that
reflect the total cost of performing them.
• Product identification
• Barcodes are often the means whereby data on products and orders is inputted into
inventory management software. A barcode reader is used to read barcodes and look up
information on the products they represent. Radio-frequency identification (RFID) tags
and wireless methods of product identification are also growing in popularity.
WATCH A VIDEO

• RFID - Technology Video

• http://youtu.be/4Zj7txoDxbE
SCHEDULING AND DISPATCHING SYSTEMS

• Scheduling software assist businesses to set rosters for staff, and

automatically set priorities for manufacture and delivery of goods based on
customers orders and payments. Software coordinates inventory records and
production processes. Once material in the inventory reaches a certain level
or when a customer order is complete, automated messages identify the
goods that are ready for delivery.
• An information system integrates point of sale and warehouse functions to
enable delivery of merchandise to customers in the shortest possible time. A
database stores customer identification information and merchandise
information and processes sale transactions. The systems displays item
information’s, delivery method instructions and transmits the transaction
record to the warehouse to request delivery of the sold items.
QUALITY MANAGEMENT

• act of overseeing all activities and tasks needed to maintain a desired level of
excellence. This includes creating and implementing quality planning and
assurance, as well as quality control and quality improvement. It is also
referred to as total quality management (TQM).
WATCH A VIDEO

• http://youtu.be/guJ4I3O8DeU
• BMW 3 Series. BMW Quality Management.
INVENTORY CONTROL TECHNIQUES

Various inventory control methods exist. For the small business, the inventory control method used has a
major impact on the business & cash flow and operational cost. Whatever inventory control method a
company uses, the goals for managing inventory hold true regardless of industry or product. These goals
include maximizing customer service, lowering operational cost and minimizing inventory investment.
• Two techniques which is very often used in organizations will be just in time and just in case.
• Just in time
• Just in Case
JUST IN TIME

• It is a management philosophy which aims at eliminating waste from every aspect of manufacturing and
its related activities.

The term JIT refers to producing only what is needed.

JIT is defined as “A technique for the organisation of work-flows, to allow rapid, high quality, flexible
production whilst minimising manufacturing waste and stock levels.”
• Customer places an order, the business then orders the materials and manufactures the product and
delivers it to the customers
• Lean Manufacturing Example Toyota Plant Kentucky
• http://youtu.be/U0_ktNqbQyU
• Just-in-case or JIC is an inventory management strategy where companies hold large amounts
of inventory on hand. Just-in-case is used to try to minimize the possibility that a product will
run out of stock. Historical usage is one approach used in just-in-case inventory management.
A company that uses just-in-case typically incurs high costs for holding inventory, yet
experiences a reduction in the number of sales lost due to inventory being sold out. Just-in-
case is different from the newer just-in-time strategy, where companies minimize inventory
by waiting until orders come in to produce goods. Companies that have trouble forecasting
demand often use just-in-case. With a just-in-case strategy in place, there is usually enough
production material on hand to meet unexpected demands for product. Often companies
appoint a just-in-case manager to oversee the process