Strategic Operations Essay
Instructor: Gad Allon Contact: [email protected] Class 1 Description Framework for operations strategy Tailoring operations strategy Investor/External view of operations: – Operations Forensics – Linking to Financials (ROIC tree) Asset strategy, operational hedging and risk mgmt. Sourcing strategy: Global networks and offshoring Strategic sourcing and supplier relations Reading Swiss Watch Industry (Ch1, p. 32) Peapod (Ch. 13, p. 415)
Hand-‐‑In (Before class)
Project Progress (After class)
External view of the organization’s operations. Risk assessment Operational hedges Sourcing challenges Plan for next steps
Seagate Technology (Ch. 12, p. 405)
Course Description and Objectives
THE GOAL OF THIS COURSE is to understand how strategic operations decisions impact the performance of the firm. The key will be to understand the link between the operating system configurations, the customer experience, and the financial performance of the firm. We will approach operations strategy by taking a holistic view that incorporates competitive strategy, financial evaluation, and the customer experience.
Operations strategy is a plan for developing assets and configuring processes such that the resulting competencies maximize value for stakeholders. We focus on decisions and challenges that many firms face: assessing the attractiveness of a firm’s operating system from an investor/external perspective and a management/internal perspective. Then we study building competencies in-‐‑house (i.e., investing in a 1 of 6
portfolio of assets whose capacity, type, and location define the internal supply chain) or buying them (i.e., developing and implementing a global sourcing strategy and integrating external supply chain partners). Finally, we put everything together using an in-‐‑class team simulation game.
As the course format is very intense, and in order to maximize value-‐‑added time during class, it is critical that you prepare in advance for the first day of class. The assignment consists of three parts: (1) Read the Swatch case. (No assignment is due.) (2) Read the Peapod case and answer the following question individually: Peapod case assignment How attractive is Peapod’s operation from an external investment perspective. What is Peapod’s cost to fulfill an order? I estimate the required time to prepare as MAXIMUM 2 hours.
Do not spend inordinate amounts of time seeking the “ultimate” or “correct” answer, as in there are many additional factors, not included in the case, that may have significant bearing on the situation. Rather, the most productive avenue is to familiarize yourself with the situation, and reflect on the main issues. FORMAT: The write-‐‑up should not exceed two pages of typed text. The case is only due for the second class, yet we anticipate that you will not have time during the first evening of the course. (3) Write a paragraph with an idea for a project. See guidelines for project below. Each group will choose among the projects suggested by its members.
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ASSIGNMENTS & GRADING: The grade you receive for the course is intended to certify your demonstrated proficiency in the course material. Proficiency will be estimated by measuring your performance on: A. Individual: – Class contribution 15% – Individual Peapod case submission 15% B. Team work: – Simulation game submission 15% – Final project or case 55%
Text and Course Materials
The course packet and the textbook Operations Strategy: Principles and Practice by J. A. Van Mieghem. Other textbooks that can give complementary viewpoints on operations strategy: 1. Operations Strategy: Competing in the 21st Century. S. L. Beckman and D. B. Rosenfield. McGraw-‐‑Hill, 2007. 2. Operations, Strategy, and Technology: Pursuing the competitive edge. R. Hayes, G. Pisano, D. Upton and S. Wheelwright. Wiley, 2005. 3. Operations Strategy by Slack and Lewis. Prentice Hall, 2003. 4. Manufacturing Strategy by Hill. Irwin McGraw-‐‑Hill, 2000. Other business books that may be of interest to students taking this course: 1. Supply Chain Management: Strategy, Planning and Operations by Chopra and Meindl. Prentice Hall. 2. Clock Speed by Charles H. Fine 3. Mass Customization by B. Joseph Pine 4. Balanced Sourcing by Laseter. Jossey-‐‑Bass Publishers, 1998.
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Guidelines for Team Project
The final project is done in groups. Groups that do not want to do a project can choose to hand-‐‑in a capstone write-‐‑up on the Harley-‐‑Davidson case in the textbook. Approach the project as a “case study” of an organization whose operations strategy you can analyze and improve. Use the following criteria in choosing the organization or the organizational unit: (1) Either your organization or a competitor. (2) You have access to its financial data (balance sheet, income statement) and possibly operational data. (3) The organization has an operational component (manufacturing, procurement or service). (4) In your opinion, your organization faces an operational challenge.
FORMAT: The maximum length is 8 pages of text, (12pts double-‐‑spaced,) and maximally 4 pages of supporting exhibits. IMPORTANT NOTE: At the end of each class, the students will be instructed on how to make progress based on what they have learned in that class. Groups that will work during the week on their projects and invest about an hour after every class are expected to have the majority of the work done by the end of the course.
For the final class you will need to prepare a short presentation with the main question, the approach, initial observations and next steps. The project is due on August 15th. Guiding questions: (1) Is the operating system aligned with the strategy of the firm? (2) Is the current operating system maximizing shareholders’ value? (3) Does the current operating system hedge against risk using the right capacity strategy and sourcing strategy? (4) How would you improve the system given your analysis above
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Class 1: Introduction & A Framework for Operations Strategy Content: What is operations strategy? Introduce a framework to describe a company’s operations strategy. The key premise is that an operations strategy must be evaluated in terms of the performance it delivers. This performance depends on the activity network and the asset bundle that operations puts in place. We will discuss the goal of operations strategy and a framework to think about operations strategy. Apply the operations strategy framework and tailor it to specific business situations. We will use the Swiss Watch Industry mini-‐‑case as our main discussion vehicle. Swiss Watch Industry, mini-‐‑case 1 in Chapter 1. Be prepared to discuss the accompanying questions.
Class 2: VALUE: Investor/External Assessment: ROIC and Operations Forensics Content: How to assess an operations strategy as an outsider? Use public information together with personal estimates of key resources and process to assess the attractiveness of an operations strategy. During this process, distill key operational metrics (including “cost to serve” for the Peapod case) that create value, tie them to financial performance, and suggest how to improve profitability over time.
Prepare: Peapod, Chapter 13 in textbook. See guiding question under “First Assignment”, above. Hand-‐‑in: Peapod case assignment.
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Class 3: ASSETS: Capacity Strategy, Risk Management, and Operational Hedging Content: How to design a capacity strategy?
A major part of operations strategy is deciding on a capacity strategy. This includes deciding on the sizing, timing, type, and location of each asset change. How can we structure resources and processes to mitigate the firm’s risk exposure? We approach risk management as a process with focus on operational risks and methods to mitigate that risk. We start by investigating how resource networks can be structured to provide an operational hedge against demand risk.
Prepare: Seagate Technology: Operational Hedging, Chapter 12 in textbook. Guiding questions come with the case. The objective of this case is to analyze and optimize the impact of each asset’s (location) capacity on the overall value and risk of the processing network. FORMAT: Prepare a flip chart presentation with your recommendation and rationale.
Class 4: Global Networks and Supplier Relationships Content:
How to best utilize the asset portfolio you just built? Which factors should be considered when designing a global operational network? How can the concept of total landed cost help making such decisions? We will play an in-‐‑class capstone simulation game. The objective is that each group identifies how to best manage a global network and the key challenges faced in such setting. How do we choose and manage an appropriate supplier portfolio? Deciding on which suppliers to use for particular goods or services and on how to manage the supplier relationship over time is called strategic sourcing.
Prepare: The assignment for the in-‐‑class simulation game will be discussed and handed out in the previous class. FORMAT: Prepare a flip chart presentation with your recommendation and rationale.