1
OPERATIONS SUMMARY
1- TRENDS IN OPERATIONS
If you are operating at a strategic level of a company, you have to consider a long term point of view
and the environment where you are playing. Environmental and social media in the European
industries nowadays depend on several trends:
DEMOGRAPHIC CHANGES – the number of people in the world is increasing, but not always
in the same way. The European market is not growing numerically but maybe is changing the
behaviour, because the average age of the people is changing and also the needs of the people are
changing. Maybe Europe is not a potential future view for a company.
GLOBALISATION & FUTURE MARKETS – there’s still the trend of people moving from the
country to the big cities. If you are a company that operates in the country, you have to consider both
the market which you are satisfying and where I can find more resources for the company. Eastern
countries are speedy growing in the manufacturing industry, if we want to be competitive we have to
keep operations inside our boundaries.
SCARCITY OF RESOURCES – we have registered an increasing consume of resource, in
particular difficulties on catching people, though the number of people in the world is increasing.
CLIMATE CHANGE – the point of sustainability must be a driver in the setting of the strategy for
our operations.
DYNAMIC TECHNOLOGY INNOVATION – we can recover performances in our company, not
only with a sustainable point of view, but also with a productivity one, that contributes to generate
advantage in the market. If we want to be competitive, we have to invest on R&D.
GLOBAL KNOWLEDGE SOCIETY – thanks to internet people are more aware and more
conscious about the market so it is fundamental to take care of sustainability of the resources in
terms of social and environmental impact.
The operations trends are saying to us who own the operations will be the winner in the future. We
can consider 3 main megatrends:
1. Sustainability: customers are always increasing the willing to pay a premium price to a
product that is a famous as green. This trend started 10 years ago. Energy prices are not
stable, so the less energy we consume the more we are stable. I must have a supply chain
that is social friendly, where all company respect safety and human rights.
2. Mass customization: mass production means that we as a company must be able to
produce large volumes but in this large volumes we cannot produce serial volumes.
Nowadays customers pretend specific characteristics; the market of today is in the middle
between low volume - high variety and high volume – low variety (mass production). Actually,
we have to offer high volumes and high variety. This trend in many industries started many
years ago and it consists of increasing the flexibility without losing the capability of
production volumes.
3. Servitization: it is the oldest megatrends. Company started to enlarge their operation system
and they offered not only products that they are selling, but also services in support of these
products.
, 2
Three out of the four most important drivers of change in a company are related to operations:
▪ Talent driver innovation – setting operations in a proper way means to exploit the talents
of the resources which are in your company; it means that your power of innovation is not
just related to few people of the innovation but your power of innovation is strength in all the
stakeholders of your company.
▪ Cost and availability of labour and materials
▪ Supplier networks
All three of the drivers wrote before are not only drivers but also constraints.
2- OPERATIONS STRATEGY
Strategy of operations should be always in line with the strategy of the company. We firstly need to
define what level of the company’s organization we are considering:
➢ Corporate level → resources allocation between different markets and products.
In which business do I want to compete?
➢ Business Unit level → what are the market’s needs and how can I satisfy them
How do we compete?
➢ Functional level → support the company in satisfying market needs.
How do we support the company in the implementation of the strategy?
TRADITIONAL APPROACH – it is a top-down approach where BUs implement locally the
strategy received by the top and then they execute it. Decisions are taken at a corporate level and
operations are supposed to do whatever is decided at centre level.
This approach doesn’t work in highly competitive environments, not stable and with lot of variance,
where the speed of variation and change is very high.
There are forces of changes. Relevant factors outside the company are:
- Offer > Demand: companies invest a lot because they are pretty sure that the demand will
increase, as they’re market share. The problem is that all the companies are thinking in the
same way.
- Customization
- Globalization
- Speed of technological development: today technology changes are faster than market
changes and customers’ need. In fact, today we have more a technology pull approach rather
than a market pull approach, because we should not wait for the market and do what
customers want, but we should do the contrary.
Factors influencing company’s resources are:
- Economical: wealth increase
- Cultural: educational level
- Social: authority acknowledgement
- Technological innovation
- ICT
These represent constraints for companies that are developing a strategy.
, 3
INNOVATIVE APPROACH – also called integration & bi-direction approach is based on
interaction and mutual approval. VPs of main functions have to communicate and interact to define
the strategy at a BU and corporate level. R&D, operations, marketing, etc. must not be independent,
but they should communicate.
The business model is how the company plans the strategy; it is the business strategy.
The operating model is how the company realizes the strategy; the functional strategies.
Usually there’s a GAP between what we have decided and what at the end is implemented, this
difference normally come from unplanned events, for these reasons, companies have to be flexible:
o In the decision making process, like deciding not to do something already planned or to do
something new not planned before.
o They should detect what could be possible unplanned events in order to be able to react
quickly and efficiently.
Strategy is important to create a sustainable advantage. A deliberate strategy allows us to plan every
little choice; in a turbulent context it is not possible, we have to handle inconveniences, applying an
emergency strategy through two different ways:
- Deliver a resilient strategy: unforeseen events do not affect the main strategy (to avoid them).
- Being reactive: forecasting the future, trying to anticipate the unforeseen events.
Performances affected by operations, which must be considered in defining a strategy, are:
• TIME – how fast a company is. Among the time, we have:
o Time to formulate the offer;
o Time to confirm the order;
o Time to deliver (delivery speed);
o Delivery reliability (timeliness).
The main difference stands in:
▪ Make to stock (MTS)
▪ Make to order (MTO)
• PRICE – customers want to pay products the less possible. For the price, customers are
becoming more and more smart, so it is even more difficult to cheat them. Price is made of:
o Cost of purchase
o Cost of usage
o Cost of maintenance
o Cost of update/upgrade/expansion
o Cost of disposal
• QUALITY
o Quality of design (specifications) → represents company’s positioning on the market
o Quality of conformance → how much the real performance is different from the
designed one.
, 4
• FLEXIBILITY – it can affect product, customization, variety and plan.
• SERVICE
We cannot optimize all of these aspects; we have to focus just on few customer needs making a
trade-off and, consequently, positioning on the market and analysing it.
It is necessary to align operations and current market. How?
The RECONCILIATION MODEL helps us to define the levers to achieve, finding a compromise with
stakeholders. Among the strategic levers:
1. Structural design (Technological/plant design)
o Overall production capacity
o Strategic make or buy
o Technologic process and equipment
o Mechanization/automatization level
o Type of plant design of the system
o Supply chain configuration
2. Infrastructural design (Organizational design)
o Competences needed and their management
o Responsibility allocation
o Team vs individuals
o Managing by objectives or procedures
o Functions integration
o Incentive system
o Information flows between
3. Delivery management
o How to meet the demand
o How to realize the product
o Supply chain coordination system
o Maintenance managing and realization system
o Continuous improvement system
o Which customer do you prefer to serve
3- HQ CASE
OPERATIONS SUMMARY
1- TRENDS IN OPERATIONS
If you are operating at a strategic level of a company, you have to consider a long term point of view
and the environment where you are playing. Environmental and social media in the European
industries nowadays depend on several trends:
DEMOGRAPHIC CHANGES – the number of people in the world is increasing, but not always
in the same way. The European market is not growing numerically but maybe is changing the
behaviour, because the average age of the people is changing and also the needs of the people are
changing. Maybe Europe is not a potential future view for a company.
GLOBALISATION & FUTURE MARKETS – there’s still the trend of people moving from the
country to the big cities. If you are a company that operates in the country, you have to consider both
the market which you are satisfying and where I can find more resources for the company. Eastern
countries are speedy growing in the manufacturing industry, if we want to be competitive we have to
keep operations inside our boundaries.
SCARCITY OF RESOURCES – we have registered an increasing consume of resource, in
particular difficulties on catching people, though the number of people in the world is increasing.
CLIMATE CHANGE – the point of sustainability must be a driver in the setting of the strategy for
our operations.
DYNAMIC TECHNOLOGY INNOVATION – we can recover performances in our company, not
only with a sustainable point of view, but also with a productivity one, that contributes to generate
advantage in the market. If we want to be competitive, we have to invest on R&D.
GLOBAL KNOWLEDGE SOCIETY – thanks to internet people are more aware and more
conscious about the market so it is fundamental to take care of sustainability of the resources in
terms of social and environmental impact.
The operations trends are saying to us who own the operations will be the winner in the future. We
can consider 3 main megatrends:
1. Sustainability: customers are always increasing the willing to pay a premium price to a
product that is a famous as green. This trend started 10 years ago. Energy prices are not
stable, so the less energy we consume the more we are stable. I must have a supply chain
that is social friendly, where all company respect safety and human rights.
2. Mass customization: mass production means that we as a company must be able to
produce large volumes but in this large volumes we cannot produce serial volumes.
Nowadays customers pretend specific characteristics; the market of today is in the middle
between low volume - high variety and high volume – low variety (mass production). Actually,
we have to offer high volumes and high variety. This trend in many industries started many
years ago and it consists of increasing the flexibility without losing the capability of
production volumes.
3. Servitization: it is the oldest megatrends. Company started to enlarge their operation system
and they offered not only products that they are selling, but also services in support of these
products.
, 2
Three out of the four most important drivers of change in a company are related to operations:
▪ Talent driver innovation – setting operations in a proper way means to exploit the talents
of the resources which are in your company; it means that your power of innovation is not
just related to few people of the innovation but your power of innovation is strength in all the
stakeholders of your company.
▪ Cost and availability of labour and materials
▪ Supplier networks
All three of the drivers wrote before are not only drivers but also constraints.
2- OPERATIONS STRATEGY
Strategy of operations should be always in line with the strategy of the company. We firstly need to
define what level of the company’s organization we are considering:
➢ Corporate level → resources allocation between different markets and products.
In which business do I want to compete?
➢ Business Unit level → what are the market’s needs and how can I satisfy them
How do we compete?
➢ Functional level → support the company in satisfying market needs.
How do we support the company in the implementation of the strategy?
TRADITIONAL APPROACH – it is a top-down approach where BUs implement locally the
strategy received by the top and then they execute it. Decisions are taken at a corporate level and
operations are supposed to do whatever is decided at centre level.
This approach doesn’t work in highly competitive environments, not stable and with lot of variance,
where the speed of variation and change is very high.
There are forces of changes. Relevant factors outside the company are:
- Offer > Demand: companies invest a lot because they are pretty sure that the demand will
increase, as they’re market share. The problem is that all the companies are thinking in the
same way.
- Customization
- Globalization
- Speed of technological development: today technology changes are faster than market
changes and customers’ need. In fact, today we have more a technology pull approach rather
than a market pull approach, because we should not wait for the market and do what
customers want, but we should do the contrary.
Factors influencing company’s resources are:
- Economical: wealth increase
- Cultural: educational level
- Social: authority acknowledgement
- Technological innovation
- ICT
These represent constraints for companies that are developing a strategy.
, 3
INNOVATIVE APPROACH – also called integration & bi-direction approach is based on
interaction and mutual approval. VPs of main functions have to communicate and interact to define
the strategy at a BU and corporate level. R&D, operations, marketing, etc. must not be independent,
but they should communicate.
The business model is how the company plans the strategy; it is the business strategy.
The operating model is how the company realizes the strategy; the functional strategies.
Usually there’s a GAP between what we have decided and what at the end is implemented, this
difference normally come from unplanned events, for these reasons, companies have to be flexible:
o In the decision making process, like deciding not to do something already planned or to do
something new not planned before.
o They should detect what could be possible unplanned events in order to be able to react
quickly and efficiently.
Strategy is important to create a sustainable advantage. A deliberate strategy allows us to plan every
little choice; in a turbulent context it is not possible, we have to handle inconveniences, applying an
emergency strategy through two different ways:
- Deliver a resilient strategy: unforeseen events do not affect the main strategy (to avoid them).
- Being reactive: forecasting the future, trying to anticipate the unforeseen events.
Performances affected by operations, which must be considered in defining a strategy, are:
• TIME – how fast a company is. Among the time, we have:
o Time to formulate the offer;
o Time to confirm the order;
o Time to deliver (delivery speed);
o Delivery reliability (timeliness).
The main difference stands in:
▪ Make to stock (MTS)
▪ Make to order (MTO)
• PRICE – customers want to pay products the less possible. For the price, customers are
becoming more and more smart, so it is even more difficult to cheat them. Price is made of:
o Cost of purchase
o Cost of usage
o Cost of maintenance
o Cost of update/upgrade/expansion
o Cost of disposal
• QUALITY
o Quality of design (specifications) → represents company’s positioning on the market
o Quality of conformance → how much the real performance is different from the
designed one.
, 4
• FLEXIBILITY – it can affect product, customization, variety and plan.
• SERVICE
We cannot optimize all of these aspects; we have to focus just on few customer needs making a
trade-off and, consequently, positioning on the market and analysing it.
It is necessary to align operations and current market. How?
The RECONCILIATION MODEL helps us to define the levers to achieve, finding a compromise with
stakeholders. Among the strategic levers:
1. Structural design (Technological/plant design)
o Overall production capacity
o Strategic make or buy
o Technologic process and equipment
o Mechanization/automatization level
o Type of plant design of the system
o Supply chain configuration
2. Infrastructural design (Organizational design)
o Competences needed and their management
o Responsibility allocation
o Team vs individuals
o Managing by objectives or procedures
o Functions integration
o Incentive system
o Information flows between
3. Delivery management
o How to meet the demand
o How to realize the product
o Supply chain coordination system
o Maintenance managing and realization system
o Continuous improvement system
o Which customer do you prefer to serve
3- HQ CASE
