Business (9609) | Operations strategy

Operations Strategy: Planning for Production Success

Hello future business leaders! Welcome to the exciting world of Operations Strategy. This chapter takes what you learned about production (like capacity and inventory) and elevates it to a strategic, long-term level.

Why is this important? Because Operations is the heart of any business—it's how raw inputs become valuable outputs. A smart operations strategy ensures the business can meet its objectives, stay flexible, and outcompete rivals. Don't worry if some terms look new; we will break down these strategic tools (like Lean Production and CPA) into simple steps!

1. Strategic Operational Decisions (The Big Picture)

An operations strategy is the long-term plan for how the business will organise its resources to provide products and services efficiently and effectively. It must align with the overall corporate objectives.

1.1 The Inter-Functional Influence on Operations

Operations decisions never happen in isolation. They are deeply influenced by, and must cooperate with, the other main functions of the business: Human Resources (HR), Marketing, and Finance.

• Human Resource (HR) Influence:
  HR dictates the availability and skills of the workforce. If Operations decides to use a capital-intensive (automated) process, HR must hire specialist technicians. If the strategy is labour-intensive, HR must ensure enough staff are available and flexible (e.g., through multi-skilling).
• Marketing Influence:
  Marketing defines what the customer wants (e.g., high quality, low price, customisation). Operations must deliver on this promise. If Marketing promises highly customised products (mass customisation), Operations needs extremely flexible machinery and processes.
• Finance Influence:
  Finance sets the budget. Operational strategies (like investing in new automated machinery or implementing a complex ERP system) require significant capital expenditure. Finance determines if these plans are affordable and how they will be funded.

1.2 The Changing Role of IT and AI in Operations

Information Technology (IT) and Artificial Intelligence (AI) are rapidly changing how businesses produce goods and services.

• IT (Information Technology): Modern systems manage supply chains, inventory (e.g., JIT software), and monitor production lines in real time, leading to greater efficiency and faster decision-making.
• AI (Artificial Intelligence): AI can be used for predictive maintenance (predicting when a machine will break down), optimising complex logistics routes, and managing highly automated manufacturing processes without human intervention.

2. Flexibility and Innovation in Operations (9.3.2)

In today's dynamic markets, customers change their minds often, and competitors launch new products quickly. Therefore, operations must be highly flexible.

2.1 The Need for Flexibility

Flexibility means the ability to adapt to changes quickly without excessive cost or delay. This adaptability is required across three key areas:

• Volume Flexibility: The ability to quickly increase or decrease the quantity of output produced (e.g., scaling up production during peak season like Christmas).
• Delivery Time Flexibility: The ability to deliver products faster than usual, or adjust delivery schedules in response to customer needs (crucial for services like rapid delivery).
• Specification Flexibility: The ability to change the features or design of a product quickly, often linked to offering customised or bespoke products.

2.2 Process Innovation

Innovation isn't just about creating new products; it’s also about creating new ways of working.

Process innovation involves changing current production processes or adopting entirely new methods for producing products or delivering services.

Example: A process innovation might be switching from manual assembly lines to fully automated robotic cell production, drastically reducing errors and increasing speed.

Process innovation is essential for achieving strategic goals like reducing cost, improving quality, and increasing flexibility.

3. Enterprise Resource Planning (ERP) (9.3.3)

3.1 What is ERP?

Enterprise Resource Planning (ERP) is an integrated management system that uses software to manage all the core business processes—including operations, finance, HR, and marketing—in a single, unified database.

Analogy: Think of a business without ERP as having separate filing cabinets for everything. ERP is like installing a single, massive, interconnected computer system that links all departments, so everyone works with the same, up-to-date information.

3.2 How ERP Improves Efficiency

ERP programmes provide a crucial strategic advantage by improving efficiency across the organisation:

• Inventory Control: Real-time tracking of stock levels reduces waste and prevents both shortages and overstocking.
• Costing and Pricing: By linking production costs directly to sales data, ERP provides accurate, up-to-the-minute cost information, helping managers set optimal prices.
• Capacity Utilisation: Managers can see exactly where bottlenecks are occurring and efficiently allocate resources to maximise capacity usage.
• Responses to Change: Because all data is centralised, the business can respond to market shifts (e.g., a sudden increase in demand) much faster.
• Workforce Flexibility: HR data linked to production needs means managers know instantly where staff resources are needed, supporting multi-skilling.
• Management Information (MI): Top-level managers get comprehensive reports derived from all departmental data, enabling better strategic decision-making.

4. Lean Production (9.3.4)

Lean production is a strategic philosophy originating primarily from the Japanese automotive industry (Toyota). Its core aim is to maximise efficiency by systematically removing all forms of waste from the production process.

4.1 Aims and Core Concepts

The key purpose of lean production is to achieve production perfection by focusing on:

• Zero Defects: Aiming for perfect quality first time.
• Zero Inventory: Only producing what is immediately needed (this is where JIT comes in).
• Zero Waste: Eliminating all activities that do not add value for the customer.

The Japanese term for waste is Muda. Common types of waste to be eliminated include:
Mnemonic: I M S O W N E R T (Inventory, Motion, Scrap/Defects, Over-production, Waiting, Non-used talent, Excessive Processing, Rework, Transportation).

4.2 Key Operational Strategies to Achieve Lean Production

• Just-in-Time (JIT) Manufacturing:
  This is an inventory strategy where materials and components are ordered and received only when they are actually needed for production. This eliminates the cost and waste associated with holding large buffer inventory (Just-in-Case).
• Kaizen (Continuous Improvement):
  A philosophy that means 'change for the better.' It involves small, ongoing improvements, primarily driven by employees on the shop floor, rather than large, expensive breakthroughs led by management.
• Quality Circles:
  Small groups of employees who meet regularly (often voluntarily) to identify and solve work-related problems and recommend solutions to management, primarily focused on improving quality and efficiency.
• Simultaneous Engineering:
  Instead of developing products in a strict sequence (one department finishes, then the next starts), different stages (design, manufacturing planning, marketing) are carried out simultaneously. This drastically reduces the time it takes to launch a new product.
• Cell Production:
  The production line is divided into small, self-contained units (cells). Each cell manufactures a complete product or major component. This method encourages multi-skilled workers within the cell and improves quality and worker morale.

4.3 Links and Limitations of Lean Production

Lean production heavily links to other operational elements:

• Inventory Control: JIT is impossible without precise inventory management.
• Quality: Strategies like Kaizen and Quality Circles directly focus on increasing quality and reducing defects.
• Employee Roles: Lean production requires multi-skilled, flexible employees who are empowered to suggest improvements (Kaizen).
• Capacity Management: Requires careful planning to ensure capacity matches demand exactly, as there is no buffer stock to cover unexpected surges.

Limitations of Lean Production:

• JIT makes the business vulnerable to supply chain disruptions (e.g., bad weather or strikes).
• Requires significant trust and cooperation with suppliers, which can be difficult to manage.
• Implementing Kaizen and Cell Production requires massive upfront investment in training and a change in corporate culture, which employees might resist.

5. Operations Planning and Critical Path Analysis (CPA) (9.3.5)

For large, one-off projects (like building a skyscraper, launching a new software update, or organising the Olympics), specific planning tools are necessary. This is where Critical Path Analysis (CPA) comes in.

5.1 Why Operations Planning is Essential

Planning operations for major projects is essential to ensure:

• All necessary activities are identified.
• Resource needs (staff, materials) are scheduled accurately.
• The project is completed on time and within budget.

5.2 Understanding Network Diagrams and CPA

A network diagram is a tool used in CPA to visually represent all the activities required to complete a project and the sequence in which they must occur.

Main Elements of a Network Diagram:

• Activities: Tasks that must be completed. They consume time and resources.
• Nodes (Circles): Represent the start and finish of activities (events).
• Dummy Activities: Used when one activity depends on the completion of another but requires no time or resources itself (represented by a dashed line). They ensure the network logic is correct.

Critical Path Analysis (CPA) is the process of identifying the longest sequence of dependent activities in a network diagram, which determines the minimum time needed to complete the whole project.

5.3 Calculating the Critical Path

To find the critical path, you must calculate the Earliest Start Time (EST) and Latest Finish Time (LFT) for every activity.

Step 1: Forward Pass (Calculating EST and EFT)
Start at the beginning (Node 1) and work forwards.

• Earliest Start Time (EST): The earliest time an activity can begin (the highest EFT of all preceding activities).
• Earliest Finish Time (EFT): EST + Duration of the activity.

Step 2: Backward Pass (Calculating LST and LFT)
Start at the end and work backwards.

• Latest Finish Time (LFT): The latest time an activity can be finished without delaying the whole project (the lowest LST of all following activities).
• Latest Start Time (LST): LFT - Duration of the activity.

Float (Slack Time):
This is the amount of time an activity can be delayed without delaying the whole project. Activities on the Critical Path have zero float.

Total Float (Maximum delay without delaying the whole project):
\[ \text{Total Float} = \text{LFT} - \text{EFT} \] or \[ \text{Total Float} = \text{LST} - \text{EST} \]

Free Float (Amount of delay without delaying the start of the next activity):
\[ \text{Free Float} = \text{EST (of next activity)} - \text{EFT (of current activity)} \]

The Critical Path consists of activities where Total Float = 0.

5.4 Benefits and Limitations of CPA

Benefits:

• Identifies Minimum Duration: Clearly shows the shortest possible time the project will take.
• Resource Allocation: Helps managers focus resources only on critical activities, potentially freeing up resources from activities with large floats.
• Control and Monitoring: Provides a clear visual timeline, making it easy to track progress and anticipate delays.
• Improved Management: The planning process itself forces managers to think logically about the sequence and dependence of tasks.

Limitations:

• Assumes Certainty: CPA requires accurate estimates of activity durations. If these estimates are wrong (e.g., due to unforeseen problems), the whole analysis is flawed.
• Complexity: For very large projects, network diagrams become extremely complex and difficult to draw and manage manually.
• Resource Flexibility: CPA assumes unlimited resources. In reality, an activity might have float, but if the machine needed is busy on a critical activity, the float is useless.