PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy

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Strategic Management MGT603

Lesson 35

PRODUCTION/OPERATIONS CONCERNS

WHEN IMPLEMENTING STRATEGIES

Learning objectives

The main objective of this chapter to enable to students about production and operation issue relating to

strategy implementation.

Production/Operations Concerns When Implementing Strategies

Strategy in action means implementation requires complete transparent process. Production/operations

department that mainly concern with the achievement of organization goals and targets. Production

processes typically constitute more than 70 percent of a firm's total assets. Production department plays a

crucial role for implemeting organization strategy. Production-concerned decisions on plant location, plant

size, , product design, choice of equipment, size of inventory, inventory control, quality control, cost

control, use of standards, shipping and packaging, and technological innovation, job specialization,

employee training, equipment and resource utilization. All these factors place an important impact on

success and failure of the strategy.

The following examples of adjustments in production systems that could be required to implement various

strategies are provided in Table for both for-profit and nonprofit organizations. For instance, note that

when a bank formulates and selects a strategy to add ten new branches, a production-related

implementation concern is site location.

Strategy Implementation and Production and Service Management

Type of

Strategy Being

System Adjustments

Organization

Implemented

Production

Hospital

Adding a TB center (Product

Purchase specialized equipment

Development)

and add specialized people.

Bank

Opening ten new branches (Market

Perform site location analysis.

Development)

Computer

Purchasing a retail distribution chain

Alter the shipping, packaging, and

company

(Forward Integration)

transportation systems.

Steel

Acquiring a fast-food chain

Improve the quality control

manufacturer

(Conglomerate Diversification)

system.

Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a

business by reducing in-process inventory and its associated costs. The process is driven by a series of

signals, or Kanban that tell production processes to make the next part. Kanban are usually simple visual

signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a

manufacturing organization's return on investment, quality, and efficiency when implemented correctly.

New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs.

However, one drawback of the JIT system is that the re-order level is determined by historical demand. If

demand rises above the historical average planning duration demand, the firm could deplete inventory and

cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of

demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until

trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted

a trailing 13 week average is a better predictor than most forecasters could provide.

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Philosophy

Just-in-time (JIT) inventory systems are not just a simple method that a company has to buy in to; it has a

whole philosophy that the company must follow. The ideas in this philosophy come from many different

disciplines including; statistics, industrial engineering, production management and behavioral science. In

the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says

about the management within the company, and the main principle behind JIT.

First off inventory is seen as incurring costs instead of adding value, contrary to traditional thinking.

Therefore, under the philosophy businesses are encouraged to eliminate inventory that doesn't add value

to the product. Secondly, it sees inventory as a sign of sub par management as it is simply there to hide

problems within the production system. These problem are many, they include: backups at work centers,

lack of flexibility for employees and equipment, and inadequate capacity among other things.

In short, the just-in-time inventory system is all about having "the right material, at the right time, at the

right place, and in the exact amount."

Just in time (JIT) production approaches have withstood the test of time. JIT significantly reduces the

costs of implementing strategies. With JIT, parts and materials are delivered to a production site just as

they are needed, rather than being stockpiled as a hedge against later deliveries

The factors that must be study while pacing a pant are: transportation costs related to shipping and

receiving, the location of major markets, availability of major resources, availability of skilled labor , wage

rates, political risks in the area or country.

For high-technology companies, production costs may not be as important as production flexibility

because changes in a product are needed often. Industries such as biogenetics and plastics rely on

production systems that must be flexible enough to allow frequent changes and rapid introduction of new

products.

They too slowly realize that a change in product strategy alters the tasks of a production system. These

tasks, which can be stated in terms of requirements for cost, product flexibility, volume flexibility, product

performance, and product consistency, determine which manufacturing policies are appropriate. As

strategies shift over time, so must production policies covering the location and scale of manufacturing

facilities, the choice of manufacturing process, the degree of vertical integration of each manufacturing

facility, the use of R&D units, the control of the production system, and the licensing of technology.

Cross-training of employees, can facilitate strategy implementation and can yield many benefits.

Employees gain a better understanding of the whole business and can contribute better ideas in planning

sessions. It some time create problems both for manager and employee

1. It can necessitate substantial investments in training and incentives.

2. It can be very time-consuming.

3. Skilled workers may resent unskilled workers who learn their jobs.

4. It can thrust managers into roles that emphasize counseling and coaching over directing and

enforcing.

5. Older employees may not want to learn new skills.

Human Resource Concerns When Implementing Strategies

The other important concern while implementing the strategy is human resource. Human resource is the

backbone of any organization with out efficient human resource organization can not perform well and

fail to achieve the organizational strategy. Staffing need of the organization and its cost is an important

function of the human resource manager. The other main concerns include health, safety and security of

the workers. The plan must also include how to motivate employees and managers during a time when

layoffs are common and workloads are high.

The human resource department must develop performance incentives that clearly link performance and

pay to strategies. The process of empowering managers and employees through involvement in strategic-

management activities yields the greatest benefits when all organizational members understand clearly how

they will benefit personally if the firm does well. Linking company and personal benefits is a major new

strategic responsibility of human resource managers. Other new responsibilities for human resource

managers may include establishing and administering an employee stock ownership plan (ESOP), are

corporations owned in whole or in part by their employees. Employees are usually given a share of the

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corporation after a certain length of employment or they can buy shares at any time. A corporation owned

entirely by its employees (a worker cooperative) will not, therefore, have its shares sold on public stock

markets. Employee-owned corporations often adopt profit sharing where the profits of the corporation

are shared with the employees. These types of corporations also often have boards of directors elected

directly by the employees.

A well-designed strategic-management system can fail

If insufficient attention is given to the human resource dimension. Human resource problems that arise

when businesses implement strategies can usually be traced to one of three causes:

(1) Disruption of social and political structures,

(2) Failure to match individuals' aptitudes with implementation tasks

(3) Inadequate top management support for implementation activities.

Inadequate support from strategists for implementation activities often undermines organizational success.

Chief executive officers, small business owners, and government agency heads must be personally

committed to strategy implementation and express this commitment in highly visible ways. Strategists'

formal statements about the importance of strategic management must be consistent with actual support

and rewards given for activities completed and objectives reached. Otherwise, stress created by

inconsistency can cause uncertainty among managers and employees at all levels.

Perhaps the best method for preventing and overcoming human resource problems in strategic

management is to actively involve as many managers and employees as possible in the process. Although

time-consuming, this approach builds understanding, trust, commitment, and ownership and reduces

resentment and hostility. The true potential of strategy formulation and implementation resides in people.

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