Operations Strategy for Industry - Essay Example

Bilton Electronics Order winners and qualifiers It is a matter of great surprise that there is a grand mismatch in two interdependent streams, despite engagement of a score of intelligent human beings, these streams are processing of incoming customer-market information to the organizations and the resultant order processing stream going out to market from the organization through the degree of alignment of organization to the market.. Why is this mismatch despite the best efforts through the organizational elements which consist of organizational structure, technology & machinery, rewards and recognition, IT, management concepts and strategies? One key reason which stands out clearly is the lack of a holistic focus at different nodes, interfaces etc. Moeller, Egol, and Martin point out that “the challenge for companies is not achieving a single point of focus. It is harmonizing multiple points of focus. In industry after industry, customers are demanding ever-higher levels of customization—products and services tailored to their needs and they’re confident that, in an economy characterized by greater and greater information transparency and sophisticated purchasing, they stand an excellent chance of getting it”. In the market war there are successful products, surviving products and products, which have either fallen by the side or in the process of getting decimated. Terry Hill has simplified the product classification based on its performance in the market place and using common man’s language, has coined two terms, order qualifiers and order winners. An order winner is a product, which is bought by customers based on its value for the customer in terms of price, delivery schedule, usages and other associated features. An order qualifier, another self-explanatory term, means that the product has enough characteristics so that it is considered in the buying decisions of the customers but may not be successful ultimately. It is not a small achievement for an organization to offer products which come under the category of order qualifier. It means that a major share of the objective of meeting customer requirement is fulfilled and the key is to build up on this base, through a harmony of focus, right from market to manufacturing and then again from manufacturing to market, a smooth and ever evolving complete circle. The need is to put that extra, which makes extra-ordinary and converts an order qualifier into an order winner. Linda Hendry, in her paper based on research on 24 UK based SME’s manufacturing companies who are mainly engaged in customization and Engineer-to-order (ETO) product. The author elaborates the differences between the two types of products, order winners and order qualifier based on the evidence gathered through the research which indicates that many a times customization is an order qualifier rather than an order winner. So the product has to be packed with additional features to keep it as order winner. In majority of cases the price consideration becomes the order winner. The author quotes Terry Hill’s approach, which says that those products with high quality having unique design ability consequently having high cost element are order winners and delivered through jobbing process and price factor is under order qualifier category. In this era where mass production of customized products is catching up against mass production of standard products like seen in auto segment, the customized products are becoming cheaper and price factor becomes order winner rather than customization. There are research papers which indicate that organizations involved in jobbing route of manufacturing are increasingly under cost pressure. Order winners and qualifiers for a product are as changeable as the factors associated with the buying behavior of human being viz. the buying capacity, choices, quality and cost trade-off, change in behavioral pattern, cultural change, impact of ICT etc. At a particular time the concept of order winner and order qualifier work interchangeably or in combination based on variables impacting the buying decision. So the key is the customer and what goes in their minds regarding the way they buy and this will unlock what is an order winner and what is an order qualifier. It is absolutely necessary to watch customer behaviour, many a times customer themselves are not sure how they are going to behave when it comes to buying a product. Essentially this means that Research and Development activities into customer needs, their buying behavior, anticipation of present / future needs which the customer may not be conscious himself is far more important than Research and Development into product feature. The input for development of product feature i.e. customer requirement has to be accurate to come out with order winner. Order Winners and Order Qualifiers for Bilton Electronics Bilton Electronics is a start up company and it is in the growing market of electronic circuit board, specially so in this “age of sand” as described by a noted expert, where the silicon chips are becoming all pervasive and these chips are in the midst of a complex circuitry on a circuit board. Bilton Electronics has apparent competitive advantage in the area of experimental devices and pilot runs. It has experienced manpower and has patents for application, process and modifications. The organization believes that it has edge over its competitors in anticipating and resolving problems in new designs. Based on the available information order winners are product in the experimental devices and pilot runs market segment As regards other segment, it is apparent that product winner is primarily based on delivery schedule of the product manufactured to specification of the customer. The order with the delivery schedule of four weeks, an order winner so far, has come to order qualifier category, as some more competitors are able to match the delivery schedule. The order winners for Bilton Electronics are given in a tabular form. It is based on the factors which determine the order winners and order qualifiers viz. cost, delivery schedule, market segment and price. Order Winners and Order Qualifiers of Bilton Electronics Stage of firm Product classification Introduction Growth Maturity Terry Hills criterion of order winners Product characteristics / Novelty availability of quality products Low price /dependable supply Bilton’s order winner Products Products for Experimental Devices and Pilot Runs, low volume orders < 4 week Delivery schedule with very low defect and quality complaint < 4 week Delivery schedule, very low defect and quality complaint and lower prices Terry Hills criterion of order qualifiers Quality range Price Range Range Quality Bilton’s order qualifiers Products for different segments other than experimental & pilot runs A range of prices offered based on differentiation of characteristics A range of quality to be offered by Biltonn across the segment Impact on Manufacturing Bilton Electronics has the potential to maintain its order winner products and convert its order qualifiers into order winners. It has to address certain key issues. First and foremost it has to establish a sense of direction and then align its functions and activities accordingly. The key focus requirement for Bilton Electronics is Delivery schedule and cost. It needs to change the manufacturing practices, vertically integrate functions, carrying out key functions more systematically and reorient the lay out. The firm is struggling in the transition from low volume customized production through a mix of project and jobbing process type to the required adoption of batch type of process. The volumes are rising and the firm is faltering in delivery schedule, quality and product acceptance. Its product winners based on delivery schedule of about 4 weeks is becoming a product qualifier as competitors have caught up and offering the same level of delivery schedule. The important issue is to make a transition to batch type of process from the existing process. Furthermore it needs to vertically integrate the supply chain to cut down the time taken at various interfaces. There is clear evidence that the procurement function is almost non existent as procurement starts by searching the best supply when the order reaches to the works after traveling from planning and design stage of the organization. The inspection process needs to be revamped to eliminate redundant activity. There is some other rearrangement / modification necessary like rearrangement of plant lay out which cuts down time of travel of the product under manufacture from one process step to another. This can be achieved by taking two factors in account, the initial focus of Bilton to save its machinery from harmful effect of emissions generated during certain process steps and the current compulsions of reducing time wasted during process steps as these are at a distance from each other. The suitable modifications include positioning the process steps nearby and preventing the emissions from traveling to other parts of the premise by way of using doors and exhaust facilities. Maintaining inventory of supply and finished product at an optimum level is another key departure from the existing process, as this will lead to a substantial reduction in the delivery schedule. Partnership approach with suppliers will help in reducing the inventory requirement for the supply side. Manufacturing strategy based on Terry Hill’s framework TERRY HILL is an international figure in the field of operations management. In the fierce competitive market, the strategic focus in many companies suffers from excessive preoccupation with the market and its associated dimensions. The key aspect of converting the market led strategies into products through manufacturing gets neglected. In Manufacturing Strategy, Terry Hill sets out to show how decisions over manufacturing should form part of the strategic direction of the company as a whole. An effort has been made to construct a manufacturing strategy of Bilton Electronics under the framework of Terry Hill’s approach: The Company objective: Bilton Electronics has the most important objective as growth. A small start up firm is in the business for a couple of years and struggling to get to the next stage of the growth from a small outfit to a medium company. The opportunities are there and with judicious alignment of manufacturing, it can achieve its growth objective and planned revenue in next three years. So growth and profit is recommended as the prime business objective for Bilton. Market strategies: No organization can compete in all the segments of the market. Bilton has its strength in the experimental devices and pilot runs. It has also a strength in the segments where volumes are low. These are the existing strengths but with realignment of manufacturing strategies whereby it is able o reduce the delivery period and reduce the cost by improving the productivity, the company can achieve its growth potential. As per Terry Hills frame work Growth & Profit corresponds to Product & Range in the Market Strategy. Identification of order winners : Bilton has to focus on order winners and converting the order qualifiers into order winners. Products into experimental and pilot runs and products with low volume are order winners for Bilton. If Bilton is able to reduce the delivery period from 4 weeks to 3 weeks for medium and large orders it will be having a higher share of order winners in its product portfolio. The order winners are shown below: Basis Order Winners Market Segment Experimental Devices Pilot Runs Delivery Schedule < 4 week Delivery schedule Volume Low volume orders Price Lower than competitor Process choice: Bilton has a mix of two types of processes, project and jobbing. The first one is applicable to low volumes orders where it is given to one individual on a dedicated basis. The rest of the products are through jobbing type of process. Bilton is currently operating at low volumes through mainly jobbing process. It is at a stage where it is to go to next stage with higher volumes. This requires fundamental changes in process type and organizational infrastructure. It is currently facing many problems on manufacturing front. The order size is varying in a wide range and each order is executed as a whole. So the workers have to change their operation from one order size to another. In a day there are occasions where certain orders are not required to go through certain process steps and this may be different form the next order which is processed. Many a times the design itself varies from one order to another order. All these factors lead to discontinuous and unpredictable changes in the manufacturing process from one order to another order and this type of scenario is frequent during a day of operation. On top of this there is a practice to accept rush orders which jump the queue and get special preference for manufacturing. This also causes disturbance in the manufacturing rhythm. The phenomena of rework are quite common having an adverse impact on ongoing manufacturing and leading to delays in the delivery of current orders. A majority of problems can be minimized by changing the practiced process type which is basically jobbing type. The next logical type of process in the firms journey towards growth of volumes and reducing the per unit cost is the adoption batch type of process. Here orders from different customers are aggregated based on the commonalities and there are campaigns of a particular type of circuit boards in that campaign. This will lead to higher productivity by way of optimum utilization of assets and resources which will result in lower cost per unit and control of delivery schedules in a better way. . The current practice is that the orders of different customers are processed in a queue. The firm is facing many problems due to following factors: Manufacturing infrastructure There are two distinct requirement as regards the manufacturing infrastructure. The first is vertical integration of functions and the second is an efficient lay out. Integration of functions : Bilton is moving towards growth leading to complexities of activities and operation which require integration to create efficiency and synergy among different functions. The marketing and order acceptance function is to be enhanced from the current level. Now when Bilton is moving towards batch type process it should have sufficient orders to aggregate different orders based on commonalities to process it together to achieve economy of scale and reduce cost and delivery schedule. Furthermore the firm is required to maintain inventory of inputs and finished products to cut down on the delivery schedule. This will require recruitment and creation of new functions which are carried out in a dedicated manner and not in a part timer approach as is evident from the case material. It is seen that when the order is received the search for best supplier starts which unnecessarily adds to the delivery schedule which is adverse vis a vis the competitors. It will be worthwhile to get into a partnership with a supplier which will ensure the receipt of inputs in a timely manner and at the same time reduce the volume of activities needed for procurement. The inspection function is also dubious and there is a case of overlap. The results indicate that the inspection process is very ineffective. Despite the existing inspection process the failures have increased from 4% to 8%, 10% products return due to damaged or out of tolerance, 90% return due to certain jobs got left out. The inspection has to be carried out at the place of inspection and the responsibilities lies there only. The inspection concept during processing practiced at Bilton does not add value. Rather workers should pay more attention to the process to ensure that process is carried out correctly. The emphasis is to be on doing rather than checking. The shipping practice is such that there is a higher volume shipped in the second half compared to first half of the month. This has also led to an erratic delivery schedule. The delivery is to be carried out in a continuous manner. There is a need for developing standards for process, process measures, design, material requirement and specification which are to be used at required places to free up people who get into the act of estimating / freezing these parameters with every order. Change in the lay out : Bilton has chosen a lay out which was driven by the consideration of saving the plant and machinery rather than improving the efficiency of the supply chain. There are frequent occasions where the manpower is idle due to time taken in the job moving from one location to another. There are instances where the layout factors result in excessive time taken for job to move from one location to another like the case of plating and etching. Now the two requirements of saving the machinery and improving the supply chain efficiency are to be integrated in carrying out the change in lay out. Suitable automation and infrastructure modifications are to be carried out like providing doors and fume extraction systems. Two measures in each of the four perspectives of the Balanced Scorecard Organizations have been struggling for some time to deploy strategy across the organization and at all levels along with the measurement system Dr. Robert Kaplan and Dr David Norton from Harvard Business School proposed the theory of Balanced Score Card and to primarily enable the organizations to measure and monitor all the key aspects of organizational functions. HBR has termed this concept as one of the 15 most important concepts appearing in HBR in last 75 years. The concept has become very popular and given the organization a much needed tool to ensure that a key aspect does not go out of measurement and monitoring focus. Most importantly the concept has become a key tool for deploying the strategy. Kaplan and Norton describe the innovation of the balanced scorecard as "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." There are four perspectives through which the organization is viewed with regard to the performance. They are Financial perspective, customer perspective, internal business perspective and Learning and Growth perspective. The prerequisite for deploying Balanced Score Card is that the vision / mission is in place so that there is a sense of direction. Bilton Electronics has a directional need which is needed to be articulated and internalized. That is its growth in medium term and hence its vision can be on the lines of achieving a particular level of growth in a time frame, say achieving 5 million pounds sales in by next 5 years. The measures under the four perspectives of Balanced Score Card are as given below. Care has been taken to account the factors which are relevant viz. Bilton’s future direction, its deep rooted problems in the areas of scheduling, procurement, shipping, plant lay out, deliver schedule, defective products getting returned etc. The measures are selected in way which will enable Bilton to keep an integrated focus on its performance which will lead it to become a medium size company through growth which is fuelled by efficient supply chain, quality, delivery schedule etc. Financial Perspective: Kaplan and Norton do not discount the importance of financial data rather they have been successful in reducing the obsession of organizations with the financial data which prevented them to focus on other critical measurements like customer, people and internal business processes. The authors say that there is a need to include such financial data which has a bearing on future rather than conventional financial data which are basically historical in nature. The data under this category can be thought of as risk assessment and cost-benefit data. The two measures taken for Bilton under the financial perspective of Balanced Score Card are as follows : Revenue : Bilton is on a growth potential and measurement of revenue is a key data. This will also be an indication of the efficiency of supply chain and productivity of the assets and resources. Bilton is having the potential to treble its revenue in next three years and as such by all considerations, revenue measurement is to one of the Balanced Score Card element under financial perspective. . It has a potential to grow to a 3 million pound revenue firm from the present level of about 1 million pounds. Cost : The strategy of growing has a key element and that is reduction in cost. Many of its order qualifier products can get into order winners through cost reduction. Hence cost will be the second measure in the financial perspective. There is a significant amount of resource dissipation evident from details in the areas of delays, idle assets, defectives, product return etc. A carefully crafted BSC index on cost starting from the MD to all the sections will keep the focus on cost element. This approach is valid for other BSC measures also. Customer Perspective: Customer Satisfaction: In today’s market environment the business starts and ends with customers, customer requirement is the input and customer satisfaction is the desired goal of any firm. There is no evidence that the firm is capturing customer perception to improve and consolidate its operations. There is need for customer satisfaction measurement which will continuously provide the areas for improvement. This will also reduce or minimize the lack of communication between the firm and customers which are causing delays in order fulfillment on account of wrong / changed specification, clearance from customer to go ahead on a job which was stopped based on certain type of inputs. This aspect of lack of calculation between customers and the firm account for almost 25% of the total delays rtaking place in the manufacturing process. Customer Complaints: The firm is struggling with its performance regarding customer requirement. The delay in delivery schedule is on an average of 9 days. Despite formal and informal inspections there are frequent cases of products being returned on account of not meeting the customer requirement. Out of total products returned, 10% return due to damaged or out of tolerance and remaining return due to certain jobs getting left out. Measurement of customer complaints and improving on this parameter will help Bilton to attain its growth objective Internal Business perspective : Productivity : The manufacturing process is not being optimally utilized and there are frequent cases of pile up of jobs at one location, workers waiting for the job and time taken for the job to travel from one location to another. A measure of productivity is needed to be included under the perspective of internal business. The index will show the efficiency of the entire manufacturing facility and the analysis will lead to improvement. This will ultimately lead to growth in the volume and reduction in per unit cost. The firm is facing constraints on developing a performance measure method as the variations in specifications and requirement is very high. This can be reduced through a transition to batch type of processing. Delivery Schedule : The delivery schedule will be an ultimate measure of the coordinated effort of marketing, supply, manufacturing and dispatch. The delivery schedule is a critical measure of Bilton’s strategy of growth and converting its order qualifiers into order winners. The regular measurement of delivery schedule and its further break up area-wise or function wise through deployment of BSC will lead to specific focus on the delivery at all the relevant levels. Learning and Growth perspective The authors of the BSC concept say that in the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode and learning and growth constitute the essential foundation for success of any knowledge-worker organization”. They further emphasize that that learning is more than training; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed”. The measures adopted under this perspective are Competency development and Training. It is seen from the case material that there is lack of competency leading to sub optimal utilization of the human resource. A competency mapping and resultant development plan is to be in place. Bilton is expanding and recruiting new people and it “hopes” that these people will learn the required skills on their own in a period of time. This learning has to be managed through appropriate training. So training plan fulfillment will the other measure under the perspective of Learning and growth. All the measures are summarized below. Balanced Score Card for Bilton Electronics Perspective Measures Financial Revenue Cost Customer Customer Satisfaction Customer complaints Internal Business Process Productivity Delivery schedule Learning & Growth Competency Training Works Cited 1. Leslie Moeller, Matthew Egol, and Karla Martin; Smart Customization: Profitable Growth Through Tailored Business Streams http://www.strategy-business.com/ accessed on 16.5.06 2. Dr Linda C. Hendry, An Empirical Study of Competitive Advantage and Repeat Business 3. (Working Paper: March 2005) Department of Management Science, Lancaster University Management School, Lancaster, 4. TWI Knowledge Summary http://www.twi.co.uk 5. http://www.ifm.eng.cam.ac.uk/csp/projects/mspm.html 6. Manufacturing Strategy and Performance Measurement 7. http://www.poms.ucl.ac.be 8. ` http://www.lums.lancs.ac.uk/publications/ Read More