Page 216 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes 3. Organizational: Does the linking of manufacturing strategy to business strategy, achieve
results that meet the objectives? Vertical integration is generally attractive when input
volumes are high. High volumes permit task specialization and greater effi ciency.

Established companies, whether they manage reconfigured networks or operate long-
standing internal ones, seldom have the skills to transform their supply chains.
Senior managers must use this three-dimensional perspective to assess, first, internal operations;

then, external capabilities; and, finally, what combination of the two can create the most value
and capture it through managing the network effectively. The schematic representation of the
steps and actions involved are depicted in Figure 7.3.
Figure 7.3: Framework for Outsourcing Decisions

Strategy Operations

Organization
Assess Select Capture
Internal operations External capabilities

Understand Internal Understand external Identify and evaluate Implement and capture
options and options and alternatives opportunities
opportunities opportunities

End z Understanding of z Industry-wide analysis z Outline of internal and z Detailed implementation
products current cost structure z Detailed supplier external options plan
and network profiles z Financial models z Supplier-management
configuration z Pricing proposal based z Assessment of program if necessary

z Manufacturing on formal request for qualitative benefits and z Regular reporting
diagnostic and quotes risks structure
improvement plan z Optimized cost structure
z Risk assessment z Risk assessment

A new concept of virtual factory is now finding acceptance. Manufacturing activities are carried

out in multiple locations by suppliers and partner firms form a part of a strategic alliance or a
larger “supply chain.” The role of manufacturing in one central plant is eliminated. The virtual
factory may have no manufacturing organization, but manages the integration of all steps in the
process—no matter where physical production actually takes place. The implications for process
planning are profound: This will change the role of Operations Management from monitoring
activities in manufacturing to a deep understanding of the manufacturing capabilities of the
production network and task coordination.

7.3.2 Level of Mechanization

The level of mechanization determines the capital intensity of the process. The mix of equipment
and human skills in the process defines capital intensity.

With an increase in the level of mechanization, the relative cost of equipment and the capital
intensity also increases. There is a payoff between the capabilities of technology and investment
represented by levels of mechanization, and investment and productivity. Adding technology

can significantly improve quality and decrease product costs in many processes.
For designing a new process, improvement of an existing process or redesigning of an existing
process, the capital intensity needs to be determined. There is a range of choices, from operations

utilizing very little automation to those requiring task-specific equipment and very little human
intervention.

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