A useful framework for thinking about the diversity of operations design decisions is provided. The collective impact of these decisions establishes limits on an operations organization’s strategic capabilities.
Operations strategy decision categories:
- Capacity –amount , type, timing
- Sourcing and vertical integration –direction extent, balance
- Facilities — size, location, specialization
- Information and process technology – degree of automation, interconnectedness lead versus follow.
Infrastructural policies and systems:
- Resources allocation and capital budgeting systems
- Human resource systems – selection, skills, compensation, employment security.
- Work planning and control systems – purchasing aggregate planning scheduling, control or inventories and /or waiting time backlog.
- Quality systems – defect prevention, monitoring, intervention and elimination.
- Measurement and reward systems – measure, bonuses, promotion policies.
- Product and process development systems – leader or follower project team organization
- Organization – centralized versus decentralized which decisions to delegate role of staff groups.
The first four decision categories are typically viewed as structural in nature because they represent decisions regarding the organization’s physical bricks and mortar attributes, such as the amount of production (or service delivery) capacity provided. Moreover, they typically require a substantial capital investment and, once in place, are difficult to alter or reverse. This aspect has led many organizations to rely on their capital budgeting process as the primary mechanism for assessing structural operation decisions.
The other seven decision categories are termed infrastructural in that they describe the systems, policies and practices that determine how the organization’s structural aspects are to be managed. In that sense, they are analogous to the software that directs a computer’s hardware to carry out tasks in a specific way. Such systems often do not require highly visible capital investments (ERP systems are a notable exception) although developing and implementing them can involve years of effort and they can be just as difficult, time consuming and costly to change as structural decisions.
Hardware and software decisions interact in variety of sometimes quite subtle ways. As one example the amount of capacity that a given set of floor space and equipment can provide depends on whether it is operated one shift a day, five days a week or around the clock. It also depends on the process yield / defect level, which is affected by equipment choices, materials sourcing policies, and a number of organizational practices, including how equipment is designed, monitored and maintained, how employees are selected and trained, quality is assured, work is scheduled and performance is measured and rewarded. For example, the Oshkosh Truck Company was reported to have been able to more than double its production , without any increase in equipment or people, by replacing its three product – specific production lines with one flexible line and making other improvements in scheduling and production methods.
Another major structural aspect of an operations organization encompasses decisions, regarding how much of the total work required to create and deliver its products/ services will be done internally and how much will be purchased from outside organizations. Some companies choose to be vertically integrated producing most of their own component, parts and services ,while others prefer to purchase most of their needs so as to limit their capital investment and amount of internal processing. Tied in with this decision are a number of other decisions pertaining to the way the company’s outside are selected and managed.
Besides the amount of raw capacity that is to be provided, one must decide how that total operating capacity is to be broken up into individual operating units. This includes the number and size of these facilities, where they are located (e.g. near major customer’s, near low cost labour) and how each is specialized by product, by process, stage, by region. Such decisions often are less pertinent for services that require a high degree of direct interaction with customers since that kind of capacity cannot be stored or transported. For example, airplane seat cannot be saved and used on the next flight, or by a concurrent flight to a different destination. But many service companies have certain backroom functions. They do not require direct customer interaction and so require these kind of facilities decisions.
Another class of structural decisions concerns the selection of information and process technologies. At one level, such decisions require choices among different types of equipment ( which usually has been designed by someone outside the firm who has in mind a specified proposed use and desired operating characteristics ) At another level, it should specify how this equipment is to be located, connected together and coordinated . For example, the same pieces of equipment can be organized as independent workstations, permitting a variety of process flow paths that results in wide range of products or services (so called job shop) or as a connected processing line down which all products flow continuously. Each choice, of course implies supporting set of structural and infrastructural decisions.