Competitive Advantage through Operations

The purpose of an operations strategy is to guide an operations organization in assembling and aligning the resources that will enable it to implement its company’s competitive strategy effectively. The problem that most managers face when attempting to develop an effective operations strategy is not that the task is too complex or difficult. Paradoxically, they often appear to believe that it is too easy – that they can easily seek out and emulate the best practices of other companies, particularly those deemed world class. The seductive appeal of ideal approaches has occasioned a fierce, and sometimes fairly emotional, debate about the relative merits of three quite different philosophies of operations.

Until the early 1980s, most American managers thought about operations in terms of a paradigm whose roots went back well over a hundred years. The American System of manufacturing, with its emphasis on mass markets, standard designs, and mass production using interchangeable parts, revolutionized manufacturing in the middle of the nineteenth century. This new philosophy modified and elaborated by the concept of scientific management promulgated by Frederick Taylor and his disciples was exploited by such great industrialists as Andrew Carnegie, Henry Ford, and Isaac Singer to transform the United States into an industrial powerhouse by the 1920s.

The ideas that the key to low cost was standardization and high volume , that work was done most efficiently when divided  up and assigned to specialists  that managers  and staff experts should do  the thinking for workers (so they could concentrate on doing)  that every process was characterized  by an innate amount of variation (and hence an irreducible rate of defects) and that communication within an organization should be tightly controlled – so as to avoid possible confusion and should proceed through a hierarchical chain of command  — were accepted as dogma. The best manufacturing process was assumed to be based on long runs; it utilized equipment that was specialized for each stage of the process and whose capacities were matched as closely as possible, and it used inventories to buffer different stages both from each other and from the erratic behaviour of suppliers and customers. Work should be organized and conducted systematically in a specified sequence and under tight supervision. In the minds of many top managers, such practices which collectively formed a cohesive operations  strategy defined the one best way ( to borrow Taylor’s phrase) to design any manufacturing or service delivery system  it was the ideal toward which all should strive.

In many continuous process industries, such as petrochemicals food processing, and paper making, this paradigm remained dominant. During the 1980s, however, its shortcomings became increasingly apparent in many assembly and high tech industries, and other approaches to operations were found to provide convincing advantages. Rather than a single new approach that could be studied and mastered, however,   operations managers now faced a confusing cacophony of expert advice – each advocating different routes to improved competitiveness. The mass production paradigm, although inadequate in many environments at least offered simplicity and clarity it allowed limited options as regards technology, organization, work scheduling inventory and quality control, and performance measurement. People might make different choices, but there was widespread agreement about the underlying premises.

The clearest   evidence of this consensus is provided by an analysis of the books written about operations management in the twenty years prior to 1980.

In Japan, however,  companies rebuilding from the shambles of World War II were beginning to create an entirely different approach to production. Short on capital blessed with few natural resources and faced with small, fragmented markets, they were forced to design new practices that reflected both their lack of resources and the chaotic conditions of their economic environment. Over time, the best ones developed an approach to manufacturing that was claimed by some to be uniformly superior to the American  system.

This lean production system was characterized by an emphasis on reliability, speed and flexibility rather than volume and cost. People ought to be broadly trained, rather than specialized and should work in teams to identify and solve operating problems. Staff was overhead and overhead was bad.  No amount of rejects was acceptable, so one should work tirelessly to eliminate them. Communication should take place informally and horizontally among line workers rather via prescribed hierarchical paths through the organization. Equipment should be for general purposes   and organized in cells that produced a group of similar parts or products, rather than specialized by process stage. Production throughput time was more important than labour or equipment utilization. Inventory like defects was waste. Supplier relationships should be long term and cooperative. Product development activities should be carried out concurrently, not sequentially and by cross functional teams.

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