Unit 3: Sourcing and maintenance strategies
Operations Strategy notes · PTU syllabus (MBA 951-18)
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Unit summary
Firms must decide what to make themselves, which technologies to use and how to keep equipment running. This unit covers vertical integration and outsourcing, process technology strategy, IT and operations, the dimensions of operations for competitive advantage, and maintenance programmes — corrective, preventive and predictive.
After this unit you can
- Explain vertical integration and outsourcing decisions
- Explain process technology strategy and the role of IT in operations
- Explain the dimensions of operations for competitive advantage
- Classify and compare maintenance programmes
PTU syllabus topics
- Vertical integration and outsourcing
- process technology strategy
- IT and operations
- dimensions of operations for competitive advantage
- maintenance program classification — corrective
- preventive
- predictive maintenance
Corrective (breakdown)
After failure
Cheap upfront, costly downtime
Preventive
On a fixed schedule
Fewer breakdowns, some wasted servicing
Predictive
When sensors show wear
Efficient; needs monitoring technology
Topic 1
Vertical integration and outsourcing
- Vertical integration: owning more stages of the supply chain — backward (towards suppliers) or forward (towards customers).
Control
High over quality, supply and technology
Lower; depends on contracts
Cost
High investment and fixed costs
Variable costs; supplier scale economies
Flexibility
Low — locked into assets
High — can switch suppliers
Focus
Spread across many activities
Concentrate on core competencies
Risk
Demand and technology risk
Supplier dependence, leakage of know-how
- Decision factors: strategic importance (core vs non-core), capability and cost comparison, supply market risk, transaction costs (Williamson), intellectual property.
Example
Reliance's integration from crude refining to petrochemicals and retail fuel captures margins across the chain; Apple outsources assembly but controls design and key components.
Topic 2
Process technology strategy
- Process technology: machines, equipment and devices that create or deliver goods and services — automation, robotics, CNC, flexible manufacturing systems (FMS), computer-integrated manufacturing (CIM), additive manufacturing (3D printing), service technologies (kiosks, apps).
- Dimensions: scale (capacity per unit), degree of automation, degree of integration.
- Choosing technology: fit with volume and variety (product–process matrix), cost and payback, flexibility, skills required, vendor support, risk of obsolescence.
- Industry 4.0: IoT sensors, digital twins, cloud analytics, AI-based quality inspection, cyber-physical systems.
Topic 3
IT and operations
- Applications: ERP, MRP, manufacturing execution systems, warehouse and transport management systems, supply chain planning, CRM, e-procurement, RFID and barcode tracking, analytics dashboards.
- Benefits: visibility, coordination, faster decisions, lower inventory, better customer service.
- Risks: cyber security, integration failures, cost overruns.
Topic 4
Dimensions of operations for competitive advantage
Quality
Doing things right — error-free products
Speed
Doing things fast — short lead times
Dependability
Doing things on time — keeping promises
Flexibility
Changing what you do — product, mix, volume, delivery
Cost
Doing things cheaply — productivity
- Internal benefits: quality reduces rework; speed reduces inventory; dependability reduces disruption; flexibility increases adaptability — together they lower cost.
- Sustainability and innovation are increasingly added as dimensions.
Topic 5
Maintenance programmes
Corrective (breakdown)
Repair after failure
No planning cost; but unplanned downtime and safety risk
Preventive
Scheduled servicing at fixed intervals or usage
Fewer breakdowns; but may replace parts too early
Predictive (condition-based)
Monitor condition — vibration, temperature, oil analysis, IoT — and act before failure
Minimises downtime and cost; needs sensors and analytics
- Total productive maintenance (TPM): operator involvement (autonomous maintenance), aiming for zero breakdowns, defects and accidents; measured by overall equipment effectiveness (OEE) = availability × performance × quality.
- Reliability-centred maintenance: choose the maintenance policy for each asset by its failure modes and consequences.
Example
OEE: availability 90%, performance 95%, quality 98% → OEE = 0.90 × 0.95 × 0.98 ≈ 84%.
Key terms
- Backward integration
- Owning supply stages
- Transaction cost
- Cost of using the market — search, contracting, monitoring
- FMS
- Flexible manufacturing system
- Predictive maintenance
- Maintenance based on monitored equipment condition
- OEE
- Availability × performance × quality
Quick revision
- Vertical integration (backward, forward) vs outsourcing; decision factors.
- Process technology: automation, FMS, CIM, 3D printing, Industry 4.0.
- IT in operations: ERP, MES, WMS, RFID.
- Slack's five objectives: quality, speed, dependability, flexibility, cost.
- Corrective, preventive, predictive maintenance; TPM; OEE.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Distinguish backward and forward integration.
- Q2.State two risks of outsourcing.
- Q3.What is a flexible manufacturing system?
- Q4.Name Slack's five performance objectives.
- Q5.Distinguish preventive and predictive maintenance.
- Q6.What is OEE?
Long-answer questions
- Q1.Discuss vertical integration and outsourcing as operations strategy choices.
- Q2.Explain process technology strategy and the role of IT in operations.
- Q3.Explain the dimensions of operations for competitive advantage.
- Q4.Compare corrective, preventive and predictive maintenance.
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