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Reid & Sanders, Operations Management© Wiley 2002

Operations Strategy & Competitiveness 2

C H A P T E R

Page 2Reid & Sanders, Operations Management© Wiley 2002

Learning Objectives

• Define the role of business strategy• Explain strategy development• Explain the role of an operations strategy• Explain the relationship between the business &

operations strategy• Describe how an operations strategy is developed• Identify competitive priorities• Define productivity & identify productivity measures• Compute productivity measures


The Role of Business Strategy

• Business Strategy:– The firm’s long-range plan based on an

understanding of the marketplace– Defines how a company intends to

differentiate itself from competitors– Individual employees & functional units use

the strategy to align their efforts with each other to accomplish the overall game plan


Operations Strategy

• OM Strategy:– The long-range plan for the design & use of the

operations function to support the overall business strategy:

• The location, size, & type of facilities• The worker skills & talents required• The technology & processes to be used• How product & service quality will be controlled

– Operating efficiency an operating strategy


Developing aBusiness Strategy

• Mission:– A statement defining what business the firm is in, who its

customers are, & how its core beliefs shape its decision-making

• Environmental scanning:– Monitoring the external environment for market opportunities

& competitive threats

• Core competencies:– Internal strengths & weaknesses of the firm (e.g.: personnel

with special expertise, access to unique technology, & things the firm does better than competitors)


Putting it all Together

Business Strategy:Defined long-range plan

for the company

Environmental Scanning:Monitoring the

business environment for market trends,

threats, and opportunities

Mission:Statement that defines What our business is; Who our clients are; and How our values define our business

Core Competencies:Our unique strengths that help us win in the

marketplace


Developing an Operations Strategy

• Identify the competitive priorities required to support the business strategy:

• Common priorities include: – Cost: low production costs enables the company to price its

product below competitors– Quality: higher performance or a more consistent product

can support a price premium– Time: faster delivery or consistent on-time delivery can

support a price premium– Flexibility: highly customized products or volume flexibility

can support a price premium


Translate Priorities into Design

Business Strategy

Operations Strategy:Based on Competitive Priorities

Design of Operations:Structure & Infrastructure


Design of Operations

• Structure:– Facilities– Flow of work– Technology

• Infrastructure:– Planning & control systems– Work design & compensation


Competing on Low Cost

• Eliminate wasted labor, materials, and facilities

• Emphasize efficient processes & high productivity

• Often limit the product range & offer little customization

• May invest in automation to increase productivity


Competing on Quality

• High performance design:– Superior features, high durability, &

excellent customer service

• Product & service consistency:– Error free delivery– Close tolerances


Competing on Time

• Rapid delivery:– How quickly an order is received after the

order is placed

• On-time delivery:– Sometimes items can arrive too quickly

• JIT firms try to avoid clutter of excess inventory

– Ability to deliver exactly when expected• Not too early or too late


Competing on Flexibility

• Product flexibility:– Easily switch the production process from

one item to another (substitution)– Easily customize output to meet the

specific requirements of a customer

• Volume flexibility:– Rapidly increase or decrease the amount

of product being produced to match demand


Understand TradeoffsExample: Made-to-Order Pizza

Fresh

, N

atu

ral

Ing

red

ien

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Top

pin

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C

rust C

hoice

Slo

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ook

Exp

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Ing

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Low

Volu

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QUALITYQUALITY &

DESIGN FLEXIBILITY

VOLUME FLEXIBILITY

TIMECOST


Distinguish Order Qualifiers from Order Winners

• Order Qualifiers:– Competitive priorities that a product must meet to

even be considered for purchase– Generally, represented by features shared by all

competitors in a given market niche

• Order Winners:– Competitive priorities that distinguish the firm’s

offerings from competitors & ultimately win the customer’s order


Productivity

Inputs

OutputsP


Productivity Measures

• Partial Measures:– A ratio of outputs to only one input (e.g.: labor

productivity, machine utilization, energy efficiency)

• Multifactor Measures:– A ratio of outputs to several, but not all, inputs

• Total Productivity Measures:– The ratio of outputs to all inputs


Labor Productivity

Example: – Assume two workers paint twenty-four tables in

eight hours:– Inputs: 16 hours of labor (2 workers x 8 hours)– Outputs: 24 painted tables

hourtableshours

tables

Inputs

Outputs/5.1

16

24


Multifactor Productivity

• Convert all inputs & outputs to $ value• Example:

– 200 units produced sell for $12.00 each– Materials cost $6.50 per unit– 40 hours of labor were required at $10 an hour

41.11700$

2400$

/10$40/50.6$200

/12$200

hourhoursunitunits

unitunits


Interpreting Productivity Measures

• Is the productivity measure of 1.41 in the previous example good or bad?

• Can’t tell without a reference point

• Compare to previous measures (e.g.: last week) or to another benchmark


Productivity Growth Rate

• Can be used to compare a process’ productivity at a given time (P2) to the same process’ productivity at an earlier time (P1)

1

12

P

PPRateGrowth


Productivity Growth Rate

Example:– Last week a company produced 150 units using 200 hours of labor

– This week, the same company produced 180 units using 250 hours of labor

rategrowthnegativeaor

P

PPRateGrowth

hourunitshours

unitsP

hourunitshours

unitsP

%4

04.075.0

75.072.0

/72.0250

1802

/75.0200

150

1

12

1


The End

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United State Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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