o strategy

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Operations Strategyand Competitiveness


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Developing a BusinessStrategy

A business strategy is developed after takinginto many factors and following some

strategic decisions such as; What business in the company in (mission)

Analyzing and understanding the market(environmental scanning)

Identifying the companies strengths (corecompetencies)


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StrategiesPlans for achieving organizational goals

Mission

The reason for existence for an organizationMission Statement

Answers the question What business are we in?

GoalsProvide detail and scope of mission

TacticsThe methods and actions taken to accomplish strategies


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Planning and Decision MakingPlanning and Decision Making

Mission

Goals

OrganizationalStrategies

Functional Goals

FinanceStrategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures


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Business/Functional Strategy


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Importance of OperationsStrategy

Difference between operational efficiencyand strategy Operational efficiency is performing tasks well,

even better than competitors

Strategy is a plan for competing in themarketplace

Operations strategy is to ensure all tasksperformed are the right tasks


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Three Inputs to a Business Strategy


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Examples from Strategies

Mission: Dell Computer- to be the mostsuccessful computer company in the world

Environmental Scanning: political trends,social trends, economic trends, market placetrends, global trends

Core Competencies: strength of workers,

modern facilities, market understanding, besttechnologies, financial know-how


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Developing an OperationsStrategy

Operations Strategy is a plan for the designand management of operations functions

Operation Strategy developed after the

business strategyOperations Strategy focuses on specific

capabilities which give it a competitive edge

competitive priorities


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Operations Strategy Designingthe Operations Function


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Competitive Priorities- The Edge

Four Important Operations Questions: Willyou compete on

Cost?Quality?

Time?

Flexibility?All of the above? Some? Tradeoffs?


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Competing on Cost?

Offering product at a low price relative to competition

Typically high volume products

Often limit product range & offer little customization

May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts

Low cost does not mean low quality


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Competing on Quality?

Quality is often subjective Quality is defined differently depending on who is defining it Two major quality dimensions include

High performance design: Superior features, high durability, & excellent customer service

Product & service consistency: Meets design specifications Close tolerances Error free delivery

Quality needs to address

Product design quality product/service meets requirements Process quality error free products


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Competing on Time?

Time/speed one of most important competition priorities

First that can deliver often wins the race

Time related issues involve

Rapid delivery:

Focused on shorter time between order placement and delivery

On-time delivery:

Deliver product exactly when needed every time


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Competing on Flexibility?

Company environment changes rapidly

Company must accommodate change by being flexible Product flexibility:

Easily switch production from one item to another

Easily customize product/service to meet specific requirements of acustomer

Volume flexibility: Ability to ramp production up and down to match market demands


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The Need for Trade-offs

Decisions must emphasis priorities that support business strategy Decisions often required trade offs Decisions must focus on order qualifiers and order winners

Which priorities are Order Qualifiers? Characteristics thatcustomers perceive as minimum stds of acceptability for a productto be considered for purchase.

e.g. Must have excellent quality since everyone expects it

Which priorities are Order Winners? Criterion that differentiatesthe product or service of one firm from another

e.g. Dell competes on all four priorities

Southwest Airlines competes on costMcDonalds competes on consistencyFedEx competes on speedCustom tailors compete on flexibility


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Banks, ATMsConvenienceLocationLocation

DisneylandSuperior customer

serviceServiceService

Burger King

Supermarkets

Variety

VolumeFlexibilityFlexibility

One-hour photo, UPSRapid delivery

On-time deliveryTimeTime

Sony TV

Lexus, Pepsi, Kodak,

Motorola

High-performance design

or high quality Consistent

quality

QualityQuality

Low CostPricePrice

Examples of Distinctive CompetenciesExamples of Distinctive Competencies


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Translating to Production Requirements

Specific Operation requirements include twogeneral categories

Structure decisions related to the production

process, such as characteristics of facilities used,selection of appropriate technology, and the flowof goods and services

Infrastructure decisions related to planning and

control systems of operations


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Translating to Production Requirements

Dell Computer example structure & infrastructure

They focus on customer service, cost, and speed ERP system developed to allow customers to

order directly from Dell

Product design and assembly line allow a maketo order strategy lowers costs, increases turns

Suppliers ship components to a warehouse within15 minutes of the assembly plant - VMI

Dell set up a shipping arrangement with UPS


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Technology for CompetitiveAdvantage

Technology has positive and negativepotentials Positive

Improve processes Maintain up-to-date standards Obtain competitive advantage

Negative

Costly Risks such as overstating benefits


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Technology for CompetitiveAdvantage

Technology should Support competitive priorities Can require change to strategic plans Can require change to operations strategy

Technology is an important strategic decision


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Measuring Productivity

Productivity is a measure of how efficiently inputs areconverted to outputs

Productivity = output/input

Total Productivity MeasureTotal Productivity = $sales/inputs $

Partial Productivity MeasurePartial Productivity = cars/employee

Multifactor Productivity MeasureMulti-factor Productivity = sales/total $costs


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Productivity Example - An automobile manufacturer has presented the followingdata for the past three years in its annual report. As a potential investor, you areinterested in calculating yearly productivity and year to year productivity gainsas one of several factors in your investment analysis.

2003 2002 2001

Partial Prod. Measure

Unit Car Sales/Employee 24.1 21.2

18.3

Year-to-year Improvement 13.7% 15.8%

Multifactor Prod. Measures

Total Cost Productivity 1.26 1.24 1.19

Year-to-year Improvement 1.6% 4.2%

Which is the best measurement?

$32,000$33,000$39,000Cost ofSales

(billions)

$38,000$41,000$49,000$ Sales

(billions$)

115,000113,000112,000Employees

2,100,0002,400,0002,700,000Unit carsales

200120022003


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Interpreting Productivity Measures

Productivity measures must be compared to something, i.e.another year, a different company

Raw productivity calculations do not tell the complete storyunless there are no major structure differences.


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Productivity and the ServiceSector

Measuring service sector productivity is aunique challenge Traditional measures focus on tangible outcomes

Service industries primarily produce intangibleoutcomes

Measuring intangibles is challenging PWP-Plant-within-plant

Bank-qualifiers are location, availability of tellersorder winners are relationship banking,

customer-oriented banking hours

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