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Chapter 2 - Operations Strategy and Competitiveness

Operations Managementby

R. Dan Reid & Nada R. Sanders2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

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Learning Objectives Define the role of Business Strategy Explain how a Business strategy is developed Explain the role of Operations Strategy Explain the relationship between Business and

Operations strategy Describe how an Operations strategy is developed Identify competitive priorities for Operations

function Explain the strategic role of technology Define and compute productivity measures

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The Role of Business Strategy

Defines the long-range plan to compete in the marketplace

Helps to differentiate the firm from competitors

Game plan upon which functional strategies are developed

Focuses on doing the “right tasks”

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Business/Functional Strategy

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Three Inputs to a Business Strategy

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Examples from Strategies Mission: Dell Computer- “to be the most

successful computer company in the world”

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

Core Competencies: strength of workers, modern facilities, market understanding, best technologies, financial know-how, logistics

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Operations Strategy – Designing the Operations Function

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Competitive Priorities- The Edge

Four Important Operations Questions: Will you compete on –

Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?

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Competing on Cost?

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

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Competing on Quality? High performance design:

Superior features, high durability, & excellent customer service

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

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Competing on Time?

Fast delivery: Focused on shorter time between order placement

and delivery

On-time delivery: Deliver product exactly when needed every time

Rapid development speed Using concurrent processes to shorten product

development time

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Competing on Flexibility? Product flexibility:

Easily switch production from one item to another Easily customize product/service to meet specific

requirements of a customer

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

market demands

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Are There Priority Tradeoffs? Which priorities are “Order Qualifiers”? e.g. Must have excellent quality since everyone expects it

Which priorities are “Order Winners”? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility

Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples

Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it

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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 “make

to order” strategy – lowers costs, increases turns Suppliers ship components to a warehouse within

15 minutes of the assembly plant - VMI Dell set up a shipping arrangement with UPS

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Strategic Role of Technology

Technology should support competitive

priorities

Three Applications: New product technology,

process technology, and information technology

Products - Teflon, CD’s, fiber optic cable

Processes – flexible automation, CAD

Information Technology – POS, EDI, ERP, B2B

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Measuring Productivity Productivity is a measure of how efficiently inputs are

converted to outputs Productivity = output/input

Total Productivity Measure Total Productivity = $sales/inputs $

Partial Productivity Measure Partial Productivity = cars/employee

Multifactor Productivity Measure Multi-factor Productivity = sales/total

$costs

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Productivity, Competitiveness, and the Service Sector

A nation’s Productivity effects its standard of living

Productivity is a measure of how effectively resources are used

US productivity growth averaged 2.8% from

1948-1973 Productivity growth slowed

for the next 25 years to 1.1%

Productivity growth in service industries has been less than in manufacturing

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Chapter 2 Highlights Business Strategy is a long

range plan. Functions develop supporting plans

Strategy must address mission, environment, and core competencies

Business strategy provides a guide for designing operations strategy

Operations strategy must consider which competitive priorities are essential to meet business objectives

Competitive priorities are cost, quality, time, and flexibility

Companies must consider which product, process, and information technologies to use

Productivity measures how effectively a firm is using resources

Productivity is computed as a ratio of outputs divided by inputs

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