Operations Strategy and Competitiveness-Ch02

7/31/2019 Operations Strategy and Competitiveness-Ch02

1/38

Wiley 2010 1

Chapter 2 - OperationsStrategy and Competitiveness

Operations Managementby

R. Dan Reid & Nada R. Sanders

4th Edition Wiley 2010


2/38

2

The Role of Operations

Strategy Provide a plan that makes best use of

resources which;

Specifies the policies and plans for usingorganizational resources

Supports Business Strategy as shown on

next slide

Wiley 2010


3/38

3

Business/Functional Strategy

Wiley 2010


4/38

Background: Business Strategy

Wiley 2010 4

http://www.youtube.com/watch?v=mYF2_FBCvXw

http://www.youtube.com/watch?v=ehMAwIHGN0Y
http://www.youtube.com/watch?v=mYF2_FBCvXwhttp://www.youtube.com/watch?v=ehMAwIHGN0Yhttp://www.youtube.com/watch?v=ehMAwIHGN0Yhttp://www.youtube.com/watch?v=mYF2_FBCvXw


5/38

Wiley 2010 5

Importance of Operations

Strategy Companies often do not understand the

differences between operational

efficiency and strategy Operational efficiency is performing tasks

well, even better than competitors

Strategy is a plan for competing in the

marketplace

Operations strategy is to ensure alltasks performed are the right tasks


6/38

Wiley 2010 6

Developing a Business

StrategyA business strategy is developed after

taking into many factors and following

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

Analyzing and understanding the market

(environmental scanning) Identifying the companies strengths (core

competencies)


7/38

Wiley 2010 7

Three Inputs to a Business Strategy


8/38


9/38

Wiley 2010 9

Example: NokiaNokia extended its already formidable dominance of the globalhandset business on Jan. 24, announcing it had achieved 40%

market share in the fourth quarter of 2007. But perhaps the biggestsurprise was that the Finnish company achieved this long-promisedand psychologically important milestone while also becoming moreprofitable.

http://www.businessweek.com/globalbiz/content/jan2008/gb20080124_974301.htm?chan=search
http://www.businessweek.com/globalbiz/content/jan2008/gb20080124_974301.htm?chan=searchhttp://www.businessweek.com/globalbiz/content/jan2008/gb20080124_974301.htm?chan=search


10/38

Wiley 2010 10

Developing an Operations

Strategy Operations Strategy is a plan for the

design and management of operations

functions Operation Strategy developed after the

business strategy

Operations Strategy focuses on specificcapabilities which give it a competitiveedgecompetitive priorities


11/38

Wiley 2010 11

Operations Strategy Designing

the Operations Function


12/38

Wiley 2010 12

Competitive Priorities- The Edge Four Important Operations Questions:

Will you compete on

Cost?

Quality?

Time?

Flexibility?

All of the above? Some? Tradeoffs?


13/38

Wiley 2010 13

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


14/38

Wiley 2010 14

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


15/38

Wiley 2010 15

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


16/38

Wiley 2010 16

Competing on Flexibility?

Company environment changes rapidly

Company must accommodate change by beingflexible

Product flexibility:

Easily switch production from one item to another

Easily customize product/service to meet specific requirementsof a customer

Volume flexibility:

Ability to ramp production up and down to match marketdemands


17/38

Wiley 2010 17

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 areOrder Qualifiers?e.g. Must have excellent quality since everyone expects it

Which priorities areOrder Winners?e.g. Southwest Airlines competes on cost

McDonalds competes on consistency

FedEx competes on speedCustom tailors compete on flexibility


18/38

Wiley 2010 18

Competitive Priorities front & center

http://www.businessweek.com/magazine/content/06_13/b3977009.htm

http://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=search

http://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=search
http://www.businessweek.com/magazine/content/06_13/b3977009.htmhttp://www.businessweek.com/magazine/content/06_13/b3977009.htmhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/technology/content/dec2007/tc20071228_106857.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977010.htm?chan=searchhttp://www.businessweek.com/magazine/content/06_13/b3977009.htmhttp://www.businessweek.com/magazine/content/06_13/b3977009.htm


19/38

Wiley 2010 19

Translating to Production Requirements

Specific Operation requirements includetwo general categories

Structure decisions related to theproduction process, such as characteristicsof facilities used, selection of appropriatetechnology, and the flow of goods and

services

Infrastructure decisions related toplanning and control systems of operations


20/38

Wiley 2010 20

Translating to Production Requirements

Dell Computer examplestructure & infrastructure

They focus on customer service, cost, and speed

ERP system developed to allow customers to orderdirectly from Dell

Product design and assembly line allow a make toorder 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


21/38

Wiley 2010 21

Strategic Role of Technology

Technology should support competitive

priorities

Three Applications: product technology, process

technology, and information technology

Products - Teflon, CDs, fiber optic cable

Processes flexible automation, CAD

Information Technology POS, EDI, ERP, B2B


22/38

Wiley 2010 22

Technology for CompetitiveAdvantage

Technology has positive and negativepotentials

Positive Improve processes

Maintain up-to-date standards

Obtain competitive advantage

Negative Costly

Promotes dependency

Risks such as overstating benefits


23/38

Wiley 2010 23

Technology for CompetitiveAdvantage

Technology should Support competitive priorities

Can require change to strategic plans Can require change to operations strategy

Technology is an important strategicdecision


24/38

Wiley 2010 24

Measuring Productivity

Productivity is a measure of how efficiently inputs areconverted to outputs

Productivity = output/input

Total Productivity Measure:Total Productivity = (total output)/(total of all inputs)

Partial Productivity Measure:

Partial Productivity = (total output)/(single input)

Multifactor Productivity Measure:Multi-factor Productivity = (total output)/(several inputs)


25/38

Wiley 2010 25

Total Productivity: example

Bluegill Furniture makes kitchen chairs. The weeklydollar value of its output, including finished goods

and work-in-progress, is $14,280. The value of inputs(labor, materials, capital) is approximately $16,528.What is the total productivity measure for Bluegill?

Total productivity = output/input

= $14,280/$16,528 = .864 or 86.4%


26/38

Wiley 2010 26

Partial Productivity: example

Bluegill Furniture has hired 2 new workers to paintchairs. Together they have painted 10 chairs in 4

hours. What is labor productivity for the pair?

Labor productivity = output/labor

= (10 chairs)/(2 x 4 hr)= (10 chairs)/(8 hr) or 1.25 chairs/hr


27/38

Wiley 2010 27

Multifactor Productivity: example

Bluegill Furniture averages 35 chairs/day. Labor costsaverage $480, material costs are typically $200, and

overhead cost is $250. Bluegill sells the chairs to aretailer for $70/unit. Find multifactor productivity.

Multifactor productivity =

(value of output)/(labor + material + overhead costs)

= ($70/chair x 35 chairs)/(480+200+250)= ($2450)/($930) or 2.63


28/38

Wiley 2010 28

Interpreting Productivity Measures

Productivity measures must be compared tosomething, i.e. another year, a differentcompany

Raw productivity calculations do not tell thecomplete story unless there are no majorstructure differences.


29/38

Wiley 2010 29

Interpreting Productivity Measures

Other productivity measure questions; Is this partial productivity measurement

enough to make an investment decision?

Should you also look at productivity measuresfor the two major competitors forcomparison?

Productivity measure provides informationon how the firm is doing relative to whatis critical to the firm


30/38

Wiley 2010 30

Productivity, Competitiveness, andthe Service Sector

Productivity is a scorecardon effective resource use A nations Productivity

effects its standard of living

US productivity growthaveraged 2.8% from

1948-1973

Productivity growth slowedfor the next 25 years to1.1%

Productivity growth inservice industries has beenless than in manufacturing


31/38

Wiley 2010 31

Productivity and the ServiceSector

Measuring service sector productivity isa unique challenge

Traditional measures focus on tangibleoutcomes

Service industries primarily produce

intangible outcomes Measuring intangibles is challenging


32/38

Wiley 2010 32

Operations Strategy Acrossthe Organization

Business strategy defines long-termplan

Operations strategy support thebusiness strategy

Marketing strategy needs to fully

understand operations capability Financial plans in effect support

operations activities.


33/38

Wiley 2010 33

Review of Learning Objectives

Define the role ofBusiness Strategy

Explain how a Business strategy is developed

Explain the role ofOperations Strategy inthe organization

Explain the relationship between business

strategy and operations strategy Describe how an operations strategy is

developed


34/38

Wiley 2010 34

Review of Learning Objectives

Identify competitive priorities for of theoperations function

Explain the strategic role of technology

Define productivity and identifyproductivity measures

Compute productivity measures


35/38

Wiley 2010 35

Chapter 2 Highlights

Business Strategy is a long range plan and vision. Eachindividual business function develop needs to supportthe business strategy

An organization develops its business strategy by doingenvironmental scanning and considering its mission andits core competencies.

The role of operations strategy is to provide a long-range plan for the use of the companys resources inproducing the companys primary goods and services.

The role of business strategy is to serve as an overallguide for the development of the organizationsoperations strategy.


36/38

Wiley 2010 36

Chapter 2 Highlights

The operations strategy focuses on developing specificcapabilities called competitive priorities.

There are four categories of competitive priorities: cost,

quality, time, and flexibility Technology can be sued by companies to gain a

competitive advantage and should be acquired to supportthe companys chosen competitive priorities

Productivity is a measure that indicates how efficiently anorganization is using its resources

Productivity is computed as the ratio or organizationaloutputs divided by inputs


37/38

Wiley 2010 37

Example: Detroit EdisonDTE's journey into the distributed-energy business began in 1994when CEO Anthony Earley took over Detroit Edison. Convinced thatthe utility industry was on an eventual collision course with customerneedsDistributed generation soon became a strategic goal of the

company.The idea behind distributed generation is that a school, hospital, oroffice complex can produce its own power just as cheaply as it canbuy it from the grid. When rates go up, it can produce extra energyand sell it back to the grid. When rates go lower, it can shut down its

generator and buy the cheaper electricity from the utility. Thisapproach allows customers to get slightly cheaper electricity from amore stable source that won't suffer interruptions (which is especiallyimportant to computer-intensive companies) and can flexibly meetchanging demands.http://www.businessweek.com/bwdaily/dnflash/jul2001/nf2001072_224.htm?chan=search
http://www.businessweek.com/bwdaily/dnflash/jul2001/nf2001072_224.htm?chan=searchhttp://www.businessweek.com/bwdaily/dnflash/jul2001/nf2001072_224.htm?chan=search


38/38

Wile 2010 38

Example: NestleBrabeck's other strategic goal is transforming Nestle from a set offar-flung operations into a single global machine. He has inked a$200 million deal with SAP to link its five e-mail systems and permitNestle's headquarters in Vevey, Switzerland, to know for the first time

how many raw materials its subsidiaries buy, in total, from aroundthe world. The company then will be able to negotiate bettercontracts with suppliers and centralize production. Last year alone,Brabeck closed 38 different factories. All told, he has slashed $1.6billion in costs, without labor strife.

http://www.businessweek.com/magazine/content/01_24/b3736644.htm?chan=search
http://www.businessweek.com/magazine/content/01_24/b3736644.htm?chan=searchhttp://www.businessweek.com/magazine/content/01_24/b3736644.htm?chan=search

Documents

Operations Strategy and Competitiveness-Ch02