C H AP T E R
Operations Strategy
& Competitiveness
Reid & Sanders, Operations Management
Wiley 2002
The Role of Business Strategy
Business Strategy:
The firms 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
Reid & Sanders, Operations Management
Wiley 2002
Page 3
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
Reid & Sanders, Operations Management
Wiley 2002
Page 4
Developing a
Business 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)
Reid & Sanders, Operations Management
Wiley 2002
Page 5
Putting it all Together
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
Business Strategy:
Defined long-range plan
for the company
Reid & Sanders, Operations Management
Wiley 2002
Page 6
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
Reid & Sanders, Operations Management
Wiley 2002
Page 7
Translate Priorities into Design
Business Strategy
Operations Strategy:
Based on Competitive Priorities
Design of Operations:
Structure & Infrastructure
Reid & Sanders, Operations Management
Wiley 2002
Page 8
Design of Operations
Structure:
Facilities
Flow of work
Technology
Infrastructure:
Planning & control systems
Work design & compensation
Reid & Sanders, Operations Management
Wiley 2002
Page 9
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
Reid & Sanders, Operations Management
Wiley 2002
Page 10
Competing on Quality
High performance design:
Superior features, high durability, & excellent customer
service
Product & service consistency:
Error free delivery
Close tolerances
Reid & Sanders, Operations Management
Wiley 2002
Page 11
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
Reid & Sanders, Operations Management
Wiley 2002
Page 12
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
Reid & Sanders, Operations Management
Wiley 2002
Page 13
Understand Tradeoffs
Example: Made-to-Order Pizza
Expensive
Ingredients
Slow to Cook
TIME
Toppings &
Crust Choice
Reid & Sanders, Operations Management
Wiley 2002
Fresh,
Natural
Ingredients
COST
Low Volume
Ovens
QUALITY &
DESIGN
FLEXIBILITY
QUALITY
VOLUME
FLEXIBILITY
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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 firms offerings from
competitors & ultimately win the customers order
Reid & Sanders, Operations Management
Wiley 2002
Page 15
Productivity
Outputs
P
Inputs
Reid & Sanders, Operations Management
Wiley 2002
Page 16
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
Reid & Sanders, Operations Management
Wiley 2002
Page 17
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
Outputs 24 tables
1.5 tables / hour
Inputs 16 hours
Reid & Sanders, Operations Management
Wiley 2002
Page 18
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
200 units $12 / unit
$2400
1.41
200 units $6.50 / unit 40 hours $10 / hour $1700
Reid & Sanders, Operations Management
Wiley 2002
Page 19
Interpreting Productivity Measures
Is the productivity measure of 1.41 in the previous
example good or bad?
Cant tell without a reference point
Compare to previous measures (e.g.: last week) or to
another benchmark
Reid & Sanders, Operations Management
Wiley 2002
Page 20
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)
P2 P1
Growth Rate
P1
Reid & Sanders, Operations Management
Wiley 2002
Page 21
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
150 units
P1
0.75 units / hour
200 hours
180 units
P2
0.72 units / hour
250 hours
P P 0.72 0.75
Growth Rate 2 1
0.04
P1
0.75
or a negative 4% growth rate
Reid & Sanders, Operations Management
Wiley 2002
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