OM Chapter 2

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
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

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)

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
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

Wiley 2002
Page 7
Translate Priorities into Design

Business Strategy
Operations Strategy:
Based on Competitive Priorities
Design of Operations:
Structure & Infrastructure
Wiley 2002
Page 8
Design of Operations
Structure:
Facilities
Flow of work
Technology
Infrastructure:
Planning & control systems
Work design & compensation
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

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

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

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
Wiley 2002
Page 13
Understand Tradeoffs
Example: Made-to-Order Pizza
Expensive
Ingredients
Slow to Cook
TIME
Toppings &
Crust Choice

Wiley 2002
Fresh,
Natural
Ingredients
COST
Low Volume
Ovens
QUALITY &
DESIGN
FLEXIBILITY
QUALITY
VOLUME
FLEXIBILITY
Page 14
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

Wiley 2002
Page 15
Productivity
Outputs
P
Inputs
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

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
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

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

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
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
Wiley 2002
Page 22

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C H AP T E R

Reid & Sanders, Operations Management

The Role of Business Strategy

The location, size, & type of facilities

Operating efficiency an operating strategy

Reid & Sanders, Operations Management

Reid & Sanders, Operations Management

Putting it all Together

Reid & Sanders, Operations Management

Translate Priorities into Design

Competing on Low Cost

Reid & Sanders, Operations Management

Product & service consistency:

Reid & Sanders, Operations Management

Ability to deliver exactly when expected

Reid & Sanders, Operations Management

Reid & Sanders, Operations Management

Distinguish Order Qualifiers

Reid & Sanders, Operations Management

Total Productivity Measures:

Reid & Sanders, Operations Management

1.5 tables / hour

200 units $12 / unit

Reid & Sanders, Operations Management

Interpreting Productivity Measures

Reid & Sanders, Operations Management

Productivity Growth Rate

Productivity Growth Rate

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