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Operations Strategy

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How Operations Strategy fits the Operations Management

Philosophy

Operations As a Competitive Weapon

Operations StrategyProject Management Process Strategy

Process AnalysisProcess Performance and Quality

Constraint ManagementProcess LayoutLean Systems

Supply Chain StrategyLocation

Inventory ManagementForecasting

Sales and Operations PlanningResource Planning

Scheduling

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Outline

1. Starbucks

2. Operations Strategy

3. Corporate Strategy

4. Customer-DrivenOperations Strategy

5. Competitive Priorities and Capabilities

6. New Service or Product Development

7. Operation Strategy as a Pattern of Decisions

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Starbucks

If someone says, “Lets go out for coffee,” Starbucks often comes to mind.

Entrepreneur Howard Schultz had an operations strategy in mind in 1990 when he bought the 17-store Seattle chain and turned it into a global success.

Service strategy was key. Offering a variety of specialized products

and services, such as Internet access, phone ahead ordering, and CD burning, all in a socially interactive atmosphere.

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Operations Strategy

Operations strategy is the means by which operations implements the firm’s corporate strategy and helps to build a customer-driven firm.

It links long-term and short-term operations decisions to corporate strategy.

It is the core of managing processes and value chains.

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Customer-DrivenOperations Strategy

Corporate strategy views the organization as a system of interconnected parts, each working with the others to achieve desired goals.

Operations Strategy supports the corporate strategy and requires continuous cross-functional interaction.

The operations strategy should be customer driven.

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Developing a Corporate Strategy

Developing a corporate strategy involves three considerations:

1. Monitoring and adapting to the environment2. Identifying and developing core competencies3. Developing the firm’s core processes

Adapting requires environmental scanning to monitor trends for opportunities and threats.

Core Competencies are the unique resources and strengths an organization possesses.

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Core Competencies

Core competencies include…A well-trained and flexible WorkforceHaving well-located & flexible FacilitiesHaving Market and Financial Know-How.Expertise in Systems and Technology.

The core competencies should determine the firm’s core processes.These can include customer relations, new

service/product development, order fulfillment, and supplier relationships.

A firm may have all of these or focus on a subset of them, as determined by its core competencies.

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Global Strategies

A global strategy may include buying foreign services or parts and entering or expanding foreign markets.

Two effective global strategies are:

1. Strategic Alliancesa) Collaborative efforts

b) Joint ventures

c) Technology licensing

2. Locating abroad

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Market Analysis

A Market Analysis is one key to developing a customer-driven strategy, and is accomplished in two parts.Market Segmentation, which identifies groups of

customers with enough in common to warrant developing services and/or products for them.

Needs Assessment identifies the needs of each market segment. Needs include such things as:Service or product needsDelivery system needsVolume needs

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Competitive priorities• cost• quality• time• flexibility

Competitive priorities• cost• quality• time• flexibility

Market analysis• segmentation• needs analysis

Market analysis• segmentation• needs analysis

Arriving at the Competitive Priorities

Corporate Strategy• environmental scanning• core competencies• core processes• global strategies

Corporate Strategy• environmental scanning• core competencies• core processes• global strategies

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Competitive Priorities

Cost 1. Low-cost operationsQuality 2. Top quality

3. Consistent qualityTime 4. Delivery speed

5. On-time delivery6. Development speed

Flexibility 7. Customization8. Variety9. Volume flexibility

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Competitive Capabilities

The Competitive Capabilities are the cost, quality, time and flexibility dimensions of competitive priorities that a process or value chain actually possesses and is able to deliver. Low Cost means delivering a service or

product at the lowest possible cost to the satisfaction of the customer.

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Top Quality: Delivering an outstanding service or product. Considerable interaction with the customers

may be required to determine what that means.

Consistent Quality: Producing services or products that meet design specifications on a consistent basis.

Quality as aCompetitive Capability

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Time as aCompetitive Capability

Delivery Speed is quickly filling a customer’s order.Lead Time is the time between receipt of an

order and filling the order. On-Time Delivery means meeting the

delivery time promises. Development Speed is quickly introducing

a new service or product. Time-Based Competition is a strategy

that focuses on development speed and delivery speed.

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Customization means satisfying the unique needs of each customer by changing the service or product designs.

Variety involves handling a wide assortment of services or products efficiently.

Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.

Flexibility as aCompetitive Capability

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Northrup Grumman Newport News Ship Building

The world’s only producer of full-sized aircraft carriers

Long lead times of 8 years or more often involve many changes.

Their processes have a high degree of flexibility to handle changes in design.

Flexibility in workforce skills as well as process flexibility is necessary.

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Order Winners and Order Qualifiers

These are criteria used by customers in service or product selection.

Order Winners are criteria for differentiating services or products of one firm from those of another. Price, quality, time, flexibility, after sales

support, reputation, etc. Order Qualifiers are demonstrated levels

of performance required to do business in a particular market segment.

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Service or Product Development Strategies

Product Variety: Offering a wide assortment. Design: Ease of use and desirable features. Innovation: Translate new technology into new

products. Service: Products with services added. Leader: Being first to introduce new services and/or

products. Middle of the Road: Wait for the leaders to

introduce new services and/or products. Laggard: Wait to see if the leader’s new services

and/or products catch on in the market.

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Service Package

A Service Package is a collection of goods and services provided by a service process to its customers. It consists of four features:

1. Supporting Facility: The physical resources that must be in place before a service can be offered.

2. Facilitating Goods: The materials purchased or consumed by the customer or the items provided by the customer to receive a service.

3. Explicit Services: The readily observable benefits.

4. Implicit Services: Psychological benefits.

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Quality Function Deployment (QDF)

Quality Function Deployment (QDF) is a means of translating customer requirements into the appropriate technical requirements for service or product development. Questions it seeks to answer are…

1. What do our customers want?

2. How well are we doing relative to our competition?

3. What technical measures relate to our customers’ needs?

4. What are the relationships between what our customers want and the technical measures?

5. How does our service or product performance compare to the competition?

6. What are the potential technical trade-offs?

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QualityFunctionDeployment

Voice of the

Customer

Competitive Analysis

Voice of the

Engineer

Correlations

Technical Comparison

““House of Quality”House of Quality”

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Development Process

Service or product Service or product

not profitablenot profitable

Need to rethinkNeed to rethinkthe idea.the idea.

Post-launch Post-launch reviewreview

DesignDesign

Specifications are developed for new services or products AnalysisAnalysis

A critical review of how it will be produced, resource requirements and capabilities.

DevelopmentDevelopment

Cross-functional coordination, process design. Full LaunchFull Launch

Sales & promotion

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Concurrent Engineering

Concurrent Engineering brings product engineers, process engineers, marketers, buyers, information specialists, quality specialists, and suppliers together to design a product and the processes that will meet customer expectations.

This is an essential cross-functional effort during the service and/or product development phase to insure a timely and well-coordinated process that brings value to the customer.

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Corporate Strategy and Key Operations Management Decisions

Capabilities

Performance Gap?

NoNo

YesYes

Operations strategy

Decisions• Managing Processes• Managing Value Chains

New Service/Product Development

New Service/Product Development

Market analysis

Competitive priorities

Corporate strategyCorporate strategy

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Matching Capabilities to Priorities

The table below shows how a credit card division matched their capabilities to their priorities and uncovered gaps in their operating strategy.

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Case Study1.Case Study in page 65 of your

textbook.

2. Answer the questions. (group)