operations strategy

ISAT 211 Mod 2-1 1997 M. Zarrugh

ISAT 211 Module 2:Competitiveness and Operations StrategyThe learning objectives of this module are

– To explain the concept of competitiveness and how it relates to productivity

– To recognize the role of competitiveness in shaping operations strategy

– To explain the basic competitive priorities in which companies compete

– To identify steps for formulating an operations strategy

– To explain how operations and manufacturing strategy support positioning (how the firm will compete)


Competitiveness: National and Company-Specific Competitiveness of a nation is its

comparative ability to sell its products in the global markets while raising or maintaining its standard of living.

Competitiveness of a company is its ability to compete and prosper in the marketplace.

Competitiveness can be thought of as a measure of productivity or the efficiency of converting natural and human resources into useful products and services.


Productivity:International Comparison

60

70

80

90

100

110

120

130

1980 1982 1984 1986 1988 1990 1992 1994 1996

US

Japan

Germany

Year

Ou

tpu

t p

er h

ou

r in

man

ufa

ctu

rin

g 1992=100

Source: U.S. Bureau of Labor Statistics, March 1998


Competitiveness: A Measure of Productivity Mathematically productivity is defined by

Productivity =output (gain)input (cost)

Output can represent: ________________________ Input can be: _______________________________ How does productivity increase or decrease?

– become more efficient? ________________________– reduce cost? _________. increased cost? __________– contract or expand? ___________________________– new techniques or technologies? _________________


Competitiveness: A Measure of Productivity Mathematically productivity is defined by

Productivity =output (gain)input (cost)

Partial measure:Output Output Output Output

or or or Labor Capital Materials Energy

Multifactor measure:Output Output

or Labor + Capital + Energy Labor + Capital + Materials


Productivity: Global Comparison of Changes in Input and Output

-4

-2

0

2

4

6

8

10U.S.

Japan

Germany

France

Italy

Sweden

U.K.

Canada

Country

% C

han

ge

(199

4-19

95)

Input

Output


It took 500 hrs of labor to produce 200 units of a product. The product sells for $160 each. Total labor cost is $14/hr on the average. Material cost is $30/unit. Compute labor productivity.

Labor Productivity: A Numerical Example


It took 500 hrs of labor to produce 200 units of a product. The product sells for $160 each. Total labor cost is $14/hr on the average. Material cost is $30/unit. Compute labor productivity.

Solution: Here are two from many ways to compute productivity:

Total output = 200 units x $160/unit = $32,000

Total input = 500 hrs x $14/hr + 200 units x $30/unit =$13,000

Productivity = Output/Input = $32,000/$13,000 = 2.46

Output ($/hr) = 200 units x $160/unit / 500 hrs = $64/hrInput ($/hr) = $14/hr

Productivity = Output/Input = ($64/hr) / ($14/hr) = 4.57

Can you think of any advantages or disadvantages of each approach?

Labor Productivity: A Numerical Example


Strategy is a common vision which provides direction for action in an organization.

Corporate strategy expresses how a firm chooses to compete in the market place over the long-term:– mission statement

– business goals

– key distinctive (core) competencies

– operational priorities

Corporate Strategy:Role of Competitiveness


Operations Strategy: Driven by Corporate StrategyA firm’s operations strategy defines how it will

compete in its own best way. Operations strategy consists of policies and plans

for how to use production resources to meet corporate strategic goals.

Operations strategy must be consistent with and supportive of the corporate strategy.

Strategic decisions in the operations functions (production, marketing and finance) involve competitive priorities.


Basic Competitive Priorities

Cost– Low cost operation; suited for commodity-like products

Quality– High and consistent product and process quality; focus on

customer requirements Speed

– Time-to-market (development) and order delivery Flexibility

– Quickness of response to changes in product mix, demand volume and technology (customization)

Operations strategy defines in which of the following priorities a firm should compete:


Competitive Priorities Link Corporate and Operations Strategies

Corporate strategy(Mission, goals,

core competencies)

MarketAnalysis

Business andeconomicclimate

Competitive priorities(cost, quality,

speed, flexibility)

Operations strategy(Resources and capacity

management)

Capabilities Assessment(Current, needed

planned)

Future Directions(new products, global

strategic decisions)


Core (Distinctive) CompetenciesCore competencies are the unique resources and

strengths that sustain a firm’s competitive advantage:– Work-force: well trained and flexible

– Facilities: well located, adaptive and can expand or change over quickly

– Exceptional marketing and financial competence: critical for rapid changes in customer needs and capital markets

– System and technology expertise: for product innovation and process integration and automation.


Exploiting Core Competencies Enhancing value to the customer. Develop competencies

relevant to what the customer values most. (Goodyear & Navistar)

Transferring an internal competence to a salable product. (American Airlines’ SABRE)

Applying competencies in a new business. Capitalize on internal competence and apply it in a new way to develop new businesses. (Circuit City & CarMax)

Creating new ways of working. Combine different businesses to provide integrated service. (John Deere providing insurance to dealers)


Strategy Formulation Steps Define primary task. (mission statement).

– What business are we in?

– Who are our customers?

– What are our key profitability or performance objectives?

Assess core competencies. (competitive advantage)– What do we do better than anyone else?

– Can we capitalize on our strengths to develop new products, new markets or new businesses?

– How can we maintain our competitive advantages?


Strategy Formulation Steps Benchmarking (order winners and order qualifiers).

– What does qualify an item for purchase?– What marketing approach does win orders?– Who are the order winners and what do they do? – How do we compare to the order winners?

Position the firm. (capitalize on strengths)– What do we do better than anyone else?– Can we capitalize on our strengths to develop new

products, new markets or new businesses?– How can we maintain our competitive advantages?


Positioning StrategiesPositioning strategy determines the general nature

of operations or processes required to accomplish the goals of the organization.

It does not identify specific processes to use or specific resources to organize.

A system organized around the product or service is called a product-focused strategy. (assembly line)

With a process-focused strategy, products share generic optimized processes and equipment are organized by function. (job shop)


Linking Positioning Strategy with Competitive Priorities Through Products

Process-Focus Product-FocusCustomized products

at low volumesStandardized products

at high volumes

Mature productNewer product

Consistent process quality

High reliability products

Low costFlexibilityShort lead timesLong lead times


Manufacturing Operations Strategies Based on Positioning Strategies

ManufacturingStrategy

Description Examples Key CompetitivePriorities

Make-to-stock Used in product-focus plants to speed up delivery of standard parts

- Commodities,- Electronic

components,- Chemicals

- Low cost- Consistent quality

Assemble-to-order

Suited for products built with many options from few standard modules

- High end PCs- Upscale furniture- Industrial AC systems

- Fast delivery- Customization (flexibility)

Make-to-order Used in process-focused shops to produce few but varied items

- Major medical equipment- Aircraft

- Flexibility and customization


Competitiveness Drivers:Causes of Recent Increases in US Productivity Product Development

– Teams speed development and enhance manufacturability Lean production and Waste Reduction (Big JIT)

– WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships

– Borrowed from Japanese Keiretsu Improved Leadership

– Strong, independent boards of directors Maturation of computer and information technology

– Increased efficiency, flexibility and responsiveness due to computer-based automation and integration

Questions?


Strategy is a common vision which provides direction for action in an organization.

Corporate strategy expresses how a firm chooses to compete in the market place over the long-term:– mission statement

– business goals

– key distinctive (core) competencies

– operational priorities

Corporate Strategy:Role of Competitiveness

operations strategy

Education

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