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Reid & Sanders, Operations Management© Wiley 2002
Operations Strategy & Competitiveness 2
C H A P T E R
Page 2Reid & Sanders, Operations Management© Wiley 2002
Learning Objectives
• Define the role of business strategy• Explain strategy development• Explain the role of an operations strategy• Explain the relationship between the business &
operations strategy• Describe how an operations strategy is developed• Identify competitive priorities• Define productivity & identify productivity measures• Compute productivity measures
Page 3Reid & Sanders, Operations Management© Wiley 2002
The Role of Business Strategy
• Business Strategy:– The firm’s 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
Page 4Reid & Sanders, Operations Management© Wiley 2002
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
Page 5Reid & Sanders, Operations Management© Wiley 2002
Developing aBusiness 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)
Page 6Reid & Sanders, Operations Management© Wiley 2002
Putting it all Together
Business Strategy:Defined long-range plan
for the company
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
Page 7Reid & Sanders, Operations Management© Wiley 2002
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
Page 8Reid & Sanders, Operations Management© Wiley 2002
Translate Priorities into Design
Business Strategy
Operations Strategy:Based on Competitive Priorities
Design of Operations:Structure & Infrastructure
Page 9Reid & Sanders, Operations Management© Wiley 2002
Design of Operations
• Structure:– Facilities– Flow of work– Technology
• Infrastructure:– Planning & control systems– Work design & compensation
Page 10Reid & Sanders, Operations Management© Wiley 2002
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
Page 11Reid & Sanders, Operations Management© Wiley 2002
Competing on Quality
• High performance design:– Superior features, high durability, &
excellent customer service
• Product & service consistency:– Error free delivery– Close tolerances
Page 12Reid & Sanders, Operations Management© Wiley 2002
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
Page 13Reid & Sanders, Operations Management© Wiley 2002
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
Page 14Reid & Sanders, Operations Management© Wiley 2002
Understand TradeoffsExample: Made-to-Order Pizza
Fresh
, N
atu
ral
Ing
red
ien
ts
Top
pin
gs &
C
rust C
hoice
Slo
w t
o C
ook
Exp
en
sive
Ing
red
ien
ts
Low
Volu
me
Oven
s
QUALITYQUALITY &
DESIGN FLEXIBILITY
VOLUME FLEXIBILITY
TIMECOST
Page 15Reid & Sanders, Operations Management© Wiley 2002
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 firm’s
offerings from competitors & ultimately win the customer’s order
Page 16Reid & Sanders, Operations Management© Wiley 2002
Productivity
Inputs
OutputsP
Page 17Reid & Sanders, Operations Management© Wiley 2002
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
Page 18Reid & Sanders, Operations Management© Wiley 2002
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
hourtableshours
tables
Inputs
Outputs/5.1
16
24
Page 19Reid & Sanders, Operations Management© Wiley 2002
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 $10 an hour
41.11700$
2400$
/10$40/50.6$200
/12$200
hourhoursunitunits
unitunits
Page 20Reid & Sanders, Operations Management© Wiley 2002
Interpreting Productivity Measures
• Is the productivity measure of 1.41 in the previous example good or bad?
• Can’t tell without a reference point
• Compare to previous measures (e.g.: last week) or to another benchmark
Page 21Reid & Sanders, Operations Management© Wiley 2002
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)
1
12
P
PPRateGrowth
Page 22Reid & Sanders, Operations Management© Wiley 2002
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
rategrowthnegativeaor
P
PPRateGrowth
hourunitshours
unitsP
hourunitshours
unitsP
%4
04.075.0
75.072.0
/72.0250
1802
/75.0200
150
1
12
1
Page 23Reid & Sanders, Operations Management© Wiley 2002
The End
Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United State Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.