Chapter 2 Operations Strategy and Competitiveness

2 Business Strategy n The firm’s long-range plan based on an understanding of the marketplace n Defines how a company intends to differentiate itself from competitors n Business strategy is the guideline for functional strategies: marketing, operation, and finance.

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Three Inputs of Business Strategy 4

5 Operations Strategy n The long-range plan for business operations that specifies the use of resources in the process of making products to support the business strategy.

6 Developing Operations Strategy and Operations Business Strategy Operations Strategy: Based on Competitive Priorities Design of Operations: Structure & Infrastructure

Competitive Priority n Competitive priority is the operating advantage that a firm must possess to survive in the marketplace and outperform its competitors. 7

8 Alternatives of Competitive Priority  Cost  Quality  Time  Flexibility

9 Competing on Low Cost n Eliminate wasted labor, materials, and facilities n Emphasize efficient processes & high productivity n Often limit the product range & offer little customization n May invest in automation to increase productivity

10 Competing on Quality n High performance design: – Superior features, high durability, & excellent customer service n Product & service consistency: – Error free delivery – Close tolerances

11 Competing on Time n Rapid delivery: n On-time delivery: – Deliver exactly when expected n Neither too early nor too late (It may cause clutter of excess inventory due to early deliveries.)

12 Competing on Flexibility n Product flexibility: – May easily switch the production process from one item to another (substitution) – May easily customize output to meet the specific requirements of a customer n Volume flexibility: – May rapidly adjust the amount of a product in production to match demand

13 Understand Tradeoffs Example: Made-to-Order Pizza Fresh, Natural Ingredients Toppings & Crust Choice Slow to Cook Expensive Ingredients Low Volume Ovens QUALITY QUALITY & DESIGN FLEXIBILITY VOLUME FLEXIBILITY TIMECOST

14 Order Qualifier vs. Order Winner n Order Qualifiers: – Competitive priorities that a product must meet to stay in market – Generally, represented by features shared by all competitors in a given market niche n Order Winners: – Competitive priorities that distinguish the firm’s offerings from competitors & ultimately win the customer’s order

15 Plan of Operations n Once the competitive priority is determined, a plan of operation is developed to support it. n Structure, including facilities, flow of work, technology. n Infrastructure, including work design & compensation, quality control approach.

Technology n Technology plays an important role in gaining and maintaining competitive advantages. n Product technology n Process technology n Information technology 16

Productivity n Productivity is a measure of efficiency. n General formula of productivity: 17

18 Productivity Measures n Partial Measures: – A ratio of outputs to only one input (e.g.: labor productivity, machine utilization, energy efficiency) n Multifactor Measures: – A ratio of outputs to several inputs n Total Productivity Measures: – The ratio of outputs to all inputs

19 Labor Productivity Example: – Assume two workers paint twenty-two tables in eight hours: – Inputs: 16 hours of labor (2 workers x 8 hours) – Outputs: 22 painted tables

20 Multifactor Productivity n Convert all inputs & outputs to $ value n Example: – 14 units produced sell for $27.28 each – Total material cost = $168. – Each unit requires 1 hour of labor at $7 / hour

21 Interpreting Productivity Measures n Is the productivity measure of 1.43 in the previous example good or bad? n Can’t tell without a reference point n Compare to previous measures (e.g.: last week) or to another benchmark

22 Productivity Growth Rate (see Problem 5, p.50) n Can be used to compare a process’ productivity at a given time (P 2 ) to the same process’ productivity at an earlier time (P 1 )

23 Productivity Growth Rate Example: – Last week 150 units were made with 200 hours of labor – This week, 180 units were made with 250 hours of labor