Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations Strategy Operations Management - 5 th Edition Chapter 2 Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.2-2 Lecture Outline  Strategy Formulation  Competitive Priorities  Operations’ Role in Corporate Strategy  Strategy and the Internet  Strategy Deployment  Issues and Trends in Operations

Copyright 2006 John Wiley & Sons, Inc.2-3 Strategy Formulation (1)  Mission statement (primary task) What is the firm’s business? What is the firm’s business? What is its vision for the future? What is its vision for the future?

Copyright 2006 John Wiley & Sons, Inc.2-4 Strategy Formulation (2)  Core competency (distinctive competence) What does the firm do better than anyone else? What does the firm do better than anyone else? Should create a sustainable competitive advantage. Should create a sustainable competitive advantage. Should be hard to imitate. Should be hard to imitate. Often requires cross-functional integration. Often requires cross-functional integration. Often includes partnerships with suppliers or customers. Often includes partnerships with suppliers or customers. Is dynamic and changes over time. Is dynamic and changes over time. Affected by business environment and competition Affected by business environment and competition

Copyright 2006 John Wiley & Sons, Inc.2-5 Strategy Formulation (3)  Customer requirements Order qualifiers Order qualifiers Order winners Order winners  Firm must satisfy order qualifiers in its target markets  Firm’s distinctive competence should be an order winner in the firm’s target markets

Copyright 2006 John Wiley & Sons, Inc.2-6 Strategy Formulation (4)  Positioning the Firm Business environment Business environment Strategies of competitors Strategies of competitors Strengths and weaknesses of the firm Strengths and weaknesses of the firm Potential for new customers Potential for new customers Present and future needs of customers Present and future needs of customers Potential of technology to help the firm get and keep customers Potential of technology to help the firm get and keep customers

Copyright 2006 John Wiley & Sons, Inc.2-7 Strategy Formulation (5)  Business environment Economic trends Economic trends Political, legal, and regulatory trends Political, legal, and regulatory trends Demographic and social trends Demographic and social trends Technological trends Technological trends

Copyright 2006 John Wiley & Sons, Inc.2-8 Competitive Priorities that Operations Supports  Cost  Quality  Flexibility  Speed  Unique products, skills, or treatment

Copyright 2006 John Wiley & Sons, Inc.2-9 Competitive Priorities: Cost  Lincoln Electric reduced costs by $10 million a year for 10 years reduced costs by $10 million a year for 10 years skilled machine operators save the company millions that would have been spent on automated equipment skilled machine operators save the company millions that would have been spent on automated equipment  Southwest Airlines one type of airplane facilitates crew changes, record- keeping, maintenance, and inventory costs one type of airplane facilitates crew changes, record- keeping, maintenance, and inventory costs direct flights mean no baggage transfers direct flights mean no baggage transfers $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly

Copyright 2006 John Wiley & Sons, Inc.2-10 Competing on Cost Design products to have the required quality at lowest cost.Design products to have the required quality at lowest cost. Invest inInvest in -Efficient facilities & equipment -Eliminating unnecessary process steps -Eliminating waste and excess inventory -Training and developing people

Copyright 2006 John Wiley & Sons, Inc.2-11 Competitive Priorities: Premium Quality  Ritz-Carlton - one customer at a time Every employee is empowered to satisfy a guest’s wish Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader Each hotel has a quality leader Quality reports tracks Quality reports tracks guest room preventive maintenance cycles guest room preventive maintenance cycles percentage of check-ins with no waiting percentage of check-ins with no waiting time spent to achieve industry-best clean room appearance time spent to achieve industry-best clean room appearance Guest Preference Reports are recorded in a database Guest Preference Reports are recorded in a database

Copyright 2006 John Wiley & Sons, Inc.2-12 Competitive Priorities: Conformance Quality  Meeting customer expectations or requirements consistently Customer requirements Customer requirements Product and process design that can meet customer requirements Product and process design that can meet customer requirements Quality standards that are consistent with customer requirements Quality standards that are consistent with customer requirements Use statistical process control to ensure that quality standards are met. Use statistical process control to ensure that quality standards are met.

Copyright 2006 John Wiley & Sons, Inc.2-13 Competing on Quality  Understand and exceed customer expectations  Quality expectations are different in different market segments.  Quality attracts and retains customers.

Copyright 2006 John Wiley & Sons, Inc.2-14 Competitive Priorities: Flexibility – mass customization  Andersen Windows number of products offered grew from 28,000 to 86,000 number of products offered grew from 28,000 to 86,000 number of errors are down to 1 per 200 truckloads number of errors are down to 1 per 200 truckloads  Custom Foot Shoe Store: customer’s feet are scanned electronically to capture measurements customer’s feet are scanned electronically to capture measurements custom shoes are mailed to the customer’s home in weeks custom shoes are mailed to the customer’s home in weeks prices are comparable to off-the-shelf shoes prices are comparable to off-the-shelf shoes  National Bicycle Industrial Company offers 11,231,862 variations offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models delivers within two weeks at costs only 10% above standard models

Copyright 2006 John Wiley & Sons, Inc.2-15 Competing on Flexibility  Product or service variety  Responsiveness to changes in demand (volume)  Mass customization (individualized products)

Copyright 2006 John Wiley & Sons, Inc.2-16 Competitive Priorities: Speed  Citicorp advertises a 15-minute mortgage approval  L.L. Bean ships orders the day they are received  Wal-Mart replenishes its stock twice a week  Hewlett-Packard produces electronic testing equipment in five days  General Electric reduced time to manufacture circuit- breaker boxes into three days and dishwashers into 18 hours  Dell ships custom-built computers in two days  Motorola needs less than 30 minutes to build to order pagers

Copyright 2006 John Wiley & Sons, Inc.2-17 Competing on Speed  Rapid introduction of new products or services  Rapid delivery or fast service  Requires fast, reliable processes  Requires fast, reliable supply chains

Copyright 2006 John Wiley & Sons, Inc.2-18 Operations Strategy: Products and Services  Make-to-Order products and services are made to customer specifications after an order has been received products and services are made to customer specifications after an order has been received May be based on a new design or an existing design May be based on a new design or an existing design  Make-to-Stock products and services are made in anticipation of demand products and services are made in anticipation of demand  Assemble-to-Order products and services add options according to customer specifications products and services add options according to customer specifications

Copyright 2006 John Wiley & Sons, Inc.2-19 Policy Deployment  See pages and Figure 2-6, p. 47

Copyright 2006 John Wiley & Sons, Inc.2-20 Balanced scorecard  Performance categories Performance dimensions Performance dimensions Objective Objective  Key performance indicator (KPI)  Annual goal for each KPI  Results to date for each KPI  KPI score = (results to date)/(annual goal) Mean score by performance dimension Mean score by performance dimension   Key is using measurable objectives that are critical to the success of your business   For an example, see Table 2-1, p. 50