Reid & Sanders, Operations Management © Wiley 2002 Operations Strategy & Competitiveness 2 C H A P T E R

Reid & Sanders, Operations Management © Wiley 2002 Page 2 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

Reid & Sanders, Operations Management © Wiley 2002 Page 3 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

Reid & Sanders, Operations Management © Wiley 2002 Page 4 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

Reid & Sanders, Operations Management © Wiley 2002 Page 5 Developing a Business 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)

Reid & Sanders, Operations Management © Wiley 2002 Page 6 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

Reid & Sanders, Operations Management © Wiley 2002 Page 7 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

Reid & Sanders, Operations Management © Wiley 2002 Page 8 Translate Priorities into Design Business Strategy Operations Strategy: Based on Competitive Priorities Design of Operations: Structure & Infrastructure

Reid & Sanders, Operations Management © Wiley 2002 Page 9 Design of Operations Structure: –Facilities –Flow of work –Technology Infrastructure: –Planning & control systems –Work design & compensation

Reid & Sanders, Operations Management © Wiley 2002 Page 10 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

Reid & Sanders, Operations Management © Wiley 2002 Page 11 Competing on Quality High performance design: –Superior features, high durability, & excellent customer service Product & service consistency: –Error free delivery –Close tolerances

Reid & Sanders, Operations Management © Wiley 2002 Page 12 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

Reid & Sanders, Operations Management © Wiley 2002 Page 13 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

Reid & Sanders, Operations Management © Wiley 2002 Page 14 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

Reid & Sanders, Operations Management © Wiley 2002 Page 15 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

Reid & Sanders, Operations Management © Wiley 2002 Page 16 Productivity

Reid & Sanders, Operations Management © Wiley 2002 Page 17 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

Reid & Sanders, Operations Management © Wiley 2002 Page 18 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

Reid & Sanders, Operations Management © Wiley 2002 Page 19 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

Reid & Sanders, Operations Management © Wiley 2002 Page 20 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

Reid & Sanders, Operations Management © Wiley 2002 Page 21 Productivity Growth Rate 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 )

Reid & Sanders, Operations Management © Wiley 2002 Page 22 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

Reid & Sanders, Operations Management © Wiley 2002 Page 23 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.