Chapter

1 Competing with Operations

DISCUSSION QUESTIONS

1. Answering this question demonstrates that processes underlie all of our jobs. What might
be surprising is how many students would put their job in the category of “other,”
suggesting that many jobs do not fall neatly into any one functional area. Perhaps many
in the “other” category might best be called “operations” on further reflection.
ustomers, both internal and e!ternal, are part of each process, and the goal is to manage
the processes to add the most "alue for them.

#. Ama$on.com offers a "ery broad range of ser"ices and products at competiti"e prices. %ts
competiti"e priorities would include fast deli"ery time, on&time deli"ery, customi$ation,
"ariety and low&cost operations. As a business, Ama$on.com is actually assembling a
customi$ed bas'et of goods that must be deli"ered in a short window of time in a
dependable fashion. (ow&cost operations are needed to remain competiti"e. )o remain in
business, Ama$on.com needs to maintain high "olumes of traffic. *perations strategy
must focus on stoc' a"ailability and quic', economical, and dependable deli"ery.

+. )he hospitals commitment to provide attention to patients arriving to the emergency

unit in less than 15 minutes and never to turn away patients who need to be hospitalized
implies that the facility must be designed to ha"e e!tra capacity in both beds and
emergency room facilities. %t must plan on ha"ing e!tra personnel in the emergency
room and also plan on ha"ing additional emergency personnel on call to ta'e care of
unprecedented hea"y loads. %n line with the mission statement, ma!imum utili$ation of
the facilities -i.e., beds and emergency room personnel would not be one of the
performance objecti"es for the hospital.

/. 0ed! traditionally has competed on the basis of fast, dependable deli"ery. 2efore the
boom in %nternet applications, many businesses relied on 0ed! to get things to other
businesses o"ernight. 3ow, this need is beginning to diminish as sophisticated systems
are being installed to assist companies in planning operations better. And, the internet
based companies are adding more demands for low cost ground deli"eries to specific
customer doors. 0ed!, in order to remain competiti"e with companies such as 4P5, has
mo"ed into the door&to&door deli"ery business, perhaps through acquisition.
3onetheless, it will require changes to this companys competiti"e priorities.

6. )echnology 7an agement. )o identify a mar'et seg ment, we nee d to det ermine
answers to questions such as8 Which colleges and departments currently offer the
subject9 What do instructors desire in the way of te!tboo' support9 %s there a trend
toward )echnology 7anagement courses9 Are there other )echnology 7anagement

1
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#  :AP); 1  Competing with Operations

te!ts9 5ome needs assessment can be accomplished by sur"ey, but the response rate
may be low. A high&in"estment strategy would be to as' or hire instructors to re"iew
and critique a list of topics, then an outline, then a draft. !plicit ser"ices include
supplying information about the subject in the form of a te!tboo' and instructor
support in the form of ancillary publications.

<. %t is often not a good i dea for a com pany to tr y to e! cel in all of t he competiti"e
priorities because it is generally impossible to do so. 7ediocrity is a predictable
result. )he choice and the minimum le"el of one or more of the competiti"e
priorities are set by the order qualifiers for the particular product or ser"ice. )he

choice of the
go"erned competiti"e
by the companyspriorities
strategythat the company
dri"en shouldstatement
by its mission emphasi$e
andisthe
usually
core
competencies that the company wants to harness to see' the best competiti"e
ad"antage.

=. ore processes should lin' to a fir ms core competencies. ore processes are those
processes that pro"ide the firm the best competiti"e ad"antage. ssential to the
definition a firms core processes is the concept of “interaction costs.” )hese costs
include the time and money that are e!pended whene"er people and companies
e!change ser"ices, products, or ideas. %f the transaction costs are higher to retain a
process within the firms organi$ation than to outsource the process, the process
should be outsourced.

>. Wendys assembles hamburgers to order. When materials are hel d at the stag e just
before final assembly, they can be used to complete a wide "ariety of different
sandwiches. 2ecause no finished&goods stoc' e!ists, when customers say, “:old the

sauce,”
ta'es thereand
orders is no delay or*thers
payment. waste fill
of materials.
portions of5er"ice cler's
the order. speciali$e.
*rders *ne cler'
are processed in
single file. )hroughput is normally restricted by transactions at the cash register. At
busy times, throughput is increased by splitting the bottlenec' operation. *ne cler'
ta'es customer orders, another recei"es payment. )he Wendys operation has some
characteristics of assembly. )herefore, the impact of new menu items on the
production operations must be carefully considered.

?. @randmothers hic'en.
a. athryn 5hoema'ers strategic plans include the following8
q Product and ser"ice plans8 5hould the new location offer a new mi!9
q ompetiti"e priorities8 %f the product mi! and ser"ice mi! are different at the new
location, the thrust could be on low "olumes and high quality.
q Buality management8 5hould the goal be reliability or top quality9
q Process strategy8 What processes will be needed to ma'e chic'en dinners in the
addition or new facility9
q
3ew technologies8 %s it time to automate9 %s this why there is a problem in ser"ice
times9
q apacity8 :ow large should the addition or new facility be9
q (ocation8 5hould we locate in 4niontown or e!pand in 7iddlesburg9

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b. Attitudes toward nutrition could change the demand for chic'en. ompetitors such
as 2oston 7ar'et may be planning to mo"e to 4niontown or e"en 7iddlesburg.
)here may be a trend toward demands for e"er&faster ser"ice, which cannot be
supported by the processes specified in the “unique recipe.” )he economy of
4niontown might not be supporti"e of restaurant ser"ices. 5hoema'er should also
consider the a"ailability of 'ey resources, such as ser"ers, whole chic'ens, spices,
and coo'ing oil. Will 4niontown labor organi$e9
c. )he possible distincti"e competencies at @randmothers hic'en ;estaurant include
the “unique recipe,” the homey atmosphere, and friendly, prompt ser"ice.

1E. Wild
hostileWest, is recogni$able
ta'eo"er as 452ut
in Fune, #EEE. W5),
manywhich
other was
“2abbought outare
y 2ells” by Bwes t in a
in a similar
position.
a. 5trategic plans include reducing o"erhead, reengineering operations, and in"esting in
new technologies to meet competition. )he “do&nothing” option of remaining a local
monopoly telephone company is not "iable because of competition from cable
systems and wireless systems that are capable of business and personal
communication. %f the mission is too broad, Wild West should sell its financial
ser"ices and commercial real&estate businesses. )hose businesses do not match their
distincti"e competencies.
b. *ne en"ironmental issue is whether communication, li'e health care, will be "iewed
as a “right” and therefore should be free. A significant portion of Wild Wests
business is go"erned by regulatory agencies. ustomer ser"ice in their core business
is essential to maintaining a fa"orable regulatory en"ironment. *ther business
opportunities, such as manufacturing and pro"iding information ser"ices, are
prohibited by the same court order that formed the “2aby 2ells” from A)G).

c. Wild Wests
purpose distincti"e competency
of communication. is inisconnecting
A wea'ness people
high o"erhead -or machines
inherited from thefor
erathe
of
telecommunication monopoly.

11. Although the answers may "ary depending on the “niche” elements of the business, the
competiti"e priorities would include on&time deli"ery, low&cost operations, and
customi$ation. )he latter competiti"e priority comes from the capability to assemble
unique “bas'ets” of food items for each customer. )here may be a need to
coordinate a gi"en bas'et between two different stores. apabilities to de"elop would
include information systems and Web page design, efficient scheduling of deli"ery
truc's -which must first collect the items in the bas'et and then deli"er them to the
customers door, and an adequate fleet of truc's with dri"ers.

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PROBLEMS

1. 2oehring 4ni"ersity

a. Halue of output8
students credit&hours  I#EE tuition + I1EE state support 
=6 +× ×  = class
I<=,6EE
class student  credit&hours 
Halue of input8 labor J material J o"erhead
 I#6 
I<6EE +  student ×=6 students  +I +E,E EE
= I+>,+=6 class
class
7ultifactor Producti"ity ratio8
*utput I<=,6EE
Producti"ity = = = 1.=<
%nput I+>,+=6
ompared to 5ol"ed problem 1, multifactor producti"ity has increased from
1.#6 to 1.=<.
b. Halue of output is the same as in part a8 I<=,6EE class
(abor&hours of input8
hours wee's hours
#E ×1< =
+#E
wee' class class
Producti"ity ratio8
*utput I<=,6EE
(abor Producti"ity = = = I#1E.?/ hour
%nput +#E hours

)he I1?# season tic'et price is not used in this calculation. %t is a “red herring.”
#. 5uds and Cuds (aundry
a. (abor producti"ity
Number of Input Output Output/Input
Week Workers (Labor-hours) (Shirts) Ratio
1 # #/ <> #.>+
shirtsDhour
# # /< 1+E #.>+
shirtsDhour
+ + <# 16# #./6
shirtsDhour
/ + 61 1#6 #./6
shirtsDhour
6 # /6 1+1 #.?1
shirtsDhour

b. *utput per person does not "ary much whether it is 5ud, Cud, or Fud wor'ing.
Producti"ity declines when all three are present. Perhaps there isnt enough wor' to
'eep three persons occupied, or perhaps there is not enough wor' space or
equipment to accommodate three wor'ers.

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+. ompact disc players

Halue of *utput8 I+EE
Halue of %nput8 (abor J 7aterials J *"erhead
*uput I+EE
Producti"ity = = = #.EEE
%nput I+E +I=E +I6E
1EK producti"ity impro"ement → #.EE ×11E . =# #EE
.
@i"en producti"ity = #.#E , and the "alue of output = I+EE, we sol"e for the cost of
inputs8
*uput I+EE
Producti"ity = = = #.#E
%nput %nput
I+EE
%nput = = I1+<.+< or I1+<
#.#
)he cost of inputs must decrease by (I16E − I1+< ) = I1/ .
a. A I1/ reduction in material costs is I1/ I=E = #E.EEK
b. A I1/ reduction in labor costs is I1/ I+E = /<.<=K
c. A I1/ reduction in o"erhead is I1/DI6E L #>.EEK

/. )he output of a process is "alued at I1EE per unit. )he cost of labor is I6E per hour
including benefits. )he accounting department pro"ided the following information
about the process for the past four wee's8

Week1 Week2 Week3 Week4

nits !ro"u#e" 11#/ 1+1E 1E?# ?>1
$ota% &a%ue 11#,/EE 1+1,EEE 1E?,#EE ?>,1EE
Labor (') 1#,=+6 1/,>/# 1E,<E+ ?6#<
Labor (hrs) #6/.= #?<.> #1#.1 1?E.6
ateria% (') #1,E/1 #/,6#+ #E,//# 1>,+</
Oerhea" (') >,??# 1E,/>E >,=+< =,>/>
u%tifa#tor !ro"u#tiit* #.<+ #.<+ #.=6 #.=6
Labor !ro"u#tiit* /./1 unitsDhr /./1unitsDhr 6.16 unitsDhr 6.16 unitsDhr

a. 4se the multifactor producti"ity ratio to see whether recent process

impro"ements had any effect and, if so, when the effect was noticeable.

Halue of output
11#/units × I1EE = I11#, /EE
Halue of input8 labor J material J o"erhead
I1#,=+6 J I#1,E/1 J I>,??# L I/#,=<>
Producti"ity ratio8

(abor Producti"ity = *utput

%nput

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*utput I11#, /EE

Wee' 1 Producti"ity = = = #.<#>
%nput I/#,=< >
*utput I1+1, EEE
Wee' # Producti"ity = = = #.<#>
%nput I/?,>/6
*utput I1E?, #EE
Wee' + Producti"ity = = = #.=/6
%nput I+?,=> 1
*utput I?>,1EE
Wee' / Producti"ity = = = #.=/6
%nput I+6,=+ >
#.=/6 − #.<#>
×1EEK = /./6K
#.<#>
Improe" 4+4, - noti#eab%e in Week 3
b. :as labor producti"ity changed9 4se the labor producti"ity ratio to support your
answer.
(abor&hours of input8 (abor I6EDhour
(abor costs
Wee' 1 L I1#,=+6DI6E L #6/.=
Wee' # L I1/,>/#DI6E L #?<.>/
Wee' + L I1E,<E+DI6E L #1#.E<
Wee' / L I?,6#<DI6E L 1?E.6#

Producti"ity ratio8
*utput
(abor Producti"ity =
%nput
*utput 11#/
Wee' 1 L (abor Producti"ity = = = /./1+E D hour
%nput #6/.= hours
*utput 1+1E
Wee' # L (abor Producti"ity = = = /./1+D hour
%nput #?<.>/ hours
*utput 1E?#
Wee' + L (abor Producti"ity = = = 6.1/?6 D hour
%nput #1#.E< hours
*utput ?>1
Wee' / L (abor Producti"ity = = = 6.1/?1D hour
%nput 1?E.6# h ours
6.1/?1 − /./1+E
×1EEK = 1<.<>K
/./1+E
Improe" 1.+.

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6. Alyssas ustom a'es

a.
6 2irthday ca'es ! I6E per ca'e L I#6E
# Wedding ca'es ! I16E per ca'e L I+EE
+ 5pecialty ca'es ! I1EE per ca'e L I+EE
)otal monthly re"enue L I>6E

7ultifactor producti"ity ratio L outputDinput

1.#6 L I>6ED!
5ol"e for ! L I>6ED1.#6 L I<>E
)otal costs L I<>E
A"erage cost per ca'e L I<>ED1E L I<>Dca'e
b. (abor producti"ity
2irthday ca'e L I6ED 1.6 hours L I++.+EDhour
Wedding a'e L I16ED / hours L I+=.6EDhour
5pecialty a'e L I1EED1 hours L I1EEDhour
c. 2ased on labor producti"ity, Alyssa should try to sell specialty ca'es the most.
d. Mes, Alyssa should stop selling birthday ca'es. 2ased on answ er a, she los es
I<> & I6E L I1> e"erytime she sells a birthday ca'e.

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ADVANCED PROBLEMS

<. 2ig 2lac' 2ird ompany

)he 2ig 2lac' 2ird ompany problem is based on a product made by ;a"en
%ndustries. 3one of the numbers are representati"e of actual costs or "olume.
a. 7ultifactor Producti"ity
Original Situation:
Halue of output8 (#6EE uniforms × I#EE ) = I6EE,
EEE
Halue of input8 (#6EE uniforms × I1#E ) = I+EE,
EEE
Producti"ity ratio8
*uput I6EE,EEE
Producti"ity = = = 1.<=
%nput I+EE,EEE
Overtime Situation:
Halue of output8 (/EEE uniforms × I#EE ) = I>EE,EEE
Halue of input8 (/EEE uniforms × I1// ) = I6=<,EEE
Producti"ity ratio8
*uput I>EE,EEE
Producti"ity = = = 1.+?
%nput I6=<,EEE
Producti"ity decreases by8
1.<= −1.+?
×1EEK = 1<.==K
1.<=
b. (abor Producti"ity
Original Situation:
Halue of output -from part a is8 I6EE,EEE
(abor&hours of input8 ( =E ×/E (hours
) + × +E) /E= hours /EEE hours
(abor producti"ity = I6EE,EEE /EEE hours =I1#6 hour
Overtime Situation:
Halue of output -from part a is8 I>EE,EEE
(abor&hours of input8 ( =E ×=# (hours
) + × +E) =#= hours=#EE hours
(abor producti"ity = I>EE,EEE =#EE hours =I111 hour
(abor producti"ity decreases by8
1#6 − 111
× 1EEK = 11#. K
1#6
c. @ross profits
−
Original Situation:I6EE, EEEI+EE, = EEE
EEE I#EE,
−
Overtime Situation:I>EE, EEEI6=<, = EEE
EEE I##/,
Wee'ly profits increased.

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=. 7ac's @uitar ompany

a. (abor producti"ity L outputDinput
Output L 1EE guitars ! >EK completion rate ! priceDguitar
L >E guitarsD month ! I#6EDguitar L I#E,EEE
Input
(abor L 1EDhours per guitar ! 1EE guitars L 1EEE hours
(abor producti"ity is I#E,EEED1EEE L I#EDhour
7ultifactor producti"ity ratio L outputDinput
Output L 1EE guitars ! >EK completion rate ! priceDguitar
L >E guitarsD month ! I#6EDguitar L I#E,EEE

Input
(abor L I1EDhour ! 1EDhours per guitar ! 1EE guitars L I1E, EEE
7aterial L I/EDguitar ! 1EE guitars L I/, EEE
*"erhead L I/,EEE
7ultifactor producti"ity ratio L I#E, EEEDI1>, EEE L 1.11
b. *ption 1. %ncrease sales price by 1EK
Output L 1EE guitars ! >EK completion rate ! -I#6E ! 1.1 L I##,EEE
Input
(abor is same as in part -a L I1E,EEE
7aterial is same as in part -a. L I/,EEE
*"erhead is same as in part -a L I/,EEE
7ultifactor producti"ity ratio L I##,EEEDI1>,EEE L 1.##
*ption #. %mpro"e Buality
Output L 1EE guitars ! ?EK completion rate ! I#6EDguitar L I##,6EE
Input
(abor is same as in part -a L I1E,EEE

7aterial
*"erheadisissame
sameasasininpart
part-a.
-aLLI/,EEE
I/,EEE
7ultifactor producti"ity ratio L I##,6EEDI1>,EEE L 1.#6
*ption +. ;educe costs by 1EK
Output L same as in part -a L I#E,EEE
Input
;educe costs by 1EK yields ?EK of the input costs from part -a.
L I1>,EEE ! E.?E L I1<,#EE
7ultifactor producti"ity ratio L I#E,EEEDI1<,#EE L 1.#+

Carren should choos e *ption # and impro "e quality becaus e it yields the
greatest impro"ement in multifactor producti"ity.

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1E  :AP); 1  Competing with Operations

CASE: CHAD’S CREATIVE CONCEPTSN

0+ S*nopsis
)his case describes a small furniture manufacturing company that has gained a
reputation for creati"e designs and quality by focusing on producing custom&designed
furniture. As its reputation grew it began to sell some standard furniture pieces to retail
outlets. )he o"erall growth in sales "olume and the di"ersification into the production
of standard furniture pieces ha"e caused a number of issues to arise concerning both
the internal manufacturing operations and its relationship to the other functional
areas of the company.
+ !urpose
)his case is designed to be used as either a “cold&call” case for class discussion or
an assigned homewor' reading. 7ajor points to be brought out in the discussion
include8
1. )he range of decisions that are made in designing and operating processes
#. )he impact that these operating decisions ha"e on the organi$ation as a whole, such
as on mar'eting and finance
+. )he impact that decisions made in other functional areas of the organi$ation ha"e on
the operating function
/. )he need to go beyond the “functional silo” mentality and manage in an integrati"e
manner
+ 0na%*sis

Question 1:What types of decisions must Chad homas ma!e daily for his company"s
operations to run effectively# Over the long run#

)he students should be able to discuss a number of short&term&oriented decisions

that are facing had )homas. )hese should include8
a. :ow to set priorities and schedule different orders. had is recei"ing orders for both
custom&made, low&"olume furniture pieces and higher&"olume, standard pieces.
5ales ha"e increased, but the amount of equipment and the production capacity of
the company ha"e not. Cifferent orders with different manufacturing requirements
are now competing for the same producti"e capacity.
b. What orders to accept and how long of a lead time to plan for in promising a deli"ery
date.
c. What type of wor' policies should be maintained for his employees9 Cecisions such
as the number and type of employees to employ, the number of hours to wor' per
day, and the amount of o"ertime to allow are all wor' policy decisions that impact
the a"ailable capacity le"el.

N
)his case was prepared by Cr. 2roo'e 5aladin, Wa'e 0orest 4ni"ersity, as a basis for class room
discussion.

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d. )he allocation of resources, equipment, labor, and money to each product line.
e. )he le"el of in"entory to maintain at "arious stages of the production process for
both the custom and standard furniture lines -i.e., raw material, W%P, finished goods.
)hese decisions are lin'ed to the longer&term, total in"entory&in"estment decision.
!amples of longer&term decisions that face had )homas include8
a. Amount of money to tie up in the total in"entory in"estment.
b. )he type of equipment to in"est in to support efficient production. At what point
should more speciali$ed equipment be purchased to manufacture high&"olume,
standard furniture pieces more efficiently9
c. What should be the o"erall wor'force le"el to maintain, and what should be the
proper mi! of s'ills and capabilities9
d. :ow should the facilities be laid out to accommodate the two different product
lines9 )his gets the students into a whole range of capacity and equipment
allocation decisions including si$e, type, and configuration.
%n these decisions it is important that the students see the significance of consistency of
both strategic and operating decisions across functional areas.

Question 2: $ow did sales and mar!eting affect operations when they began to sell standard
pieces to retail outlets#

5tandard furniture pieces compete on a different set of competiti"e priorities than

custom&designed pieces. )imely deli"ery and low costs are much more important than
product fle!ibility. Buality may also be defined differently. )he e!isting facilities are set
up to pro"ide fle!ibility with its job&shop orientation and general&purpose equipment.
2y introducing a standard line that should be manufactured on a flow line with some
dedicated, more speciali$ed equipment, a conflict has de"eloped, and scheduling
problems ha"e resulted.

Question 3: $ow has the move to producing standard furniture pieces affected the financial
structure of the company#

%n"entory in"estment and operating costs are rising because of the frequent changeo"ers
to accommodate the two different product lines and their scheduling conflicts.
Profit margins for the standard line are smaller, which puts pressure on
manufacturing to increase producti"ity and reduce costs. )here may also be an issue
concerning the assignment of o"erhead costs to each product line.
0inally, the potential need to rent warehouse space to store either W%P or finished&goods
in"entory cuts into the profit margin for the standard furniture line.

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1#  :AP); 1  Competing with Operations

Question 4: What might Chad homas have done differently to help avoid some of these
problems#
had needs to address issues relating to functional areas. 7a'e sure the student is able
to identify decisions that relate to more than one functional area. !amples include the
following8
Operations %unction
1. 7onitoring capacity and utili$ation of facilities
#. 0ormulating in"entory policiesOdollars, items, and unit le"els
+. 5etting scheduling policies and pri orities
/. 7aintaining product line quality
&ar!eting and Sales
1. Accurately forecasting orders for standard pieces
#. Cefining mar'et segments and customer needs
+. Cetermining what deli"ery schedules can be promised to customers
%inance
1. Ceciding le"el and type of in"estment
#. %n"estigating the effect of capacity in"estment decisions on ;*%
'istribution()ogistics
1. 7anaging distribution and pi peline in"entory
#. omparing cost and ad"antages of "arious transportation modes
+. 7eeting deli"ery lead times

)hree possible a"enues that students may focus on are8 )homas might ha"e
a. stablished a plan for a more controlled growth. Part of this plan would be the
de"elopment of the appropriate infrastructure to manage a controlled growth as to
what mar'ets to enter, what product lines to de"elop, and how to de"elop the proper
manufacturing capabilities.
b. 7aintained the company focus on custom&designed furniture only. )his alternati"e
presents a whole different set of issues and decisions pertaining to future growth, but
it would ha"e a"oided the issues of mi!ed competiti"e priorities and scheduling
conflicts.
c. ;eali$ed the different requirements for each product line and focused the
manufacturing facilities into two separate sets of production facilities designed to

cater to each product lines specific needs.

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+ Re#ommen"ations
)his case is not designed to be a decision&ma'ing case per se but rather a "ehicle to
get students thin'ing about the types and the integrated nature of decisions that
operations managers face. )he students may, indeed, ha"e suggestions as to what should
be done to help out had )homas. )hese recommendations will more than li'ely follow
the alternati"es already discussed. As recommendations are pro"ided by students, ma'e
sure you push them to understand the implications of their recommendations with
respect to the company as a whole and the other functional areas.

+ $ea#hin5 Strate5*

)his case can

questions be effecti"ely
pro"ided discussed
at the end. )he in #E to +Eare
questions minutes by following
interconnected andthe discussion
somewhat
redundant on purpose to reinforce the interrelatedness of decisions made in "arious
functional areas of the company. )he intent is to ha"e the students understand the range
of decisions that face managers in the operating function and to reali$e that different
types of products competing in different mar'ets place different demands on the
operating function. )herefore, producti"e systems will ta'e on a "ariety of
configurations.
!hibit )3.1 lays out a sample table to be written on the board displaying important
issues in the class discussion. ach column can be used to compare and contrast the
differences in the requirements imposed by custom "ersus standard furniture for each
area.

EXHIBIT TN.1 Board Plan

ImportantIssues ustom6urniture Stan"ar"6urniture

7ar'eting
Buality le"el and quality control
Process equipment
Process flow
Production scheduling system
Purchasing
)ype of in"entory and in"entory
control system
)ype of engineering
)ype of labor and super"ision
needed

WageDreward system
(ayout

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1/  :AP); 1  Competing with Operations

CASE: BSB INC!: Pi""a #ars Come to Camp$s

N

0+ S*nopsis
252, %nc. presents the situation where launching a pi$$a ser"ice at a food ser"ice
operation on a college campus turns out to be "ery successful. As the manager of the
food ser"ice operation is contemplating an e!pansion of the ser"ice, an announcement
by the uni"ersity that a new food court will soon be opening in the new student union
causes some concern. )he new food court will contain, for the first time on campus,
other food ser"ice companies, including a new Pi$$a :ut 'ios'. )his causes the manager
of 252, %nc. to ree"aluate the competiti"e en"ironment and her own competiti"e
priorities.

+ !urpose
252, %nc. pro"ides the students an opportunity to discuss a number of strategically
focused issues to include the following8
1. &ission statements: 7ission statements describe the fundamental purpose for which
the organi$ation e!ists. )he uni"ersity decided that a focus on food ser"ice
operations was not part of its primary mission, so it contracted the ser"ice out to
252, %nc. 5tudents should be able to describe a mission statement for 252, %nc. )his
statement will help in discussing the second major focus of this case.
#. Comparison of competitive priorities: When the pi$$a ser"ice was launched a
year ago, the competiti"e priorities were to e!pand the product line to offer
pi$$a that could be deli"ered quic'ly at a reasonable price. osts were 'ept low,
and turnaround time was short due to the limi ted combination of toppings
a"ailable.
With the addition of the food court and Pi$$a :ut on campus, competiti"e priorities
may change. Celi"ery may still be a differentiating competiti"e priority, but product
fle!ibility -"ariety and "olume fle!ibility -large order si$es may become more
important. 252, %nc. may not be able to compete on low cost when compared to
Pi$$a :uts operations.
+. he impact changing competitive priorities has on operating decisions:5tudents
need to discuss the potential impact that different competiti"e priorities ha"e on
process design and operating systems. %f product fle!ibility and "olume fle!ibility
become more important, then there are implications for8
a. quipment needsOcon"entional o"en "ersus continuous chain dri"e
b. apacity requirementsOorder si$e and deli"ery cycle
c. %n"entory issuesOin"entory needed to support product fle!ibility
/. *roduct life cycles: Cemand for pi$$a on campus has le"eled off. Why9 :as it
reached its mature, steady state9 What will be the impact of new competition9 What

can be done
be as'ed to reposition
of students pi$$atointo
to get them a growth
thin' stage9product
about pi$$as )hese life
are cycle.
questions that should

N
)his case was prepared by Cr. 2roo'e 5aladin, Wa'e 0orest 4ni"ersity, as a basis for class room
discussion.

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+ 0na%*sis
A good analysis of the situation can be performed by going through the fi"e questions at
the end of the case. )he following is what you can e!pect from a first&year 72A student
gi"en the case as a ta'e&home assignment to read and to respond to the questions at the
end.

Question 1: 'oes +S+, Inc-en.oy any competitive advantages or

distinctive competencies#

252s competiti"e ad"antage is close pro!imity to the customers. )hough /+ percent of

meals are eatenthe

pi$$a deli"ery off close
campus, 6= percent
pro!imity of meals
is critical, asare
it still
allowseaten
for atquic'er
252s deli"ery.
facilities.%n
0or
addition, deli"ery can be done at a lower cost because bi'es can be used.
252s distincti"e competencies are the location of facilities and mar'et 'now&how.
2eing on campus, 252 can pro"ide deli"ery ser"ice quic'er and at a lower cost. %n
addition, by being on campus, 252 is closer to the customer base, which allows
ershaw, the manager, to be more 'nowledgeable of her customers needs. 5he employs
en"ironmental scanning, such as the customer sur"eys, to 'eep abreast of her mar'et.

/uestion 0: Initially, how did enee 2ershaw choose to compete with her pizza operations#
What were her competitive priorities#

%nitially, ershaw chose to compete on deli"ery ser"ice and price. 5he used quic'
deli"ery as a 'ey selling point. %n addition, without a reasonable price, she could not
compete with the off&campus pi$$a companies. %n effect, her order qualifier was price,
and her order winner was ser"ice.
:er initial competiti"e priorities for pi$$a were deli"ery speed and price. :er on&campus
location and limited standard toppings ma'e these priorities possible. 4nfortunately, this
policy limits the "ariety of pi$$as a"ailable. )he increased requests for additional
topping combinations and the le"eling of sales suggest this policy may be hurting 252.

Question 3:What impact will the new food court have on 2ershaw"s pizza operations# What
competitive priorities might she choose to focus on now#

)he new food court introduces new competition that has the same on&campus ad"antage
as 252. %n addition, these companies can also pro"ide products at reasonable prices, but
unli'e 252, they ha"e brand names. :er direct competitor, Pi$$a :ut, can probably
pro"ide a similar price. 7ost li'ely Pi$$a :ut will also ha"e limited "arieties howe"er,
252 still maintains its deli"ery ad"antage.
)he most li'ely new competiti"e priorities for 252 will be e!panded product "ariety
and longer
interest ser"ice and
in "ariety, hours.
the)he increased
e!panded requests
hours for alternate
will enable 252 totoppings showwhen
offer ser"ice a customer
the
Pi$$a :ut is closed or when students are in their dorm rooms.

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1<  :AP); 1  Competing with Operations

Question 4: If 2ershaw were to change the competitive priorities for the pizza operation,
what are the gaps between the prioriti
es and capabilities of her process#$ow might this
impact her operating processes and capacity decisions#

An increase in product "ariety will affect both ser"ice and cost. ershaw probably
cannot ha"e as many premade pi$$as ready to throw into the o"en. 5he will also need to
stoc' additional toppings. %f she wants to maintain ser"ice, she will need to hire
additional wor'ers. 5he will ine"itably ha"e some trade&off between ser"ice and price if
she adds product "ariety.
ershaw will also need to add capacity. At present, she is near capacity with her pi$$a
o"ens. 5he may e"en ha"e to consider a new location, as there seems to be limited space
at the grill location. learly she will need to determine the "iability of pi$$a ser"ice
before she ta'es this step.

Question 5:Can you outline a service strategy for 2ershaw"s operation on campus#

%f she chooses to stay in the pi$$a business, deli"ery will remain important. 0ood, most
li'ely pi$$a, deli"ered from off campus, is a significant competitor. )hese competiti"e
companies li'ely offer many pi$$a combinations. )herefore, 252 will need to increase
"ariety to remain competiti"e. )he 'ey to this strategy is to maintain quality and to
inno"ate on product offerings. ershaw must use her pro!imity to the customer to
maintain her competiti"e ad"antage in determining their pi$$a deli"ery needs.
)he other strategy would be total price competition
. )his would require her to 'eep the
limited menu and to push to 'eep costs at a bare minimum. 4nfortunately this means
maintaining the same basic strategy she has now. :owe"er, this strategy will most li'ely
lead to an ine"itable decline in mar'et share. )his strategy seems best if she decides to
e!it the mar'et, but it gi"es her the opportunity to mil' the mar'et before e!iting.
%n re"iewing the student responses the instructor should note the following8
1. *n question three, the student o"erloo's the continued importance of con"enient,
quic' deli"ery. )he other food ser"ices do not pro"ide this ser"ice.
#. 5tudents tend to hedge on question fi"e. )hey should be pressured into putting
together a ser"ice strategy as opposed to describing alternati"e choices only.
)here are a number of positions ershaw may ta'e. What is important, howe"er, is to
loo' for consistency in the strategies that students pro"ide.

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+ $ea#hin5 Strate5*
)his case is best assigned as a ta'e&home assignment. :a"e the students focus on
responding to the questions at the end of the case. )ell them to pay particular attention to
the last question. )he first four questions all lead up to the last one where students
should describe a ser"ice strategy for pi$$a operations of 252, %nc. )ell students you
want them to settle on a specific strategy they can support.
%n class, start with the first question and cycle through to the final question, which
describes their ser"ice strategies. %t is helpful to try to get two or three different strategies
on the board to compare and contrast approaches. %t is important that students see that
there are a number of good alternati"e strategies and not just one best one.
A thorough discussion of this case will ta'e /6 minutes to an hour, especially
if alternati"e strategies are discussed.

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