Chapter 2 - Operations Strategy and Competitiveness

Operations Management R. Dan Reid & Nada R. Sanders 2nd Edition Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH by

Wiley 2005

Learning Objectives

Define the role of Business Strategy Explain how a Business strategy is developed Explain the role of Operations Strategy Explain the relationship between Business and Operations strategy Describe how an Operations strategy is developed Identify competitive priorities for Operations function Explain the strategic role of technology Define and compute productivity measures
Wiley 2005 2

The Role of Business Strategy

Defines the long-range plan to compete in the marketplace Helps to differentiate the firm from competitors Game plan upon which functional strategies are developed Focuses on doing the right tasks
Wiley 2005 3

Business/Functional Strategy

Wiley 2005

Three Inputs to a Business Strategy

Wiley 2005

Examples from Strategies

Mission: Dell Computer- to be the most successful computer company in the world Environmental Scanning: political trends, social trends, economic trends, market place trends, global trends Core Competencies: strength of workers, modern facilities, market understanding, best technologies, financial know-how, logistics
Wiley 2005 6

Operations Strategy Designing the Operations Function

Wiley 2005

Competitive Priorities- The Edge

Four Important Operations Questions: Will you compete on Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?
Wiley 2005 8

Competing on Cost?

Typically high volume products Often limit product range & offer little customization May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts

Wiley 2005

Competing on Quality?

High performance design:

Superior features, high durability, & excellent customer service

Product & service consistency:

Meets design specifications Close tolerances Error free delivery

Wiley 2005

10

Competing on Time?

Fast delivery:

Focused on shorter time between order placement and delivery

On-time delivery:

Deliver product exactly when needed every time

Rapid development speed

Using concurrent processes to shorten product development time

Wiley 2005

11

Competing on Flexibility?

Product flexibility:

Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer

Volume flexibility:

Ability to ramp production up and down to match market demands

Wiley 2005

12

Are There Priority Tradeoffs?

Which priorities are Order Qualifiers? e.g. Must have excellent quality since everyone expects it Which priorities are Order Winners? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonalds competes on consistency FedEx competes on speed Custom tailors compete on flexibility Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it

Wiley 2005

13

Translating to Production Requirements

Dell Computer example structure & infrastructure

They focus on customer service, cost, and speed ERP system developed to allow customers to order directly from Dell Product design and assembly line allow a make to order strategy lowers costs, increases turns Suppliers ship components to a warehouse within 15 minutes of the assembly plant - VMI Dell set up a shipping arrangement with UPS
Wiley 2005 14

Strategic Role of Technology

Technology should support competitive priorities Three Applications: New product technology, process technology, and information technology

Products - Teflon, CDs, fiber optic cable Processes flexible automation, CAD

Information Technology POS, EDI, ERP, B2B

Wiley 2005

15

Measuring Productivity

Productivity is a measure of how efficiently inputs are converted to outputs

Productivity = output/input

Total Productivity Measure

Total Productivity = $sales/inputs $

Partial Productivity Measure

Partial Productivity = cars/employee

Multifactor Productivity Measure

Multi-factor Productivity = sales/total $costs

Wiley 2005 16

Productivity, Competitiveness, and the Service Sector

A nations Productivity effects its standard of living Productivity is a measure of how effectively resources are used US productivity growth averaged 2.8% from 1948-1973 Productivity growth slowed for the next 25 years to 1.1% Productivity growth in service industries has been less than in manufacturing
Wiley 2005 17

Chapter 2 Highlights

Business Strategy is a long range plan. Functions develop supporting plans Strategy must address mission, environment, and core competencies Business strategy provides a guide for designing operations strategy Operations strategy must consider which competitive priorities are essential to meet business objectives

Competitive priorities are cost, quality, time, and flexibility Companies must consider which product, process, and information technologies to use Productivity measures how effectively a firm is using resources Productivity is computed as a ratio of outputs divided by inputs

Wiley 2005

18

The End

Copyright 2005 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.

Wiley 2005

19