BM1 – OPERATIONS MANAGEMENT (TOTAL QUALITY MANAGEMENT)

II – OPERATIONS STRATEGY

The purpose of operations in terms of an organization’s strategy has often been seen
as supportive, whereas functions such as marketing provide a competitive edge. Operations
can, however, provide the basis of a firm’s competitive strategy. The purpose of an
operations strategy is to interpret the overall business strategy, which will be concerned
with goals such as growth and profitability, into goals that direct how operations will be
managed.

STRATEGY LEVEL FOCUS

Corporate What business are we in?

Business How do we compete?

Functional Determining functional strategies to meet business strategy

Strategy – the direction and scope of an organization over the long term, ideally, which
matches its resources to its changing environment and in particular its markets, customers,
or clients so as to meet stakeholder expectations.

MEASURING THE CONTRIBUTUION OF OPERATIONS TO STRATEGY

The Performance Objectives

1. Quality covers both the quality of the design of the product or service itself and the
quality of the process that delivers the product or service. From a customer
perspective, quality characteristics include reliability, performance and aesthetics.
From an operations viewpoint, quality is related to how closely the product or service
meets the specification required by the design, termed the quality of
conformance.
The advantages of good quality on competitiveness include:
a. Increased dependability
b. Reduced costs
c. Improved customer service
2. Speed is the time delay between a customer request for a product or service and
then receiving that product or service. The activities triggered from a customer
request for a product or service will be dependent on whether a make-to-stock or
 customer-to-order delivery system is in place. The advantage of speed is that it can
be used to both reduce costs and reduce delivery time leading to better customer
service.

3. Dependability refers to consistently meeting a promised delivery time for a product

or service to a customer. Dependability can be measured by the percentage of
customers that receive a product or service within delivery time promised.
Dependability leads to better customer service and lower cost.

4. Flexibility is the ability of the organization quickly to change what it does. This can
mean the ability to offer a wide variety of products and services to the customer and
to be able to change these products or service quickly. Flexibility is needed so the
organization can adapt to changing customer needs in terms of product range and
varying demand to cope with capacity shortfalls due to equipment breakdown or
component shortage.
The benefit of flexibility from the customer’s point of view is that it speeds up
response by being able to adapt to customer needs. The ability of the internal
operation to react to changes will also help maintain the dependability objective.

5. Cost is the finance required to obtain the inputs (transforming and transformed
resources) and manage the transformation process that produces finished goods and
services. Cost is also important for a strategy of providing a product or service to a
market niche, which competitors cannot provide. The major categories of cost are
staff, facilities (including overheads) and materials.

Internal and External Benefits of the Performance Objectives

Performance Internal (operations)
External (market) benefits
Objectives benefits
Quality Error-free processes Satisfying customer needs
Dependability Minimizes disruption Meeting delivery commitments
Get products and services to
Speed Minimizes throughput
customers fast
Offer frequent new
products/services, a wide
Flexibility Able to react to change product/service range and cope
with changing volume and
delivery requirements
Market share and/or high
Cost High productivity from low cost
margin
OPERATIONS STRATEGY APPROACHES

For most of the 20th century, market conditions were characterized by a mass-
production era with an emphasis on high-volume and low-cost production. Operations
strategy was characterized by improving efficiency through aspects such as achieving a high
utilization of equipment and having a closely supervised workforce undertaking standardized
operations. This perspective was challenged by a new approach from Japan – lean
operations. Here the emphasis was not on low cost and high volume but on operations
providing capabilities in areas such as reliability, speed and flexibility. This was achieved
through such aspects as training staff in problem solving, using general purpose equipment
for flexibility and eliminating waste in all its forms.
Neither the “mass” approach nor the “lean” approach can be seen as a strategy in
itself in that, to be successful, an operations strategy should support the competitive
advantage being pursued by the business strategy.

Market-Based Approach to Operations Strategy

Customer
Needs
Competitive Factors
Market
Position
Competitor
Action

Resource-Based Approach to Operations Strategy

Processes

Performance Objectives
Operations
Capability

Resources
REFLECTING OPERATIONS STRATEGY ISSUES IN CORPORATE DECISIONS

1 2 3 4 5
How do you Operations Strategy
Corporate Marketing qualify and win Delivery
Infrastructure
Objectives Strategy orders in the System
Choice
marketplace Choice
Function
Price support
Product/service Quality Operations
Choice of
markets and conformance planning and
Sales revenue various delivery
segments Delivery: speed, control systems
growth systems
Range reliability Quality
Survival Trade-offs
Mix Demand increases assurance and
Profit embodied in
Volumes Colour range control
Return on these choices
Standardization Product/service Systems
investment Make-or-buy
vs range engineering
Other decisions
customization Design leadership Clerical
financial Capacity: size,
Level of Technical support procedures
measures timing, location
innovation supplied Payment
Environmental Role of
Leader vs Brand name systems
targets inventory in the
follower New products and Work
delivery system
alternatives services – time to structuring
market Organizational
structure