OPERATIONS STRATEGY AS

THE LINK TO THE DESIGN

OF THE PRODUCTION
SYSTEM

LECTURE 2(a)

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 Business Strategy and OM: OS as
the Link
Marketplace

Business Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

Resources &
DESIGN OF THE TRANSFORMATION Goods &
Customers PROCESS Services

Input Output

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 Concept of Business Strategy
▪Business strategy is the long-range game plan
of an organization and provides a road map of
how to achieve the business goals
▪Strategy
➢A common vision which provides direction for action
in an organization.
➢Provides consistency in decisions, and keeps the
organization moving in the right direction
➢Disciplined Thinking & Planning
➢Communication
➢Organization Building

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 Concept of Operations Strategy
• Operations strategy must be consistent with
and “supportive” of the business strategy
▪Concerned with setting broad policies and plans
for using the resources(Transformation
Process) of the firm that support the overall
SBU strategy
1. Design of the process(DOM 304)
• defining the overall tangible shape and
architecture of the production process (e.g.,
capacity, technology type)
2. Supporting the production process
• planning & control, inventory management,
capacity management, and supply chain
management.
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 Operations Strategy - Defined
▪Operations strategy must be consistent
with and “supportive” of the business
strategy
▪Boyer & Lewis (2002)
➢operations strategy is defined with reference
to competitive priorities which are quality,
delivery, cost and flexibility.
▪Defined on the basis of Competitive
Priorities(Market Requirements)
▪ Cost
▪ Quality
▪ Delivery
▪ Flexibility

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 Competitive Priorities
▪Distinctive competences of a given
good/service or its producing firm that
causes the buyer to purchase it rather than
the similar product of a competitor
➢It is generally accepted that the distinctive
competencies are cost/price, quality, flexibility,
and delivery/time
➢Use the example of a cellphone
▪Competitive Priorities have major
implications in the design of the production
system

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 Competitive Priorities Link
Business and Operations Strategy
Market
Analysis Business strategy Future Directions
(Mission, goals, (new products, global
Business core competencies) strategic decisions)
environment

Competitive priorities
(cost, quality,
delivery, flexibility)

Capabilities Assessment
(Current, needed, and Operations strategy
planned) (Resources and processes)

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 Strategic
Reconciliation

Production • MARKETS
OPERATIONS
Resources & • Competitive
STRATEGY
Capabilities Priorities

• Operations strategy reconciles the requirements of

the business with the capabilities of production
resources
• It is about reconciling the competitive priorities to the
market needs

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 1. Competitive Priority of Cost
▪This entails offering a product on a low price
as compared to competing products
➢A low-cost strategy can bring a higher profit
margin.
➢Wanting to do things cheaply
▪Aiming to give good value at a low cost and
still achieve a satisfactory return
▪Design production systems that will produce
cheaply(low cost)

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2. Competitive Priority of Quality
▪Wanting to satisfy customers by providing
products which are ‘fit for their purpose’
➢Doing things right
▪To achieve quality businesses focus on the
measure of quality which their customer
views as important.
▪Design production systems that will produce
the quality as demanded by the customers

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 3. Competitive Priority of Reliability
▪Doing things on time and in a reliable manner
➢Keeping the delivery promises which have been
given to your customers
▪Delivering products to the customers as soon
as they would like them
▪Design production systems that will provide
for high reliability

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 4. Competitive Priority of Flexibility
▪Capability of a firm to meet/exceed
customer expectations through managing
both uncertainty and resources
➢Being able to change what you do to satisfy
changed requirements; to cater for unexpected
requirements
▪To compete based on flexibility, a firm needs
to be able to manage environmental
uncertainty
▪Design production systems that will provide
for hogh flexibility

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Implications of Competitive Priorities
in the Design of Production Systems
1. Design production systems that will produce
cheaply(low cost)
2. Design production systems that will produce
the quality as demanded by the customers
3. Design production systems that will provide
for high reliability
4. Design production systems that will provide
for high flexibility

• QUESTION: Is it Possible TO DESIGN ONE

PRODUCTION SYSTEM to meet all the above
market requirements?
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 Is it Possible to Design One
Production System to Meet All the
Possible Market Requirements?
▪In his seminal article, Wickham Skinner
(1969) of HBS first warned manufacturing
firms that a production system inevitably
involves trade-offs and compromises
▪Within this initial theoretical construct, any
production system must be designed to
perform well in limited set of tasks
▪ Within this operational strategic construct, an
organization has to decide on the areas of
emphasis on which they wish to excel
▪ Hence the concept of Tradeoffs
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 Competitive Priorities and their
Indicators
• Cost
✓Low-cost operations
Efficiency
• Quality
✓Customer pleasing designs
✓Consistency
• Delivery
✓Fast delivery times
Effectiveness
✓On-time, reliable deliveries
✓Product Development speed
• Flexibility
✓Design Customization
✓Volume flexibility

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Setting Priorities: Tradeoffs?

Cost

Can you
Delivery have it Quality
all?

Flexibility

▪ Are these priorities tradeoffs or

independent?

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Implications of Skinner’s Tradeoffs -
The Focused Factory
▪A focused factory is a highly efficient
manufacturing facility that is designed to
create a limited set of products at minimal
cost and a high rate of throughput
➢The focused factory does a better job because
repetition and concentration in one area allows
its work force and managers to become
effective and experienced in the task required
for success
▪The focused factory is manageable and
controllable.

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 OS and Implications for OSD
Cost

Traditional
Flexibility Delivery
Approach
Quality
Plant within a Plant (PWP)
World Class Organizations FOCUS FOCUS

Advanced Approaches
FOCUS FOCUS
Trade-offs
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 Order-winning and Order-qualifying
Criteria
• Coined by Terry Hill, at the London Business
School
• The terms "order winners" and "order
qualifiers" were coined by Terry Hill,
professor at the London Business School
➢ Refer to the process of how internal operational
capabilities are converted to criteria that will lead
to competitive advantage and market success.
• Terry Hill emphasized the interactions and
cooperation between Production and marketing

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 Order-winning and Order-qualifying
Criteria
• Production managers are responsible for
providing the order-winning and order-
qualifying criteria—identified by
marketing—that enable products to win
orders in the marketplace.
➢This process starts with the business strategy
and ends with the criteria that either keeps the
firm in the running (i.e., order qualifiers) or wins
the customer's business.
▪Implications for OSD
➢Build manufacturing capabilities by providing the
minimum for the OQs and maximizing on OWs

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