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Subject Code: BAOPNMAX

Subject Title: Operations Management and Total Quality Management

Subject Description:
This course tackles the nature, scope, functions and importance of
production and operations management in business. It includes
discussions on productivity, competitiveness and strategy,
forecasting, production system design, process selection and
capacity planning, facilities layout, design of work systems, quality,
scheduling and just-in-time manufacturing systems. Cases will also
be used to illustrate and apply the basic production and operations
concepts and tools commonly used in business firms. Total Quality
Management will familiarize students with the basic principles and
methods associated with Total Quality and Performance Excellence,
how these principles and methods have been put into effect in a
variety of organizations, and to illustrate the relationship between
principles and theories in the study of business courses especially
programs that discusses managing of people and industry.

No. of Units: 3

Class Schedule: ACT102: Face-to-Face: Saturday 8:00am – 12:00pm

Course Learning Outcomes:

At the end of the course, the student will be able to:
1. Analyze the importance of quality management towards cost reduction. Report on project
management and its importance.
2. Demonstrate how to design goods and services and how managing quality may provide
competitive advantage.
3. Evaluate the relevance of leadership, human management and supply-chain management
to sustainability.
4. Assess the strategic importance of inventory management, maintenance, and decisions
related to processes, location and layout/facility.

About the Instructor:

PROF. MARK ANTHONY R. LAZARO, LPT, MBA
● Professional Lecturer 4 – National University – Baliwag – December 2022 to Present
● Administrative Payroll Specialist – Philippine Airlines, 2016 to Present
● Licensed Professional Teacher – October 2022
● Master in Business Administration – Baliuag University, 2022
● Continuing Professional Teacher Education (CPTE) – Baliwag Polytechnic College, 2019
● Bachelor of Science in Accountancy – Baliuag University, 2015
● Bachelor of Science in Business Administration, Baliuag University, 2013

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Topic 2
Operations Strategy
Objectives:
▪ Explain how organizations seek to gain competitive advantage.
▪ Explain approaches for understanding customer requirements.
▪ Describe how customers evaluate goods and services.
▪ Explain the five key competitive priorities.
▪ Explain the role of OM and operations strategy in strategic planning.
▪ Describe Hill’s framework for operations strategy.
Gaining Competitive Advantage
Competitive advantage denotes a firm’s ability to achieve market and financial superiority over
its competitors.
Creating competitive advantage requires:
1. Understanding customer needs and expectations and how the value chain can best meet
these through designing and delivering customer benefit packages.
2. Building and leveraging operational capabilities to support desired competitive priorities.

Understanding Customer Wants and Needs

• Order qualifiers are basic customer expectations generally considered the minimum
performance level required to stay in business.
• Order winners are goods and service features and performance characteristics that
differentiate one customer benefit package from another and win the customer’s business.

Evaluating Goods and Services

• Search attributes are those that a customer can determine prior to purchasing the goods
and/or services.
• These attributes include things like color, price, freshness, style, fit, feel, hardness, and
smell.
• Experience attributes are those that can be discerned only after purchase or during
consumption or use.

• Examples are friendliness, taste, wearability, safety, fun, and customer satisfaction.
• Credence attributes are any aspects of a good or service that the customer must believe
in but cannot personally evaluate even after purchase and consumption.
• Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax
advisor, or the accuracy of tax preparation software.

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 Exhibit 2.1 How Customers Evaluate Goods and Services

Customers evaluate services in ways that are often different from goods, such as:

▪ Customers seek and rely more on information from personal sources than from non-
personal sources when evaluating services prior to purchase. Operations must ensure that
accurate information is available.
▪ Customers perceive greater risks when buying services than when buying goods. Because
services are intangible, customers cannot look at or touch them prior to the purchase
decision.

These insights help to explain why it is more difficult to design services and service
processes than goods and manufacturing operations.

Competitive Priorities
Competitive priorities represent the strategic emphasis that a firm places on certain performance
measures and operational capabilities within a value chain.
Key competitive priorities are:
• Cost
• Quality
• Time
• Flexibility
• Innovation

Competitive Priority – Cost

• Almost every industry has a low price market segment. Examples include Honda Motor
Co., Marriott's Fairfield Inns, Merck-Medco On-line Pharmacy, Southwest Airlines, and
Walmart.
• Low cost results from high productivity, high capacity utilization, and economies of scale.
Continuous improvement is essential to achieve a low-cost competitive advantage.

Competitive Priority – Quality

PIMS Associates, Inc., a subsidiary of the Strategic Planning
Institute, found that:
• Businesses offering premium quality goods usually have large market shares and were
early entrants into their markets.

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 • Quality is positively and significantly related to a higher return on investment for almost
all kinds of market situations.
• A strategy of quality improvement usually leads to increased market share, but at a cost in
terms of reduced short-run profitability.
• High goods quality producers can usually charge premium prices.

Exhibit 2.2 Interlinking Quality and Profitability Performance

Competitive Priority – Time

• Time is perhaps the most important source of competitive advantage.
• Customers demand quick response, short waiting times, and consistency in performance.
• Many firms use time as a competitive weapon to create and deliver superior goods and
services, such as Charles Schwab, CNN, Dell, and FedEx.
• Speeding up work processes improves customer response. Deliveries can be made faster,
and more often on-time.
• Time reductions can only be accomplished only by streamlining and simplifying processes
and value chains to eliminate non-value-added steps such as rework and waiting time.
• Time reductions also drive improvements in quality, cost, and productivity.

Competitive Priority – Flexibility

• Success in global markets requires both design and demand flexibility. Flexibility is
manifest in mass customization strategies.
• Mass customization is being able to make whatever goods and services the customer
wants, at any volume, at any time for anybody, and for a global organization, from any
place in the world.

Examples:
• Sign-tic company signs that are uniquely designed for each customer from a standard base
sign structure
• Business consulting
• Levi’s jeans that are cut to exact measurements
• Personal Web pages
• Estate planning
• Motorola pagers customized in different colors, sizes, and shapes

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 • Personal weight training programs
• Modular furniture that customers can configure to their unique needs and tastes

Competitive Priority – Innovation

• Innovation is the discovery and practical application or commercialization of a device,
method, or idea that differs from existing norms.
• Innovative companies focus on outstanding product research, design, and development;
high product quality; and the ability to modify production facilities to produce new
products frequently.

Solved Problem
• Define the customer benefit package for a health club or recreation center and use this to
describe the organization’s strategic mission, strategy, competitive priorities, and how it
wins customers.
Example Solution
• Mission: The mission of our health club is to offer many pathways to a healthy living style
and body.
Strategy: We strive to provide our customers with superior:
• Ways to improve and maintain your body and mind’s health and well-being.
• Friendly professional staff that care about you.
• Clean facilities, equipment, uniforms, parking lot, food service, and the like.
• Customer convenience (location, food, communication, schedules, etc.).

Competitive Priorities:
1. Many pathways to healthy living and a healthy body (design flexibility)
2. Friendly professional staff and service encounters (service quality)
3. Everything is super-clean (goods and environmental quality)
4. Customer convenience in all respects (time)
5. Price (cost)

How to win customers? Providing a full-service health club with superior service, staff, and
facilities.

Strategic Planning

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 • Strategy is a pattern or plan that integrates an organization’s major goals, policies, and
action sequences into a cohesive whole.
• Effective strategies develop around a few key competitive priorities, such as low cost or
fast service time, which provide a focus for the entire organization and exploit an
organization’s core competencies (the strengths unique to that organization).
• Strategic planning is the process of determining long-term goals, policies, and plans for
an organization.
• The businesses in which the firm will participate are often called strategic business units
(SBUs), and are usually defined as families of goods or services having similar
characteristics or methods of creation.
• Strategy is the result of a series of hierarchical decisions about goals, directions, and
resources.

Three Levels of Strategy

1. A corporate strategy is necessary to define the businesses in which the corporation will
participate and develop plans for the acquisition and allocation of resources among those
businesses.
2. A business strategy defines the focus for SBUs. The major decisions involve which
markets to pursue and how best to compete in those markets; that is, what competitive
priorities the firm should pursue.
3. A functional strategy is the set of decisions that each functional area—marketing,
finance, operations, research and development, engineering, and so on—develops to
support its particular business strategy.

Operations Strategy
• The operations strategy defines how an organization will execute its chosen business
strategies.
• Developing an operations strategy involves translating competitive priorities into
operational capabilities by making a variety of choices and trade-offs for design and
operating decisions.

Pal’s Sudden Service

Vision—To be the preferred quick service restaurant in our market achieving the largest market
share by providing:

• The quickest, friendliest, most accurate service available

• A focused menu that delights customers
• Daily excellence in product, service, and systems execution
• Clean, organized, sanitary facilities
• Exceptional value

What kind of an operations strategy might Pal’s have? How can operations help achieve this
vision?

Sustainability and Operations Strategy

• Sustainability is an organizational strategy in many firms and requires major changes in
the culture of an organization.
• Many companies pursue sustainability through their operations.
− Example: Dell, Inc. Design for Environment initiative to control raw material
acquisition, manufacturing processes, and distribution programs while linking
green policies with consumer use and disposal.

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A Framework for Operations Strategy
Operations design choices are the decisions management must make as to what type of process
structure is best suited to produce goods or create services.
• Types of processes and alternative designs
• Supply chain integration and outsourcing
• Technology
• Capacity and facilities (size, timing, location)
• Inventory
• Trade-off analysis

Infrastructure focuses on the non process features and capabilities of the organization and
includes the workforce, operating plans and control systems, quality control, organizational
structure, compensation systems, learning and innovation systems, and support services.

Exhibit 2.3 Hill’s Strategy Development Framework

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Exhibit 2.4 Four Key Decision Loops in Terry Hill’s Generic Strategy Framework

Operations Strategy at McDonald’s

• McDonald's vision is to be the world's best quick service restaurant experience.
Being the best means providing outstanding quality, service, cleanliness, and
value, so that we make every customer in every restaurant smile. To achieve our
vision, we focus on three worldwide strategies:
(1) Be the Best Employer
(2) Deliver Operational Excellence
(3) Achieve Enduring Profitable Growth

Four sustainability initiatives:

• Build a sustainable McDonald’s that involves all facets of our business.
• Commit to a three-pronged approach—reduce, reuse, and recycle.
• Strive to provide eco-friendly workplaces and restaurants.
• Work with suppliers and outside experts to continuously improve
purchasing decisions and evaluation of supplier performance regarding
animal welfare.

Exhibit 2.5 McDonald’s Customer Benefit Package

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Exhibit 2.6 Applying Hill’s Strategy Development Framework to McDonald’s (slide 1)

Exhibit 2.6 Applying Hill’s Strategy Development Framework to McDonald’s (slide 2)

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Sustainable Lawn Care Case Study
1. Define Lawn Care’s current strategic mission, strategy, competitive priorities, value chain,
and how it wins customers. What are the order qualifiers and winners? Draw the major
stages of the value chain with and without an application service.
2. What problems, if any, do you see with Lawn Care’s current strategy, vision, customer
benefit package and value chain design, and pre- and post-services?
3. Redo questions (1) and (2) and provide a new or revised strategy and associated customer
benefit package and value chain that is more appropriate for today’s marketplace. What
does operations have to be good at to successfully execute your revised strategy?
4. What are your final recommendations?

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