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Chapter 2
Operations Strategy and Competitiveness

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OBJECTIVES
Operations Strategy Competitive Dimensions Order Qualifiers and Winners Strategy Design Process A Framework for Manufacturing Strategy Service Strategy Capacity Capabilities Productivity Measures
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Competitive strategy is about being different.
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The essence of STRATEGY is to perform activities differently than rivals
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STRATEGY :
a. Operations Effectiveness b. Customer Management c. Product Innovation

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a.

Operations Effectiveness
:relates to the core business process - Customer Order - Handling returns - Manufacturing - Managing Website - Shipping Products

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b. Customer

management

:relates to better understanding and leveraging customer relationships For example: segmenting customers

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c.

Product Innovation
- development of a new product - markets - relationship

To sustain growth

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Operations Strategy
Strategy Process
Customer Needs

Example
More Product

Corporate Strategy

Increase Org. Size

Operations Strategy

Increase Production Capacity

Decisions on Processes and Infrastructure
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Build New Factory
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Process Design :
±Technology ±Sizing the process over time ±Inventory ±Locating the process

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Infrastructure :
±Planning and Control System ±Quality Assurance and Control Approaches ±Work Payment ±Organization
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Competitive Dimensions
Cost or Price
± Make the Product or Deliver the Service Cheap

Quality
± Make a Great Product or Deliver a Great Service

Delivery Speed
± Make the Product or Deliver the Service Quickly

Delivery Reliability
± Deliver It When Promised

Coping with Changes in Demand
± Change Its Volume

Flexibility and New Product Introduction Speed
± Change It

Other Product-Specific Criteria
± Support It
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Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training Flexibility personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
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Cost

Delivery Quality

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Order Qualifiers and Winners Defined Order qualifiers are the basic criteria that permit the firm¶s products to be considered as candidates for purchase by customers Order winners are the criteria that differentiate the products and services of one firm from another
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Service Breakthroughs
A brand name car can be an ³order qualifier´

y

Repair services can be ³order winners´
Examples: Warranty, Roadside Assistance, Leases, etc.

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Strategy Design Process
Strategy Map
Financial Perspective

What it is about!
Improve Shareholder Value

Customer Perspective

Customer Value Proposition

Internal Perspective

Build-Increase-Achieve

Learning and Growth Perspective

A Motivated and Prepared Workforce
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Kaplan and Norton·s Generic Strategy Map
In the Kaplan and Norton¶s Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components:

1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital
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Kaplan and Norton·s Generic Strategy Map (Continued)
In the Kaplan and Norton¶s Generic Strategy Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components:

1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company
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Kaplan and Norton·s Generic Strategy Map (Continued)
In the Kaplan and Norton¶s Generic Strategy Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace:

1. Product leadership 2. Customer intimacy 3. Operational excellence

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Kaplan and Norton·s Generic Strategy Map (Continued)
In the Kaplan and Norton¶s Generic Strategy Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning:

1. Strategic competencies 2. Strategic technologies 3. Climate for action

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Southwest¶s Strategy

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No delay

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Many passangers
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No commission
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Cut the time to get on and off the board

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Take care of employees = best services to customers
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Operations Strategy Framework
Customer Needs

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New product : Old product

Competitive dimensions & requirements

Quality, Dependability, Speed, Flexibility, and Price

Enterprise capabilities Operations andSupplier capabilities Operations & Supplier Capabilities R&D R&D Technology Systems Technology Systems
Support Platforms Financial management Human resource management Information management

People People

Distribution Distribution

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Steps in Developing a Manufacturing Strategy
1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements

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Service Strategy Capacity Capabilities
Process-based
±

Capacities that transforms material or information and provide advantages on dimensions of cost and quality Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand Capacities that are difficult to replicate and provide abilities to master new technologies

Systems-based
±

Organization-based
±

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What is Productivity? Defined
Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

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Total Measure Productivity
Total Measure Productivity = Outputs Inputs

or
= Goods and services produced All resources used

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Partial Measure Productivity
Partial measures of productivity =
Output or Output or Output or Output
Labor Capital Materials Energy

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Multifactor Measure Productivity
Multifactor measures of productivity = Output
Labor + Capital or + Energy

.

Output
Labor
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+ Materials

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Example of Productivity Measurement
You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. Is productivity increasing or decreasing?
Answer: Last week¶s productivity = 480/2000 = 0.24, and this week¶s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.
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Problem
7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.20
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Solution
MFP = Output Labor + Materials + Overhead (7040 units)*($1.10) $1000 + $520 + $2000 2.20

MFP = MFP =

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2004
Output Sales value of production Input Labor Raw materials and supplies Capital equipment depreciation Other

2005

$22,000 $35,000 $10,000 $15,000 $ 8,000 $12,500 $ 700 $ 1,200 4,800

$ 2,200 $

Compute the labor, raw materials and supplies, and total Productivity of 2004 and 2005.
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Solution
2004 2005

Partial productivities Labor 2.20 2.33 Raw materials and 2.75 2.80 supplies Total productivity
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1.05 1.04
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Question Bowl
An operations strategy is concerned with which of the following? a. Setting specific policies and plans b. Short-term competitive strategies c. Coordination of operational goals d. All of the above e. None of the above Answer: c. Coordination of operational goals
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Question Bowl
Typically a strategy breaks down into what major components? a. Operations effectiveness b. Customer management c. Production innovation d. All of the above e. None of the above Answer: d. All of the above
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Question Bowl
A criterion that differentiates the products and services of one firm from another can be which of the following? a. An order qualifier b. An order winner c. PWP d. KPI e. None of the above

Answer: b. An order winner
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Question Bowl
A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? a. An increase in productivity from Day 1 to Day 2 b. A decrease in productivity from Day 1 to Day 2 c. The same productivity from Day 1 to Day 2 d. Can not be computed from data above e. None of the above Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)
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Question Bowl
In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer? a. How do customers see us? b. What must we excel at? c. How can we continue to improve and create value? d. All of the above e. None of the above

Answer: d. All of the above
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End of Chapter 2

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