Chapter 2 - Operations

Strategy and Competitiveness

Operations Management
by
R. Dan Reid & Nada R. Sanders

4th Edition © Wiley 2010

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The Role of Operations
Strategy
 Provide a plan that makes best use of
resources which;
 Specifies the policies and plans for using
organizational resources
 Supports Business Strategy as shown on
next slide

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Business/Functional Strategy

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Importance of Operations
Strategy
 Companies often do not understand the
differences between operational
efficiency and strategy
 Operational efficiency is performing tasks
well, even better than competitors
 Strategy is a plan for competing in the
marketplace
 Operations strategy is to ensure all
tasks performed are the right tasks
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Developing a Business
Strategy
 A business strategy is developed after
taking into many factors and following
some strategic decisions such as;
 What business is the company in (mission)
 Analyzing and understanding the market
(environmental scanning)
 Identifying the companies strengths (core
competencies)

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Three Inputs to a Business Strategy

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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

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Developing an Operations
Strategy
 Operations Strategy is a plan for the
design and management of operations
functions
 Operation Strategy developed after the
business strategy
 Operations Strategy focuses on specific
capabilities which give it a competitive
edge – competitive priorities

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Operations Strategy – Designing
the Operations Function

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Competitive Priorities- The Edge
 Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
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Competing on Cost?
 Offering product at a low price relative to competition
 Typically high volume products
 May invest in automation to reduce unit costs
 Can use skilled labor
 Probably use product focused layouts
 Low cost does not mean low quality

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Competing on Quality?
 Quality is often subjective
 Quality is defined differently depending on who is
defining it
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent customer service

 Product & service consistency:

 Meets design specifications
 Close tolerances
 Error free delivery
 Quality needs to address
 Product design quality – product/service meets requirements
 Process quality – error free products

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Competing on Time?
 Time/speed one of most important
competition priorities
 First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:
 Focused on shorter time between order placement and delivery
 On-time delivery:
 Deliver product exactly when needed every time

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Competing on Flexibility?
 Company environment changes rapidly
 Company must accommodate change by being
flexible
 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

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The Need for Trade-offs
 Decisions must emphasis priorities that support business strategy
 The concept of a strategic trade-off has been a controversial issue
in operations management. For example, in the 1970s it was
widely accepted that a cost/quality trade-off and a flexibility/cost
trade-off existed in the automotive industry. Cheaper cars were of
lower quality and high quality cars were expensive. Cheap cars
came with no options and expensive cars had many options. This
was challenged in the 1980s when markets witnessed the arrival of
Japanese cars, which were available in more versions with more
options, were of better quality, and were also cheaper! ...


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Technology for Competitive
Advantage
 Technology has positive and negative
potentials
 Positive
 Improve processes
 Maintain up-to-date standards
 Obtain competitive advantage
 Negative
 Costly
 Promotes dependency
 Risky
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Technology for Competitive
Advantage
 Technology should
 Support competitive priorities
 Can require change to strategic plans
 Can require change to operations strategy

 Technology is an important strategic

decision

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 Measuring Productivity
 Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

 Total Productivity Measure:

Total Productivity = (total output)/(total of all inputs)

 Partial Productivity Measure:

Partial Productivity = (total output)/(single input)

 Multifactor Productivity Measure:

Multi-factor Productivity = (total output)/(several inputs)

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Total Productivity: example
Bluegill Furniture makes kitchen chairs. The weekly
dollar value of its output, including finished goods
and work-in-progress, is $14,280. The value of inputs
(labor, materials, capital) is approximately $16,528.
What is the total productivity measure for Bluegill?

Total productivity = output/input

= $14,280/$16,528 = .864 or 86.4%

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Partial Productivity: example
Bluegill Furniture has hired 2 new workers to paint
chairs. Together they have painted 10 chairs in 4
hours. What is labor productivity for the pair?

Labor productivity = output/labor

= (10 chairs)/(2 x 4 hr)

= (10 chairs)/(8 hr) or 1.25 chairs/hr

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Multifactor Productivity: example
Bluegill Furniture averages 35 chairs/day. Labor costs
average $480, material costs are typically $200, and
overhead cost is $250. Bluegill sells the chairs to a
retailer for $70/unit. Find multifactor productivity.
Multifactor productivity =
(value of output)/(labor + material + overhead costs)

= ($70/chair x 35 chairs)/(480+200+250)
= ($2450)/($930) or 2.63

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Review of Learning Objectives
 Define the role of Business Strategy
 Explain how a Business strategy is developed
 Explain the role of Operations Strategy in
the organization
 Explain the relationship between business
strategy and operations strategy
 Describe how an operations strategy is
developed

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Review of Learning Objectives
 Identify competitive priorities for of the
operations function
 Explain the strategic role of technology
 Define productivity and identify
productivity measures
 Compute productivity measures

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Chapter 2 Highlights
 Business Strategy is a long range plan and vision. Each
individual business function develop needs to support
the business strategy
 An organization develops its business strategy by doing
environmental scanning and considering its mission and
its core competencies.
 The role of operations strategy is to provide a long-
range plan for the use of the company’s resources in
producing the company’s primary goods and services.
 The role of business strategy is to serve as an overall
guide for the development of the organization’s
operations strategy.

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 Chapter 2 Highlights
 The operations strategy focuses on developing specific
capabilities called competitive priorities.
 There are four categories of competitive priorities: cost,
quality, time, and flexibility
 Technology can be sued by companies to gain a
competitive advantage and should be acquired to support
the company’s chosen competitive priorities
 Productivity is a measure that indicates how efficiently an
organization is using its resources
 Productivity is computed as the ratio or organizational
outputs divided by inputs

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