Organization and Management

of Productive Systems
Operations Strategy

Lecturer : Dr. Andreas Efstathiades

 Aim
The aim of the chapter is to expose students to the business strategic concepts with emphasis
on the linking between corporate and business strategies with the manufacturing and
operations strategies

Learning out comes

By the end of the chapter students should be able to:

• Describe the role of operations strategy as a source of competitive strength in a global

market place.
• Explain how to link marketing strategy to operations strategy through the use of competitive
priorities
• Provide examples of how firms use competitive priorities for competitive advantage
• Distinguish between the make to stock, make to order, standardized services, assemble to
order and customized services strategies and show how they relate to competitive priorities

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 OPERATIONS STRATEGY

Operations Strategy specifies how operations can help

implement the firms Corporate strategy. Basically Operations strategy
involves linking design decisions and production decisions.

•Continues Cross functional interaction must occur in implementing

Operations strategy

•In identifying the operational capabilities needed for the future, the
Operations Manager must work closely with the managers of other
functional areas to respond to competitive threads

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 CORPORATE STRATEGY
Defines the direction of the Organization over the long term and
determines the goals that must be achieved for the Organization to
be successful

Management sets Corporate Strategy by making three strategic choices:

•Determine the Organizations MISSION
•Monitor and adjust to changes in the ENVIRONMENT
•Identify and develop the organizations DISTINCTIVE
COMPETENCIES

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 MISSION
•What business are we in? Where should we be 10 years from now?
•Who are our customers?
•What are our basic beliefs?
•What are the key performance objectives (profits, growth,
market share) by which we measure success?

ENVIRONMENT
•The external business environment in which a firm competes changes
continually, so an organization needs to adapt to that environment
continually

DISTINCTIVE COMPETENCIES
Are unique resources and strengths that management considers when
formulating strategies
•Workforce ( flexible workforce, quality people)
•Facilities (well located facilities, offices, stores, plants)
•Market and financial know-how (Ability to adapt to market conditions,
differentiate products etc)
•Systems and technology
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 Competitive priorities: Link between Corporate Strategy and Functional Area Strategies

Socioeconomic
Market analysis
and Business
•Segmentation
environment
•Needs assessment

Corporate Strategy
•Missions
•Goals
•Distinctive competencies

Future directions Competitive priorities

•Global strategy •Cost
Capabilities
•New products/ •Quality •Current
services •Time •Needed
• Flexibility •plans

Functional area strategies

•Finance, Marketing, Operations, others
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 COMPETITIVE PRIORITIES
• Cost
(a) Low cost operations

• Quality
(a) Consistent quality
(b) High performance design

• Time
(a) Fast delivery time
(b) On-time delivery
(c) Development speed

• Flexibility
(a) Customization
(b) Volume flexibility

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 SHIFTS IN COMPETITIVE PRIORITIES

Competitive priorities for a product or service shift over time

Explanations for shifts in Competitive priorities:

•Product or service life cycles
•Entrance- Exit market strategies

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 Product or Service Life Cycles
A firm that fails to introduce new products or services periodically will eventually
decline.As a result management should continually introduce new products before
existing ones hit their peak

Introduction
Operations typically must be able to handle design changes and volume and mix
changes quickly and efficiently as the market for the product or service establishes itself
Growth
The mandate for operations is to keep up with demand and increase Output. The growth
stage is particularly difficult for a new business
Maturity
Operations must stress low cost operations or work marketing to ease the pressure by
differentiating the product or service. Product or service Differentiation at the maturity
stage can pose problems for operations because changes may be required in the way the
product or service is produced while the pressure is still on to keep costs low.
Decline
Operations must return to low volume production of the product or service

A life cycle audit determines the stage a product or service is in, based
03/25/2023on how changes in sales and profits compare to those of prior years.
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 Entrance Exit Strategies
An entrance Exit strategy is a firms choice of when to enter a market
and when to leave it.
•Enter Early and Exit Late
This strategy requires operations to switch from a low volume, flexible
production system to a high volume, low cost system.

•Enter Early and Exit Early

This strategy needs a small flexible production system that can be
adapted readily to changing products or services.Is favored by small,
product-innovative firms.

•Enter Late and Exit Late

Entering the market late helps operations avoid a transition from low
volume to high volume. For operations the task is to provide low unit
cost and maintain high output levels

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 POSITIONING (FLOW) STRATEGY
Based on the firm’s competitive priorities for its products or services
The operations manager must select a Flow (Positioning) Strategy ,
which determines how the operations system is organized to handle
the volume and variety of products or services for a specific market
Segment

Flexible flow (process focused) strategy

• A system is organized around the processes used to produce the
product or service
• Firms using a flexible flow strategy tend to produce a wide range of
customized (made to order) low volume products or services.
• different types of machines or employees are grouped to handle all
products or services requiring a specific function to be performed,
and various products or services move from one process to another

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 Line Flow (product focused) strategy
•Equipment and employees are organized around the product or service
•Fits high volume production of a few standard products and lends itself
to highly automated facilities
•All products or customers follow a linear pattern in the facility

Intermediate flow strategy

•Lies half way between the flexible flow and the line flow strategies
•Product or service volumes are relatively high, and the system must be
•Capable of handling several customer orders at a time
•In manufacturing if demand is predictable, operations can produce some
standardized products or components in advance of receiving customer
orders

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 Flow Strategy: Connection between corporate strategy and key operations
management decisions

Corporate Strategy

Future Competitive
directions Capabilities
priorities

ProductionStrategy
Flow strategy
•Flexible flows
•Intermediate flows
•Line flows

•Process decisions
•Quality decisions
•Capacity, location,
•Layout decisions
•Operating
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decisions 13
 MANUFACTURING STRATEGIES BASED ON POSITIONING STRATEGIES
Make to stock strategies
Product focus (line flows) manufacturing firms tend to use a make to stock strategy ie
firms hold items in stock for immediate delivery, thereby minimizing customer
delivery times (ie standardized products)
Examples: garden tools, electronic components, soft drinks, chemicals
The term mass production is also used to define firms using a make to stock strategy
Competitive priorities: Consistent quality, low costs

Standardized services strategy: Companies provide services with little variety in

high volumes
Competitive priorities: consistent quality, on-time delivery, low cost

Assemble to order strategy

This strategy is an approach to producing products with many options from relatively
few major assemblies and components, after customer orders are received.The
intermediate flows strategy is appropriate for this situation because high volume
components and major assemblies can be produced with a line flows strategy, whereas
components and assemblies with lower volumes can be produced with a flexible flows
strategy.
03/25/2023 Competitive priorities: Customization, FastEfstathiades
Dr. Andreas delivery times 14
 MANUFACTURING STRATEGIES BASED ON
POSITIONING STRATEGIES (cont)

Make to Order strategy

Flexible flows firms use a make to Order strategy ie Operations produces products to
customer satisfaction. This strategy provides high degree of customization
Because most products, components and assemblies are custom made, the production
process has to be flexible to accommodate the variety.
Example: Job shops
Products; specialized medical equipment, castings, etc

Customized Services Strategy

Service providers with flexible flows can utilize a customized services strategy ie they
provide highly individualized services, often in low volumes
Examples; barber shops, beauty salons, small appliance repair shops, interior
decorating services
Competitive priorities:Customization, high performance design

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 FLOW STRATEGY AND COMPETITIVE PRIORITIES
Operations managers use flow strategy to translate product or service plans and
competitive priorities for each market market segment the firm serves into decisions
throughout the operations functions that support those market segments.

Linking Flow Strategy with competitive priorities

Flexible Flows Line Flows

Tendency for customized Tendency for standardized

products and services, with products and services, with
low volumes high volumes
High performance design Consistent quality
quality
More emphasis on More emphasis on low cost
customization and volume
flexibility
Long delivery times Short delivery times
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