1. OPERATIONS MANAGEMENT for MBAs Fourth Edition
Meredith and Shafer
Prepared by:
Al Ansari
Seattle University
John Wiley and Sons, Inc.
Chapter 1: Operations Strategy

2. Operations Strategy and Global Competitiveness
Chapter 1
Operations Strategy
and
Global Competitiveness
Chapter 1: Operations Strategy

3. Introduction
Chapter 1: Operations Strategy

4. McDonald’s Corp Facing Increased Competition
Smarter and More Demanding Customers
Less Brand Loyal
Switched to hamburger bun that does not require toasting.
Customers prefer taste of new bun
Saves time and money
Chapter 1: Operations Strategy

5. Olympic Flame 10,000 runners 15,000 miles through 42 states in 84 days
Two years of planning
Must plan for no-show runners and rush hour traffic
Cost of this operation in the neighborhood of $20 million
Chapter 1: Operations Strategy

6. Kmart Versus Wal-Mart Both chains started in 1962
In 1987, Kmart had 2,223 stores to Wal- Mart’s 1,198.
Kmart’s sales were $25.63 billion to Wal- Mart’s $15.96 billion
By 1991, Wal-Mart’s sales exceeded Kmarts
Kmart still had more stores
Chapter 1: Operations Strategy

7. Kmart Versus Wal-Mart continue
In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion.
During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns).
Wal-Mart was investing millions in its operations to lower cost.
Chapter 1: Operations Strategy

8. Kmart Versus Wal-Mart continue
Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system.
Kmart’s employees lacked skills needed to plan and control inventory.
Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to percent.
Wal-Mart's increased from 20.1 percent to percent
Chapter 1: Operations Strategy

9. Kmart Versus Wal-Mart continue
Fast forward to 2004
Kmart appears to have adopted a new strategy
Merge with Sears, Roebuck & Co.
Potential synergies between Kmart’s convenient locations and Sears’ strong brands
Chapter 1: Operations Strategy

10. General Motors Highly competitive automobile Industry
Market share eroding
Rebate strategy
Weakness in product offerings (8 brands) Toyota (2 brands)
Long lead time to redesign
What is a sustainable market share?
Chapter 1: Operations Strategy

11. Flat Panel TVs Large profit margins ($8 billion 2004)
Asian manufacturers (LG Electronics and Royal Philips, Sony and Samsung, and Matsushita)
North America’s Dell
Chapter 1: Operations Strategy

12. Operations Heart of every organization
Operations are the tasks that create value
Chapter 1: Operations Strategy

13. Diversity and Importance of Operations
Improvements in operations can simultaneously lower costs and improve customer satisfaction.
Improving operations often dependent on advances in technology.
Can obtain competitive advantage by improving operations.
Diversity of Operations
Chapter 1: Operations Strategy

14. The Production System
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15. Systems Perspective Inputs Transformation System Outputs Environment
Alter
Transport
Store
Inspect
Outputs
Environment
Chapter 1: Operations Strategy

16. Inputs
Inputs include facilities, labor, capital, equipment, raw materials, and supplies.
A less obvious input is knowledge of how to transform the inputs into outputs.
The operations function quite frequently fails in its task because it cannot complete the transformation activities within the required time limit.
Chapter 1: Operations Strategy

17. Transformation System
The part of the system that adds value to the inputs.
Four major ways
Alter
Transport
Store
Inspect
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18. Outputs Two types of outputs commonly result from a production system
Services (physical goods)
Products (abstract or nonphysical)
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19. Chapter 1: Operations Strategy

20. Facilitating Good Concept
Often confusion in trying to classify organization as manufacturer or service
Facilitating good concept avoids this ambiguity
All organizations defined as service
The tangible part of the service is defined as facilitating good
Pure Services
Chapter 1: Operations Strategy

21. The Range From Services to Products
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22. Chapter 1: Operations Strategy

23. Operations Activities
Strategy
Output Planning
Capacity Planning
Facility Location
Facility Layout
Aggregate Planning
Inventory Management
Materials Requirements Planning
Scheduling
Quality Control
Chapter 1: Operations Strategy

24. Defining and Measuring Quality
Conformance to specifications
Performance
Quick response
Quick-change expertise
Features
Reliability
Durability
Serviceability
Aesthetics
Perceived quality
Humanity
Value
Chapter 1: Operations Strategy

25. Mass Customization
Seek to produce low-cost, high-quality outputs in high variety.
Not all products lend themselves to being customized (Ex. Sugar, gas, electricity, and flour).
Is applicable to products characterized by short life cycles, rapidly advancing technology, or changing customer requirements.
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26. Chapter 1: Operations Strategy

27. Four Mass Customization Strategies
Collaborative customizers
Adaptive customizers
Cosmetic customizers
Transparent customizers
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28. Collaborative Customizers
These organizations establish a dialogue to help customers articulate their needs and then develop customized outputs to meet these needs. For example, one Japanese eyewear retailer developed a computerized system to help customers select eyewear. The system combines a digital image of the customer's face and then various styles of eyeware are displayed on the digital image. Once the customer is satisfied, the customized glasses are produced at the retail store within an hour.
Chapter 1: Operations Strategy

29. Adaptive Customizers
These organizations offer a standard product that customers can modify themselves such as closet organizers. Each closet-organizer package is the same, but includes instructions and tools to cut the shelving and clothes rods so that the unit can fit a wide variety of closet sizes.
Chapter 1: Operations Strategy

30. Cosmetic Customizers
These organizations produce a standard product but present it differently to different customers. For example, Planters packages its peanuts and mixed nuts in a variety of containers on the basis of specific needs of its retailing customers such as Wal-Mart, 7- Eleven, and Safeway.
Chapter 1: Operations Strategy

31. Transparent Customizers
These organizations provide custom products without the customers’ knowing that a product has been customized for them. For example, Amazon.com provides book recommendations based on information about past purchases.
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32. Dependability and Speed
The competitive advantages of faster, dependable response to new markets or to the individual customer's needs have only recently been noted in the business media.
Americans spend more time and money on marketing, whereas the Japanese spend five times more than the Americans on developing more efficient production methods.
Chapter 1: Operations Strategy

33. Relationship Between Response Time and Unit Cost
Chapter 1: Operations Strategy

34. Strategy
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35. Core Competencies
Collective knowledge and skills an organization has that distinguish it from the competition.
Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services.
Building blocks of core capabilities.
Chapter 1: Operations Strategy

36. Core Competencies continue
Are basis on which new outputs are developed.
Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products.
Identifying and developing core competencies is one of top management’s most important roles.
Organization practices and business processes
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37. Examples of Core Competencies
Sony - miniaturization
3M- knowledge of substrates, coatings and adhesives
Black and Decker - small electrical motors and industrial design
Honda - engines and power trains
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38. Vision and Mission Statements
Vision statements used to express organization’s values and aspirations.
Mission statements express organization’s purpose or reason for existence.
Chapter 1: Operations Strategy

39. Strategic Frameworks
Chapter 1: Operations Strategy

40. The Life-Cycle Curve
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41. Product Life Cycle Strategies often tied to product life cycle
Length of life cycles shrinking
Business strategy should match life cycles stages
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42. Categories of Business Strategies
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43. First-to-Market Strategy
Products available before competition
Strong applied research capability needed
Can set high price to skim market or set lower price to gain market share
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44. Second-to-Market Strategy
Quick imitation of first-to-market companies
Less emphasis on applied research and more emphasis on development
Learn from first-to-market’s mistakes
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45. Cost Minimization or Late-to-Market Strategy
Wait until market becomes standardized and large volumes demanded
Compete on basis of costs instead of product features
Research efforts focus on process development versus product development
Chapter 1: Operations Strategy

46. Market Segmentation Serving niche markets
Applied engineering skills and flexible manufacturing processes needed
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47. Example Performance Frontier
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48. New Technology Results in Shift of Performance Frontier
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49. Focus Stressing one key business value .
the key value at Hewlett-Packard is developing new products
Sticking to what the know best. Define core capabilities (strengths) and then build on them.
Chapter 1: Operations Strategy

50. Key Characteristics of Core Competencies/Capabilities
Should be used to gain access to a variety of markets
Should be strongly related to key benefits provides by products or services
Should be difficult to imitate
Chapter 1: Operations Strategy

51. Order Qualifiers and Winners
Order qualifiers are characteristics that are the ante to enter the market
Order winners are characteristics that win the customer’s purchase
Chapter 1: Operations Strategy

52. Product Life Cycle Stages and Emphasis
Chapter 1: Operations Strategy

53. The Sand Cone Model
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54. Reasons to Produce Offshore
Circumvent governmental regulations
Avoid effects of currency fluctuations
Avoid fees and quotas
Placate local customers
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55. Outsourcing
Subcontracting out production of parts or performance of activities
Activities and parts fall on a continuum ranging from strategically unimportant to strategically important
Activities not strategically important are candidates to be outsourced
Chapter 1: Operations Strategy

56. Hollowed Out
The extent that most of a firm’s complex parts and production are outsourced
Often when complex parts outsourced, engineering talent follows
Supplier may become competitor
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57. Copyright
Copyright 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Adopters of the textbook are granted permission to make back-up copies for their own use only, to make copies for distribution to students of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Chapter 1: Operations Strategy