© Wiley Chapter 2 Operations Strategy and Competitiveness Operations Management by R. Dan Reid & Nada R. Sanders 2 nd Edition © Wiley 2005 PowerPoint Presentation by R.B. Clough - UNH

© Wiley Learning Objectives Know what a mission statement is. Define a business strategy Explain how a Business strategy is developed Explain the role of operations strategy Explain the relationship between Business and Operations strategy Describe how an Operations strategy is developed Identify competitive priorities for the Operations function Explain the strategic role of technology Define and compute productivity measures

© Wiley Mission Statement Explains What business the organization is in Who the customers are How the company's values will determine what the company does A mission statement explains what the organization will do.

© Wiley Business Strategy Explains how the organization will achieve its mission Long-range plan to compete in the marketplace Explains how the firm will differentiate itself from competitors Sets competitive priorities Basis for functional strategies

© Wiley Business Strategy and Functional Strategies

© Wiley Functional Strategies Marketing Operations Finance Management information systems Human resources management

© Wiley Three Inputs to a Business Strategy

© Wiley Strategy Development (1) Environmental scanning The objective is to identify opportunities and threats from outside the company The company looks at trends in the business environment Often includes global trends

© Wiley Trends in the Business Environment (1) Technology Economic trends Demographic and social trends Political trends Legal and regulatory trends

© Wiley Trends in the Business Environment (2) Customer demands Competitor strategies Suppliers Business practices

© Wiley Internal Analysis The firm identifies strengths and weaknesses inside the company Core competencies: unique strengths that can be used for competitive advantage Weaknesses: problems that the firm must fix to be competitive and meet customer expectations

© Wiley Operations Strategy Designing the Operations Function

© Wiley Operations Strategy Explains how Operations will help the company achieve its competitive priorities Must be consistent with other functional strategies

© Wiley Order Qualifiers & Order Winners Order qualifiers are characteristics that a product must have to be considered for purchase Order winners are characteristics that a product must have to make the sale. Both depend on the target market. Both change over time. If most competing products have a certain characteristic, it is likely to become an order qualifier.

© Wiley Competitive Priorities in Operations Product characteristics that can be order qualifiers & order winners. Cost Quality Time Flexibility

© Wiley Competing on Cost Typically high volume products Often limited product range & little customization If volume is high,the firm may invest in automation to reduce unit costs Can use lower skilled labor Probably use product focused layout (flow shop) Example: assembly line

© Wiley Competing on Quality High performance design: Superior features, high durability, & excellent customer service Product & service consistency: Meets customer requirements in its market Close tolerances (product is made according to the design) Error free service and delivery Process quality: Designing and operating a process to produce error-free products Essential for firms that compete on quality Reduces operating costs for any firm – "doing it right the first time" reduces costs and keeps customers

© Wiley Competing on Time Fast delivery: Reduce time between order placement and delivery On-time delivery: Deliver product exactly when needed every time Rapid new product development: Shorten new product development time

© Wiley Competing on Flexibility Product flexibility: Can customize product to customer needs Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer Volume flexibility: Ability to increase or decrease production to match market demands

© Wiley Product-service Bundle Meeting the needs of a target market What are the order qualifiers? What are the order winners? These dictate your competitive priorities. Product characteristics that are not order winners or qualifiers may not be needed (tradeoffs).

© Wiley Are There Priority Tradeoffs? Which priorities are “Order Qualifiers”? e.g. High performance design and process quality are required in some markets Which priorities are “Order Winners”? e.g. Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility Can you have both consistent quality and low cost? e.g. Yes, Coke and Pepsi are good examples Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it

© Wiley Translating Strategy to Production Requirements Dell Computer Competitive priorities: customer service, cost, and speed Operations structure Products are designed to be assembled from standard components Dell makes computers, not components – reduces capital costs Products are assembled to order – no finished goods inventory Assembly line – low-cost production, high total volume

© Wiley Translating to Production Requirements Dell Computer (2) Operations infra-structure Customers can place orders online. A management information system generates part orders and schedules production Just-in-time production Suppliers ship components to a warehouse within 15 minutes of the assembly plant Vendor-managed inventory: suppliers own the parts until they are delivered to the assembly plant UPS provides shipment with guaranteed delivery times Monitors are delivered separately by their manufacturers.

© Wiley Strategic Role of Technology Technology should support competitive priorities Technology includes both equipment and methods Product technology: product characteristics and performance DVD's, high-definition television, PDA's Process technology: how the product is made Just-in-time, automation, fast food process Information Technology: allows users to create, collect, process, store, and transmit information Internet, point of sale systems, management information systems, communication networks