OPERATIONS MANAGEMENT INTEGRATING MANUFACTURING AND SERVICES FIFTH EDITION Mark M. Davis Janelle Heineke Copyright ©2005, The McGraw-Hill Companies, Inc. PowerPoint Presentation by Charlie Cook, The University of West Alabama

CHAPTER PowerPoint Presentation by Charlie Cook Copyright © 2005 The McGraw-Hill Companies. All rights reserved. Operations Strategy Defining how firms compete 2

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–3 CHAPTER OBJECTIVES Introduce the concept of operations strategy and its various components, and show how it relates to the overall business strategy of the firm. Illustrate how operations strategy leads to adding value for the customer. Identify the ways operations strategy can help an organization achieve a competitive advantage. Introduce the concept of trade-offs among different strategies and the need for a firm to align its operations strategy to meet the needs of the particular markets it serves.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–4 CHAPTER OBJECTIVES Explain the difference between order-qualifiers and order- winners as they pertain to operations strategy. Describe how firms integrate manufacturing and services to provide an overall “bundle of benefits” to their customers.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–5 Managerial Issues Developing and Implementing Effective Strategies –Meeting the challenges of increased competition in a globalized business environment. –Keeping up with technology advances. –Learning to do more with less. –Staying ahead of copycat competitors. –Keeping an eye on the future.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–6 Operations Strategy – An Overview A Short History of Operations Strategy –Corporate strategy largely developed by marketing and finance functions within companies. Lack of global competitors and competition Focus on low-cost labor and assembly-line production –Wickham Skinner believed that operations (manufacturing) strategy was a complement to corporate strategies and a competitive weapon.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–7 Operations Strategy Means Adding Value for the Customer “Value is in the eye of the beholder” What affects customer perceptions of value? If benefits exceed costs, the customer perceives value for the product or service. (2.1) (2.2)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–8 Maximizing Value Added in Operations Exhibit 2.1

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–9 Operations Strategy Means Adding Value for the Customer (cont’d) How to add value: –Reduce product costs to customer. –Make the product more readily available. –Provide faster service. –Provide customers with additional relevant information. –Customize the product to the customer’s specific needs.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–10 Trends Affecting Operations Strategy Decisions Globalization –Global village with hyper-competition: Continuous information technology advances Lower trade barriers Lower transportation costs Emergence of newly industrialized countries (NIC) with high-growth markets and high standards of living

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–11 Trends Affecting Operations Strategy Decisions (cont’d) Technology –Connectivity—anyone, anywhere, all the time –Speed—instantaneous transactions –Intangibility—focus on innovative services to gain competitive advantage Simultaneous Competition on Multiple Competitive Priorities –No traditional trade-offs of priorities

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–12 The Generic Strategy Model Competitiveness –A company’s position in the marketplace relative to its competition. Competitive Priorities –How the operations function provides a firm with a competitive advantage. –Priorities—Low cost, high quality, fast delivery, flexibility, and service.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–13 The Generic Strategy Model (cont’d) Competitive Priorities

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–14 The Next Sources of Competitive Advantage? Two New Trends –Environmentally friendly processes and products –The use of information Large quantities data can now be accurately stored and transmitted inexpensively. Competitive advantage can be gained through products and services that provide enhanced levels of feedback.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–15 The Generic Strategy Model (cont’d) Critical Success Factors –The activities, conditions, or other deliverables that are necessary for the firm to achieve its business goals. Distinctive (Core) Competency –An exceptional capability that creates a preference for a firm and its products or services in the marketplace, enabling it to achieve a leadership position over time. Matching distinctive competencies to critical success factors creates sustainable competitive advantage.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–16 Generic Strategy Model Exhibit 2.2

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–17 The Generic Strategy Model (cont’d) Corporate strategy –Overall strategy adopted by the firm that defines the specific businesses in which the firm will compete and the way in which resources are acquired and allocated. Corporate Business Functional Operational

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–18 The Generic Strategy Model (cont’d) Strategic Business Unit (SBU) –A stand-alone business within a conglomerate (parent firm) that operates like an independent company. Business Unit Strategy –How a strategic business unit (SBU) addresses the specific markets it serves and products it provides.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–19 The Generic Strategy Model (cont’d) Functional Strategies –Strategy developed by a function (e.g., marketing) within an organization to support the business strategy. Operations Strategy –How the operations function contributes to competitive advantage.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–20 The Generic Strategy Model (cont’d) Structural Operations Strategy Decisions –Location: where do we locate them? –Capacity: how big do we make the facilities? –Vertical integration: which part of the supply chain do we choose to control ourselves? –Process technology: what type of process(es) do we install to make the products?

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–21 The Generic Strategy Model (cont’d) Infrastructural Operations Strategy Decisions –Workforce: whom do we hire? –Quality management: how will we define, measure and monitor quality in the organization? –Policies and procedures: how will we define how work will be performed and how decisions will be made? –Organization structure: what hierarchical structure will we choose for the organization?

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–22 Operations Strategy and Trade-Offs Factory Focus and Trade-offs –A factory could not focus on all four competitive priorities (cost, quality, delivery, and flexibility). Focusing performance on one priority limits/eliminates the ability to focus on another priority. Plant-within-a-Plant (PWP) concept (Skinner) –Different locations with a facility would focus on their own competitive priority.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–23 Operations Strategy and Trade-Offs (cont’d) Questioning the Trade-Offs –World-class operations led to the establishment of a hierarchy among the competitive priorities. Increased competitive capabilities led to increased performance on all priorities by all competitors. Focus shifted from cost minimization to maximizing the value added. –Customer value is enhanced by the focus on multiple priorities.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–24 Time Line for Operations Strategies Exhibit 2.3

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–25 Example of Trade-Offs on Superior Performance Curves Exhibit 2.4

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–26 Order Qualifiers and Order Winners Order Qualifiers –The minimum characteristics of a firm or its products that a firm must have to be considered as a source of purchase. Order Winners –Characteristics of a firm that distinguish it from its competition so that it is selected as the source of purchase. ISO-9000 certification

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–27 Distinguishing between Order-Qualifiers and Order-Winners Exhibit 2.5

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–28 Contemporary Issues in Operations Strategy: Focusing on Core Capabilities –Specific strengths that allow a company to achieve its competitive priorities and to differentiate itself from its competitors. –Focusing is achieved by: Divesting non-critical activities. Subcontracting ancillary activities and services Integrating Manufacturing and Services –Creating a total package of good and services to better address the overall needs of customers.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2–29 Approaches for Integrating Manufacturing and Services Demonstration of Knowledge and Expertise –Reassuring customers by allowing them to view the production process and have access to production employees. Customer Training –Providing product training to customers to build product loyalty and increased use of products.