© 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 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 Process may be designed to use low-skilled labor Often uses product focused layout (assembly line)

© Wiley Ways to Compete on Product Quality High performance design: Superior features, high durability, and excellent customer service Product or service consistency: Meets customer requirements in its market Close tolerances (product is made according to the design) Error free service and delivery

© Wiley 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 Ways to Compete 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 Ways to Compete on Flexibility Product flexibility: Must be able to easily switch production from one item to another May customize product to customer needs Volume flexibility: Ability to increase or decrease production to match market demands

© Wiley Competitive Priorities 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. The company cannot be all things to all customers. Choices (tradeoffs) must be made.

© Wiley Translating Strategy to Production Requirements Dell Computer Dell's 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 Strategy to Production Requirements Dell Computer (2) Operations infra-structure Customers can place orders online. A management information system generates part orders and schedules production UPS provides shipment with guaranteed delivery times Monitors are delivered separately by their manufacturers.

© Wiley Translating Strategy to Production Requirements Dell Computer (3) Operations infra-structure (continued) 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.

© Wiley Strategic Role of Technology Technology should support competitive priorities Product technology: product characteristics and performance PDA's, hybrid vehicles, stain-resistant fabric, package tracking, e-commerce

© Wiley Strategic Role of Technology (2) Process technology: how the product-service bundle is produced Includes both equipment and methods Often includes information technology Just-in-time, automation, fast food process, self- service checkout, bar-code scanners

© Wiley Strategic Role of Technology (3) Information technology: allows users to create, collect, process, store, and transmit information Internet, point of sale systems, management information systems, communication networks

© Wiley Productivity Productivity = output input Single factor productivity measures Labor productivity = units produced labor hours Machine productivity = units produced machine hours

© Wiley Productivity (2) Multifactor productivity = units produced _ cost of selected inputs Total productivity = units produced _ cost of labor, materials, equipment, and energy Total productivity = ___________1____________ cost per unit

© Wiley Productivity (3) When productivity increases, cost per unit decreases Track trends in productivity Compare your firm with industry averages Low demand often reduces productivity People and equipment may be idle Productivity measures efficiency, which is not always the most important competitive priority

© Wiley Productivity in Services Productivity is often hard to measure. Demand varies at different times of the day and on different days of the week Affects numbers of employees needed Efforts to maintain very high productivity can increase the time that customers wait.