1. Operations Strategy: Defining How Firms Compete
DAVIS
AQUILANO
CHASE
PowerPoint Presentation by
Charlie
Cook
F O U R T H E D I T I O N
chapter 2
Operations Strategy: Defining How Firms Compete
© The McGraw-Hill Companies, Inc., 2003

2. 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 pertains to adding value for the customer.
Identify the different ways in which operations strategy can provide an organization with a competitive advantage.
Introduce the concept of tradeoffs between different strategies and the need for a firm to align its operations strategy to meet the needs of the particular markets it is serving.
Fundamentals of Operations Management 4e

3. Chapter Objectives (cont’d)
Explain the difference between order-qualifiers and order-winners as they pertain to operations strategy.
Describe how firms are integrating manufacturing and services to provide an overall “bundle of benefits” to their customers.
Fundamentals of Operations Management 4e

4. 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.
Fundamentals of Operations Management 4e

5. Operations Strategy – An Overview
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
Fundamentals of Operations Management 4e

6. Operations Strategy – An Overview
Strategic Business Unit (SBU)
A stand-alone business within a conglomerate (parent firm) that operates like an independent company.
Business Strategy
How a strategic business unit (SBU) addresses the specific markets it serves and products it provides.
Fundamentals of Operations Management 4e

7. Types of Business Strategies
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8. Operations Strategy – An Overview
Functional Strategies
Strategy developed by a function (e.g., marketing) within an organization to support the business strategy.
Competitiveness
A company’s position in the marketplace relative to its competition.
Fundamentals of Operations Management 4e

9. Operations Strategy – An Overview
How the operations function contributes to competitive advantage.
Competitive Priorities
How the operations function provides a firm with a competitive advantage.
Priorities—Low cost, high quality, fast delivery, flexibility, and service.
Fundamentals of Operations Management 4e

10. What is Operations Strategy?
Determining how to best utilize the firm’s resources to achieve corporate objectives.
Major long-term structural issues
How big do we make the facilities?
Where do we locate them?
When do we build them?
What type of process(es) do we install to make the products?
Fundamentals of Operations Management 4e

11. Hierarchy of Operational Planning
Exhibit 2.1
Fundamentals of Operations Management 4e

12. Operations Strategy Means Adding Value for the Customer
(2.1)
(2.2)
If benefits exceed costs, the customer perceives value for the product or service.
“Value is in the eye of the beholder” What affects customer perceptions of value?
Fundamentals of Operations Management 4e

13. Maximizing Value Added in Operations
Exhibit 2.2
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14. Operations Strategy Means Adding Value for the Customer
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.
Fundamentals of Operations Management 4e

15. 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
Fundamentals of Operations Management 4e

16. 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
Fundamentals of Operations Management 4e

17. Competitive Priorities
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18. The Next Sources of Competitive Advantage?
Two New Trends
The use of environmentally friendly processes and environmentally friendly 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.
Fundamentals of Operations Management 4e

19. Developing an Operations Strategy from Competitive Priorities
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.
Fundamentals of Operations Management 4e

20. Developing an Operations Strategy from Competitive Priorities (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.
Fundamentals of Operations Management 4e

21. Time Line for Operations Strategies
Exhibit 2.3
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22. Example of Trade-Offs on Superior Performance Curves
Exhibit 2.4
Fundamentals of Operations Management 4e

23. Order Qualifiers and Order Winners
The minimum characteristics of a firm or its products that a firm must have to be considered as a source of purchase.
Order Winners
The characteristics of a firm that distinguish it from its competition so that it is selected as the source of purchase.
ISO-9000 certification
Fundamentals of Operations Management 4e

24. Distinguishing between Order Qualifiers and Order Winners
Exhibit 2.5
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25. Focusing on Core Capabilities
Specific strengths that allow a company to achieve its competitive priorities.
The skill or set of skills that the operations management function develops that allows the firm to differentiate itself from its competitors.
Focusing is achieved by:
Divesting non-critical activities.
Subcontracting ancillary activities and services.
Fundamentals of Operations Management 4e

26. Integration of Manufacturing and Services
The Customer’s Activity Cycle (CAC)
Fundamentals of Operations Management 4e

27. The Customer’s Activity Cycle
Exhibit 2.6
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28. Service Strategies for Manufacturing Firms (Wise and Baumgartner)
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29. Additional 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.
Fundamentals of Operations Management 4e