Ch 2 - Operations Strategy and Competitiveness

Operations Strategy Framework

*This is the big picture of how OM is linked to a firm's competitiveness. 1. (First) Competitive Priorities 2. Operations Strategy 3. Operations decision 4. Capabilities 5. Corporate Strategy

Productivity may be expressed as..

- Partial measures: concerned about output versus one type of input (ie. Labor productivity) - Multifactor measures: concerned about output versus a group of inputs. - Total measures: concerned about output versus all inputs.

How is Productivity a relative measure?

- Productivity is a number calculated from output and input, and the number itself may not be very meaningful, because it depends on what units of measure are used for output and input. (ie. for output, we can use the number of units of product produced OR use the dollar amount of the product produced. The use of different units of measure will give us different numbers as productivity for the same situation. However, productivity becomes more meaningful when it is compared with other companies or when it is compared over time.)

Example of Competitive Dimensions.. (Cost)

- firm can compete on low cost (ie. Walmart and Costco)

Competitive Priorities

A Competitive Dimension that a firm wants to compete on in the market (ie. cost, quality, time, flexibility, etc..). A firm should determine it's competitive priorities based on market analysis and corporate strategy.

Example of Competitive Dimensions.. (Flexibility)

A firm can compete on customization, variety, or volume flexibility. - Customization: providing customized products within a product group. (ie. Dell provides customized computers) - Variety: providing different types of products. (ie. RadioShack selling a variety of electronics) - Volume Flexibility: the ability to change production volume easily and quickly in response to demand changes. ***(Important in business-to-business relationships)

Example of Competitive Dimensions.. (Time)

A firm can compete on delivery speed, on-time delivery, or development speed. - Delivery speed: how fast the product is delivered. - On-time delivery: delivering the product as promised. (ie. FedEX) - Development speed: introducing new products quickly and effectively. (ie. Apple)

Operations Strategy

A long-term and comprehensive plan for the firm's operations function. Operations strategy is concerned about setting broad policies and plans for using the productive resources of a firm to best support its competitive priorities and corporate strategy.

Productivity

A measure that evaluates how well a firm is using its resources. Productivity = Output/Input (ie. Output can be number of products produced, input could be number of labor hours used)

Competitive Dimensions

Any performance dimensions that a firm can compete on or by which it can attract customers. - could be any marketing-orientated characteristics of the product/service (ie. price and quality) OR any operational capabilities that can be used to better serve customers (ie. volume flexibility). - can be viewed as criteria based on which customers choose a product/service.

Order Winners

Are competitive dimensions that differentiate the firm's products or services from competitors.

Order Qualifiers

Are competitive dimensions that permit the firm's products or services to be considered as candidates for purchase.

How to manage Competitive Priorities?

By defining Order Winners and Order Qualifiers. Then focus on order winners, while maintaining the minimum standards on order qualifiers. (ie. a restaurant chooses quality of food as an order winner and price as an order qualifier. In this case, the restaurant should focus on improving the quality of food, while maintaining the price at a certain level that is acceptable to the target customers)

Linking operations strategy with its competitive priorities.. (Costco)

Example: Costco has low cost as its competitive priorities. Then its operations strategy should be designed to support low cost. Costco designs all processes for efficiency. (ie. put products in warehouse-type retail stores. This will reduce their logistics costs because they do not have to have warehouses or move products from warehouses to retail stores. Also negotiates aggressively with its suppliers to lower wholesale prices.)

Linking operations strategy with its competitive priorities.. (McDonald's)

Example: McDonald's competitive priority is consistent quality across stores. It achieves this by standardizing work methods, procurement and processing of raw materials, and staff training processes. (ie. there is a Hamburger University in Chicago that trains employees on processes and work methods, which helps achieve consistency through the use of same processes and work methods.)

Dealing with Trade-offs

Firms need to deal with trade-offs between competitive dimensions when determining their competitive priorities. - Ex. 1) Reduce product quality inspections. But will reduce product quality. (Cost vs Quality) - Ex. 2) Provide customized products by making products after receiving customer orders. But will cause longer production and delivery time. (Flexibility vs Time)

What does Operations Strategy provide?

Operations strategy provides directions for various operations decisions (at the strategic, tactical, and operational levels). Operations decisions will affect the firm's capabilities to achieve its competitive priorities. If there is any gap between current and needed capabilities, the operations strategy should be revised to close the gap. A firm may also want to define planned capabilities between the current and needed ones. If there is no gap, the capabilities should be reflected into the corporate strategy (ie. core competencies)

Example of Competitive Dimensions.. (Quality)

Two types of quality. - Quality of Design: related with performance, features and reliability of the product. (ie. BMW cars have a better quality of design than other cars) - Quality of Conformance: how well the product conforms to the design specification, and is related with the consistency of the product. (ie. if all finished products had the same specifications)

Before understanding Competitive Priorities...

We must understand Competitive Dimensions first.