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F O U R T H E D I T I O N

The McGraw-Hill Companies, Inc., 2003


chapter 2
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PowerPoint
Presentation
by
Charlie
Cook
Operations Strategy:
Defining How Firms Compete

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 22
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 The McGraw-Hill Companies, Inc., 2003 23
Chapter Objectives (contd)
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 The McGraw-Hill Companies, Inc., 2003 24
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.

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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

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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 The McGraw-Hill Companies, Inc., 2003 27
Types of Business Strategies
Type Definition
Low Cost Producing the lowest cost products in the
market.
Market
Segmentation
Satisfying the needs of a particular market
niche.
Product
Differentiation
Offering products that differ significantly from
the competition.


Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 28
Operations Strategy An Overview
Functional Strategies
Strategy developed by a function (e.g.,
marketing) within an organization to support the
business strategy.
Competitiveness
A companys position in the marketplace
relative to its competition.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 29
Operations Strategy An Overview
Operations Strategy
How the operations function contributes to
competitive advantage.
Competitive Priorities
How the operations function provides a firm with
a competitive advantage.
PrioritiesLow cost, high quality, fast delivery,
flexibility, and service.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 210
What is Operations Strategy?
Operations Strategy
Determining how to best utilize the firms
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 The McGraw-Hill Companies, Inc., 2003 211
Hierarchy of Operational Planning
Exhibit 2.1

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 212
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.
Costs Total
Benefits Total
Value Customer Perceived (2.1)
Costs Total - Benefits Total Value Customer Perceived
(2.2)

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 213
Maximizing Value Added in Operations
Exhibit 2.2

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 214
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 customers
specific needs.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 215
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 The McGraw-Hill Companies, Inc., 2003 216
Trends Affecting Operations
Strategy Decisions (contd)
Technology
Connectivityanyone, anywhere, all the time
Speedinstantaneous transactions
Intangibilityfocus on innovative services to gain
competitive advantage
(A superiority gained by an organization when it can provide the same
value as its competitors but at a lower price, or can charge higher prices
by providing greater value through differentiation. Competitive advantage
results from matching core competencies to the opportunities)
Simultaneous Competition on Multiple
Competitive Priorities
No traditional trade-offs of priorities

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 217
Competitive Priorities
Type Priority
Low Cost Providing low cost products.
Controlling costs across the board.
Quality Providing high quality products.
Focus is on product and process quality.
Delivery Providing products reliably and quickly.
Flexibility Providing a wide variety of products (mass
customization).
How fast a firm can produce a new product line.
Service Providing value-added service.
How products are delivered and supported.


Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 218
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 The McGraw-Hill Companies, Inc., 2003 219
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 The McGraw-Hill Companies, Inc., 2003 220
Developing an Operations Strategy
from Competitive Priorities (contd)
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 The McGraw-Hill Companies, Inc., 2003 221
Time Line for Operations Strategies
Exhibit 2.3

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 222
Example of Trade-Offs on
Superior Performance Curves
Exhibit 2.4

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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
The characteristics of a firm that distinguish it
from its competition so that it is selected as the
source of purchase.
ISO-9000 certification

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Distinguishing between
Order Qualifiers and Order Winners
Exhibit 2.5

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Focusing on Core Capabilities
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 The McGraw-Hill Companies, Inc., 2003 226
Integration of Manufacturing and Services
The Customers Activity Cycle (CAC)
Component Actions
Pre-purchase activities Being responsive to customer
inquires and the ability to
demonstrate technical expertise.
Purchase activities Actual sale and delivery of the
product and collecting payment.
Post-purchase activities After-sales service and product
warranties


Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 227
The Customers Activity Cycle
Exhibit 2.6

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 228
Service Strategies for Manufacturing Firms
(Wise and Baumgartner)
Service Strategy Function
Embedded Services Specific functions that are a part of
the product itself.
Comprehensive Services The manufactured product is
married to additional services.
Integrated Solutions Combining product and services
into a seamless offering that
addresses a specific customer
requirement.
Distribution Control Manufacturing goes downstream to
assume responsibility for product
distribution.


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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.