C H AP T E R

Operations Strategy
& Competitiveness

Reid & Sanders, Operations Management

Wiley 2002

The Role of Business Strategy

Business Strategy:
The firms long-range plan based on an understanding of
the marketplace
Defines how a company intends to differentiate itself from
competitors
Individual employees & functional units use the strategy to
align their efforts with each other to accomplish the overall
game plan
Reid & Sanders, Operations Management
Wiley 2002

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Operations Strategy
OM Strategy:
The long-range plan for the design & use of the operations function to
support the overall business strategy:

The location, size, & type of facilities

The worker skills & talents required
The technology & processes to be used
How product & service quality will be controlled

Operating efficiency an operating strategy

Reid & Sanders, Operations Management

Wiley 2002

Page 4

Developing a
Business Strategy
Mission:
A statement defining what business the firm is in, who its customers are, & how its
core beliefs shape its decision-making

Environmental scanning:
Monitoring the external environment for market opportunities & competitive threats

Core competencies:
Internal strengths & weaknesses of the firm (e.g.: personnel with special expertise,
access to unique technology, & things the firm does better than competitors)

Reid & Sanders, Operations Management

Wiley 2002

Page 5

Putting it all Together

Environmental
Scanning:
Monitoring the
business environment
for market trends,
threats, and
opportunities

Mission:
Statement that defines
What our business is;
Who our clients are;
and How our values
define our business

Core
Competencies:
Our unique strengths
that help us win in the
marketplace

Business Strategy:
Defined long-range plan
for the company
Reid & Sanders, Operations Management
Wiley 2002

Page 6

Developing an
Operations Strategy
Identify the competitive priorities required to support the business
strategy:
Common priorities include:
Cost: low production costs enables the company to price its product below
competitors
Quality: higher performance or a more consistent product can support a price
premium
Time: faster delivery or consistent on-time delivery can support a price premium
Flexibility: highly customized products or volume flexibility can support a price
premium

Reid & Sanders, Operations Management

Wiley 2002

Page 7

Translate Priorities into Design

Business Strategy

Operations Strategy:
Based on Competitive Priorities

Design of Operations:
Structure & Infrastructure
Reid & Sanders, Operations Management
Wiley 2002

Page 8

Design of Operations
Structure:
Facilities
Flow of work
Technology

Infrastructure:
Planning & control systems
Work design & compensation
Reid & Sanders, Operations Management
Wiley 2002

Page 9

Competing on Low Cost

Eliminate wasted labor, materials, and facilities
Emphasize efficient processes & high productivity
Often limit the product range & offer little
customization
May invest in automation to increase productivity

Reid & Sanders, Operations Management

Wiley 2002

Page 10

Competing on Quality
High performance design:
Superior features, high durability, & excellent customer
service

Product & service consistency:

Error free delivery
Close tolerances

Reid & Sanders, Operations Management

Wiley 2002

Page 11

Competing on Time
Rapid delivery:
How quickly an order is received after the order is placed

On-time delivery:
Sometimes items can arrive too quickly
JIT firms try to avoid clutter of excess inventory

Ability to deliver exactly when expected

Not too early or too late

Reid & Sanders, Operations Management

Wiley 2002

Page 12

Competing on Flexibility
Product flexibility:
Easily switch the production process from one item to
another (substitution)
Easily customize output to meet the specific requirements
of a customer

Volume flexibility:
Rapidly increase or decrease the amount of product being
produced to match demand
Reid & Sanders, Operations Management
Wiley 2002

Page 13

Understand Tradeoffs
Example: Made-to-Order Pizza

Expensive
Ingredients

Slow to Cook
TIME

Toppings &
Crust Choice

Reid & Sanders, Operations Management

Wiley 2002

Fresh,
Natural
Ingredients

COST

Low Volume
Ovens

QUALITY &
DESIGN
FLEXIBILITY

QUALITY

VOLUME
FLEXIBILITY
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Distinguish Order Qualifiers

from Order Winners
Order Qualifiers:
Competitive priorities that a product must meet to even be considered
for purchase
Generally, represented by features shared by all competitors in a
given market niche

Order Winners:
Competitive priorities that distinguish the firms offerings from
competitors & ultimately win the customers order

Reid & Sanders, Operations Management

Wiley 2002

Page 15

Productivity

Outputs
P
Inputs
Reid & Sanders, Operations Management
Wiley 2002

Page 16

Productivity Measures
Partial Measures:
A ratio of outputs to only one input (e.g.: labor productivity, machine
utilization, energy efficiency)

Multifactor Measures:
A ratio of outputs to several, but not all, inputs

Total Productivity Measures:

The ratio of outputs to all inputs

Reid & Sanders, Operations Management

Wiley 2002

Page 17

Labor Productivity
Example:
Assume two workers paint twenty-four tables in
eight hours:
Inputs: 16 hours of labor (2 workers x 8 hours)
Outputs: 24 painted tables

Outputs 24 tables

1.5 tables / hour

Inputs 16 hours
Reid & Sanders, Operations Management
Wiley 2002

Page 18

Multifactor Productivity
Convert all inputs & outputs to $ value
Example:
200 units produced sell for $12.00 each
Materials cost $6.50 per unit
40 hours of labor were required at $10 an hour

200 units $12 / unit

$2400

1.41
200 units $6.50 / unit 40 hours $10 / hour $1700

Reid & Sanders, Operations Management

Wiley 2002

Page 19

Interpreting Productivity Measures

Is the productivity measure of 1.41 in the previous
example good or bad?
Cant tell without a reference point
Compare to previous measures (e.g.: last week) or to
another benchmark

Reid & Sanders, Operations Management

Wiley 2002

Page 20

Productivity Growth Rate

Can be used to compare a process
productivity at a given time (P2) to the
same process productivity at an earlier
time (P1)

P2 P1
Growth Rate
P1
Reid & Sanders, Operations Management
Wiley 2002

Page 21

Productivity Growth Rate

Example:
Last week a company produced 150 units using 200 hours of labor
This week, the same company produced 180 units using 250 hours of labor

150 units
P1
0.75 units / hour
200 hours
180 units
P2
0.72 units / hour
250 hours
P P 0.72 0.75
Growth Rate 2 1
0.04
P1
0.75
or a negative 4% growth rate
Reid & Sanders, Operations Management
Wiley 2002

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