Lecture Fundamentals of operations management (4/e): Chapter 2 - Davis, Aquilano, Chase

Chapter 2 Operations strategy: Defining how firms compete, after studying this chapter you will be able to: 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;...

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• 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

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–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

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

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.

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Operations Strategy – An Overview

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.

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–How the operations function provides a firm

with a competitive advantage.

–Priorities—Low cost, high quality, fast delivery,

flexibility, and service.

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What is Operations Strategy?

What is Operations Strategy?

• 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?

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Hierarchy of Operational Planning

Hierarchy of Operational Planning

Exhibit 2.1

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Operations Strategy Means  Adding Value for the Customer

Operations Strategy Means  Adding Value for the Customer

Benefits

Total Value

Customer

Costs Total

Benefits Total

Value Customer

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Maximizing Value Added in Operations

Maximizing Value Added in Operations

Exhibit 2.2

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Operations Strategy Means  Adding Value for the Customer

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.

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–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

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Trends Affecting Operations  Strategy Decisions (cont’d)

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

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Competitive Priorities

Competitive Priorities

Controlling costs across the board

Focus is on product and process quality

customization)

How fast a firm can produce a new product line

How products are delivered and supported

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The Next Sources of  Competitive Advantage?

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.

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• 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.

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• 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.

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Time Line for Operations Strategies

Time Line for Operations Strategies

Exhibit 2.3

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Example of Trade­Offs on Superior Performance Curves

Example of Trade­Offs on Superior Performance Curves

Exhibit 2.4

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Order Qualifiers and Order Winners

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

Distinguishing between Order Qualifiers and Order Winners

Exhibit 2.5

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Focusing on Core Capabilities

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.

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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

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The Customer’s Activity Cycle

The Customer’s Activity Cycle

Exhibit 2.6

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the product itself

“married” to additional services

into a seamless offering that addresses a specific customer requirement

assume responsibility for product distribution

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• 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.