CHAPTER TWO
OPERATIONS
STRATEGY &
COMPETITIVENESS
1
Introduction
Ø is how effectively an
organization meets the wants and needs of
customers relative to others that offer similar goods or
services.
Ø operations should assist the firm achieve a
competitive position in the market place.
Ø increased foreign competition, the need for improved
productivity and increased customer demands for
improved quality necessitates operations strategy.
Cont’d…
vBusinesses compete using marketing:
üIdentifying consumer wants and needs
üPricing
üAdvertising and promotion
ØBusinesses Compete using Operations:
üProduct and service design
üCost
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Cont’d…
ü Location
üQuality
üQuick response
üFlexibility
üInventory management
üSupply chain management
üService
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Operations Strategy
Ø To maintain a competitive position in the
marketplace, a company must have a long-range
plan.
ØDeveloping a customer driven operations strategy
begins with corporate strategy.
Ø The competitive priorities and the directives from
corporate strategy provide input for the functional
strategies.
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Cont’d…
Ø Strategy – are plans for achieving goals.
ü a course of action together with decisions on the
specification and deployment of resources required to
attain a stated objective.
ü exploit opportunities and strengths, neutralize
threats, and avoid weaknesses.
ØOrganization strategy - provides overall
direction for the organization (broad in scope).
2 6
Cont’d…
Ø Operation strategy - deals with the operation
aspect of the organization (narrower in scope).
Depending on the size and type of organizations there
are 3 forms of strategy: corporate, business and
operational or functional.
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Cont’d…
1.Corporate (Business) Strategy – relates to the
organization as a whole.
ü provides an overall direction.
üHow should the business fulfill its long-term
objectives and satisfy its mission?
ü Mission is the reason for existence of organization.
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Cont’d…
2. Business strategy - relates to how an organization
intends to compete in the market place.
ü sets strategic objectives for various functions in the
business.
E.g. firm’s competitive strategy may include:
üProduce at lowest cost (cost leadership)
ü make products different (differentiation)
ü Focus on one group of customers (focus).
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Cont’d…
ü covers plans for 3 to 5 years ahead and is reviewed
annually.
3. Operational or functional strategies
Ø concerned with how operation functions can
contribute to the achievement of a firm’s corporate
and business strategies.
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Competitive advantage and
competitive priorities
Ø Competitive advantage is any activity that creates
superior value above its rivals.
Ø The strongest competitive advantage is a strategy
that can’t be imitated by other companies.
Ø developing an effective operations strategy lies in
understanding how to create or add value for
customers.
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Cont’d…
Ø Competitive advantage can be created through
competitive priority.
Ø Competitive priority are priorities that are
selected to support a given strategy.
ØThere are 8 possible competitive priorities.
1.Cost: make it cheap or be the low-cost producers.
ü used when customers can’t easily distinguish the
products of one firm from those of another.
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Cont’d…
ü Operations managers must address labor, materials,
scrap, overhead and other cost to design a system
that lower the cost per units of the product or service.
2. Quality: meeting customer expectations.
oHigh performance design - superior features
oConsistent quality - consistently meets the
specifications.
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Cont’d…
E.g. Bank customers expect that the bank will not
make errors when recording transactions.
3. Time: time is money
§Fast delivery time (delivery speed): the elapsed
time between the customer’s order and filling it.
§On time delivery: meeting delivery time promises
§Development speed: measures how quickly a new
product or service is introduced.
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Cont’d…
4. Flexibility: the capability to react to customer
needs quickly and efficiently.
§Customization flexibility: the ability to satisfy the
unique needs of each customer by changing product
or service design.
§ Volume flexibility: is the ability to accelerate or
decelerate the rate of production quickly.
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Operations Strategy
Ø concerned with setting broad policies and plans for
using the resources of the firm to best support the
firm’s long-term competitive strategy.
Ø affect the ability of an organization to compete.
Ø traditional strategies emphasize on cost
minimization or product differentiation.
Ø many organizations are adopting new strategies
that are based on quality and/or time.
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Cont’d…
a. Time Based Strategies - focuses on reducing the
time required to accomplish various activities:
ü the time taken to develop new products or services
and to market them
ü the time needed to respond to a change in
customer demand
ü the time needed to deliver a product or perform a
service.
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Cont’d…
Ø this strategy will improve service to the customer,
and to gain a competitive advantage over rivals.
Ø reducing time - reduces costs, improves
productivity, enhances quality, product innovations
appear on the market earlier and improves customer
services improved.
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Cont’d…
ØAreas in which organizations have achieved time
reduction are:
üPlanning time
üProduct/service design time
üProcessing time
üChange over time
üDelivery time
üResponse time for complaints.
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Cont’d…
b. Quality-based Strategies - focuses on satisfying
the customer by integrating quality in to all phases of
the organization.
üshould be defined by the customer.
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Selecting competitive priorities
Ø firms can improve on all competitive priorities
simultaneously.
Ø by improving quality, the firm can reduce costs,
improve productivity, and cut delivery time –all at the
same time.
Ø However, since there could be tradeoff among the
competitive priorities, firms must choose a selected
set of competitive priorities to emphasize.
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E.g. customization can increase cost.
Cont’d…
oOrder qualifiers - will not ensure competitive
success in a market.
ncharacteristics that customers perceive as minimum
standards of acceptability to be considered as a
potential purchase.
oOrder winners: characteristics of an organization’s
goods or services that cause it to be perceived as
better than the competition.
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Cont’d…
ØProducts that do not live up to that level of quality
do not last long in the market.
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Service and Manufacturing
strategies
1. Service strategies: operations strategy in service
firms is generally inseparable from the corporate
strategy.
ü competitive priorities provide a basis for the design
of processes.
ØService strategies:
ü Standardized services
üAssemble-to-order
ü Customized-services
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Cont’d…
a. Standardize service strategy: processes that
provide services with little variety in high volumes.
ü typical competitive priorities are consistent
quality, on-time delivery, and low cost.
b. Assemble-to-order strategy: processes devoted
to producing a set of standardized services and
assemble standardized offerings for a specific
customer’s needs.
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Cont’d…
ü the assembly processes must be flexible.
ü typical competitive priorities are customization and
fast delivery time.
c. Customized-services strategy: processes
designed to provide individualized services.
ü typical competitive priorities include high
performance design and customization.
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Cont’d…
üvolume, in terms of service requirements per
customer, is low.
ü enables the production of a high variety of
customized services.
2. Manufacturing strategies
Ø manufacturing strategies differ from those in
services because of the ability to use inventories.
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Cont’d…
ØMake-to-stock, assemble-to-order, and make-to-
order strategies.
ØManufacturing strategies include:
üMake-to-stock
ü Assemble-to-order
ü Make-to-order
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Cont’d…
a. Make-to-stock strategy: holding items in stock
for immediate delivery, thereby minimizing customer
delivery times.
üfeasible for standardized products with high
volumes and accurate forecasts.
ü applicable to situations in which the firm is
producing a unique product for a specific
customer.
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Cont’d…
b. Assemble-to-order strategy: is an approach to
produce customized products from relatively few
assemblies and components, after customer orders are
received.
ü typical competitive priorities are customization
and fast delivery time.
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Cont’d…
c. Make-to-order strategy: make products to
customer specifications in low volumes.
ü the competitive priority is high degree of
customization.
üthe manufacturing process must be flexible to
accommodate the variety.
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