Chapter 2
Operations Strategy and Competitiveness
Operations Management
by
R. Dan Reid & Nada R. Sanders
2nd Edition © Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH
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Learning Objectives
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Know what a mission statement is.
Define a business strategy
Explain how a Business strategy is developed
Explain the role of operations strategy
Explain the relationship between Business and Operations
strategy
Describe how an Operations strategy is developed
Identify competitive priorities for the Operations function
Explain the strategic role of technology
Define and compute productivity measures
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Mission Statement
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Explains
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What business the organization is in
Who the customers are
How the company's values will determine
what the company does
A mission statement explains what the
organization will do.
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Business Strategy
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Explains how the organization will achieve
its mission
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Long-range plan to compete in the marketplace
Explains how the firm will differentiate itself from
competitors
Sets competitive priorities
Basis for functional strategies
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Business Strategy
and Functional Strategies
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Functional Strategies
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Marketing
Operations
Finance
Management information systems
Human resources management
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Three Inputs to a Business Strategy
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Strategy Development (1)
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Environmental scanning
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The objective is to identify opportunities
and threats from outside the company
The company looks at trends in the
business environment
Often includes global trends
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Trends in the Business Environment (1)
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Technology
Economic trends
Demographic and social trends
Political trends
Legal and regulatory trends
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Trends in the Business Environment (2)
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Customer demands
Competitor strategies
Suppliers
Business practices
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Internal Analysis
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The firm identifies strengths and
weaknesses inside the company
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Core competencies: unique strengths that
can be used for competitive advantage
Weaknesses: problems that the firm must
fix to be competitive and meet customer
expectations
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Operations Strategy
Designing the Operations Function
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Operations Strategy
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Explains how Operations will help the
company achieve its competitive priorities
Must be consistent with other functional
strategies
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Order Qualifiers & Order Winners
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Order qualifiers are characteristics that a product
must have to be considered for purchase
Order winners are characteristics that a product
must have to make the sale.
Both depend on the target market.
Both change over time.
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If most competing products have a certain characteristic, it
is likely to become an order qualifier.
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Competitive Priorities in Operations
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Product characteristics that can be
order qualifiers & order winners.
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Cost
Quality
Time
Flexibility
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Competing on Cost
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Typically high volume products
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Often limited product range & little customization
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If volume is high,the firm may invest in automation
to reduce unit costs
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Can use lower skilled labor
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Probably use product focused layout (flow shop)
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Example: assembly line
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Competing on Quality
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High performance design:
 Superior features, high durability, & excellent customer
service
Product & service consistency:
 Meets customer requirements in its market
 Close tolerances (product is made according to the design)
 Error free service and delivery
Process quality:
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Designing and operating a process to produce error-free products
Essential for firms that compete on quality
Reduces operating costs for any firm – "doing it right the first
time" reduces costs and keeps customers
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Competing on Time
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Fast delivery: Reduce time between order
placement and delivery
On-time delivery: Deliver product exactly when
needed every time
Rapid new product development: Shorten new
product development time
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Competing on Flexibility
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Product flexibility:
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Can customize product to customer needs
Easily switch production from one item to another
Easily customize product/service to meet specific
requirements of a customer
Volume flexibility: Ability to increase or decrease
production to match market demands
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Product-service Bundle
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Meeting the needs of a target market
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What are the order qualifiers?
What are the order winners?
These dictate your competitive priorities.
Product characteristics that are not order
winners or qualifiers may not be needed
(tradeoffs).
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Are There Priority Tradeoffs?
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Which priorities are “Order Qualifiers”?
e.g. High performance design and process quality are required in
some markets
Which priorities are “Order Winners”?
e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
Can you have both consistent quality and low cost?
e.g. Yes, Coke and Pepsi are good examples
Can you offer design flexibility and short delivery?
e.g. Yes, modular housing manufacturers do it
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Translating Strategy to Production Requirements
Dell Computer
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Competitive priorities: customer service, cost, and
speed
Operations structure
 Products are designed to be assembled from
standard components
 Dell makes computers, not components –
reduces capital costs
 Products are assembled to order – no finished
goods inventory
 Assembly line – low-cost production, high total
volume
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Translating to Production Requirements
Dell Computer (2)
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Operations infra-structure
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Customers can place orders online.
 A management information system generates part
orders and schedules production
Just-in-time production
 Suppliers ship components to a warehouse within 15
minutes of the assembly plant
 Vendor-managed inventory: suppliers own the parts
until they are delivered to the assembly plant
UPS provides shipment with guaranteed delivery times
Monitors are delivered separately by their manufacturers.
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Strategic Role of Technology
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Technology should support competitive priorities
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Technology includes both equipment and methods
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Product technology: product characteristics and performance
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Process technology: how the product is made
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DVD's, high-definition television, PDA's
Just-in-time, automation, fast food process
Information Technology: allows users to create, collect,
process, store, and transmit information
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Internet, point of sale systems, management information
systems, communication networks
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