Operations and Materials
Management
What We Will Discuss:
Competitive Advantage
Value Chain
Overview
Competitive Advantage Requires a
Focus on:
Productivity
Quality
Innovation
Customer Responsiveness
Productivity
More effective use of resources
Lower inventory holding costs
Reduced time to process customer
orders
Innovation
Find ways to improve product quality
Find ways to reduce production costs
Find ways to sell products at a lower
cost
Responsiveness to Customers
High quality customer service
Satisfying shopping experience
Good after-sales service
Increase Quality
Number of customer orders correctly
processed
Consistent, reliable products
Ensure supply of high quality inputs
Two types of quality and their
relationship to costs
Quality of performance
Quality of conformance
How?
Approaches to Gain Competitive
Advantage
Increasing emphasis on balancing financial side and
human/creative/socially responsible side of
organizational strategy
Different metrics to evaluate success than in the past
Examples:
Six Sigma
Balanced Scorecard
Blue Ocean Strategy
Six Sigma
What is Six Sigma?
According to iSixSigma (www.isixsigma.com), Six
Sigma is:
a measure of quality that strives for near
perfection
a data-driven, quantitative approach and
methodology for eliminating defects in any
process: manufacturing, transactions, products, &
services
Six Sigma (cont’d.)
A successful Six Sigma process produces no more
than 3.4 defects per million opportunities
A defect is defined as anything outside of customer
specifications
Six Sigma processes are executed by Six Sigma
“Green Belts” (team leaders who implement process
improvement projects) & “Black Belts” (successful
project leaders who are credentialed through an
exam and are skilled in the use of Six Sigma
methodology & tools)
The Balanced Scorecard
(Kaplan & Norton)
A strategic management system that drives
performance and accountability throughout
the organization
Balances traditional performance measures
with forward-looking indicators in four
“perspectives”.
The Balanced Scorecard’s Four Perspectives
1. Financial perspective
Among the four perspectives, organizations generally
place the greatest emphasis on financials
Financial results ultimately are the primary driver of a
firm’s decisions
2. Customer perspective
Customer focus, customer satisfaction
Customers need to be happy. If customers aren’t
happy, they’ll go to other suppliers

3.
Business perspective
How well the business is running
Do products, services conform to customer requirements?
Ex: downloading music - major record labels resisted change by arresting
casual music downloaders vs. partnering with Napster, Amazon, etc. to
create new distribution models
4. Learning and growth perspective
Employee training
Corporate cultural attitudes toward self-improvement
Knowledge environment: people are a firm’s most important resource
Metrics: You can’t improve what you can’t measure
Environment of uncertainty, ambiguity and change: workers must continually
learn
Mentors
Tutors
Communication & sharing info: break out of functional silos
Blue Ocean Strategy (Kim & Mauborgne)
Demand is created through innovation, not fought over
Concept of developing new, uncontested market space, rather
than competing in existing markets
Ample growth that is rapid & profitable
Not based on stealing customers in existing market
Makes competition irrelevant. Ex:
Curves Fitness Centers vs. Bally’s
• A Curves customer will never consider joining Bally’s
• Represents a different demographic - women, older, not “skinny”.
• How does Curves meet the needs of its demographic? Fitness equipment faces
inward to encourage conversation & encouragement, rather than individuals
facing mirrors & using iPods
Cirque de Soleil (circus for adults, not kids; expensive, Las Vegas
environment, etc.)
Southwest Airlines, Virgin Airways (fun, low cost, customer gets involved)

Blue Ocean vs. Red Ocean Strategy
The Red Ocean Strategy:
Competes in an existing market
Focuses on “beating the competition”
Exploits existing demand
Aligns the firm’s activities with a strategic choice of either
differentiation or low cost.
Vs…
The Blue Ocean Strategy:
Creates uncontested market space by making competition
irrelevant
Creates and captures new demand
Aligns the firm’s activities with strategic choice of both
differentiation and low cost
Requires constant innovation; big picture thinking; new type of
strategic leaders across organization
The Value Chain