Operations
Management
Operations Strategy
Chapter 2
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Business Elements
 Structural
buildings, equipment, technology,
computer systems
 Infrastructural
organization, planning & control,
decision rules, quality management,
purchasing, product/service development
(  Personnel )
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Mission
The organization’s purpose for being; provides
boundaries and focus
 Merck – The mission of Merck is to provide society with
superior products and services - innovations and solutions that
improve the quality of life and satisfy customer needs - to provide
employees with meaningful work and advancement opportunities
and investors with a superior rate of return
 Hard Rock Café – To spread the spirit of Rock ‘n’ Roll
by delivering an exceptional entertainment and dining experience.
We are committed to being an important, contributing member of
our community and offering the Hard Rock family a fun, healthy,
and nurturing work environment while ensuring our long-term
success.
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Mission / Strategy / Core Competencies
 Mission – The organization’s purpose for being;
provides boundaries and focus
 Business strategy – Action plan for the business
to achieve the mission
 Functional strategies – Translate the business strategy
into specific actions for the functional areas
 Core competencies – Organizational abilities/strengths,
developed over a long period, which customers find
valuable, and competitors find difficult to copy
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Strategy Linkages / Alignment
All functional strategies must support the business strategy
Marketing strategy based on differentiation and customization
Operations strategy to build to stock
Financial strategy to minimize capital investment
Operations strategy to increase investment for quality improvement
Engineering strategy to specify an entirely new part when an
existing part will do
Operations strategy for low cost
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Strategy Process
Mission Statement
Business Strategy
- Targeted customers / markets
- Areas of sustainable competitive advantage
- Role of supply chain partners
- Time frames & performance objectives
Strategic
Alignment
Operations Strategy
Other Functional Strategies
- Translate business strategy into
operations & supply chain actions
- Provide value to targeted customers
- Develop supporting core competencies
- Marketing
- Finance
- Human Resources
- Research & Development
- Engineering
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Four Performance Dimensions
Mission Statement
Quality
- Performance quality
Business
Strategy
Conformance
quality
- Targeted customers / markets
- Areas of
competitive
advantage
- sustainable
Reliability
quality
- Role of supply chain partners
Time- Time frames
- Delivery
speed
& performance
objectives
- Delivery reliability
Flexibility
- Volume flexibility
Operations Strategy- Mix flexibility
Other Functional Strategies
- Translate business strategy-intoChangeover
- Marketing
flexibility
operations & supply chain actions
- Finance
Cost
Low-cost
operations
- Provide value to targeted customers
- Human
Resources
- Develop supporting core competencies
- Research & Development
- Engineering
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Order Winners vs. Order Qualifiers
 Order winners – performance dimensions that
differentiate a company’s products and services from
its competitors
 Order Qualifiers – performance dimensions on which
customers expect a minimum level of performance
Item
Supplier A
Supplier B
Conformance
quality
99.9% pure - Meets
98% pure – Does not meet
Delivery
3 days
2 days
Cost
$30 / liter
$20 / liter
Flexibility
100 liter minimum order
50 liter minimum order
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Operations Strategy
Mission Statement
Operations strategy
Services
Business StrategyManufacturing
• Customized
servicescustomers / markets
• Make-to-order
- Targeted
• Assemble-to-order
• Assemble-to-order
- Areas of sustainable competitive
advantage
• Standardized
services
• Make-to-stock
- Role
of supply chain partners
- Time frames & performance objectives
• Process decisions
Operations
Strategy
• Quality
decisions
Other Functional Strategies
• Capacity,
location,
- Translate business
strategy
into and layout decisions
- Marketing
Operating
operations &• supply
chaindecisions
actions
- Finance
- Provide value to targeted customers
- Human Resources
- Develop supporting core competencies
- Research & Development
- Engineering
2-9
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Operations Strategy
Service Strategies
Customized Services Strategy
Manufacturing Strategies
Make to Order (MTO)
Individualized services
Receive order before producing goods
e.g. Health clinic
e.g. Machine shop
Assemble to Order Strategy
Assemble to Order (ATO)
Assemble standardized offerings for
a specific customer’s needs
Stock standardized components/assemblies
assemble finished product to customer order
e.g. Cellular phone service
e.g. Dell Computer
Standardized Services Strategy
Make to Stock (MTS)
High volume with little variety
Satisfy customer orders from inventory
e.g. U.S. Postal Service
e.g. Paper
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Generic Operations Strategies
Mission Statement
Differentiation – better / unique
Business Strategy
- Targeted customers / markets
- Areas of sustainable competitive advantage
- Role of supply chain partners
- Time frames & performance objectives
Cost leadership – cheaper / value
Operations Strategy
Other Functional Strategies
Quick
response
–
faster
- Translate business strategy into
- Marketing
operations & supply chain actions
- Provide value to targeted customers
- Develop supporting core competencies
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- Finance
- Human Resources
- Research & Development
- Engineering
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Operations Strategies - Examples
2-12
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Closing the Loop
Mission Statement
Business Strategy
- Targeted customers / markets
- Areas of sustainable competitive advantage
- Role of supply chain partners
- Time frames & performance objectives
Strategic
Alignment
Operations Strategy
Other Functional Strategies
- Translate business strategy into
operations & supply chain actions
- Provide value to targeted customers
- Develop supporting core competencies
- Marketing
- Finance
- Human Resources
- Research & Development
- Engineering
2-13
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
OM’s Contribution to Strategy
Operations
Decisions
Specific
Strategy Used
Examples
Quality
Product
FLEXIBILITY
Sony’s constant innovation of new products
HP’s ability to follow the printer market
Process
Design
Volume
Southwest Airlines No-frills service
LOW COST
Location
DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime
Federal Express’s “absolutely, positively on time”
Layout
Human Resource
Supply Chain
Speed
Dependability
Maintenance
Differentiation
(Better)
QUALITY
Motorola’s automotive products ignition systems
Motorola’s pagers
Conformance
Performance
Inventory
Scheduling
Competitive
Advantage
IBM’s after-sale service on mainframe computers
Fidelity Security’s broad line of mutual funds
2-14
Cost
leadership
(Cheaper)
Response
(Faster)
AFTER-SALE SERVICE
BROAD PRODUCT LINE
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Strategy and Issues During a Product’s Life
2-15
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Summary
Strategy is how we accomplish our mission
Functional strategies must be aligned to support
the business strategy
OM goals are to be faster, better and/or cheaper
Operations strategy:
Where the product or service is in its life cycle
 Determines our mix of faster, better, and cheaper to
satisfy our customers (trade-offs where necessary)
 Specifies process choice, work flow, order processing,
inventory, capacity, etc.

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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458