Operations Strategy y & Competitiveness

Operations
Operations Management
Management
 Contents
• What is Operations Strategy?
• Operations and Competitiveness
• Operations Strategy Framework
• Competitive priorities
• Strategic decisions in operations
 What is Operations Strategy

• Setting broad policies and plans for using

the resources of a firm to best support the
firm's long-term competitive strategy
 Operations and Competitiveness
• Operations provide support to gain
competitive advantage over the others
• Operations provide support for
differentiation or cost advantage
• Operations serve as a firm’s distinctive
competence in executing similar strategies
better than competitors

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 Competitive Strategy to Operations
Strategy
Mission
Mission
and
and Vision
Vision

Customer Needs Competitive Strategy Core Competencies

Alignment

Operations Strategy

Decisions

Processes, Infrastructure, and Capabilities

 Operations strategy framework
Order
Orderqualifiers
qualifiersare
arethe
thebasic
basicNeeds
Customer Comp. Strategy Core Competencies
criteria
criteriathat
thatpermit
permitthe
thefirms
firms
products
productsto tobe
beconsidered
consideredas as
candidates New product : Old product
candidatesforforpurchase
purchaseby by
customers
customers
Performance, functionality,
dimensions etc
Order winners are the criteria
Order winners are the criteria (Order qualifiers)
that
thatdifferentiates
differentiatesthe
the
products
products and servicesof
and services ofone
oneQuality, Speed, Flexibility, and Price
firm
firmfrom
fromanother
another (Order winners >> Competitive Priorities)

Enterprise capabilities
Operations
Operationsand Suppliercapabilities
& Supplier Capabilities
R&DR&D Technology SystemsSystems
Technology People
People Distribution
Distribution

Support Platforms
Financial management Human resource management Information management
Competitive Priorities in Operations
Quality

Operations
Flexibility Speed
Management

Price (or cost

Reduction)
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Operations Strategy at Wal-Mart

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 Competitive Priorities
TABLE | TYPES, DEFINITIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

COST Definition Example

1. Low-cost operations Delivering a service or a product WalMart
at the lowest possible cost Southwest
Cost Co
QUALITY
2. Top quality Delivering an outstanding service Ferrari
or product Ritz Calrton

3. Consistent quality Producing services or products McDonald’s

that meet design specifications on
a consistent basis

SPEED/TIME
4. Delivery speed Quickly filling a customer’s order McDonald’s, DELL

5. On-time delivery Meeting delivery-time promises United Parcel Service

(UPS)
Domino’s
6. Development speed Quickly introducing a new science Li & Fung, Samsung
or a product
 Competitive Priorities
TABLE | TYPES, DEFINITIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

FLEXIBILITY Definition Example

7. Customization Satisfying the unique needs of Ritz Carlton
each customer by changing Hersey Shoes
service or products designs
National Bicycle

8. Variety Handling a wide assortment of Amazon.com

services or products efficiently

9. Volume flexibility Accelerating or decelerating the The United States Postal

rate of production of service or Service (USPS)
products quickly to handle large
fluctuations in demand
 Competitive Priorities: Cost
• Southwest Airlines
– one type of airplane (Boeing 737) facilitates
reduction in crew changes, record-keeping,
maintenance, and inventory costs
– Ticketless travel
– direct flights mean no baggage transfers
– Flies to secondary airports
– $30 million annual savings in travel agent
commissions by requiring customers to contact the
airline directly
– Employee profit sharing; cross utilization
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 Competitive Priorities: Quality
• Ritz-Carlton - one customer at a time
– Every employee is empowered to satisfy a guest’s
wish
– Each hotel has a quality leader
– Teams at all levels set objectives and devise quality
action plans
– Quality reports tracks
• guest room maintenance cycles
• percentage of check-ins with no waiting
• achieved industry-best clean room appearance
– Guest Preference Reports are recorded in a database
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 Competitive Priorities: Flexibility
• Hersey Custom Foot Shoe Store:
– customer’s feet are scanned electronically to capture
measurements
– custom shoes mailed to customer’s home in weeks
– prices are comparable to off-the-shelf shoes
• National Bicycle Industrial Company
– offers over a million variations
– delivers within two weeks at costs only 10% above
standard models

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 Competitive Priorities: Speed
• Citicorp - advertises a 15-minute mortgage
approval
• Wal-Mart – low inventory costs with efficient
logistic network
• General Electric - reduces time to manufacture
circuit-breaker boxes into three days and
dishwashers into 18 hours
• Dell - ships custom-built computers in two days
• Motorola - needs less than 30 minutes to build to
order pagers

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 Classroom activity
• Consider an example of local
business in Lahore
• Suggest what is their competitive
priority in operations
• Describe how are they
implementing their operations
strategy

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Strategic Decisions in
Operations
Services Process
Products and
Technology

Human
Resources Quality
Capacity

Supply Chain Operating

Facilities Management
Systems

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 Operations Strategy:
Products and Services
• Type of Product
– Make-to-Order
• products and services are made to customer specifications after
an order has been received
– Make-to-Stock
• products are made in anticipation of demand
– Assemble-to-Order
• products are assembled or options added according to customer
specifications
• Product and Services Design
– What function
– What features
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 Production Strategy:
Processes and technology
• Project
– one-at-a-time production
of a product to customer
order
• Batch Production /Job
Shop
– systems process many
different jobs at the same
time in groups (or
batches)
• Mass/Flow Production
– large volumes of a
standard product for a
mass market
• Continuous Production
– used for very high volume Source: Adapted from Robert Hayes and Steven Wheelwright, Restoring the
Competitive Edge: Competing Through Manufacturing (New York: John Wiley &
commodity products Sons, 1984), p. 209
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 Continuous Production
A paper manufacturer
produces a continuous sheet

er
igh
paper from wood pulp slurry,
e –H
which is mixed, pressed,
lum ed

dried, and wound onto reels.

Vo rdiz

Mass Production
da

Here in a clean room a worker

an

performs quality checks on a

St
e

computer assembly line.

or
M

Batch Production
At Martin Guitars bindings on the guitar
frame are installed by hand and are
wrapped with a cloth webbing until glue is
dried.
Project
Construction of the aircraft carrier USS Nimitz was
a huge project that took almost 10 years to
complete.

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 Service Strategy:
Processes and Technology
• Professional Service
– highly customized and
very labor intensive
• Service Shop
– customized and labor
intensive
• Mass Service
– less customized and
less labor intensive
• Service Factory
– least customized and
least labor intensive

Source: Adapted from Roger Schmenner, “How Can Service

Businesses Survive and Prosper?” Sloan Management Review 27(3):29

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 r
bo
Service Factory
La
s
Electricity is a commodity
siv es
en d-L

available continuously to
e
Int ize

customers.
m

Mass Service
s to

A retail store provides a standard

Cu

array of products from which

ss
Le

customers may choose.

Service Shop
Although a lecture may be prepared in
advance, its delivery is affected by
students in each class.
Professional Service
A doctor provides personal service to each
patient based on extensive training in
medicine.
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 Operations Strategy:
Capacity and Facility
• Capacity strategic decisions include:
– When, how much, and in what form to alter
capacity
• Facility strategic decisions include:
– Where should be the facility located?
– Whether demand should be met with a few
large facilities or with several smaller ones
– Whether facilities should focus on serving
certain geographic regions, product lines, or
customers 23
 Operations Strategy: Human
Resources
• What are the skill levels required?
• What are the selection criteria and training
requirements?
• What are the policies on performance evaluations,
compensation, and incentives?
• Will workers be salaried, paid an hourly rate, or
paid a piece rate?
• Will profit sharing be allowed, and if so, on what
criteria?

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 Operations Strategy: Human
Resources (cont.)
• Will workers perform individual tasks or work in
teams?
• Will they have supervisors or work in self-
managed work groups?
• How many levels of management will be
required?
• Should workforce be cross-trained?
• What efforts will be made in terms of retention?

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 Operations Strategy: Quality
• What is the target level of quality for our
products and services?
• How will it be measured?
• How will employees be involved with quality?
• What types of systems will be set up to ensure
quality?
• How will quality efforts be evaluated?
• How will customer perceptions of quality be
determined?
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 Operations Strategy: Supply
Chain Management
• Make vs. Buy decisions?
• Vertical Integration?
– degree to which a firm produces inputs that go into its
products
• Strategic Decisions
– How much work should be done outside the firm?
– On what basis should particular items be made in-
house?
– When should items be outsourced?
– How should suppliers be selected?

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Operations Strategy: Sourcing
(cont.)
– How many suppliers should be used?
– How can quality and dependability of
suppliers be ensured?
– What type of relationship should be
maintained with suppliers?
– How can suppliers be encouraged to
collaborate?
– What Channel to use for distribution

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 Operations Strategy: Operating
Systems
• a set of principles or procedures according to which
something is done
• How will operating systems execute strategic decisions?
• Information Technology is the enabler
• How does information technology support both customer
and worker demands for rapid access, storage, and
retrieval of information?
• How does information technology support decisions
making process related to inventory levels, scheduling
priorities, and reward systems?

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 Operations Strategy: Case

• Define ZARA’s competitive strategy?

• What are ZARA’s competitive priorities in operations, and
why?
• Considering 9 strategic decision areas of operations,
Identify ZARA’s decisions and activities relevant to each
strategic decision area?

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