Chapter 2 Operations strategy: Defining how firms compete, after studying this chapter you will be able to: Introduce the concept of operations strategy and its various components, and show how it relates to the overall business strategy of the firm; illustrate how operations strategy pertains to adding value for the customer; identify the different ways in which operations strategy can provide an organization with a competitive advantage;...
DAVIS F O U R T H E D I T I O N AQUILANO CHASE chapter Operations Strategy: Defining How Firms Compete © The McGraw-Hill Companies, Inc., 2003 PowerPoint Presentation by Charlie Cook Chapter Objectives Chapter Objectives • Introduce the concept of operations strategy and its various components, and show how it relates to the overall business strategy of the firm • Illustrate how operations strategy pertains to adding value for the customer • Identify the different ways in which operations strategy can provide an organization with a competitive advantage • Introduce the concept of tradeoffs between different strategies and the need for a firm to align its operations strategy to meet the © The McGrawHill needs of the particular Fundamentals of Operations Companies, Inc., 2003 markets it is serving Management 4e 2–2 Chapter Objectives (cont’d) Chapter Objectives (cont’d) • Explain the difference between order-qualifiers and order-winners as they pertain to operations strategy • Describe how firms are integrating manufacturing and services to provide an overall “bundle of benefits” to their customers Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–3 Managerial Issues Managerial Issues • Developing and Implementing Effective Strategies –Meeting the challenges of increased competition in a globalized business environment –Keeping up with technology advances –Learning to more with less –Staying ahead of copycat competitors –Keeping an eye on the future FundamentalsofOperations Management4e âTheMcGrawưHill Companies,Inc.,2003 24 OperationsStrategy OperationsStrategyAnOverview AnOverview ã Corporate strategy –Overall strategy adopted by the firm that defines the specific businesses in which the firm will compete and the way in which resources are acquired and allocated Corporate Business Functional Fundamentals of Operations Management 4e © The McGrawHill Operational Companies, Inc., 2003 2–5 Operations Strategy Operations Strategy – An Overview – An Overview • Strategic Business Unit (SBU) –A stand-alone business within a conglomerate (parent firm) that operates like an independent company • Business Strategy –How a strategic business unit (SBU) addresses the specific markets it serves and products it provides Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–6 Types of Business Strategies Types of Business Strategies Type Definition Low Cost Producing the lowest cost products in the market Market Segmentation Satisfying the needs of a particular market niche Product Differentiation Offering products that differ significantly from the competition Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–7 Operations Strategy Operations Strategy – An Overview – An Overview • Functional Strategies –Strategy developed by a function (e.g., marketing) within an organization to support the business strategy • Competitiveness –A company’s position in the marketplace relative to its competition Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–8 Operations Strategy Operations Strategy – An Overview – An Overview • Operations Strategy –How the operations function contributes to competitive advantage • Competitive Priorities –How the operations function provides a firm with a competitive advantage –Priorities—Low cost, high quality, fast delivery, flexibility, and service Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–9 What is Operations Strategy? What is Operations Strategy? • Operations Strategy –Determining how to best utilize the firm’s resources to achieve corporate objectives • Major long-term structural issues –How big we make the facilities? –Where we locate them? –When we build them? –What type of process(es) we install to make the products? Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–10 Trends Affecting Operations Trends Affecting Operations Strategy Decisions Strategy Decisions • Globalization –Global village with hyper-competition: • Continuous information technology advances • Lower trade barriers • Lower transportation costs • Emergence of newly industrialized countries (NIC) with high-growth markets and high standards of living Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–15 Trends Affecting Operations Trends Affecting Operations Strategy Decisions (cont’d) Strategy Decisions (cont’d) • Technology –Connectivity—anyone, anywhere, all the time –Speed—instantaneous transactions –Intangibility—focus on innovative services to gain competitive advantage • Simultaneous Competition on Multiple Competitive Priorities –No traditional trade-offs of priorities © The McGrawHill Fundamentals of Operations Companies, Inc., 2003 Management 4e 2–16 Competitive Priorities Competitive Priorities Type Priority Low Cost Providing low cost products Controlling costs across the board Quality Providing high quality products Focus is on product and process quality Delivery Providing products reliably and quickly Flexibility Providing a wide variety of products (mass customization) How fast a firm can produce a new product line Service Providing “value-added” service How products are delivered and supported Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–17 The Next Sources of The Next Sources of Competitive Advantage? Competitive Advantage? • Two New Trends –The use of environmentally friendly processes and environmentally friendly products –The use of information • Large quantities data can now be accurately stored and transmitted inexpensively • Competitive advantage can be gained through products and services that provide enhanced levels of feedback Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–18 Developing an Operations Strategy Developing an Operations Strategy from Competitive Priorities from Competitive Priorities • Factory Focus and Trade-offs –A factory could not focus on all four competitive priorities (cost, quality, delivery, and flexibility) • Focusing performance on one priority limits/eliminates the ability to focus on another priority • Plant-within-a-Plant (PWP) concept (Skinner) –Different locations with a facility would focus on their own competitive priority © The McGrawHill Fundamentals of Operations Companies, Inc., 2003 Management 4e 2–19 Developing an Operations Strategy Developing an Operations Strategy from Competitive Priorities (cont’d) from Competitive Priorities (cont’d) • Questioning the Trade-Offs –World-class operations led to the establishment of a hierarchy among the competitive priorities • Increased competitive capabilities led to increased performance on all priorities by all competitors • Focus shifted from cost minimization to maximizing the value added –Customer value is enhanced by the focus on multiple priorities Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–20 Time Line for Operations Strategies Time Line for Operations Strategies Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 Exhibit 2.3 2–21 Example of TradeOffs on Example of TradeOffs on Superior Performance Curves Superior Performance Curves Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 Exhibit 2.4 2–22 Order Qualifiers and Order Winners Order Qualifiers and Order Winners • Order Qualifiers –The minimum characteristics of a firm or its products that a firm must have to be considered as a source of purchase • Order Winners –The characteristics of a firm that distinguish it from its competition so that it is selected as the source of purchase ã ISO-9000 certification FundamentalsofOperations Management4e âTheMcGrawưHill Companies,Inc.,2003 2–23 Distinguishing between Distinguishing between Order Qualifiers and Order Winners Order Qualifiers and Order Winners Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 Exhibit 2.5 2–24 Focusing on Core Capabilities Focusing on Core Capabilities • Core Capabilities –Specific strengths that allow a company to achieve its competitive priorities –The skill or set of skills that the operations management function develops that allows the firm to differentiate itself from its competitors • Focusing is achieved by: –Divesting non-critical activities –Subcontracting ancillary activities and services Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–25 Integration of Manufacturing and Services Integration of Manufacturing and Services • The Customer’s Activity Cycle (CAC) Component Actions Pre-purchase activities Being responsive to customer inquires and the ability to demonstrate technical expertise Purchase activities Actual sale and delivery of the product and collecting payment Post-purchase activities After-sales service and product warranties Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–26 The Customer’s Activity Cycle The Customer’s Activity Cycle Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 Exhibit 2.6 2–27 Service Strategies for Manufacturing Firms Service Strategies for Manufacturing Firms (Wise and Baumgartner) (Wise and Baumgartner) Service Strategy Function Embedded Services Specific functions that are a part of the product itself Comprehensive Services The manufactured product is “married” to additional services Integrated Solutions Combining product and services into a seamless offering that addresses a specific customer requirement Distribution Control Manufacturing goes downstream to assume responsibility for product © The McGrawHill distribution Fundamentals of Operations Management 4e Companies, Inc., 2003 2–28 Additional Approaches for Integrating Additional Approaches for Integrating Manufacturing and Services Manufacturing and Services • Demonstration of Knowledge and Expertise –Reassuring customers by allowing them to view the production process and have access to production employees • Customer Training –Providing product training to customers to build product loyalty and increased use of products Fundamentals of Operations Management 4e © The McGrawHill Companies, Inc., 2003 2–29 ... What affects customer perceptions? ?of? ?value? © The McGrawHill Fundamentals? ?of? ?Operations? ? Companies, Inc.,? ?20 03 Management? ?4e 2? ?? 12 Maximizing Value Added in? ?Operations Maximizing Value Added in? ?Operations Fundamentals? ?of? ?Operations? ?... priorities Fundamentals? ?of? ?Operations? ? Management? ?4e © The McGrawHill Companies, Inc.,? ?20 03 2? ? ?20 Time Line for? ?Operations? ?Strategies Time Line for? ?Operations? ?Strategies Fundamentals? ?of? ?Operations? ? Management? ?4e ... Companies, Inc.,? ?20 03 Exhibit 2. 3 2? ? ?21 Example? ?of? ?TradeOffs on Example? ?of? ?TradeOffs on Superior Performance Curves Superior Performance Curves Fundamentals? ?of? ?Operations? ? Management? ?4e © The McGrawHill