Mark M.

Davis
Janelle Heineke

OPERATIONS MANAGEMENT
INTEGRATING MANUFACTURING AND SERVICES
FIFTH EDITION

PowerPoint Presentation by
Charlie Cook, The University of West Alabama
Copyright ©2005, The McGraw-Hill Companies, Inc.
CHAPTER

2 Operations Strategy
Defining how firms compete

PowerPoint Presentation by Charlie Cook

Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
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 leads to adding value
for the customer.
• Identify the ways operations strategy can help an
organization achieve a competitive advantage.
• Introduce the concept of trade-offs among different
strategies and the need for a firm to align its operations
strategy to meet the needs of the particular markets it
serves.

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2–3
CHAPTER OBJECTIVES
• Explain the difference between order-qualifiers and order-
winners as they pertain to operations strategy.
• Describe how firms integrate manufacturing and services
to provide an overall “bundle of benefits” to their
customers.

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2–4
 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 do more with less.
– Staying ahead of copycat competitors.
– Keeping an eye on the future.

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2–5
Operations Strategy – An Overview
• A Short History of Operations Strategy
– Corporate strategy largely developed by
marketing and finance functions within
companies.
• Lack of global competitors and competition
• Focus on low-cost labor and assembly-line
production
– Wickham Skinner believed that operations
(manufacturing) strategy was a complement to
corporate strategies and a competitive
weapon.
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2–6
 Operations Strategy Means
Adding Value for the Customer
Total Benefits
Perceived Customer Value = (2.1)
Total Costs
Perceived Customer Value = Total Benefits - Total Costs (2.2)

If benefits exceed costs, the customer

perceives value for the product or service.

“Value is in the eye of the beholder”

What affects customer perceptions of value?

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 Maximizing Value Added in Operations

Exhibit 2.1
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2–8
 Operations Strategy Means Adding
Value for the Customer (cont’d)
• How to add value:
– Reduce product costs to customer.
– Make the product more readily available.
– Provide faster service.
– Provide customers with additional relevant
information.
– Customize the product to the customer’s
specific needs.

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2–9
 Trends Affecting Operations
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

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2–10
 Trends Affecting Operations
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

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 The Generic Strategy Model
• Competitiveness
– A company’s position in the marketplace relative
to its competition.

• Competitive Priorities
– How the operations function provides a firm with
a competitive advantage.
– Priorities—Low cost, high quality, fast delivery,
flexibility, and service.

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 The Generic Strategy Model (cont’d)
• Competitive Priorities
Type Priority

Cost Providing low price 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.

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2–13
 The Next Sources of
Competitive Advantage?
• Two New Trends
– Environmentally friendly processes and
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.

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2–14
The Generic Strategy Model (cont’d)
• Critical Success Factors
– The activities, conditions, or other deliverables
that are necessary for the firm to achieve its
business goals.
• Distinctive (Core) Competency
– An exceptional capability that creates a
preference for a firm and its products or
services in the marketplace, enabling it to
achieve a leadership position over time.
Matching distinctive competencies to critical success
factors creates sustainable competitive advantage.

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 Generic
Strategy
Model

Exhibit 2.2
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 The Generic Strategy Model (cont’d)
• 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

Operational

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 The Generic Strategy Model (cont’d)
• Strategic Business Unit (SBU)
– A stand-alone business within a conglomerate
(parent firm) that operates like an independent
company.
• Business Unit Strategy
– How a strategic business unit (SBU) addresses
the specific markets it serves and products it
provides.

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2–18
 The Generic Strategy Model (cont’d)
• Functional Strategies
– Strategy developed by a function (e.g.,
marketing) within an organization to support the
business strategy.
• Operations Strategy
– How the operations function contributes to
competitive advantage.

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2–19
 The Generic Strategy Model (cont’d)
• Structural Operations Strategy Decisions
– Location: where do we locate them?
– Capacity: how big do we make the facilities?
– Vertical integration: which part of the supply
chain do we choose to control ourselves?
– Process technology: what type of process(es) do
we install to make the products?

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2–20
 The Generic Strategy Model (cont’d)
• Infrastructural Operations Strategy Decisions
– Workforce: whom do we hire?
– Quality management: how will we define,
measure and monitor quality in the
organization?
– Policies and procedures: how will we define how
work will be performed and how decisions will be
made?
– Organization structure: what hierarchical
structure will we choose for the organization?

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2–21
Operations Strategy and Trade-Offs
• 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.

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2–22
 Operations Strategy and Trade-Offs
(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.

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 Time Line for Operations Strategies

Exhibit 2.3
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 Example of Trade-Offs on
Superior Performance Curves

Exhibit 2.4
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 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
– Characteristics of a firm that distinguish it from
its competition so that it is selected as the
source of purchase.
• ISO-9000 certification

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 Distinguishing between Order-Qualifiers
and Order-Winners

Exhibit 2.5
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Contemporary Issues in Operations
Strategy:
• Focusing on Core Capabilities
– Specific strengths that allow a company to
achieve its competitive priorities and to
differentiate itself from its competitors.
– Focusing is achieved by:
• Divesting non-critical activities.
• Subcontracting ancillary activities and services
• Integrating Manufacturing and Services
– Creating a total package of good and services
to better address the overall needs of
customers.
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 Approaches for Integrating
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.

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