Chapter 2 Operations Strategy and Competitiveness

1. Chapter 2Operations Strategy and Competitiveness • Operations Strategy • Competitive Dimensions • Order Qualifiers and Winners • A Framework for Manufacturing Strategy • Service Strategy Capacity Capabilities • Productivity Measures

2. Operations Strategy Strategy Process Example Customer Needs More Product Corporate Strategy Increase Org. Size Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory

3. Competitive Dimensions • Cost – • Product Quality and Reliability - • Delivery Speed - • Delivery Reliability - • Volume Flexibility – • Flexibility and New Product Introduction Speed - • Other Product-Specific Criteria -

4. Cost Flexibility Delivery Quality Dealing with Trade-offs For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. Firms must decide how they are going to compete on these dimensions. Who determines the winning combination? CUSTOMERS Current thinking - work to improve all four dimensions simultaneously

5. Order Qualifiers and Winners - Terry Hill • Order qualifiers • Order winners • Order losers

6. Service Breakthroughs • A brand name car can be an “order qualifier” • Repair services can be “order winners” • Examples: Warranty, Roadside Assistance, Leases, etc.

7. Kaplan and Norton’s Generic Strategy Map In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components: • Improve cost structure: Lower direct and indirect costs • Increase asset utilization: Reduce working and fixed capital

8. Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components: • Build the franchise: Develop new sources of revenue • Increase customer value: Work with existing customers to expand relationships with company

9. Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace: • Product leadership • Customer intimacy • Operational excellence

10. Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning: • Strategic competencies • Strategic technologies • Climate for action

11. Customer Needs New : Old product : product Competitive dimensions & reqs. Quality, Dependability, Speed, Flexibility, and Price Enterprise capabilities Operations & Supplier capabilities Technology Systems People R&D CIM JIT TQM Distribution Support Platforms Financial management Human resource management Information management Operations Strategy Framework

12. Steps in Developing a Manufacturing Strategy 1. Segment the market according to the product group. 2. Identify product requirements, demand patterns, and profit margins of each group. 3. Determine order qualifiers and winners for each group. 4. Convert order winners into specific performance requirements.

13. Distinctive Competencies • Organizational strengths (SWOT) possessed by few competing firms • e.g., ability to engineer small-sized products • Exploiting can lead to competitive advantage • Condition that increases chances of achieving strategy • e.g., miniaturization of products to meet customer demands and lower shipping costs • Sometimes referred to as core competencies

14. Strategic Capabilities • Process-based • Capabilities that transforms material or information and provide advantages • Systems-based • Capabilities that are broad-based involving the entire operating system and provide advantages • Organization-based • Capabilities that are difficult to replicate and provide abilities

15. Total Measure Productivity • Total measure Productivity = Outputs Inputs or = Goods and services produced All resources used

16. or or or or etc. Partial Measure Productivity • Partial measures of productivity =

17. or or etc. Multifactor Measure Productivity • Multifactor measures of productivity =

18. Example of Productivity Measurement • You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. • Which productivity measure should be used? • Answer: • Is productivity increasing or decreasing? • Answer:

19. Another Example A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. The restaurant counts cheeseburgers as equivalent to 1.2 hamburgers and chicken sandwiches as equivalent to .75 hamburgers. Five employees work 40 hours/week at the restaurant. If the restaurant sold 500 cheeseburgers, 700 hamburgers, and 1000 chicken sandwiches in one 40 hour week, what is its labor productivity?