chapter 08
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© 2007 Pearson Education
Operations Strategy
Chapter 2Chapter 2
© 2007 Pearson Education
How Operations Strategy fits the Operations Management
Philosophy
Operations As a Competitive Weapon
Operations StrategyProject Management Process Strategy
Process AnalysisProcess Performance and Quality
Constraint ManagementProcess LayoutLean Systems
Supply Chain StrategyLocation
Inventory ManagementForecasting
Sales and Operations PlanningResource Planning
Scheduling
© 2007 Pearson Education
Starbucks
If someone says, “Lets go out for coffee,” Starbucks often comes to mind.
Entrepreneur Howard Schultz had an operations strategy in mind in 1990 when he bought the 17-store Seattle chain and turned it into a global success.
Service strategy was key. Offering a variety of specialized products
and services, such as Internet access, phone ahead ordering, and CD burning, all in a socially interactive atmosphere.
© 2007 Pearson Education
Operations Strategy
Operations strategy is the means by which operations implements the firm’s corporate strategy and helps to build a customer-driven firm.
It links long-term and short-term operations decisions to corporate strategy.
It is the core of managing processes and value chains.
© 2007 Pearson Education
Customer-DrivenOperations Strategy
Corporate strategy views the organization as a system of interconnected parts, each working with the others to achieve desired goals.
Operations Strategy supports the corporate strategy and requires continuous cross-functional interaction.
The operations strategy should be customer driven.
© 2007 Pearson Education
Developing a Corporate Strategy
Developing a corporate strategy involves three considerations:
1. Monitoring and adapting to the environment2. Identifying and developing core competencies3. Developing the firm’s core processes
Adapting requires environmental scanning to monitor trends for opportunities and threats.
Core Competencies are the unique resources and strengths an organization possesses.
© 2007 Pearson Education
Core Competencies
Core competencies include…A well-trained and flexible WorkforceHaving well-located & flexible FacilitiesHaving Market and Financial Know-How.Expertise in Systems and Technology.
The core competencies should determine the firm’s core processes.These can include customer relations, new
service/product development, order fulfillment, and supplier relationships.
A firm may have all of these or focus on a subset of them, as determined by its core competencies.
© 2007 Pearson Education
Global Strategies
A global strategy may include buying foreign services or parts and entering or expanding foreign markets.
Two effective global strategies are:
1. Strategic Alliancesa) Collaborative efforts
b) Joint ventures
c) Technology licensing
2. Locating abroad
© 2007 Pearson Education
Market Analysis
A Market Analysis is one key to developing a customer-driven strategy, and is accomplished in two parts.Market Segmentation, which identifies groups of
customers with enough in common to warrant developing services and/or products for them.
Needs Assessment identifies the needs of each market segment. Needs include such things as:Service or product needsDelivery system needsVolume needs
© 2007 Pearson Education
Competitive priorities• cost• quality• time• flexibility
Competitive priorities• cost• quality• time• flexibility
Market analysis• segmentation• needs analysis
Market analysis• segmentation• needs analysis
Arriving at the Competitive Priorities
Corporate Strategy• environmental scanning• core competencies• core processes• global strategies
Corporate Strategy• environmental scanning• core competencies• core processes• global strategies
© 2007 Pearson Education
Competitive Priorities
Cost 1. Low-cost operationsQuality 2. Top quality
3. Consistent qualityTime 4. Delivery speed
5. On-time delivery6. Development speed
Flexibility 7. Customization8. Variety9. Volume flexibility
© 2007 Pearson Education
Competitive Capabilities
The Competitive Capabilities are the cost, quality, time and flexibility dimensions of competitive priorities that a process or value chain actually possesses and is able to deliver. Low Cost means delivering a service or
product at the lowest possible cost to the satisfaction of the customer.
© 2007 Pearson Education
Top Quality: Delivering an outstanding service or product. Considerable interaction with the customers
may be required to determine what that means.
Consistent Quality: Producing services or products that meet design specifications on a consistent basis.
Quality as aCompetitive Capability
© 2007 Pearson Education
Time as aCompetitive Capability
Delivery Speed is quickly filling a customer’s order.Lead Time is the time between receipt of an
order and filling the order. On-Time Delivery means meeting the
delivery time promises. Development Speed is quickly introducing
a new service or product. Time-Based Competition is a strategy
that focuses on development speed and delivery speed.
© 2007 Pearson Education
Customization means satisfying the unique needs of each customer by changing the service or product designs.
Variety involves handling a wide assortment of services or products efficiently.
Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.
Flexibility as aCompetitive Capability
© 2007 Pearson Education
Northrup Grumman Newport News Ship Building
The world’s only producer of full-sized aircraft carriers
Long lead times of 8 years or more often involve many changes.
Their processes have a high degree of flexibility to handle changes in design.
Flexibility in workforce skills as well as process flexibility is necessary.
© 2007 Pearson Education
Order Winners and Order Qualifiers
These are criteria used by customers in service or product selection.
Order Winners are criteria for differentiating services or products of one firm from those of another. Price, quality, time, flexibility, after sales
support, reputation, etc. Order Qualifiers are demonstrated levels
of performance required to do business in a particular market segment.
© 2007 Pearson Education
Service or Product Development Strategies
Product Variety: Offering a wide assortment. Design: Ease of use and desirable features. Innovation: Translate new technology into new
products. Service: Products with services added. Leader: Being first to introduce new services and/or
products. Middle of the Road: Wait for the leaders to
introduce new services and/or products. Laggard: Wait to see if the leader’s new services
and/or products catch on in the market.
© 2007 Pearson Education
Service Package
A Service Package is a collection of goods and services provided by a service process to its customers. It consists of four features:
1. Supporting Facility: The physical resources that must be in place before a service can be offered.
2. Facilitating Goods: The materials purchased or consumed by the customer or the items provided by the customer to receive a service.
3. Explicit Services: The readily observable benefits.
4. Implicit Services: Psychological benefits.
© 2007 Pearson Education
Quality Function Deployment (QDF)
Quality Function Deployment (QDF) is a means of translating customer requirements into the appropriate technical requirements for service or product development. Questions it seeks to answer are…
1. What do our customers want?
2. How well are we doing relative to our competition?
3. What technical measures relate to our customers’ needs?
4. What are the relationships between what our customers want and the technical measures?
5. How does our service or product performance compare to the competition?
6. What are the potential technical trade-offs?
© 2007 Pearson Education© 2007 Pearson Education
QualityFunctionDeployment
Voice of the
Customer
Competitive Analysis
Voice of the
Engineer
Correlations
Technical Comparison
““House of Quality”House of Quality”
© 2007 Pearson Education
Development Process
Service or product Service or product
not profitablenot profitable
Need to rethinkNeed to rethinkthe idea.the idea.
Post-launch Post-launch reviewreview
DesignDesign
Specifications are developed for new services or products AnalysisAnalysis
A critical review of how it will be produced, resource requirements and capabilities.
DevelopmentDevelopment
Cross-functional coordination, process design. Full LaunchFull Launch
Sales & promotion
© 2007 Pearson Education
Concurrent Engineering
Concurrent Engineering brings product engineers, process engineers, marketers, buyers, information specialists, quality specialists, and suppliers together to design a product and the processes that will meet customer expectations.
This is an essential cross-functional effort during the service and/or product development phase to insure a timely and well-coordinated process that brings value to the customer.
© 2007 Pearson Education
Corporate Strategy and Key Operations Management Decisions
Capabilities
Performance Gap?
NoNo
YesYes
Operations strategy
Decisions• Managing Processes• Managing Value Chains
New Service/Product Development
New Service/Product Development
Market analysis
Competitive priorities
Corporate strategyCorporate strategy
© 2007 Pearson Education
Matching Capabilities to Priorities
The table below shows how a credit card division matched their capabilities to their priorities and uncovered gaps in their operating strategy.
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