Lecture Fundamentals of operations management (4/e): Chapter 2 - Davis, Aquilano, Chase

DAVIS
F   O   U   R   T   H       E   D   I   T   I   O   N

AQUILANO
CHASE

chapter 2

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.

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Management 4e 

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

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Operations Strategy 
Operations Strategy – An Overview
– An Overview
• 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

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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.

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Management 4e 

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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.

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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.

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Management 4e 

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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.

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Management 4e 

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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 do we make the facilities?
–Where do we locate them?
–When do we build them?
–What type of process(es) do we install to make
the products?
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Hierarchy of Operational Planning
Hierarchy of Operational Planning

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Exhibit 2.1
2–11


Operations Strategy Means 
Operations Strategy Means 
Adding Value for the Customer
Adding Value for the Customer
Perceived Customer Value
Perceived Customer Value

Total Benefits
Total Costs

(2.1)

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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Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
2–12


Maximizing Value Added in Operations
Maximizing Value Added in Operations

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Exhibit 2.2
2–13


Operations Strategy Means 
Operations Strategy Means 
Adding Value for the Customer
Adding Value for the Customer
• 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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Management 4e 

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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

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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
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Management 4e 
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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.

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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.

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Management 4e 

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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.
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Management 4e 
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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.
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Time Line for Operations Strategies
Time Line for Operations Strategies

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Exhibit 2.3
2–21


Example of Trade­Offs on
Example of Trade­Offs on
Superior Performance Curves
Superior Performance Curves

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Management 4e 

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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.
• ISO-9000 certification

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Management 4e 

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Distinguishing between
Distinguishing between
Order Qualifiers and Order Winners
Order Qualifiers and Order Winners

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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.
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Management 4e 

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Companies, Inc., 2003
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