Operations Strategy What is Operations Strategy ?



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Operations Strategy

What is Operations Strategy ?

  • Operations Strategy is concerned with setting broad policies and plans for using firm resources to best support long-term competitive strategy.
  • Operations strategy needs to support overall corporate strategy.

Competitive Dimensions

  • Cost
  • Quality (product & process)
  • Delivery Speed
  • Delivery Reliability
  • Demand Management
  • Variety
  • Innovation
  • Make it cheap
  • Make it good
  • Make it fast
  • Deliver as promised
  • Handle Changes in Demand
  • Make more than one type
  • First mover advantage

Competitive Dimensions

  • All of the competitive dimensions are important…
  • why not try to excel along every one?

Competitive Dimensions and Trade-offs

  • Trade-offs
  • Trade-offs: Decisions that arise because of the inability of processes to excel simultaneously across all competitive dimensions.

Which Dimensions Should Be the Focus?

  • Order winners: Criterion that differentiates one firm from another.
  • Examples: Cost (Southwest Airlines), service quality (Ritz-Carlton Hotels), Flexibility (Dell)
  • Order qualifier: Criterion that permits the firm’s products to even be considered for purchase.
  • Example: basic quality necessary to be considered a good car (consumer reports).

Example

  • Corporate Strategy
  • Marketing Strategy
  • Finance
  • Strategy
  • Operations Strategy

Developing an Operations Strategy

  • Segment the market according to the product group. Example: High-end vs. low-end consumers
  • Identify (a) product requirements, (b) demand patterns, (c) profit margins. Example: many components, seasonal, low demand, high profit margin.
  • Determine the order winners and order qualifiers. Example: delivery speed (winner), cost (qualifier)
  • Convert order winners into specific performance requirements. Example: Must sell at or below $600

Developing an Operations Strategy

  • The next step is to analyze the process level…
  • Define the complexity and volume of your product/service.
  • Define whether you offer few specific products/services or highly customized products/services.
  • Determine product design, process design, supply chain design, supplier relations, capacity management plan & technology choice

Examples

Examples

  • Southwest Operations – low cost
    • Point-to-point between midsize cities & secondary airports in large cities
    • 15-min gate turnaround
    • No meals
    • No assigned seats
    • No interline baggage checking
    • No premium classes of service
    • Automated gate ticketing
    • Standardized fleet of aircraft

Measuring whether the strategy is working

  • Productivity is a common measure for how well a company is utilizing its resources
  • Productivity measurement shows how well the company performs for a given level of inputs.
  • Partial measures may give more specific details about performance.

Productivity Measurement

  • Example: Consider the following case. A bank has net output (income) of $500,000. The bank employs 40,000 people.
  • The partial labor productivity is 500,000 / 40,000 = 12.5
  • What does this tell you?

Productivity Measurement

  • The productivity index is a relative measure.
  • It has to be compared with something else:
          • Benchmarking.
          • Changes over time.
    • The important thing is to be consistent in measurement!

Examples

Examples

  • Walmart – low cost
    • High investment into IT to manage inventory, analyze point of sales data, track shipments, etc.
    • Management by data
    • Scale
    • Negotiation power with suppliers

Summary and Conclusions

  • Firms must trade-off competitive dimensions when defining operations strategy.
  • This can be done by defining order winners and order qualifiers.
  • A Productivity Index can measure the relative performance between firms (or products, SBU’s, etc)

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