Operations Strategy

Operations Strategy


wStrategy Formulation

wCompetitive Priorities

wOperations’ Role in Corporate Strategy

wStrategy and the Internet

wStrategic Decisions in Operations

wStrategy Deployment

wIssues and Trends in Operations

Four Steps for Strategy Formulation

wDefining a primary task

nWhat is the firm in the business of doing?

wAssessing core competencies

nWhat does the firm do better than anyone else?

wDetermining order winners and order qualifiers

nWhat wins the order?

nWhat qualifies an item to be considered for purchase?

wPositioning the firm

nHow will the firm compete?

Competitive Priorities





Competitive Priorities: Cost

wLincoln Electric

nreduced costs by $10 million a year for 10 years

nskilled machine operators save the company millions that would have been spent on automated equipment

wSouthwest Airlines

none type of airplane facilitates crew changes, record-keeping, maintenance, and inventory costs

ndirect flights mean no baggage transfers

n$30 million annual savings in travel agent commissions by requiring customers to contact the airline directly

Competitive Priorities: Quality

wRitz-Carlton – one customer at a time

nEvery employee is empowered to satisfy a guest’s wish

nTeams at all levels set objectives and devise quality action plans

nEach hotel has a quality leader

nQuality reports tracks

lguest room preventive maintenance cycles

lpercentage of check-ins with no waiting

ltime spent to achieve industry-best clean room appearance

nGuest Preference Reports are recorded in a database

Competitive Priorities: Flexibility

wAndersen Windows

nnumber of products offered grew from 28,000 to 86,000

nnumber of errors are down to 1 per 200 truckloads

wCustom Foot Shoe Store:

ncustomer’s feet are scanned electronically to capture measurements

ncustom shoes are mailed to the customer’s home in weeks

nprices are comparable to off-the-shelf shoes

wNational Bicycle Industrial Company

noffers 11,231,862 variations

ndelivers within two weeks at costs only 10% above standard models

Competitive Priorities: Speed


nadvertises a 15-minute mortgage approval

wL.L. Bean

nships orders the day they are received


nreplenishes its stock twice a week


nproduces electronic testing equipment in five days

wGeneral Electric

nreduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hours


nships custom-built computers in two days


nneeds less than 30 minutes to build to order pagers

Operations’ Role in Corporate Strategy

wOperations provides support for a differentiated strategy

wOperations serves as a firm’s distinctive competence in executing similar strategies better than competitors

Operations Strategy at Wal-Mart

Strategy and the Internet

wInternet can be used to create a distinctive business strategy


wunlimited capacity and a huge market

wall work is done by buyers and sellers and there is no marginal cost


wintegrated value chain is its competitive advantage

Strategy and the Internet (cont.)

wInternet can be used to strengthen existing competitive advantages by integrating new and traditional activities

nGE’s Trading Process Network: an automated Web-based purchasing system

lcut average purchasing cost in half

lenabled a much larger group of suppliers to bid on jobs

lcustomers were able to track their orders through shop in real time


lsells $2 billion a month over the Internet

lpurchases 80% of its direct materials online

lreplaced 19,000 sales-order faxes received daily

Strategy and the Internet (cont.)

wLessons from the dot com shakedown

nInternet is the great equalizer

lallows innovations to be copied with little investment

lcompanies may reach larger market

lcustomers have more information and can compare prices and features of their products.

lThese benefits are temporary unless…

nCompanies provide unique value to customer

Strategic Decisions in Operations


Operations Strategy:
Products and Services


nproducts and services are made to customer specifications after an order has been received


nproducts and services are made in anticipation of demand


nproducts and services add options according to customer specifications

Production Strategy:
Processes and technology


none-at-a-time production of a product to customer order

wBatch production

nsystems process many different jobs at the same time in groups (or batches)

wMass production

nlarge volumes of a standard product for a mass market

wContinuous production

nused for very high volume commodity products

Product-Process Matrix

Service Strategy:
Processes and Technology

wProfessional service

nhighly customized and very labor intensive

wService shop

ncustomized and labor intensive

wMass service

nless customized and less labor intensive

wService Factory

nleast customized and least labor intensive

Service-Process Matrix

Operations Strategy:
Capacity and Facility

wCapacity strategic decisions include:

nWhen, how much, and in what form to alter capacity

wFacility strategic decisions include:

nwhether demand should be met with a few large facilities or with several smaller ones

nwhether facilities should focus on serving certain geographic regions, product lines, or customers

nfacility location can also be a strategic decision

Operations Strategy: Human Resources

wWhat is skill levels and degree of autonomy required to operate production system?

wWhat are training requirements and selection criteria?

wWhat are policies on performance evaluations, compensation, and incentives?

wWill workers be salaried, paid an hourly rate, or paid a piece rate?

wWill profit sharing be allowed, and if so, on what criteria?

Operations Strategy: Human Resources (cont.)

wWill workers perform individual tasks or work in teams?

wWill they have supervisors or work in self-managed work groups?

wHow many levels of management will be required?

wWill extensive worker training be necessary?

wShould workforce be cross-trained?

wWhat efforts will be made in terms of retention?

Operations Strategy: Quality

wWhat is target level of quality for our products and services?

wHow will it be measured?

wHow will employees be involved with quality?

wWhat will be the responsibilities of the quality department?

Operations Strategy: Quality (cont.)

wWhat types of systems will be set up to ensure quality?

wHow will quality awareness be maintained?

wHow will quality efforts be evaluated?

wHow will customer perceptions of quality be determined?

wHow will decisions in other functional areas affect quality?

Operations Strategy: Sourcing

wVertical integration

ndegree to which a firm produces parts that go into its products

wStrategic Decisions

nHow much of work should be done outside the firm?

nOn what basis should particular items be made in-house?

nWhen should items be outsourced?

nHow should suppliers be selected?

Operations Strategy: Sourcing (cont.)

nWhat type of relationship should be maintained with suppliers?

nWhat is expected from suppliers?

nHow many suppliers should be used?

nHow can quality and dependability of suppliers be ensured?

nHow can suppliers be encouraged to collaborate?

Operations Strategy: Operating Systems

wHow will operating systems execute strategic decisions?

wHow to align information technology and operations strategic goals?

wHow information technology supports both customer and worker demands for rapid access, storage, and retrieval of information?

wHow information technology support decisions making process related to inventory levels, scheduling priorities, and reward systems?

Strategic Planning

Key Performance Indicators


Robert Kaplan and David

Norton, Strategy Maps:

Converting Intangible

Assets into Tangible

Outcomes (Boston:

Harvard Business School

Press, 2004), Figure 3-2,

p. 67

Balanced Scorecard

Issues and Trends in Operations

wGlobal markets, global sourcing, and global operations

wVirtual companies

wGreater choice, more individualism

wEmphasis on service

wSpeed and flexibility

Issues and Trends in Operations (cont.)

wSupply chains

wCollaborative commerce

wTechnological advances

wKnowledge and ability to learn

wEnvironmental and social responsibilities

Changing Corporation




Source of strength








wPhysical assets

Changing Corporation (cont.)







wVertical integration

wMass production





Changing Corporation (cont.)



Job expectations







wTo compete


wAffordable best


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