Operations StrategyWhat is Operations Strategy ?Competitive DimensionsSlide 4Competitive Dimensions and Trade-offsWhich Dimensions Should Be the Focus?ExampleDeveloping an Operations StrategySlide 9ExamplesSlide 11Measuring whether the strategy is workingProductivity MeasurementSlide 14Slide 15Slide 16Summary and ConclusionsOperations StrategyOperations StrategyWhat is 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 DimensionsCompetitive Dimensions1. Cost2. Quality (product & process)3. Delivery Speed4. Delivery Reliability5. Demand Management6. Variety 7. InnovationMake it cheapMake it goodMake it fastDeliver as promisedHandle Changes in DemandMake more than one typeFirst mover advantageCompetitive DimensionsCompetitive DimensionsAll of the competitive dimensions are important…why not try to excel along every one?Competitive Dimensions and Trade-offsCompetitive Dimensions and Trade-offsTrade-offsTrade-offs: Decisions that arise because of the inability of processes to excel simultaneously across all competitive dimensions.Which Dimensions Should Be the Focus?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).ExampleExampleSouthwest Airlines overall corporate strategy is to “serve price- and convenience-sensitive customers.”Corporate StrategyMarketing StrategyFinanceStrategyOperations StrategyDeveloping an Operations StrategyDeveloping an Operations Strategy1. Segment the market according to the product group. Example: High-end vs. low-end consumers2. Identify (a) product requirements, (b) demand patterns, (c) profit margins. Example: many components, seasonal, low demand, high profit margin.3. Determine the order winners and order qualifiers. Example: delivery speed (winner), cost (qualifier) 4. Convert order winners into specific performance requirements. Example: Must sell at or below $600Developing an Operations StrategyDeveloping an Operations StrategyThe next step is to analyze the process level…1. Define the complexity and volume of your product/service.2. Define whether you offer few specific products/services or highly customized products/services.3. Determine product design, process design, supply chain design, supplier relations, capacity management plan & technology choiceExamplesExamplesExamplesExamples•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 aircraftMeasuring whether the strategy is workingMeasuring whether the strategy is working Productivity is a common measure for how well a company is utilizing its resourcesInputsOutputs ty Productivi •Productivity measurement shows how well the company performs for a given level of inputs.•Partial measures may give more specific details about performance.MaterialOutputor CaptialOutputor LaborOutputProductivity MeasurementProductivity MeasurementExample: 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 = 12.5What does this tell you?Productivity MeasurementProductivity MeasurementThe productivity index is a relative measure. It has to be compared with something else:1. Benchmarking.2. Changes over time.The important thing is to be consistent in measurement!ExamplesExamplesExamplesExamples•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 suppliersSummary and ConclusionsSummary and Conclusions1. Firms must trade-off competitive dimensions when defining operations strategy.2. This can be done by defining order winners and order qualifiers.3. A Productivity Index can measure the relative performance between firms (or products, SBU’s,