Operations Strategy

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Operations Strategy
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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.
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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
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Competitive Dimensions
All of the competitive dimensions are
important why not try to excel along every one?
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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.
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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 firms products to even be
considered for purchase. Example basic quality
necessary to be considered a good car (consumer
reports).
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Example

• Southwest Airlines overall corporate strategy is
  to
• serve price- and convenience-sensitive
  customers.

Corporate Strategy
Marketing Strategy
Finance Strategy
Operations Strategy
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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

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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

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Examples
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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

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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.

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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?

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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!

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Examples
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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

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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, SBUs,
  etc)