Chapter 1, HeizerRender, 5th edition

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Operations ManagementOperations Strategy for
Competitive AdvantageChapter 2
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Outline

• Global Company Profile Komatsu
• Identifying Missions and Strategies
• Mission
• Strategy
• Achieving Competitive Advantage Through
  Operations
• Competing on Differentiation
• Competing on Cost
• Competing on Response

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Outline - continued

• Ten Strategic OM decisions
• Issues in Operations Strategy
• Research
• Preconditions
• Dynamics
• Strategy Development and Implementation
• Identify Critical Success Factors
• Build and Staff the Organization
• Integrate OM with Other Activities

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Learning Objectives

• When you complete this chapter, you should be
  able to
• Identify or Define
• Mission
• Strategy
• Ten Decisions of OM
• Describe or Explain
• Specific approaches used by OM to achieve
  strategic concepts
• Differentiation
• Low Cost
• Response

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Komatsu Strategies

• 1960s - licensed design and technology from
  others improved quality
• 1970s - became global enterprise and built export
  markets aided by increasing value of yen
• 1980s - joint ventures with Dresser, and
  manufacturing outside Japan
• 1990s - used the latest technology to improve
  quality and drive down costs focused on
  electronic engine controls
• 2000s - increased European presence through
  ownership and joint ventures

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Komatsu Strategies

• Each strategy established in light of
• threats and opportunities in the environment
• strengths and weaknesses of the organization
• (related to environment)

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Mission
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Sample Mission - Circle K

• As a service company, our mission is to
• Satisfy our customers immediate needs and
  wants by providing them with a wide variety of
  goods and services at multiple locations.

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Sample Mission - Merck

• The mission of Merck is to provide society with
  superior products and services - innovations and
  solutions that improve the quality of life and
  satisfy customer needs - to provide employees
  with meaningful work and advancement
  opportunities and investors with a superior rate
  of return

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Factors Affecting Mission
Philosophy
Values
Profitability
Environment
Growth
Mission
Customers
Public Image
Benefit to
Society
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Mission/Strategy

• Mission - where you are going
• Strategy - how you are going to get there

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Strategy
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Strategy Process
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Competitive Advantage Through

• Differentiation
• Cost leadership
• Quick response
• better, cheaper, more responsive

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Competing on Differentiation

• Uniqueness - can go beyond both the physical
  characteristics and service attributes to
  encompass everything that impacts customers
  perception of value

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Competing on Cost

• Maximum value as perceived by customer
• Does not imply low value or low quality

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Competing on Response

• Flexible
• Reliable
• Rapid
• Requires institutionalization within the firm of
  the ability to respond

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Competing On Any Basis

• Probably requires the institutionalization within
  the firm of the ability to change, to adapt

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OMs Contribution to Strategy
Operations Decisions
Specific Strategy Used
Competitive Advantage
Examples
Quality Product Process Location Layout Human
Resource Supply Chain Inventory Scheduling Mainten
ance
FLEXIBILITY
Sonys constant innovation of new products
Design
Compaq Computers ability to follow the PC market
Volume
Southwest Airlines No-frills service
LOW COST
DELIVERY
Pizza Huts five-minute guarantee at lunchtime
Speed
Differentiation (Better)
Federal Expresss absolutely, positively on time
Dependability
QUALITY
Response (Faster)
Motorolas automotive products ignition systems
Conformance
Cost leadership (Cheaper)
Motorolas pagers
Performance
IBMs after-sale service on mainframe computers
AFTER-SALE SERVICE
Fidelity Securitys broad line of mutual funds
BROAD PRODUCT LINE
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10 Decision Areas of OM

• Goods service design
• Quality
• Process capacity design
• Location selection
• Layout design
• Human resource and job
  design
• Supply-chain
  management
• Inventory
• 
  Scheduling
• 
  Maintenance

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Goods Services and the 10 Operations Management
Decisions
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Goods Services and the 10 Operations Management
Decisions
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Goods Services and the 10 Operations Management
Decisions
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Goods Services and the 10 Operations Management
Decisions
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Process Design
Customization at high Volume
Process-focused Job Shops (Print shop,
emergency room , machine shop, fine dining
Mass Customization
(Dell Computers PC)
Repetitive (modular) focus Assembly line (Cars,
appliances, TVs, fast-food restaurants)
Product-focused Continuous (steel, beer, paper,
bread)
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Operations Strategies for Two Drug Companies
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Operations Strategies for Two Drug Companies -
continued
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Operations Strategies for Two Drug Companies -
continued
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Operations Strategies for Two Drug Companies -
continued
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Characteristics of High ROI Firms

• High quality product
• High capacity utilization
• High operating effectiveness
• Low investment intensity
• Low direct cost per unit

From the PIMS study of the Strategic
Planning Institute
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Strategic Options Managers Use to Gain
Competitive Advantage

• 28 - Operations Management
• 18 - Marketing/distribution
• 17 - Momentum/name recognition
• 16 - Quality/service
• 14 - Good management
• 4 - Financial resources
• 3 - Other

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Strategic Options Managers Use to Gain
Competitive Advantage

• 28 Operations Management
• Low- cost product
• Product-line breadth
• Technical superiority
• Product characteristics/differentiation
• Continuing product innovation
• Low-price/high-value offerings
• Efficient, flexible operations adaptable to
  consumers
• Engineering research development
• Location
• Scheduling

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Strategic Options Managers Use to Gain
Competitive Advantage - continued

• 18 Marketing/Distribution
• 17 Momentum/name recognition
• 16 Quality/service
• 14 Good management
• 4 Financial resources
• 3 Other

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Preconditions -To Implement a Strategy

• One must understand
• Strengths weaknesses of competitors and new
  entrants into the market
• Current and prospective environmental, legal, and
  economic issues
• The notion of product life cycle
• Resources available with the firm and within the
  OM function
• Integration of OM strategy with company strategy
  and with other functions.

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Impetus for Strategy Change

• Changes in the organization
• Stages in the product life cycle
• Changes in the environment

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Stages in the Product Life Cycle
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Strategy and Issues During a Products Life
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Strategy Issues During Product Life
Introduction

• Company Strategy Issues
• OM Strategy Issues

Best period to increase market share RD
engineering are critical Product design and
development are critical Frequent product and
process design changes Over-capacity Short
production runs High skilled-labor content High
production costs Limited number of models Utmost
attentions to quality Quick elimination of
market-revealed design defects
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Strategy Issues During Product Life
Growth
Practical to change prices or quality
image Marketing is critical Strengthen
niche Forecasting is critical Product and
process reliability Competitive product
improvements and options Shift toward product
oriented Enhance distribution

• Company Strategy
• Issues
• OM Strategy
• Issues

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Strategy Issues During Product Life
Maturity
Poor time to increase market share Competitive
costs become critical Poor time to change price,
image, or quality Defend position via fresh
promotional and distribution approaches Standardi
zation Less rapid product changes and more minor
annual model changes Optimum capacity Increasing
stability of manufacturing process Lower labor
skills Long production runs Attention to product
improvement and cost cutting Re-examination of
necessity of design compromises

• Company Strategy
• Issues
• OM Strategy
• Issues

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Strategy Issues During Product Life
Decline
Cost control critical to market share Little
product differentiation Cost minimization Overcapa
city in the industry Prune line to eliminate
items not returning Good margin Reduce capacity

• Company Strategy
• Issues
• OM Strategy
• Issues

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Strategy Development and Implementation

• Identify critical success factors
• Build and staff the organization

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SWOT Analysis Process

• Environmental Analysis

• Determine Corporate Mission

• Form a Strategy

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SWOT Analysis to Strategy Formulation
Mission
External
Internal
O
pportunities
S
trengths
Strategy
Internal
External
W
eaknesses
T
hreats
Competitive
Advantage
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Identifying Critical Success Factors
Decisions Sample Options Product Customized, or
standardized Quality Define customer
expectations and how to achieve
them Process Facility size, technology Location
Near supplier or customer Layout Work cells or
assembly line Human resource Specialized or
enriched jobs Supply chain
Single or multiple source suppliers Inventory Whe
n to reorder, how much to keep on
hand Schedule Stable or fluctuating productions
rate Maintenance Repair as required or
preventive maintenance
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Critical Success FactorsMicrosoft Compaq

• They focus on one business
• They are global
• Their senior management is actively involved in
  defining and improving the product development
  process
• They recruit and retain the top people in their
  fields.
• They understand that speed to market reinforces
  product quality

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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
Courteous, but limited passenger service
No seat assignments No baggage transfers Automated
ticketing machines No meals
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
Lower gate costs at secondary airports High
number of flights, reduces employee idle time
between flights
Short haul, point-to-point routes, often to
secondary airports
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
High number of flights reduces employee idle time
between flights Saturate a city with flights
flowering administrative costs per passenger for
that city
Frequent, reliable schedules
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
Pilot training on only one type of
aircraft Reduced maintenance inventory required
because of only one type of aircraft Excellent
supplier relations with Boeing has aided financing
Standardized fleet of Boeing 357 aircraft
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
Flexible employees and standard planes aids
scheduling Flexible union contracts Maintenance
personnel trained on only one type of aircraft 15
minute gate turnarounds
High aircraft utilization
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
High level of stock ownership Hire for attitude,
then train High employee compensation Empowered
employees Automated ticket machines
Lean, productive employees
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Activity Mapping Southwest Airlines Low Cost
Competitive Advantage
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Vanguards Activity System
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How It Works