operations strategy

1. ISAT 211 Mod 2-1© 1997 M. Zarrugh
ISAT 211 Module 2:
Competitiveness and Operations Strategy
The learning objectives of this module are
– To explain the concept of competitiveness and how it
relates to productivity
– To recognize the role of competitiveness in shaping
operations strategy
– To explain the basic competitive priorities in which
companies compete
– To identify steps for formulating an operations strategy
– To explain how operations and manufacturing strategy
support positioning (how the firm will compete)

2. ISAT 211 Mod 2-2© 1997 M. Zarrugh
Competitiveness:
National and Company-Specific
 Competitiveness of a nation is its
comparative ability to sell its
products in the global markets while
raising or maintaining its standard of
living.
 Competitiveness of a company is its
ability to compete and prosper in the
marketplace.
 Competitiveness can be thought of as
a measure of productivity or the
efficiency of converting natural and
human resources into useful products
and services.

3. ISAT 211 Mod 2-3© 1997 M. Zarrugh
Productivity:
International Comparison
60
70
80
90
100
110
120
130
1980 1982 1984 1986 1988 1990 1992 1994 1996
US
Japan
Germany
Year
Outputperhour
inmanufacturing
1992=100
Source: U.S. Bureau of Labor Statistics, March 1998

4. ISAT 211 Mod 2-4© 1997 M. Zarrugh
Competitiveness:
A Measure of Productivity
 Mathematically productivity is defined by
Productivity =
output (gain)
input (cost)
 Output can represent: ________________________
 Input can be: _______________________________
 How does productivity increase or decrease?
– become more efficient? ________________________
– reduce cost? _________. increased cost? __________
– contract or expand? ___________________________
– new techniques or technologies? _________________

5. ISAT 211 Mod 2-5© 1997 M. Zarrugh
Competitiveness:
A Measure of Productivity
 Mathematically productivity is defined by
Productivity =
output (gain)
input (cost)
Partial measure:
Output Output Output Output
or or or
Labor Capital Materials Energy
Multifactor measure:
Output Output
or
Labor + Capital + Energy Labor + Capital + Materials

6. ISAT 211 Mod 2-6© 1997 M. Zarrugh
Productivity: Global Comparison of Changes
in Input and Output
-4
-2
0
2
4
6
8
10
U.S.
Japan
Germany
France
Italy
Sweden
U.K.
Canada
Country
%Change(1994-1995)
Input
Output

7. ISAT 211 Mod 2-7© 1997 M. Zarrugh
It took 500 hrs of labor to produce 200 units of a product. The
product sells for $160 each. Total labor cost is $14/hr on the average.
Material cost is $30/unit. Compute labor productivity.
Labor Productivity:
A Numerical Example

8. ISAT 211 Mod 2-8© 1997 M. Zarrugh
It took 500 hrs of labor to produce 200 units of a product. The
product sells for $160 each. Total labor cost is $14/hr on the average.
Material cost is $30/unit. Compute labor productivity.
Solution: Here are two from many ways to compute productivity:
Total output = 200 units x $160/unit = $32,000
Total input = 500 hrs x $14/hr + 200 units x $30/unit =$13,000
Productivity = Output/Input = $32,000/$13,000 = 2.46
Output ($/hr) = 200 units x $160/unit / 500 hrs = $64/hr
Input ($/hr) = $14/hr
Productivity = Output/Input = ($64/hr) / ($14/hr) = 4.57
Can you think of any advantages or disadvantages of each approach?
Labor Productivity:
A Numerical Example

9. ISAT 211 Mod 2-9© 1997 M. Zarrugh
 Strategy is a common vision which
provides direction for action in an
organization.
 Corporate strategy expresses how a
firm chooses to compete in the market
place over the long-term:
– mission statement
– business goals
– key distinctive (core) competencies
– operational priorities
Corporate Strategy:
Role of Competitiveness

10. ISAT 211 Mod 2-10© 1997 M. Zarrugh
Operations Strategy:
Driven by Corporate Strategy
A firm’s operations strategy defines how it will
compete in its own best way.
Operations strategy consists of policies and plans
for how to use production resources to meet
corporate strategic goals.
Operations strategy must be consistent with and
supportive of the corporate strategy.
Strategic decisions in the operations functions
(production, marketing and finance) involve
competitive priorities.

11. ISAT 211 Mod 2-11© 1997 M. Zarrugh
Basic Competitive Priorities
 Cost
– Low cost operation; suited for commodity-like products
 Quality
– High and consistent product and process quality; focus on
customer requirements
 Speed
– Time-to-market (development) and order delivery
 Flexibility
– Quickness of response to changes in product mix, demand
volume and technology (customization)
Operations strategy defines in which of the
following priorities a firm should compete:

12. ISAT 211 Mod 2-12© 1997 M. Zarrugh
Competitive Priorities Link Corporate and
Operations Strategies
Corporate strategy
(Mission, goals,
core competencies)
Market
Analysis
Business and
conomic
limate
Competitive priorities
(cost, quality,
speed, flexibility)
Operations strategy
(Resources and capacity
management)
Capabilities Assessment
(Current, needed
planned)
Future Directions
(new products, global
strategic decisions)

13. ISAT 211 Mod 2-13© 1997 M. Zarrugh
Core (Distinctive) Competencies
Core competencies are the unique resources and
strengths that sustain a firm’s competitive
advantage:
– Work-force: well trained and flexible
– Facilities: well located, adaptive and can expand or change
over quickly
– Exceptional marketing and financial competence: critical
for rapid changes in customer needs and capital markets
– System and technology expertise: for product innovation
and process integration and automation.

14. ISAT 211 Mod 2-14© 1997 M. Zarrugh
Exploiting Core Competencies
 Enhancing value to the customer. Develop competencies
relevant to what the customer values most. (Goodyear &
Navistar)
 Transferring an internal competence to a salable
product. (American Airlines’ SABRE)
 Applying competencies in a new business. Capitalize on
internal competence and apply it in a new way to develop
new businesses. (Circuit City & CarMax)
 Creating new ways of working. Combine different
businesses to provide integrated service. (John Deere
providing insurance to dealers)

15. ISAT 211 Mod 2-15© 1997 M. Zarrugh
Strategy Formulation Steps
Define primary task. (mission statement).
– What business are we in?
– Who are our customers?
– What are our key profitability or performance objectives?
Assess core competencies. (competitive advantage)
– What do we do better than anyone else?
– Can we capitalize on our strengths to develop new
products, new markets or new businesses?
– How can we maintain our competitive advantages?

16. ISAT 211 Mod 2-16© 1997 M. Zarrugh
Strategy Formulation Steps
Benchmarking (order winners and order qualifiers).
– What does qualify an item for purchase?
– What marketing approach does win orders?
– Who are the order winners and what do they do?
– How do we compare to the order winners?
Position the firm. (capitalize on strengths)
– What do we do better than anyone else?
– Can we capitalize on our strengths to develop new
products, new markets or new businesses?
– How can we maintain our competitive advantages?

17. ISAT 211 Mod 2-17© 1997 M. Zarrugh
Positioning Strategies
Positioning strategy determines the general nature
of operations or processes required to accomplish
the goals of the organization.
It does not identify specific processes to use or
specific resources to organize.
A system organized around the product or service is
called a product-focused strategy. (assembly line)
With a process-focused strategy, products share
generic optimized processes and equipment are
organized by function. (job shop)

18. ISAT 211 Mod 2-18© 1997 M. Zarrugh
Linking Positioning Strategy with Competitive
Priorities Through Products
Process-Focus Product-Focus
Customized products
at low volumes
Standardized products
at high volumes
Mature productNewer product
Consistent process
quality
High reliability products
Low costFlexibility
Short lead timesLong lead times

19. ISAT 211 Mod 2-19© 1997 M. Zarrugh
Manufacturing Operations Strategies Based on
Positioning Strategies
Manufacturing
Strategy
Description Examples Key Competitive
Priorities
Make-to-stock Used in product-
focus plants to speed
up delivery of
standard parts
- Commodities,
- Electronic
components,
- Chemicals
- Low cost
- Consistent quality
Assemble-to-
order
Suited for products
built with many
options from few
standard modules
- High end PCs
- Upscale furniture
- Industrial AC
systems
- Fast delivery
- Customization
(flexibility)
Make-to-order Used in process-
focused shops to
produce few but
varied items
- Major medical
equipment
- Aircraft
- Flexibility and
customization

20. ISAT 211 Mod 2-20© 1997 M. Zarrugh
Competitiveness Drivers:
Causes of Recent Increases in US Productivity
 Product Development
– Teams speed development and enhance manufacturability
 Lean production and Waste Reduction (Big JIT)
– WIP, space, tool costs, and human effort
 Improved Customer-Supplier Relationships
– Borrowed from Japanese Keiretsu
 Improved Leadership
– Strong, independent boards of directors
 Maturation of computer and information technology
– Increased efficiency, flexibility and responsiveness due to
computer-based automation and integration

21. Questions?

22. ISAT 211 Mod 2-22© 1997 M. Zarrugh
Strategy is a common vision which
provides direction for action in an
organization.
Corporate strategy expresses how a
firm chooses to compete in the market
place over the long-term:
– mission statement
– business goals
– key distinctive (core) competencies
– operational priorities
Corporate Strategy:
Role of Competitiveness