Before we start chapter 2

Review OM function in Organization

Difference between Strategic and tactical

decision

© Wiley 2013 1
 What is the Role of OM?

 OM Transforms inputs to outputs

 Inputs are resources such as

People, Facilities and Processes,
Material, Technology and Information

 Outputs are finished goods and

services
© Wiley 2013 2
 OM Decisions
Strategic Tactical Decisions
Decisions  Focus on specific
 Set the direction for day-to-day issues
the entire company; like resource
they are broad in needs, schedules,
scope and long- & quantities to
term in nature produce
 Less frequent  More frequent

© Wiley 2013 3
The story of US vs. Japan
business strategies

© Wiley 2013 4
Chapter 2 –Strategy and
Productivity

Operations Management
by

R. Dan Reid & Nada R. Sanders

5th Edition © Wiley 2013

© Wiley 2013 5
 Learning Objectives
 Define the roles of Business Strategy and
Operations Strategy and explain their
relationship
 Explain how business and operations
strategies are developed
 Identify competitive priorities for the
operations function
 Explain the strategic role of technology
 Identify and compute productivity measures
© Wiley 2013 6
What is the difference
between mission/vision
and strategy?

© Wiley 2013 7
Why are they important?

© Wiley 2013 8
Why is it important that all
must be aligned?

© Wiley 2013 9
 The Role of Operations
Strategy
 Provides a plan that makes best
use of resources and:
 Specifies the policies and plans for
using organizational resources
 Supports Business Strategy - an
organizations long range plan (see
graph on next slide)

© Wiley 2013 10
Business/Functional Strategy

© Wiley 2013 11
 Baby milk preparation
Keeps it
2-5
warm and
minutes to
V shuts off
reach
s automatical
temperatu
ly
re

Water bath

Steam


© Wiley 2013 12
Business/Functional Strategy

© Wiley 2013 13
 Importance of Operations
Strategy
 Essential differences between
operational efficiency and strategy:
 Operational efficiency is performing

tasks well, or better than competitors

 Strategy is a plan for competing in

the marketplace
 Operations strategy ensures all tasks
performed are the right tasks

© Wiley 2013 14
 Baby milk preparation
Keeps it
2-5
warm and
minutes to
V shuts off
reach
s automatical
temperatu
ly
re

Water bath

Steam


© Wiley 2013 15
 Developing a Business
Strategy
 Consider these three critical factors
in developing a business strategy:
 What is the business goal? (mission)
 Does company understand the
market? (environmental scanning)
 What are the company strengths?
(core competencies)

© Wiley 2013 16
Mission
 What is your business?
 Who are your customers?
 What are your believes?

 Ex: Johnson’s and Johnson

© Wiley 2013 17
Environmental Scanning
 Identify Threats
 Identify Opportunities

 Student asking me about a

business idea!

© Wiley 2013 18
Environmental Scanning
cont’
 Marketplace trends (Dell and Compaq)
 Economic Trends (recession, inflation)

Bitcoin, stock market decline
 Political Trends (strategic alliance –
like airline companies)
 Social trends (from smoking to
vaping)

© Wiley 2013 19
Core competency
 The unique strength of a company

© Wiley 2013 20
Creating the Business
Strategy

© Wiley 2013 21
 Examples of key factors
 Mission: Dell Computer – “to be the most
successful computer company in the
world”
 Environmental Scanning: political
trends, social trends, economic trends,
market place trends, global trends
 Core Competencies: strength of workers,
modern facilities, market understanding,
best technologies, financial abilities,
logistics
© Wiley 2013 22
End of Class

© Wiley 2013 23
Every Wednesday there’s
a tutorial by Eng. Aisha Al
Mayyas

Details will be shared using

MyU

© Wiley 2013 24
 Developing an Operations
Strategy
Operations Strategy:
 Is a plan for the design and
management of operations functions
 Is developed after the business strategy
 Focuses on specific capabilities which
give it a competitive edge –
competitive priorities

© Wiley 2013 25
Designing the Operations
Function

© Wiley 2013 26
 Competitive Priorities
– The Edge
Four Key Operations Questions -
Can a company compete on:
1. Cost?
2. Quality?
3. Time?
4. Flexibility?
All of the above? Some? Tradeoffs?
© Wiley 2013 27
 1. Competing on Cost
Offer product at lower price than competition
 Typically high volume products
 Often limit product range with little customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably use product focused layouts
 Low cost does not mean low quality

© Wiley 2013 28
 2. Competing on Quality
Quality is often subjective & is defined differently
depending on who is defining it
 Two major quality dimensions include
1. High performance design:

Superior features, high durability, & excellent customer
service
2. Product & service consistency:

Meets design specifications

Close tolerances

Error free delivery
 Quality must address

Product design quality – product/service meets
requirements

Process quality – error free products
© Wiley 2013 29
 3. Competing on Time
 Time/speed a top competitive priority
 First to deliver often wins the race
 Time-related issues involve:
 Rapid and/or on-time delivery

Focused on shorter time between order
placement and delivering product exactly when
needed every time

© Wiley 2013 30
 4. Competing on Flexibility
 Business environments can change
rapidly; company’s must accommodate
change by being flexible
 Product flexibility:

Offer a wide variety of goods/services, easily
customized to meet specific requirements of
customer

Easily drop or add product to meet customer demand
 Volume flexibility:

Ability to rapidly increase or decrease production to
match market demands

© Wiley 2013 31
 The Need for Trade-offs
 Decisions
 must emphasis priorities that support
business strategy
 often required trade-offs
 must focus on order qualifiers and
order winners

© Wiley 2013 32
 Order Qualifiers & Winners
Which priorities are “Order Qualifiers”?
Hint: Must meet market’s competitive
priorities since market expects it

Which priorities are “Order Winners”?

Hint: Dell competes on all four priorities
Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Pizzerias compete on homemade taste

© Wiley 2013 33
 Translating Competitive
Priorities into Production
Requirements
 Structure  Infrastructure
decisions related to decisions related to
the production planning & control
process: systems of
 characteristics of operations:
facilities used
 organization of
 selection of appropriate
technology operation function
 flow of goods and
 skill/pay of workers
services  quality control
approaches
© Wiley 2013 34
 Example: Dell Computer
Structure & Infrastructure

Focus on customer service, cost, and speed

ERP system allows customers to order directly
from Dell

Product design and assembly line allow a
“make to order” strategy – lowers costs,
increases turns

Suppliers ship components to a warehouse
within 15 minutes of the assembly plant - VMI

Dell set up a shipping arrangement with UPS
© Wiley 2013 35
End of Lecture

© Wiley 2013 36
I have good news and bad
new!!!

I honestly don’t know what’s

good or bad…. But I have to
share it with you because of
transparency

© Wiley 2013 37
The good news
 Next Thursday…..OFF

© Wiley 2013 38
Bad News
 Department Head spoke with me.
No curve unless specified by the
OM track.

 AACSB will view our lecture for

acredition

© Wiley 2013 39
How can companies use
technology to achieve
their business/operation
strategy?

© Wiley 2013 40
 Strategic Role of Technology
Technology must support competitive
priorities
 Three Types of Technology Applications:
1. Product Technology – (New technology)
Examples: Teflon, CD’s, fiber optic cable
2. Process Technology – (Improves process)
Examples: flexible automation, CAD, CAM
3. Information Technology – (Enables communication)
Examples: POS, EDI, ERP, B2B

© Wiley 2013 41
What are the advantages
and disadvantages of
using technology?

© Wiley 2013 42
 Technology as a Tool for
Competitive Advantage

Positive Potential Negative Potential

 Benefits  Risks
 Improve processes  Costly
 Maintain up-to-date  Can overstate
standards benefits
 Obtain competitive  Obsolescence
advantage

© Wiley 2013 43
In conclusion…when it
comes to technology

© Wiley 2013 44
 Technology as a Tool for
Competitive Advantage
Technology at Its Best:

Supports competitive priorities

Can require change to strategic plans

Can require change to operations strategy

Technology is a crucial strategic decision

© Wiley 2013 45
How do you measure
competitiveness?

Productivity

© Wiley 2013 46
 Measuring Productivity
 Productivity is a measure of how efficiently
inputs are converted to outputs
Productivity = Output/input

 Total Productivity Measure

Total Productivity = Output produced/All inputs used

 Partial Productivity Measure

Partial Productivity = Output/labor or Output/Capital

 Multifactor Productivity Measure

Multi-factor Productivity = Output/(labor + Materials)
© Wiley 2013 47
 Productivity Example - An automobile manufacturer has
presented the following data for the past three years in its annual
report. As a potential investor, you are interested in calculating
yearly productivity and year to year productivity gains as one of
several factors in your investment analysis.

2008 2007 2006 2008 2007 2006

Partial Prod. Measure
Unit car 2,700,00 2,400,00 2,100,00
sales 0 0 0 Unit Car Sales/Employee 24.1 21.2
18.3

Employee 112,000 113,000 115,000

Year-to-year Improvement 13.7%
s 15.8%

$ Sales $49,000 $41,000 $38,000 Multifactor Prod. Measures

(billions$)
Total Cost Productivity 1.26 1.24
1.19
Cost of $39,000 $33,000 $32,000
Sales
Year-to-year Improvement 1.6% 4.2%
(billions)

Which is the best measurement?

© Wiley 2013 48
 Interpreting Productivity
Measures
 Productivity measures must be compared to
something, i.e., another year, a different
company
 Raw productivity calculations do not tell the
complete story unless there are no major
structure differences.
 In the prior automobile business example, it is
obvious that some major changes were taking
place to yield 15.8% and 13.7% year-to-year
cars/employee productivity improvements. What
changes could improve car sales per employee?
Automation? Outsourcing? Major re-design?

© Wiley 2013 49
 Interpreting Productivity
Measures
 Other productivity measure questions:

Is this partial productivity measurement
enough to make an investment decision?

Is the Total Cost Productivity measure a better
reflection of year to year productivity at 4.2%
and 1.6%. Why?

Should you also look at productivity measures
for the two major competitors for comparison?

 Productivity measure provides information

on how the firm is doing relative to what is
critical to the firm
© Wiley 2013 50
Is it easy to measure
productivity for the service
sector? Why or why not?

© Wiley 2013 51
 Productivity and the Service
Sector
 Measuring service sector
productivity is a unique challenge
 Traditional measures focus on
tangible outcomes
 Service industries primarily produce
intangible outcomes
 Measuring intangibles is challenging

© Wiley 2013 52
Operations Strategy within
OM
 Strategic decisions of firm drive tactical
decisions
 Business strategy defines long-term
plan
 Operations strategy support the
business strategy
 Marketing strategy needs to fully
understand operations capability
 Financial plans in effect support
operations activities.
© Wiley 2013 53
End of Class

© Wiley 2013 54