Operations Management

Lect. 2 “Operations Strategy”

Dr: Aly Hassan Elbatran

Head of Mechanical Engineering

Faculty of Engineering, Arab Academy for Science
and Technology and Maritime Transport, Egypt

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 Business Strategy and Operations Strategy
Business strategy
A long-range plan for a
business.

https://granthigginson.com/develop-a-digital-business-strategy/

Operations strategy
A long-range plan for the
operations function that
specifies the design and use
of resources to support the
business strategy.
https://www.datalabsindia

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 Business Strategy and Operations Strategy
Examples
United Airlines, which has a strategy to compete on cost. United offers low-cost
services aimed at price-sensitive customers. To support this strategy, every aspect
of United Airline’s operation is focused on cutting costs out of the system.

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 Business Strategy and Operations Strategy
Examples

Singapore Airlines, which has a strategy to compete on service. To support

this strategy the airline offers free drinks, complimentary headsets, meals
prepared by gourmet chefs, comfortable cabins, and even the biggest bed in
business class, called the “spacebed.

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 Role of Operations Strategy

 Providing a plan to make best use of

organization's resources;
 Specifies the policies and plans for using
organizational resources.

 Supports long-term competitive Business

Strategy.

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 Importance of Operations Strategy

Business Strategy
Long Range Plan for organization

Finance Strategy
Marketing Strategy Operations Strategy

“Defines marketing plan to support “Develops operations plan to support “Develops finance plan to support
business strategy” business strategy” business strategy”

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 Importance of Operations Strategy
Historical Introduction

 In 1970s and 1980s, Japanese companies began offering products of

highest quality at lower cost.
 U.S. companies lost market share to their Japanese counterparts.
 many U.S. companies copied Japanese approaches. Unfortunately,
merely copying these approaches.
 often proved unsuccessful; it took time to really understand the
Japanese approaches.
 It became clear that Japanese companies were more competitive
because of their operations strategy; that is, all their resources were
specifically designed to directly support the company’s overall
strategic plan.

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 Importance of Operations Strategy
Differences between operational efficiency and strategy

 Companies often do not understand the differences

between operational efficiency and strategy. “professor
Michael Porter”
 Operational efficiency is performing tasks well, even
better than competitors
 Strategy is a plan for competing in the marketplace
 Operations strategy ensures all tasks performed are the
right tasks.

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 Business Strategy Development
Considering three factors and strategic decisions:

Mission
• What business in the company

Environmental Scanning
• Analyze and understand the
market
Core competencies
• Identify the company strengths

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 Business Strategy Development
Mission
A statement defining
what business an
organization is in,
who its customers
are, and how its core
beliefs shape its
business.

Business strategy
A long-range plan for a
business.
Environmental
Core scanning
Competencies Monitoring the
Unique Strengths external environment
that can help us win for changes and
in the market trends to determine
business
opportunities and
threats.

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 Business Strategy Development

 Mission:
 Dell Computer Corporation: “to be the most successful
computer company in the world”
 Delta Air Lines: “worldwide airlines choice”
 IBM: “translate advanced technologies into values for our
customers as the world’s largest information service company”
 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 know-how, logistics

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DEVELOPING AN OPERATIONS STRATEGY

 operations strategy must be formulated after business

strategy has been developed.

 The operations strategy focuses on specific

capabilities of the operation that give the company a

competitive edge.

 These capabilities are called competitive priorities.

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DEVELOPING AN OPERATIONS STRATEGY

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 Competitive Priorities (Cost)
 A competitive priority focusing on low cost.
 Competing based on cost means offering a product at
a low price relative to the prices of competing
products.
 Typically high volume products
 Often limit product range & offer little customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably uses product focused layouts
 Low cost does not mean low quality

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 Competitive Priorities (Quality)
 Quality is often subjective, Depending on who is defining it.

 Two major quality dimensions include

 High performance design:

 Superior features, high durability, & excellent customer service

 Product and service consistency:

 Meets design specifications

 Close tolerances

 Error free delivery

“McDonald’s, we can get the same product every time at any location”
 Quality needs to address

 Product design quality – product/service meets requirements

 Process quality – error free products

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 Competitive Priorities (Time)
 Time/speed one of most important competition priorities

 First that can deliver often wins the race

 Time related issues involve

 Rapid delivery:

 Focused on shorter time between order placement and delivery

 On-time delivery:

 Deliver product exactly when needed every time

FedEx Corporation
www.federalexpress.com

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Competitive Priorities (Flexibility)
 A competitive priority focusing on offering a wide variety of goods or
services.

 Company environment changes rapidly

 Company must accommodate change by being flexible

 Product flexibility:

 Easily switch production from one item to another

 Easily customize product/service to meet specific requirements

of a customer

 Volume flexibility:

 Ability to ramp production up and down to match market

demands

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 Examples
 Dell competes on all four
priorities

 Air Asia Airlines

competes on cost

 McDonald’s competes on
consistency

 FedEx competes on
speed

 Custom tailors compete

on flexibility

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 Trade off
The need to focus more on one competitive priority than on others.

 Decisions must emphasize priorities that support

business strategy

 Decisions often required trade offs

 Decisions must focus on order qualifiers and order

winners

 Which priorities are “Order Qualifiers”?

 Must have excellent quality since everyone

expects it
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 Competitive Priorities for Production
Requirements
The operations strategy will specify the design and use of the organization’s
resources; that is, it will set specific operations requirements

 Structure:- Operations decisions related to the design of the production

process, such as characteristics of facilities used, selection of appropriate
technology, and flow of goods and services through the facility.

 Infrastructure:- Operations decisions related to the planning and control

systems of the operation, such as organization of the operations function,
skills and pay of workers, and quality control approaches.

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 Example:- structure & infrastructure

 Dell Computer example – structure & infrastructure

 They focus on customer service, cost, and speed

 ERP system developed to allow customers to order directly

from Dell

 Product design and assembly line allow “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 United Parcel Service

(UPS)

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 Role of Technology

 Technology can be acquired to improve processes and maintain

up-to-date standards.

 Technology can also be used to gain a competitive advantage.

 Technology should support competitive priorities

 Three Applications: product technology, process technology,

and information technology

 Products:- Teflon, CD’s, fiber optic cable, smart cabinets

 Processes :- flexible automation, CAD/CAM

 Information Technology (communication, processing, and

storage of information. – POS, EDI, ERP, B2B

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 Role of Technology
 Technology should:

 Support competitive priorities

 Can require change to strategic plans

 Can require change to operations strategy

 Technology is an important strategic decision

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 Productivity

 Productivity is used to measure performance.

 Productivity is defined as outputs / inputs.

 Productivity is increased when the same

quantity of inputs results in more outputs, or

when using fewer inputs to produce the same

output quantity.

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 Productivity rate

𝑶𝒖𝒕𝒑𝒖𝒕 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅
Total Productivity=
𝒂𝒍𝒍 𝒊𝒏𝒑𝒖𝒕𝒔

𝑶𝒖𝒕𝒑𝒖𝒕 𝑶𝒖𝒕𝒑𝒖𝒕 𝑶𝒖𝒕𝒑𝒖𝒕

Partial Productivity= or or
𝑳𝒂𝒃𝒐𝒓 𝑴𝒂𝒄𝒉𝒊𝒏𝒆𝒔 𝑴𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔

𝑶𝒖𝒕𝒑𝒖𝒕
Multifactor Productivity= or
𝑳𝒂𝒃𝒐𝒓+𝑴𝒂𝒄𝒉𝒊𝒏𝒆𝒔

𝑶𝒖𝒕𝒑𝒖𝒕
=
𝑳𝒂𝒃𝒐𝒓+𝑪𝒂𝒑𝒊𝒕𝒂𝒍

𝑶𝒖𝒕𝒑𝒖𝒕
=
𝑳𝒂𝒃𝒐𝒓+𝑴𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔+𝒆𝒏𝒆𝒓𝒈𝒚

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 Productivity Examples

A company produce $16,000 worth of goods and weekly value of

all inputs ( labor, materials, and other cost) is $12000, to
calculate partial factor productivity :

$16,000
Total Productivity= = 1.333
$12000

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 Productivity Examples
A company $100,000 worth of goods in 1600 hours, to calculate the labor
productivity :

$100,000
Partial Productivity= = $62.5 𝑝𝑒𝑟 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ℎ𝑜𝑢𝑟
1600

A company has staff of 10 who is working 8 hours/day, the company produce

20 units/day, Calculate productivity/hr :

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Partial Productivity= = 0.25 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ℎ𝑜𝑢𝑟
10∗8

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 Productivity Examples

A company produce worth of 15000$. labor and materials

costs are $5000 and $4000, respectively.

15000$
Multifactor Productivity= = 1.67
5000$+4000$

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THANK YOU

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