1

Operation
Management
Chapter 2
Operation Management Strategy
 What is strategy?
• Corporate strategy is hierarchically the highest strategic
plan of the organization, which defines the corporate
overall goals and directions and the way in which will be
achieved within strategic management activities. It is a
long-term, clearly defined vision of the direction of a
company or organization.

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Strategy and Strategic
planning
• Strategy: a long-term plan, a course
of action the company can pursue to
achieve its strategic aims.
• Strategies are the means by which
long-term objectives will be
achieved. Business strategies may
include geographic expansion,
diversification, acquisition, product
development, market penetration,
retrenchment, divestiture,
liquidation, and joint ventures.

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 What is
strategy?
Lam Hoang Phuong

What is
strategy?

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 Mission: The reason for a firm to
exist in the market. An enduring
statement identifies the scope of
Mission and a firm’s operation.

vission Vision: A long-term target. A

general statement of the firm’s
intended direction that shows, in
broad terms.

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Examples of mission and value
statements?
Samsung

“We will devote our human resources and technology to create

superior products and services, thereby contributing to a better
global society.

“Inspire the world with our innovative technologies, products and

design that enrich people’s lives and contribute to social
prosperity by creating a new future.”
 “to empower every person and
every organization on the
planet to achieve more.”

Microsoft
“to help people and businesses
throughout the world realize
their full potential.”
Lam Hoang Phuong

Corporate strategies

THE COST LEADERSHIP THE DIFFERENTIATED PRODUCT THE FOCUS ON A NICHE

STRATEGY, OR SERVICE STRATEGY. STRATEGY.

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 Vision

Mission
Developing a
strategic
approach to Organziational strategy

Operation
management Operation management
objectives and strategy

Department objectives

Operation management
practices
 • Operations strategy concerns the pattern of
What is strategic decisions and actions which set the
role, objectives and activities of the
operation operation.
strategy?

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 Some ways in which operations management
can impact triple bottom line performance

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 Competitive capabilities

• Competitive capabilities have been defined as a plant's actual performance

relative to its competitors, with the most commonly investigated
capabilities being quality, delivery, flexibility, and cost.

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Competitive priorities

Competitive priorities are defined as the dimensions that a firm's production system must
possess to support the demands of the markets in which the firm wishes to compete.

Five criteria which act as competitive priorities: quality, cost, delivery (speed), flexibility and
dependibility

Competitive priorities signify a strategic focus on building specific manufacturing capabilities

that can improve a plant's position in the market. ... Such focus may guide decisions with
regards to the capacity, technology, production process, planning, control, etc.

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 Operations
performance

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Matching:
• Customers look for: • Operations performance
1. Reliable delivery. objectives:
2. Innovative products. a. Cost
3. Fast delivery b. Speed
4. The ability to change timing and c. Quality
quantity of products or services. d. Flexibility
5. Low price e. Dependability
6. Wide range of products or
services.
7. High quality

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 • Kandy Kitchens currently produces 5,000 units a
year with the operating expense at $4,5 Mil. The
price of each unit is $1,000. The company is
considering three options for boosting its earnings.
• Option 1: organizing a sales campaign that would
involve spending an extra $100,000 in purchasing
extra market information. It is estimated that sales
would rise by 30 per cent.
Case study • Option 2: reducing operating expenses by 20 per
cent through forming improvement teams that will
eliminate waste in the firm’s operations.
• Option 3: investing $70,000 in more flexible
machinery that will allow the company to respond
faster to customer orders and therefore charge 10 per
cent extra for this ‘speedy service’.

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 Implementing business
strategy.

Roles of Supporting business strategy.

operations
Driving business strategy

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Hayes and
Wheelwright’s
four stages of
operations
contribution

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Perspectives
on
operations
strategy

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Top-down
perspective of
operations
strategy

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 Bottom-up
perspective
of operations
strategy

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The operations resources
perspective

• The resource-based view:

 Value
 Rarity
 Imitability
 Substitutability/ Organized

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Market-
requirements-
based strategies

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 Order-winning and qualifying factors

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 Different
customer
needs imply
different
objectives
 Different
customer
needs imply
different
objectives

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 The
product/service
life cycle
influence on
performance
objectives

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 An operation’s structural decisions
are those which we have classed as
primarily influencing design
Structural and activities.

infrastructural
decisions The infrastructural decisions are
those which influence the workforce
organization and the planning and
control, and improvement activities.

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 Structural decisions

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Infrastructural
decisions

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 The four stages of the process of operations strategy

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Exercise:
Slap.com is an internet retailer of speciality cosmetics. It orders products from a number of
suppliers, stores them, packs them to customers’ orders, and then dispatches them using a
distribution company. Although broadly successful, the business is very keen to reduce its operating
costs. A number of suggestions have been made to do this. These are as follows:
• Make each packer responsible for his or her own quality. This could potentially reduce the
percentage of mis-packed items from 0.25 per cent to near zero. Repacking an item that has
been mis-packed costs €2 per item.
• Negotiate with suppliers to ensure that they respond to delivery requests faster. It is
estimated that this would cut the value of inventories held by slap.com by €1,000,000.
• Institute a simple control system that would give early warning if the total number of orders
that should be dispatched by the end of the day actually is dispatched in time. Currently 1
per cent of orders is not packed by the end of the day and therefore has to be sent by express
courier the following day. This costs an extra €2 per item.

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Exercise:

• Because demand varies through the year, sometimes staff have to work overtime.
Currently the overtime wage bill for the year is €150,000. The company’s employees
have indicated that they would be willing to adopt a flexible working scheme where extra
hours could be worked when necessary in exchange for having the hours off at a less
busy time and receiving some kind of extra payment. This extra payment is likely to total
€50,000 per year.

If the company dispatch 5 million items every year and if the cost of holding inventory is 10
per cent of its value, how much cost will each of these suggestions save the company?

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 Thank you!

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