SM 724

Operations Management
 Operations Strategy and Productivity
Major Learning Objectives-
• How business organizations compete and how
operations can influence competitiveness
• The key internal and external factors that affect
strategy formulation
• Some of the operations strategies used by
organizations
• Role of productivity as a key metric for operations
function
 Key External [Environment] Factors

1. Economic conditions
General health and direction of the economy, inflation and
deflation, interest rates, tax laws, and tariffs
2. Political conditions
Favorable and unfavorable attitudes toward business,
political stability or instability, and wars
3. Legal environment
Antitrust laws, government regulations, trade restrictions,
minimum wage laws, product liability laws, labor laws,
and patents
 Key Internal Factors
1. Human Resources
Skills and abilities of managers and workers, special talents
(creativity, designing, problem solving); loyalty to the org;
expertise; dedication; and experience
2. Facilities and equipment
Capacities, location, age, and cost to maintain or replace
3. Financial resources
Cash flow, access to additional funding, existing debt
burden, and cost of capital
4. Customers
Loyalty, existing relationships, and understanding of wants
and needs
 Key Internal Factors (Contd.)
5. Products and services
Existing products and services, and potential for new
products and services
6. Technology
Existing technology, the ability to integrate new
technology, and probable impact of technology on
current and future operations
7. Suppliers
Supplier relationships, dependability of suppliers, quality,
flexibility, and service
Operations Strategy Formulation Process

Source: Mahadevan(2010)
 Order Qualifiers/Order Winners
• Order qualifiers:
Characteristics perceived by potential customers as minimum
standards of acceptability for a product/service to be
considered for purchase
• Order winners:
Characteristics that cause the organization’s product/service
to be perceived as better than the competitor’s

Depending on the situation, characteristics like price,

reliability, speed and quality can become either
order qualifiers or order winners.
 Organization [Corporate] Strategy vs
Operations Strategy
Organization strategy:
Provides overall direction for the organization  broad
scope covering whole organization
Operations strategy:
The approach [consistent with organization (or
corporation) strategy] used to guide the operations
function  narrower scope primarily operations aspect
of the organization

Operations strategy relates to products, processes,

methods, operating resources, quality, costs, scheduling
etc.
 Strategic Operations Management Broad Areas
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity
Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating

systems

Cost Minimization & Product Differentiation strategies are very

common…. Quality and/or Time based strategies also being adopted
 Quality and Time Based Strategies
• Quality-based strategies
– Focus on maintaining/improving the quality of an organization’s
products/services
– Imp. for both attracting and retaining customers
• Time-based strategies
– Focus on reduction of time needed to accomplish tasks
– Time reduction can be in
 Planning- Faster Approval to changes etc.
 Product/service design- Develop & market new/redesigned
products/services
 Processing- Scheduling, repairing, training etc.
 Changeover- One prod to another… new equip, diff methods
 Delivery- Fulfill orders
 Response for complaints- Both customers [quality, delivery time etc.]
and employees [safety, equipment problems etc.]