Operations Strategy: Competitive Priorities and Productivity

Posted on Apr 5, 2025 in Business Administration and Management (BAM)

The Role of Operations Strategy

The role of operations strategy provides a plan that makes the best use of resources and:

  • Specifies the policies and plans for using organizational resources.
  • Supports Business Strategy (an organization’s long-range plan).

Developing a Business Strategy

Developing a business strategy involves:

  • Environmental scanning (monitoring market trends, threats).
  • Mission (statement of who we are).
  • Core competencies (unique strengths).

Marketing, Finance, and Operations Strategies

  • Marketing strategy: Defines marketing plans.
  • Finance strategy: Develops financial plans.
  • Operations strategy: Develops a plan for the operations function, focusing on specific competitive priorities (cost, quality, time, flexibility).

Four Key Operations Competitive Priorities

  1. Cost

    Offer a product at a lower price than the competition. Typically involves high-volume products, often limiting the product range with little customization.

  2. Quality

    Two major quality dimensions include:

    • High-performance design: Superior features, high durability, & excellent customer service.
    • Product & service consistency: Meets design specifications, close tolerances, error-free delivery.

  3. Time

    Time/speed is a top competitive priority; the first to deliver often wins the race.

  4. Flexibility

    1. Product flexibility: Offer a wide variety of goods/services, easily customized to meet specific customer requirements. Easily drop or add products to meet customer demand.
    2. Volume flexibility: Ability to rapidly increase or decrease production to match market demands.

Three Types of Technology Applications

  1. Product Technology – (New technology)
  2. Process Technology – (Improves process)
  3. Information Technology – (Enables communication)

Benefits and Risks of Technology

  • Benefits: Improve processes, maintain up-to-date standards, gain a competitive advantage.
  • Risk: Costly, can overstate benefits, obsolescence.

Productivity

Productivity is a measure of how efficiently inputs are converted to outputs.

Product Design

Product design is the process of deciding on the unique characteristics and features of the company’s product.

Importance of Product Design

It is a key strategic activity in many firms because new products contribute significantly to sales revenue.

Steps in the Product Design Process

  1. Idea development (sources are customers, competitors, suppliers).
  2. Product screening (product idea evaluated, need to consider operations, marketing).
  3. Preliminary design and testing (product prototypes built, tested, and refined).
  4. Final design (final product specifications completed).

Process Selection

Process Selection: the development of the process necessary to produce the designed product.

Process Design Tools

Process design tools include:

  • Process flow analysis
  • Process flowchart

Design Considerations

Design considerations include:

  • Make-to-stock strategy
  • Assemble-to-order strategy
  • Make-to-order strategy

Link Between Product Design and Process Selection

  • The type of product selected defines the type of operation required.
  • The type of operation available defines broader organizational aspects such as:
    • Equipment required
    • Facility arrangement
    • Organizational structure

Break-Even Analysis

Break-even analysis is a technique used to compute the amount of goods a company would need to sell to cover its costs. Break-even analysis also includes calculating (Q = number of units sold).

Total cost – sum of fixed and variable cost

Total cost = F + (VC)*Q

Revenue – amount of money brought in from sales

Revenue = (SP) * Q

Contribution to profit – incremental profit earned from sales

Contribution to profit = SP(Q) – [FC + VC(Q)]