SCM 302 OPERATIONS MANAGEMENT Operations Strategy
2 Agenda for Today Learning Objectives Define mission and strategy Identify and explain three strategic approaches to competitive advantage Understand the significant key success factors and core competencies Identify and explain four global operations strategy options
3 Industry Question Timbuk2 video What sets Timbuk2 apart from its competitors? What do they do well? What about their operations reflects their business strategy?
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5 Vision, Mission, Strategy Vision: Where is the organization going? Mission: Why are we going? Organization s purpose for being Answers What do we contribute to society? Provides boundaries and focus Factors affecting mission Customers Environment Philosophy/values Profitability and growth Public image. Strategy: How do we get there? Action plan to achieve mission Functional areas have strategies Exploit opportunities and strengths Neutralize threats Avoid weaknesses
6 Examples of Mission Statements dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and Company Spirit world's premier consumer products company focused on convenient foods and beverages produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity. provides state of the art, family-centered healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope.
7 Strategic Process Activity Corporate-Level Strategic Planning Business-Level Strategic Planning (Strategic Business Unit) Issues / Tools What businesses am I in? What do we do better than anyone else? (Core Competencies) Mission Statement How to position the firm? Market Analysis: Five Forces SWOT Order Winners & Qualifiers Competitive priorities Sample Company Mission To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers expectations. Sample Operations Management Mission Functional Strategic Planning Finance Strategy Operations Strategy Marketing Strategy How can I implement the strategic directives? To produce products consistent with the company s mission as the worldwide low-cost manufacturer.
8 Strategy Development & Implementation Core competencies: A set of unique skills, talents, and activities that a firm does particularly well Key Success Factors (KSFs): Activities or factors that are key to achieving competitive advantage Support a core competence Implement strategy by identifying and executing KSFs in the functional areas. What are core competencies and KSFs for Timbuktu?
Business Level Strategic Planning Market Analysis Porter s five forces Potential Entrants 9 Suppliers Threat of new entrants Industry Competitors Buyers Bargaining power of suppliers Rivalry among existing firms Bargaining power of buyers Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980) Substitute Products Threat of substitutes
Business Level Strategic Planning SWOT Analysis Mission 10 Internal Strengths External Opportunities Analysis Internal Weaknesses External Threats
Business Level Strategic Planning Order Winners/Qualifiers Order qualifier characteristics of a product or service that qualify it for consideration for purchase by a customer or segment 11 Order winner the winning characteristic(s) of a product or service that causes the customer to purchase it. Order qualifiers may become order winners over time.
12 Strategy for Competitive Advantage: Maximize value added for the customer Perceived Customer Value: Benefits relative to costs. Value = Total Benefits / Total Costs Strategies for Competitive Advantage Cost Leadership: Successfully underprice its competition Differentiation Distinguish products and services from the competition *Response: Speed and reliability in how you develop a product. *Market focus: Target a segment / niche Competitive Priorities Cost: provide low-cost products Quality: provide high-quality products Delivery: provide products quickly Flexibility: provide a wide variety of products, fast product development **Service: How products are delivered and supported CAN YOU BE ALL THINGS TO ALL PEOPLE (CUSTOMERS)? *Heizer & Render and some OM authors list Response as 3 rd Strategy in place of or in addition to Focus. **Service not included in the first (original) four developed by Wick Skinner & others.
13 Differentiation Strategy How do these organizations distinguish their products and services from its competition?
14 Operations Strategy at Apple We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost. ~ Tim Cook (2013) Few, high end products Vertical Integration / Closed Ecosystem Retail Stores, Genius Bar Minimum Advertised Pricing (MAP) Four pillars Offer a small number of products. Focus on the high end. Give priority to profits over market share. Create a halo effect that makes people starve for new products. Apple s Suppy-Chain Secret? Hoard Lasers ~ Business Week (2011) Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume and its occasional ruthlessness Apple gets big discounts on parts, manufacturing capacity, and air freight. Operations expertise is as big an asset for Apple as product innovation or marketing, says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. They ve taken operational excellence to a level never seen before.
15 Cost Leadership Strategy How do these organizations produce the lowest cost products or services? secondary airports, no frills service, efficient utilization of equipment small overhead, shrinkage, and distribution costs
16 Operations Strategy at Southwest
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18 Response Strategy Flexibility is matching market changes in design innovation and volumes A way of life at Hewlett-Packard Reliability is meeting schedules German machine industry Timeliness is quickness in design, production, and delivery Johnson Electric, Pizza Hut, Motorola
19 Operations Strategy at Zara Fast Fashion H&M, Benetton, Primark Corporate-Level core competencies Inexpensive fashion and freshness Business-Level strategic planning Competitive priority: Response Short lead time from design to shelf Operations strategy Local production Intentionally creating scarcity to avoid markdown Use of information technologies Which strategy best fits Zara? What are the competitive priorities for Zara?
20 Market Segmentation (Focus) Strategy How have these companies focused their strategies toward a specific market segment? What is their niche market?
21 Which strategy best fits Pizzeria Locale? Chipotle has quietly joined a growing group of restaurants aiming to change how we eat pizza. The Mexican-food chain has the blueprint from its burritos: Make pizza fast, individually tailored and with higher-quality ingredients than low-end competitors. Pizzerias Try to Apply Chipotle Formula - WSJ 2013.12.18
Company Strategy/Issues SCM 302 - Operations Strategy 22 Product Life Cycle Introduction Growth Maturity Decline Figure 2.5 Best period to increase market share Practical to change price or quality image Poor time to change image, price, or quality Cost control critical R&D engineering is critical Strengthen niche Internet search engines Xbox 360 Boeing 787 Competitive costs become critical Defend market position ipods Drive-through restaurants DVDs Sales 3-D game players 3D printers Electric vehicles Analog TVs Which strategies & competitive priorities are best for each stage of the product life cycle?
OM Strategy/Issues SCM 302 - Operations Strategy 23 Product Life Cycle Figure 2.5 Introduction Growth Maturity Decline Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Which strategies & competitive priorities are best for each stage of the product life cycle?
24 Team Exercise Research your assigned Team Sponsor (e.g Amazon, Walt Disney World). Corporate Level Strategic Planning What is the company s mission statement? What are its core competencies? What are its key success factors? Business Level Strategic Planning Apply Porter s 5 Forces: Supplier Power; Buyer Power; Threat of New Entry; Threat of Substitution; Competitive Rivalry Apply a SWOT Analysis. Describe order winners and qualifiers for a family of products / services. Rank the competitive priorities for this company: 1) Cost, 2) Quality, 3) Delivery, 4) Flexibility, and 5) Service. How do the company s operations support its strategic planning? Name some specific operational decisions or techniques.