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Chapter 2. Operations Strategy & Competitiveness

Chapter 2. Operations Strategy & Competitiveness. Carefully read Southwest Airlines (pp.23-24) Operations Strategy & Competitive Dimensions Order Qualifiers and Winners Strategy Design Process A Framework for Manufacturing Strategy Service Strategy Capacity Capabilities

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Chapter 2. Operations Strategy & Competitiveness

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  1. Chapter 2. Operations Strategy & Competitiveness • Carefully read Southwest Airlines (pp.23-24) • Operations Strategy & Competitive Dimensions • Order Qualifiers and Winners • Strategy Design Process • A Framework for Manufacturing Strategy • Service Strategy Capacity Capabilities • Productivity Measures

  2. Operations Strategy & Competitive Dimensions • Setting broad policies and plans to utilize the firm’s resources optimally to support its longer term competitive strategy. • TREK ops strategy & goals • Consider Southwest Airlines, their competitive strategy is: • Low-cost point-to-point service targeting price and convenience sensitive consumers (travelers) • In contrast, Continental Airlines is a full-service airline offering travel from almost any point A to any point B via hub-and-spoke system centered on major airports along with code sharing (partnership) agreements with other full-service airlines. • Offer first and/or business class services, coordinate schedules within and with other airlines, transfer luggage, serve meals on longer flights or even on flights that fly during dining hours (since some passengers are expected to make connecting flights). • Southwest does none of this but because of their operational simplicity they can fly planes on the air longer, have 15 minutes of turnarounds.

  3. Competitive Dimension • Competitive Dimensions include: • Cost or Price • Make the Product or Deliver the Service Cheap • Quality • Make a Great Product and (not or) deliver a Great Service ( X vs Mercedes) • Delivery Speed • Make the Product or Deliver the Service Quickly • Delivery Reliability • Deliver It When Promised • Coping with Changes in Demand • Change Its Volume • Flexibility and New Product Introduction Speed • Change It, more frequently then GM or Ford, who is this company? • Other Product-Specific Criteria • Support It

  4. Cost Flexibility Delivery Quality Trade-Offs • Focus and trade-offs, can’t do it all at the same time • Lexus can’t be made and sold for $25,000. T or F? • A few examples: • Generally low-cost strategy is not compatible with flexibility or speed of delivery • High quality and low cost tend to be incompatible • Straddling occurs when a firm seeks to mimic a competitor’s position while trying to maintain their original (successful) position. • The case of Continental Airlines (CA) response Southwest Airlines (SW) • CA “reacted” to Southwest. • While maintaining its full-service position, sought to match SW on some routes • Eliminated meals, 1st class service, lowered prices, increased frequency but maintained other features because it remained as a full service airline for other routes (transfer luggage, agent commissions, etc.) • Lost millions, CEO got fired, returned to the former market.

  5. Order Qualifiers and Winners • Order qualifiers are the basic criteria that permit the firm’s products to be considered as candidates for purchase by customers • Through the 1980s  “nobody got fired buying IBM products” • Order winners are the criteria that differentiate the products and services of one firm from another • Caterpillar  “48 hours parts/service guarantee” • Class examples:

  6. Steps in Developing a Manufacturing Strategy • Segment the market according to the product group • Identify product requirements, demand patterns, and profit margins of each group • Determine order qualifiers and winners for each group • Convert order winners into specific performance requirements

  7. Consider group 1 Consider group 2 Differing Manufacturing Requirements Why buy? Focus on?

  8. Service Strategy Capacity Capabilities • Process-based • Capabilities derived from activities that transform material or information and provide advantages on dimensions of cost and quality • Systems-based • Operating capabilities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand • Organization-based • Organizational ability to master/implement (learn) new technologies, faster new plant/product introductions • These capabilities are more difficult to replicate thus provide a strong operations-based competitive advantage

  9. Productivity • A common, seemingly simple but very complicated measure • How a country, region, industry, company, business unit, department, ... uses its resources (relative to others). • Broadly defined as the ratio of OUTPUTS to INPUTS • Total, partial, or multifactor measures:

  10. Productivity Example

  11. Business Restaurant Retail Store Chicken Farm Utility Plant Paper Mill Case: Lasik Vision Corporation – pp. 47-48 Productivity Measure Meals per hour Sales per square foot (meter) Kilo of meat per Kg. of feed Kilowatt per ton of coal Tons of paper per cord of wood Some Partial Productivity Measures

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