Category Archives: Operations Strategy

Questioning the Trade-Offs

With the world becoming a single global village  there has emerged a group of companies that have adopted an international perspective toward both manufacturing and marketing.

Within this global arena competition is significantly more intense due to both the greater number of  players and the tremendous profit opportunities that exist Those companies that have excelled on this global level often have been referred to as world-class operations  Events in the world marketplace during the 1970 and 1980 in terms of the growing intensity in competition forced these companies to reexamine the concept of operations strategy especially in terms of the so-called necessary trade-offs Managers began to realize that they didn't have to make trade-offs to the same extent that they had previously thought What emerged instead was a realization of the need to establish a hierarchy among the different priorities as dictated by the marketplace Exhibit 23 presents the sequence in which these priorities were introduced over time  Specifically in the late 1960 and early 1970 cost was the primary concern a holdover from the philosophy of the 1950 that manufacturing's only objective was to minimize production costs However as more and more companies began to produce low-cost products the need became apparent to develop other ways to differentiate themselves from their competitors The priority thus shifted to quality Companies at this time obtained a competitive advantage by producing high-quality products which allowed them to charge more-although price still was a factor in the consumer's buying decision However competition again soon caught up and everyone was offering high-quality products that were reasonably priced Companies in looking to obtain another competitive advantage in the marketplace turned to speed and reliability of delivery as a means of differentiating themselves from the rest of the lack  Now the ante into the game was high-quality products that were reasonably priced and that could be delivered kicky and reliably to the customer in the 1980  George Stalk  a leading management gurus previously noted identified speed of delivery as a major factor in determining the success of a company Companies therefore concentrated their resources on reducing product lead times with very dramatic results Products that once took weeks or months to deliver were now being shipped within hours or days  the receipt order

Eventually  the competition again caught up and the more aggressive firms looked for still another means to obtain a competitive advantage This time flexibility was selected as measured in terms of the firm's ability to produce customized protects Now the marketplace dictated that for firms to be successful they had-to 'produce reasonably priced  customized products of high quality that could be quickly delivered to the customer. A good example of a firm that has accomplished this is the National Bicycle Industrial Company in Japan See the OM in Practice box on Japan's Personalized Bike Production  As the "rules" for operations strategy shifted from that of primarily reducing costs to that of including quality speed of delivery flexibility  and service the strategy for the operations management function also has shifted  The strategy of minimizing production costs has been replaced with that of maximizing the value added This emphasis on being competitive on more than one dimension might lead to the conclusion that there are no longer any trade-offs  This is not the case  As Wick ham Skinner said at a breakfast meeting of the Boston POM Pancake Society in April 1995  There will always be trade-offs Today however those trade-offs occur on what can be described as a superior performance curve  as shown in Exhibit  In moving to a higher performance curve, managers are no longer only concerned with trade-offs which take place when one moves along an established curve such as going from point Al to point A2 on curve A in Exhibit 24 Instead the same speed of delivery can be provided but at a lower cost, as shown in going from point A2 to point Another approach is to improve the speed of delivery while maintaining the same cost as seen in going from point Al to point A third alternative is to both improve the speed of delivery and reduce cost as seen in going from point to point The important issue here is that in all three examples the value to the customer is increased significantly which is the primary purpose for moving to the superior performance curve.

Developing an Operations Strategy from Competitive Priorities

Factory Focus and Trade-Offs

The notion of factory focus and trade-off’s was central to the concept of operations  strategy during the late 1960 and earl 1970 The underlying logic was that a factory could excel simultaneously on all four competitive priorities. Consequently management had to decide which priorities were critical to the firm’s success and then concentrate or focus the resources of the firm on those particular characteristics. For firms with very large manufacturing facilities  Skinner suggested the creation of a plant-within-a-plant (PWP) concept. in which different locations within the facility would be allocated to different product lines. each with their own competitive priority. Even the workers under the PWP concept.
would be separated in order to minimize the confusion associated with shifting from one type of priority to another
For example if a company wanted to focus on speed of delivery  then it could not be very flexible in terms of its ability to offer a wide range of products. As  example McDonald’s provides very fast service but offers a very limited menu of highly standardized products in contrast Wendy’s makes your request to order but takes longer to driver  Similarly a low-cost priority was not seen to be compatible with either speed of delivery or flexibility. High quality also was viewed as a trade-off to low cost. The need for focus has been recognized in other service operations as well. Hotel chains such as Marriott and Holiday Inn have segmented the hotel industry and now offer a wide variety of products  each focused on a different market segment For example within  the Marriott group there is Fair field Inns for economy-minded customers; Marriott Hotels
and Resorts for conferences and for customers wanting-full-service hotels Residence Inns for customers wanting more than just a hotel room and Marriott Courtyards for those wanting certain hotel conveniences such as meals but who are still concerned about price. Skinner’s PEP concept is now also being applied to the health care industry where hospital within-
hospitals” allow specialized firms to focus only on specific ailments. For example intensive accepts only long-term acute patients and operates independently within the facilities of St. Francis Hospital in Beech Grove Indiana. Because it specializes in only one area intensive care  intensive’s operating  are 50 percent lower than those of a typical intensive care ward not Other examples of focused operations in the service sector include Bank Boston’s Private Bank Division which focuses on providing ‘a full line of banking services to wealthy customers  A bank within a bank  which is again not unlike Skinner’s plant-within-aslant concept  and Should ice Hospital in Toronto Canada  which performs only one type of hernia operation. The benefits of a focused operation can be readily demonstrated at Should ice Hospital  whose very unusual product is a “hernia vacation:’ Patients are admitted to a mansion like hospital in a beautiful setting outside Toronto  Every detail of the hospital’s operations is focused on providing high-quality hernia care and a congenial  restful atmosphere. Patients mingle mix and generally relax enjoying the experience so much that the annual reunion dinner is oversubscribed. This highly focused care permits Should ice to keep operating costs low while maintaining high quality  both in terms of medical care and patient service  However  by becoming a specialist facility Should ice does not have the capabilities to perform other types of medical treatments.

The Use of Information

Although the term Information Age was initially used hen the first mass-produced computers were introduced it wasn't until recently that we actually did enter the information age This is due in large part to advances in information technology that now allow large quantities of data to be transmitted and tired accurately and equally important inexpensively As a result companies are looking to use information in different ways to obtain a competitive advantage in the marketplace For example  GE Medical Systems and ENC Corporation both sell high-performance products with built-in systems that automatically call home when failures occur. or even potential failures are anticipated. Many times the e problem or anticipated problems are repaired remotely with little or no interruption in product performance. Feedback on existing products can also take the form of the voice of the customer as explained in the next chapter  In some instances this information is collected automatically or through service guarantees which are explained in detail in Chapter .

Environmentally Friendly Processes and Products

As consumer become more aware of the fragility of the environment they are increasingly turning towards products that are safe for the environment  Ford now advertises an environmentally friendly automobile The Body Shop an international retail chain headquartered in England sells various cosmetics and skin lotions that are made without harming the environment Very fine Products of West ford Massachusetts which produces a line of fruit drink  promotes its concern for the environment by noting that it u es a very high percentage of recycled products in  its containers and packaging.

The Next Sources of Competitive Advantage?

Managers are always looking for new ways in which to distinguish their firms from the competition. Currently  two new trends in business appear to be offering firms such an advantage(a) the use of environmentally friendly processes and environmentally friendly products and (b) the use of information.