The key to developing an effective operations strategy lies in understanding how to create or add value for customers Specifically value is added through the competitive priority or priorities that are selected to support a given strategy Skinner and others initially Identified four basic competitive priorities These were cost quality delivery and flexibility These four priorities translate directly into characteristics that are used to describe various processes by which a company can add value to the products it provides There now exists a fifth competitive priority-service–and it was he primary way in which companies began to differentiate themselves in the 1990
Within every industry there is uselessly segment of the market that buys strictly on the basis of low cost To successfully compete in this niche a firm must necessarily therefore be the low-cost producer. But as noted earlier even doing this doesn’t always guarantee profitability and success. Products sold strictly on the basis of cost are typically commodity-like. (Examples of commodities include flour petroleum and cougar.) In other words customers cannot easily distinguish the products made by one firm from those of another. As a result. customers use cost as the primary determinant in making a purchase. However this segment of the market is frequently very large and many companies are lured by the potential for significant profits which are associated with large unit volumes of product. As a consequence the competition in this segment is exceedingly fierce-and so is the failure rate. After all there can only be one low-cost producer and that firm usually establishes the selling price in the market. As an example Kmart declared bankruptcy. in January 2002 due primarily to its inability to compete head to head with Wal-Mart based on low prices. Wall-Mart is clearly the low-cost producer in this segment of the retail industry because of its tremendous size which allows it to keep its operating cost down through economies of scale. If Kmart is to survive it will have to find another market niche other than cost on which to compete.