Operation strategy and competitiveness

1. OPERATIONS
STRATEGY AND
COMPETITIVENESS

2. 2.1 INTRODUCTION
Strategy is the art and science of formulating, implementing and evaluating cross-functional decisions that
enable an organization to achieve its objectives.
Business strategy is concerned with the overall direction in which it is moving.
Operation strategy must emerge from the business strategy of the organization.
2.2 BUSINESS STRATEGY
• Formulation of business strategy begins with defining the mission of the organisation
• The next step is to carry out an environmental scan; by analyzing the external environment for business
opportunities as well as competitive threats. Political, economic, social and technological factors are
considered. The opportunities and threats have to be combined with an organisation’s internal strengths
and weaknesses.
• The final step in the formulation of business strategy is to put it all together.

3. 2.3 COMPETITIVE PRIORITIES
Operations strategy is the long-range plan for the design and use of the operations function

4. To support the overall business strategy. It involves addressing the competitive priorities that support the
business strategy. The first step is to identify competitive priorities which mostly are cost, quality, time and
flexibility.
Cost: Organisations that compete on cost attempt to maintain the competitive edge through cost
leadership, which implies their ability to offer the product at a cheaper cost than their competitors.
Let us consider this aspect from the five P’s point of view.
• Product or service. The product or service should be so designed that costs are reduced to the minimum.
Value engineering is a useful tool in achieving this and aims at providing the same functionality at a
lower cost.
• Processes. Technology will help to improve processes or use totally processes to reduce cost.
• Plant. The location, layout and capacity of the facility can have a major impact on costs.
• Programmes. Materials management and the correct scheduling of orders and inventory control can help
to reduce costs.
• Personnel. The costs can be reduced by employing personnel with the requisite skills and training.

5. Quality. Organisations often look at quality defensively. Quality of a product or a service can be
ensured through its design features; correct manufacturing processes, ensuring quality of inputs,
correct type of machinery, and having quality conscious personnel.
Time. Speed of delivery is becoming a competitive priority with organisations. The internet and
advances in information technology have made significant contributions towards this aspect.
Flexibility. The ability to respond to changing circumstances in terms of product improvement and
innovation.

6. 2.4 ORDER QUALIFIERS AND ORDER WINNERS
Order qualifiers are those features provided by all manufacturers which make the product to be
considered for purchase by the customer.
Order winners is that feature which influences the final buying decision.
2.5 DEVELOPING AN OPERATIONS STRATEGY
The operations strategy is designed on the basis of competitive priorities within the overall
framework of the business strategy and this leads to the design of operations structure
and infrastructure.
THE FIVE P’S STRUCTURE OF OPERATIONS STRATEGY
1. Product or service: Operations strategy is driven by the type of product or
services offered by the organisation. Product may be made-to-order, made-
to-stock or assembled-to-order.

7. Make-to-order products they are manufactured or produced only when firm order for the product
exist.
Made-to-stock products these are manufactured in bulk and an inventory of finished products is
maintained. Most fast moving consumer goods fall in this category.
Assembled-to-order products they are produced in standard modules. Components are made to
stock and whenever a customer places an order, the product is assembled according to his
requirements.
2. Processes: The choice of processes depends on the products or services provided by the
organization. For manufacturing process can be categorized into several types:
Job shop production or project approach methods are generally applied to made-
to-stock item. A type of manufacturing process structure where small batches of
variety of custom products are made.
Batch production involves the production of a fixed quantity of items at a time. This
method is suited for efficient production of standardized items while still allowing
some level of customization.

8. Flow production, also known as assembly line production, involves the continuous movement of
products through standardized production steps.
Continuous production is a method where products are manufactured non-stop, without
interruption.
3. Plant: Capacity, location and layout are major decisions which affect operations strategy. It is
physical facility that used for manufacturing goods or providing services.
4. Programmes: The planning, scheduling and control of operations
must conform to the competitive priority of the organisation.
5. Personnel: Skilled and motivated personnel can be an asset for any
organisation.

9. 2.6 PRODUCTIVITY AND COMPETITIVENESS
Productivity is often used as a measure of competitiveness. It may be defined as the ratio of units of
output to units of input.
𝑃 =
Output
Input
Productivity may be measured partially in terms of the units of a single input like labour productivity or
machine utilisation and so on. For example, if 2 carpenters working 8 hours a day can produce 4 tables,
then we can say that the labour productivity is:
Outputs = 4 tables
Inputs 16 hours of labour (2 carpenters × 8 hours)
𝑃 =
Output
Input
=
4 tables
16 ℎ𝑜𝑢𝑟𝑠
= 0.25 𝑡𝑎𝑏𝑙𝑒𝑠 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟

10. EXAMPLE 2.1 A furniture company produces 80 tables and uses 480 square metres of fibre board and 320
hours of labour. What is the productivity, if the tables are sold at Rs. 400 each, the cost of fibre board is Rs. 50
per square metre and labour costs Rs. 15 per hour?
Solution:
Output
80 Tables selling at Rs. 400 per table = Rs. 32,000
Inputs
480 square meters of fibre board @ Rs. 50 per square metre = 24,000
320 hours of labour @ Rs. 15 per hour. = 4,800
Total = 28,800
𝑃 =
Output
Input
=
32
,
000
28
,
800
= 1.11
If the productivity in the previous week was 1 then we can say that the
productivity has improved during the current week. Generally productivity
growth rates are compared. The productivity growth rate is:

11. 𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 =
P2
− P₁
P₁
Where
P₂ is the productivity at a given time
P₁ is the productivity of an earlier period
EXAMPLE 2.2
Last week the company produced 150 units in 200 hours of labour. Thia week the company produced 180
units in 220 hours of labour. What is the growth rate?
Solution
𝑃₁ =
150
200
= 0.75
𝑃₂ = 180
220
= 0.82
𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 =
𝑃₂−P₁
P₁

12. =
0.82−0.75
0.75
= 0.093
Or a growth rate of 9.3%.
EXAMPLE 2.3
The furniture company has provided the following data for 2005 and 2006.compare labour, raw materials and
total productivity.
2005 2006
Output Sales value of production Rs. 24,000 Rs. 36,000
Input Labour Rs. 12,000 Rs. 15,000
Raw materials Rs. 10,000 Rs. 12,500
Capital equipment depreciation Rs. 800 Rs. 1,200
Others Rs. 2,400 Rs. 4,800
Solution 2005 2006
Labour productivity 2.00 2.40
Raw materials productivity 2.40 2.88
Total productivity 0.95 1.07

13. 2.7 LATEST TRENDS
Some of the significant trends and changes are:
Globalisation: The internet has opened access to global customers and global markets. Equally, there are
global sources of supply and transformation facilities can be set up anywhere on the globe.
E-commerce and virtual companies: The traditional brick and mortar shops and stores are being
overshadowed by virtual companies which facilitate commence through the information and databases that
they have.
Greater customisation: The web has brought the customer closer to the operation. The industrial revolution
ushered in an era of mass production. The current buzzword is mass customization.
Virtual integration: The internet has resulted in the quick sharing of information between the suppliers and
customers. The role of middlemen has been greatly reduced. A new form of middlemen are the organisations
which help to bring the supplier, manufacturer and customer together through the information that they can
provide.
Speed and flexibility: The net has speeded up everything- speed of information,
action, decision making, delivery, communication and innovation.

14. Emergence of service economies: The manufacture-based economies of the developed world are
getting transformed into service economies. About 75% of the gross domestic product of the US is
provided by the service sector.
Technological advances and knowledge management: Technology is making rapid advances.
Organisations are now learning organisations. They will have to share, absorb and manage knowledge
so that they continue to sharpen and retain their core competencies and best practices.