Operations Management: Strategies, Processes, and Competitive Advantage

Posted on Feb 13, 2025 in Business Administration and Management (BAM)

Operations Management Fundamentals

Value Creation and the Transformation Process

Operations Management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs.

  • Feedback: Measurements taken at various points in the transformation process.
  • Control: The comparison of feedback against previously established standards to determine if corrective action is needed.
  • Value Added: The difference between the cost of inputs and the value or price of outputs. The essence of the operations function is to add value during the transformation process.

Functions involved in producing goods and services include marketing, production, finance, and HR.

Types of transformation processes:

  • Physical
  • Locational
  • Exchange
  • Storage
  • Physiological
  • Informational
  • Psychological

Management functions include planning, organizing, staffing, leading, and controlling.

Competitive Advantage and Product Lifecycle

Strategies for Success

Competitive advantage can be achieved through differentiation, cost leadership, and response.

Product Lifecycle (PLC) Stages

  • Introduction: Best period to increase market share. R&D, product design, and development are critical. High production costs.
  • Growth: Practical to change price or quality image. Strengthen niche. Forecasting is critical.
  • Maturity: Poor time to change image, price, or quality. Competitive costs become critical. Defend market position. Product improvement and cost cutting.
  • Decline: Cost control is critical. Cost minimization. Reduce capacity.

Global Operations Strategies

Adapting to the Global Market

Global operations strategy options:

  • Global Strategy: High cost reduction consideration, low local responsiveness consideration. Standardized product, economies of scale, cross-cultural learning. Example: Otis Elevator
  • Transnational Strategy: High cost reduction and local responsiveness consideration. Move material, people, ideas across national boundaries. Economies of scale, cross-cultural learning. Examples: Coca-Cola, Nestlé
  • International Strategy: Low cost reduction and local responsiveness consideration. Import/export, license existing product. Example: US Steel
  • Multi-Domestic Strategy: Low cost reduction consideration, high local responsiveness consideration. Use existing domestic model globally. Franchise, joint ventures, subsidiaries. Example: McDonald’s

Product Development and Quality

Optimizing Product Value

Product-by-value analysis: Lists products in descending order of their individual dollar contribution to the firm. Lists the total annual dollar contribution of the product. Helps management evaluate alternative strategies for each product so that limited existing resources are invested in a few critical products, not many trivial ones. New products are very important for companies because of their high percentage in sales.

Product Development Stages

  1. Ideas
  2. Ability
  3. Customer requirements
  4. Product specifications
  5. Design review
  6. Test market
  7. Introduction
  8. Evaluation

Approaches to Organizing for Product Development

  1. Historically: Distinct departments. Advantage: Duties and responsibilities are well defined. Disadvantage: Difficult to foster forward thinking.
  2. A Champion: Assign a product manager.
  3. Team Approach: Cross-functional representatives from all disciplines or functions. Product development teams, design for manufacturability teams, value engineering teams.
  4. Japanese “Whole Organization” Approach: No organizational divisions.

Quality Function Deployment (QFD)

Identify what will satisfy the customer. Translate those customer desires into the target design.

Planning matrix: Relate “what” the customer wants to “how” the company is going to meet those “wants”.