Introduction

Any Operations function should understand its contribution to the organization. It is important
that we specify its role in business. We should also be able to assess the contribution of the
operation to a companys strategic goals. At a more practical level, it is impossible to know
whether an operation is succeeding if the specific performance objectives against which its
success is measured are not clearly spelt out.
However there is a progression of operations excellence. We will understand this using
Hayes and Wheelwrights nomenclature from Stage 1 to Stage 4.
There is a whole range of performance criteria which can be used to judge an operation and
which operations managers influence. Although cost is important and operations managers
have a major impact on cost, it is not the only thing that they influence.

They influence the quality which delights or disappoints their customers,

they influence the speed at which the operation responds to customers requests,

they influence the way in which the business keeps its delivery promises,

they impact on the way an operation can change with changing market

Your objectives
In this chapter you will learn about the following:

Understand what role the operations function should play to achieve strategic

success.
Understand the performance objectives of operations.
Understand the internal and external benefits which derive from excelling in each of
them.

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1 Effective Operations Management

By the role of the operations function we mean the part it plays within organization the
reason that the function exists.

Operations should be the implementer of business strategy

Operations should be support to business strategy
Operations should be the driver of business

1.1 Implementing the business strategy

The most basic operations is to implement strategy. Most companies will have some
kind of strategy but it is the operation that puts it into practice.
You cannot after all, touch the strategy; you cannot even see it; all you can see is
how the operation behaves in practice.
1.2 Strategy and operations
Strategy is how the mission of a company is accomplished. It unites an
organization, provides consistency in decisions, and keeps the organization
moving in the right direction. Operations and supply chain management
play an important role in corporate strategy.
As shown in Figure 2.1, the strategic planning process involves a
hierarchy of decisions.

Figure 2.1 Strategic Planning

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1.3 Strategy formulation

Strategy formulation consists of five basic steps:

Defining a primary task

The primary task represents the purpose of a firmwhat the firm is in the business of
doing

Assessing core competencies

Core competency is what a firm does better than anyone else, its distinctive
competence. A firms core competence can be exceptional service, higher quality,
faster delivery, or lower cost.

Determining order winners and order qualifiers

Order qualiers are the characteristics of a product or service that qualify it to be
considered purchase by a customer. An order winner is the characteristic of a product
or service that wins orders in the marketplacethe final factor in the purchasing
decision. For example, when purchasing

Positioning the firm

Strategic positioning involves making choiceschoosing one
or two important things on which to concentrate and doing them extremely well.

Deploying the strategy

Companies that compete on their chosen performance objectives as in section 5

2 Supporting business strategy

Another operation role is to support strategy. This goes beyond implementing
strategy. It means developing resources to provide the capabilities, which allow the
organization to improve and refine its strategic goals.
You must

develop process flexible enough to make novel components,

organize your staff to understand the new technologies,

develop relationships with its suppliers which help then respond quickly when
supplying new parts.

The better the operation is at doing these things, the more support it is giving to the
companys strategy. If the company had adopted a different business strategy, its
operations function would have needed to adopt different objectives.

Driving business strategy

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The third, and most difficult, role of operations is to drive strategy by giving it a
unique and long-term advantage.
For example, a specialist food service company supplies restaurants with frozen fish
and fish products. Over the years it has built up close relationships and with its
customers (chefs) as well as its suppliers around the world (fishing companies and
fish farms). In addition, it has its own small factory, which develops and produces a
continual stream of exciting new products.

Judging the operations contribution

The ability of any operation to play these roles within the organization can be judged by
considering the organization aims and goals of the operations function.
There is a progression of operations excellence. We will understand this using Hayes
and Wheelwrights nomenclature from Stage 1 to Stage 4.

Stage 1 Internal neutrality

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Stage 2 External neutrality

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Stage 3 Internally supportive

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Stage 4 Externally supportive

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5 The Five performance objectives

5.1 Quality
Customers are not looking for high levels of customer service, but they are looking
for high value.
You would want to do things right; that is, you would not want to make mistakes, and
would want to satisfy your customers by providing error-free goods and services

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which are fit for their purpose. This is giving a quality advantage to your company
customers.
Think of any company which competes especially on quality e.g. high quality hotels
and restaurants, luxury services such as high price hairdressers, etc. What do you
think quality here means? High conformance to quality is necessary for safety
reasons such as in hospital blood testing.

5.2 Speed
You would want to do things fast, minimizing the time between a customer asking for
goods and services and the customer receiving them in full, thus increasing the
availability of your goods and services and giving your customers a speed
advantage.
Any accident, emergency or rescue service can be thought of here. Now I am sure
that the consequences of lack of speed are immediately obvious to you. Consider
transportation examples where different speeds are reflected in the cost of the
service. First and second class postage is an obvious example as are some of the
over-night courier services.
Likewise, the fast check-in service offered to business class passengers at airports
and the exceptionally fast service of Concorde (depending on whether it is flying
when you are reading this!) which offers a fast service at a very high price.

5.3 Dependability
You would want to do things on time, so as to keep the delivery promises u have
made to your customers. If the operation can do this, it is giving dependability
advantage to its customers.
Some of the best examples to understand this concept called dependability is where
there is a fixed delivery time for the product or service. Theatrical performances are
an obvious example (or the preparation of lectures). Other examples include space
exploration projects which rely on launch dates during a narrow astronomical
window.
5.4 Flexibility

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You would want to be able to change what you do; that is, being able to vary or adapt
the operations activities to cope with unexpected circumstances or to give customers
individual treatment.
Hence the range of goods and services, which you produce, has changed far enough
to deal with all customer possibilities. Either way, being able to change far enough
and fast enough to meet customer requirements gives a flexibility advantage to your
customers.
Most operations do not know who or what will walk through the door next. The
obvious example would be a bespoke tailor who has to be sufficiently flexible to cope
with different shapes and sizes of customer and also (just as importantly) different
aesthetic tastes and temperaments.
A more serious example would be the oil exploration engineers who need to be
prepared to cope with whatever geological and environmental conditions they find
drilling for oil in the most inhospitable parts of the world. Accident and emergency
departments in hospitals must also be flexible. Unless they have a broad range of
knowledge which allows them to be flexible they cannot cope with the broad range of
conditions presented by their patients.
5.5 Cost
You would want to do things cheaply; that is, produce goods and services at a cost
which enables them to be priced appropriately for the market while still allowing for a
return to the organization; or in a not-for-profit organization, give good value to the
taxpayers or whoever is funding the operation. When the organization is managing to
do this, it is giving a cost advantage to its customers.
Lowering prices can increase demand for products or services, but it also reduces
profit margins if the product or service cannot be produced at lower cost. To compete
based on cost, operations managers must address labor, materials, scrap, overhead,
and other costs to design a system that lowers the cost per unit of the product or
service.
We use the example of the low cost retailers such as Aldi who have achieved some
success in parts of Europe by restricting the variety of goods they sell and services
they offer.

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ACTIVITY 1
(5 MINS)
Brief explain ways in which quality can be improve profit.

Case Study - Organically good quality

'Organic farming means taking care and getting all the details right. It is about quality from
start to finish. Not only the quality of the meat we produce but also quality of life and quality
of care for the countryside.'
Nick Fuge is the farm manager at Lower Hurst Farm located within the Peak District
National Park of the UK. He has day-today responsibility for the well-being of all the
livestock and the operation of the farm on strict organic principles. The 85 hectare farm has
been producing high quality beef for almost 20 years but changed to fully organic production
in 1998.
Organic farming is a tough regime. No artificial fertilizers, genetically modified feedstuff or
growth promoting agents are used. All beef sold from the farm is home bred and can be
traced back to the animal from which it came. 'The quality of the herd is most important, '
says Nick 'as is animal care. Our customers trust us to ensure that the cattle are organically
and humanely reared, and slaughtered in a manner that minimizes any distress. If you want
to understand the difference between conventional and organic farming, look at the way we
use veterinary help.
Most conventional farmers use veterinarians like an emergency service to put things right
when there is a problem with an animal. The amount we pay for veterinary assistance is
lower because we try to avoid problems with the animals from the start. We use veterinaries
as consultants to help us in preventing problems in the first place. '
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Cuts of meat are individually vacuum packed, weighed and then blast frozen. We worked
extensively with the Department of Food and Nutrition at Oxford Brookes University to
devise the best way to encapsulate the nutritional, textural and flavoursome characteristics
of the meat in its prime state. So, when you defrost and cook any of our products you will
have the same tasty and succulent eating qualities associated with the best fresh meat. '

After freezing, the products are packed in boxes designed and labelled for storage in a
home freeze.
Customers order by phone or through the internet for next day delivery in a special 'mini
deep freeze' reusable container which maintains the meat in its frozen state. isn't just the
quality of our product which has made us a success, ' says Catherine, 'we give a personal
and inclusive level of service to our customers that makes them feel close to us and
maintains trust in how we produce and prepare the meat. The team of people we have here
is also an important aspect of our business. We are proud of our product and feel that it is
vitally important to be personally identified with it. ' .

ACTIVITY 2
(30 MINS)
Your task is to study the case below and answer these question:
1 What does Lower Hurst Farm have to get right to keep the quality of its products and its
services so high?
2 Why is Nick's point about veterinarian important and helps all types of operation?

Case Study- When speed means life or death

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Of all the operations which have to respond quickly to customer demand, few have more
need of speed than the emergency services. In responding to road accidents especially,
every second is critical. The treatment you receive during the first hour after your accident
(what is called the 'golden hour') can determine whether you survive and fully recover or not.
Making full use of the golden hour means speeding up three elements of the total time to
treatment - the time it takes for the emergency services to find out about the accident, the
time it takes them to travel to the scene of the accident, and the time it takes to get the
casualty to appropriate treatment.
Alerting the emergency services immediately to an accident is the idea behind MercedesBenz's new TeleAid (Telematic Alarm Identification on Demand), offered initially to drivers of
their S-class cars in Germany. As soon as the vehicle's air bag is triggered, an onboard
micro computer reports through the mobile phone network to a control centre (drivers can
also trigger the system manually if not too badly hurt). The onboard satellite facility then
allows the vehicle to be precisely located, and the type of vehicle and owner identified (if
special medication is needed).
Getting to the accident quickly is the next hurdle. Often the fastest method is by helicopter.
When most rescues are only a couple of minutes' flying time back to the hospital speed can
really saves lives. However, it is not always possible to land a helicopter safely at night
(because of possible overhead wires and other hazards) so conventional ambulances will
always be needed, both to get paramedics quickly to accident victims and to speed them to
hospital.
One increasingly common method of ensuring that ambulances arrive quickly at the
accident site is to position them, not at hospitals, but close to where accidents are likely to
occur.
Computer analysis of previous accident data helps to select the ambulance's waiting
position, and global positioning systems help controllers to mobilize the nearest unit. At all

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times a key requirement for fast service is effective communication between all who are
involved in each stage of the emergency. Modern communications technology can play an
important role in this.

ACTIVITY 3
(30 MINS)
Your task is to study the case below and answer these questions:
1 Draw a chart which illustrates the stages between an accident occurring and
full treatment being made available.
2 What are the key issues (both those mentioned above and any others you can think of)
which determine the time taken at each stage?

QUICK QUIZ
1. A prudent business leader has a financial perspective of strategy that drives
operational and marketing decisions. True or False
2. Waste is considered to be an output True or False
3. Which of the following is not a key factor of competitiveness?
A. price
B. product differentiation
C. flexibility
D. after-sale service
E. size of organization
4. What are the major factors product and service design strategy?
5. Unique attributes of firms that give them a competitive edge are called
______________.
A. Functional strategies
B. Balanced scorecards
C. Supply chains
D. Core competencies
E. Sustainable initiatives

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ANSWERS TO QUIZ
1. False
2. True
3. E, competitiveness often has nothing to do with organization size.
4. Major factors in design strategy
Cost
Quality
Time-to-market
Customer satisfaction
Competitive advantage
5. D, core competencies can be translated into competitive advantage.

ANSWERS TO ACTIVITIES
1. How improved quality increases profits

2. How Lower Hurst Farm keep the quality of its products

The operation must do everything it can to demonstrate that it is doing this
and build the trust of its customers. Second, there is a significant quality of
service issue. Catherine points out that, customers like to have personal
communication with her when they are ordering their meat.
Nick's point about veterinarian important and helps all types of operation
Nicks view is very close to the modern philosophy that, because the true cost
of breakdown in any part of an operation is far higher than most people
imagine because of the disruption it causes, it is usually best to try to put
some effort into preventing breakdowns happening in the first place.
3. Draw a chart which illustrates the stages between an accident occurring and full
treatment being made available.
We dont have enough information to draw any definitive specific chart. But
one can choose a typical situation and speculate as to the likely stages

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The key issues which determine the time taken at each stage

Information flow
Decision making
Skills availability
Journey times
Capacity management

CHAPTER ROUNDUP

This chapter focuses on the concept that operations has a leading role in determining
the direction a company may take with reference to the requirements of the market

and the marketing function.

Strategy formulation involves defining the primary task, assessing core

competencies, determining order winner and order qualifiers, and positioning the firm
The operations will use certain performance objectives to achieve this.
Understanding and applying operations strategy aids the organization to develop
their competitive advantage using their core competency, both within the local as well
as the international environment.

REFERENCES
1. Operations Management by Nigel Slack, Publisher : Prentice Hall
2. Operations Management by Schroeder, Contemporary Concepts and Cases
Publisher : McGraw Hill
3. Operations Management by Lee J. Krajewski, Publisher : Prentice Hall
4. Operations Management by Russell,& Benard W. Taylor, Creating Value Along the
Supply Chain 7th edition , John Wiley and Sons

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