Competency-Based

Fundamentals
Chapter Objectives
• To introduce the evolution of operational competencies.
• To present a competency-based view of global operations strategy.
• To introduce concepts of global operational competencies, including
time-, quality-, cost-, flexibility- and value-based competencies.
• To discuss the roles of competencies in global operations strategy.
• To address approaches to achieving competencies.
(value-based competency)
Cost Competency
• Defensive cost-based strategy: By maintaining low prices to attract
price-sensitive customers in the targeted market segment, or via the
low price performance ratio, which refers to a product’s ability to
deliver performance while charging a lower price.
• Aggressive cost-leadership strategy provides products and services at
the lowest price, tries to win the largest market share, uses costs and
price as strategic weapons with which to attack rivals and builds
dominance in the global marketplace.
Approaches to the Achievement of Cost
Competence
(1) Scale-related cost
The most common approach to cost reduction is to reduce scale-related costs in early manufacturing systems,
as Ford did by introducing mass production. When production volume increases, scale-related costs will
decline. A firm can use mass manufacturing and assembly lines to reduce scale-related cost.

(2) Variety-related cost

When product variety increases, setup, changeover, material handling, inventory and overhead costs will all
increase. Flexible manufacturing systems (FMS), for instance, can use the flexibility of machines as well as
routing flexibility to reduce variety-related cost.

(3) Total landed cost

TLC is the total cost, from input to end product. A global logistics system or global supply chain should act to
reduce TLC and not just the manufacturing cost. TLC is mainly used to inform production-location sourcing
decisions.

(4) Total cost of ownership

TCO includes all of the costs associated with buying and owning an asset across an equipment or product
lifecycle. TCO includes all of the costs which are included in TLC as well as post-purchase costs such as
maintenance, repairs and training. A firm which uses primarily TCO in their decision-making processes will do
so to inform their capital expenditures, materials purchasing and supplier selection.
(5) Cost-based technology
Technological innovation might enable a company to offer a cheaper
product in a global manufacturing context. Mitsubishi Electric uses
robots to reduce the production costs in the various industries.
Technology can help in eliminating repetitive or wasteful steps in
delivering services, as well. Information technology, for instance, has
been used to reduce the cost of post-sale services.

(6) Cost-based process

MNEs can restructure production and service processes to reduce
costs. A firm can use production and service outsourcing to reduce
their labor and purchasing costs. Dell, Zara and Benetton each use a
strategy of late customization to postpone product differentiation,
which acts to reduce the variety-related cost.
(7) Cost-based resources
A firm may try to: obtain access to low-cost labor and raw materials; establish
plants in locations which offer a clear cost advantage (e.g., Foxconn established
factories in China to take advantage of the available low-cost labor); hire immigrant
labor (e.g., construction companies in Dubai having long hired workers from South
Asia); set up purchasing centers in locations with low prices for finished products
(e.g., Carrefour and Walmart having set up purchasing centers in China); and, build
purchasing subsidiaries in locations known to be rich in raw materials (e.g., steel
companies establishing purchasing subsidiaries in Brazil and Australia to purchase
iron ore).

(8) Cost-based facilities

Cost-based facilities are of relevance to facility resources, facility planning
processes, facility logistics and manufacturing technologies. Walmart built cross-
docking distribution centers to reduce their logistics costs and LTC. Fashion and
clothing companies have built Automated Storage/Retrieval Systems (AS/RS) in an
effort to reduce both scale-related cost and variety related cost in warehouse
operations. Foxconn built a large-scale electronics manufacturing town, capable of
housing more than 300,000 workers while also accommodating a number of
assembly lines, to reduce scale-related cost in Shenzhen, China.
Flexibility Competency
Concepts of Flexibility and Flexibility Competency
• Flexibility is a competency which is associated with uncertainties and risks,
and with an ability to respond and conform to new environments.
• Flexibility can be characterized by three major attributes: dimensions, time
horizon and elements.
• Globalization increases exchange-rate risks, political risks and global
customer heterogeneity risks, and imposes new requirements on flexibility
competency.
• Globalization has influenced the scope (e.g., product scope) and time (e.g.,
increasing delivery time due to global transportation networks as opposed
to regional logistics) of flexibility, in addition to having affected the
difficulty of handling flexibility on a global scale.
Framework of flexibility competency
Delivering Flexibility: Passive, Defensive and
Proactive Flexibility Operations Strategies
• Passive flexibility strategy: A firm may consider flexibility to be less
important, which may lead them to seek a reduction to their product
flexibility or process flexibility so that the firm may realize its competitive
strategy. Apple has made a conscious effort to reduce the number of types
and to keep its products “simple”.
• Defensive flexibility strategy: An adaptive response undertaken after
observing environmental uncertainties. Some clothing companies, for
example, will design, modify, produce and deliver new clothing styles only
after they have been able to collect information at fashion shows and from
competitors’ stores.
• Proactive flexibility strategy: proactive flexibility strategy is designed to
handle market uncertainties or to hold some new modes and product
types in reserve..
Delivering Flexibility: Processes, Product and
Infrastructure Flexibility
• Processes flexibility: refers to the capability to fabricate different types of
products in the same plant, at the same time. The most commonly used
approaches to achieving this end are resource sharing, resource
substitution, transshipment, postponed differentiation and mass
customization.
• Product flexibility: In a global economy with more new products being
introduced by global competitors, the product life cycles have tended to
become shorter. MNEs have therefore needed more flexible operations
strategies to accompany the more frequent development and introduction
of new products.
• Infrastructure flexibility: A firm can deliver flexibility by five infrastructure
subjects: 1-workforce autonomy, 2-communication, 3-Interdepartmental
relationships, 3-Supplier flexibility, 4-technology, 5-production and
inventory
Quality Competency

A firm is said to have achieved quality competency if the firm can use product or service quality to satisfy
customer demand, distinguish its products and services from those offered by competitors, and build a
competitive advantage over its rivals.
Time Competency
• Time-Based Competency (TBC) means shortening the time required
for product design, new product introduction, raw materials
purchasing, parts and components production, assembly, distribution,
marketing and sales.
• Time-based competency can lead to operational and financial
benefits which include:
• Improved customer satisfaction and customer loyalty,
• Improved productivity,
• Reduced costs,
• Increased market share, and
• Increased revenue and profit.
Time Competency model