Operations Strategy

2.	Operations Strategy
	2.1.	What is Strategy? Strategic decisions can be classified as those decisions which make major long term changes to the resource base of the organisation in response to external factors such as markets, customers and competitors. Thus strategic decisions occur as a result of an evaluation of the external and internal environment. The external evaluation may reveal market opportunities or threats from competitors. The evaluation of the internal environment may reveal limitations in capabilities relative to competitors. Strategy is seen as complex in nature due to a high degree of uncertainty in future consequences arriving from decisions, integration is required of all aspects and functional areas of business and major change may have to be implemented as a consequence of strategic choices made. Operations strategy is concerned with both what the operation has to do in order to meet current and future challenges and also is concerned with the long-term development of its operations resources and processes so that they can provide the basis for a sustainable advantage (Slack and Lewis, 2011)
	2.2.	Levels of Strategy Strategy can be seen to exist at three main levels within the organisation. At the highest or corporate level the strategy provides very general long-range guidance for the whole organisation, often expressed as a statement of its mission. The mission statement describes in general terms what key decision-makers want the company to accomplish and what kind of company they want it to become. Thus the mission focuses the organisation on specific market areas and the basis on which it must compete. The second level of strategy is termed a business strategy and may be for the organisation or at the strategic business unit level in larger diversified companies. There the concern is with the products and services that should be offered in the market defined at the corporate level. The third level of strategy is termed the operational or functional strategy were the functions of the business (e.g. operations, marketing, finance) make long-range plans which support the business strategy. Since the operations function is responsible in large part for the delivery of the product/service it has a major responsibility for business strategy formulation and implementation. This model implies a ‘top-down’ approach to strategy formulation in which corporate goals are communicated down to business and then functional areas. Although there has always been interaction within this hierarchy in both directions in this model the role of functional areas such as operations in setting the framework for how a company can compete is being recognised. The increasing importance of operations strategy development is discussed in the following section
	2.3.	The Role of Operations in Strategy Development The operations function plays an important role in the formulation and delivery of the organisation’s strategy. Market conditions have changed from a mass production era with an emphasis on high volume, low cost production to an environment demanding performance on measures such as quality and speed of delivery as well as cost. In addition the rapid pace of change in markets means the basis of how the organisation will compete may change quickly over time The traditional approach to strategy development has been for senior managers to establish corporate objectives, develop a strategy for meeting these objectives and then to acquire resources necessary to implement the chosen strategy. This approach is intended to ensure that resources are directed efficiently at the areas identified as ‘strategically’ important from the strategic analysis. The approach is based on the firm’s ability to forecast future market conditions and thus identify gaps between future market needs and organisational capability. However in dynamic markets the ability to forecast far enough into the future in order to build a competitive advantage will be limited. Also this approach has led to an emphasis on relatively short-term objectives and a lack of emphasis on ‘behavioural’ factors such as performance evaluation systems and selection and development of the work-force. The idea is that in dynamic market conditions the strategic plan should indicate the general direction that the organisation should follow based on the capabilities and values it possesses.
	2.4.	Operations Competitive Priorities Operations should focus on specific capabilities that give it a competitive edge which may be termed competitive priorities. Four operations priorities or measures of these capabilities can be termed cost, time, quality and flexibility
		2.4.1.	Cost The time delay or speed of operation can be measured as the time between a customer request for a product/service and then receiving that product/service. Speed is an important factor to the customer in making a choice about which organisation to use. The concept of P:D ratios (Shingo, 1989) compares the demand time D (from customer request to receipt of goods/services) to the total throughput time P of the purchase, make and delivery stages. Thus in a make-tostock system D is basically the delivery time, but for a customer-to-order system the customer demand time is equal to the purchase, make and delivery stages (P). In this case the speed of the internal processes of purchase and make will directly effect the delivery time experienced by the customer. Thus the advantage of speed is that it can either be used to reduce the amount of speculative activity and keep the delivery time constant or for the same amount of speculative activity it can reduce overall delivery lead time. Thus in competitive terms speed can be used to both reduce costs (making to inaccurate forecasts) and reduce delivery time (better customer service).
		2.4.2.	Time The time delay or speed of operation can be measured as the time between a customer request for a product/service and then receiving that product/service. Speed is an important factor to the customer in making a choice about which organisation to use. The concept of P:D ratios (Shingo, 1989) compares the demand time D (from customer request to receipt of goods/services) to the total throughput time P of the purchase, make and delivery stages. Thus in a make-tostock system D is basically the delivery time, but for a customer-to-order system the customer demand time is equal to the purchase, make and delivery stages (P). In this case the speed of the internal processes of purchase and make will directly effect the delivery time experienced by the customer. Thus the advantage of speed is that it can either be used to reduce the amount of speculative activity and keep the delivery time constant or for the same amount of speculative activity it can reduce overall delivery lead time. Thus in competitive terms speed can be used to both reduce costs (making to inaccurate forecasts) and reduce delivery time (better customer service)
		2.4.3.	Quality covers both the quality of the product/service itself and the quality of the process that delivers the product/service. Quality can be measured by the ‘cost of quality’ model were costs are categorised as either the cost of achieving good quality (the cost of quality assurance) or the cost of poor quality products (the costs of not conforming to specifications). The advantages of good quality on competitiveness include increased dependability, reduced costs and improved customer service
		2.4.4.	Flexibility There are a number of areas in which flexibility can be demonstrated. For example it can mean the ability to offer a wide variety of products/services to the customer and to be able to change these products/services quickly. Flexibility is needed so the organisation can adapt to changing customer needs in terms of product range and varying demand and to cope with capacity shortfalls due to equipment breakdown or component shortage. Types of flexibility include product flexibility which is the ability to be able to quickly act in response to changing customer needs with new product/service designs and volume flexibility which is the ability to be able to decrease or increase output in response to changes in demand. Volume flexibility may be needed for seasonal changes in demand as services may have to react to demand changes minute by minute.