The key to developing effective production. Operation strategy lies in understanding how to create or add value to customers. Specially value is added through the competitive priority or priorities that are selected to support a given strategy.
There are five basic competitive priorities. They are:
- Cost: Providing low-cost products.
- Quality: Providing high-quality products.
- Delivery: Providing products quickly.
- Flexibility: Providing a wide variety of products.
- Service: How products are delivered and supported.
Competitive Priorities in Operations Management
These five basic competitive priorities are discussed in detail in the following points:
To successfully compete in the market segment that buys strictly on the basis of low cost, a firm must necessarily be a low-cost producer. In the case of commodity-like products (flour, sugar, and petroleum) the customers can not distinguish the products made by one firm from those of another.
As a result, customers use cost/price as the primary determinant in making a purchase.
However, this segment of the market is frequently very large and there is potential for significant profits associated with large unit volumes of products. As a result, the competition is fierce and the failure rate is quite high.
After all, there can be only one low-cost producer and the firm usually establishes the selling price in the market.
Quality can be categorized as product quality and process quality. The level of quality in the product design will vary as to the particular market that it is aimed to serve.
The higher quality products command higher prices in the marketplace.
The proper level of product quality is established to focus on the requirements of the customer. Over designed products with too much quality will be viewed as being prohibitively costly.
Underdesigned products will lose customers to products that cost a little more but are perceived by the customer as offering much greater benefits.
Process quality is critical in every market segment and its goal is to produce defect-free products.
The speed of delivery of products to customers is an important determinant in the purchasing decision.
The ability of a firm to provide consistent and fast delivery allows it to charge a premium price for its products.
Both profits and market share are directly linked to the speed with which a company can deliver its products relative to its competitors.
In addition to fast delivery, the reliability of the delivery is also important.
In other words, products should be delivered to customers with minimum variance in delivery times.
Flexibility refers to the ability of a company to offer a wide variety of products to its customers.
It is also the measure of how fast a company can convert its processes from making an old line of products to producing a new product line.
In the case of products or commodities for which the primary determinant in the purchase decision is the price (for example, personal computer) firms are now providing value-added service to obtain a competitive advantage.
The next competitive advantage after the five basic competitive priorities are met by a company, that will distinguish its products in the marketplace is the trend toward offering environmentally friendly products that are made through environmentally friendly processes.
For example, the nowadays automatic manufacturer are changing their automobiles to meet the Euro 2 standards, refrigerator manufactures are using the CFC free refrigerators and petroleum refineries turnout lead-free petrol in their efforts towards reducing pollution and protecting the environment.
Also, manufacturers are increasingly using recycled raw materials such as plastic for packaging and also using biodegradable packing materials to reduce problems of waste disposal.
After knowing the competitive priorities which offer a competitive advantage to companies it is necessary to now achieve competitive advantages through operations function.
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