ENHANCING OPERATIONAL PERFOMANCE
In most industries, regardless of whether the average profitability of the industry is high or low, some firms are more profitable than others. The superior performers have something special and difficult to imitate that allows them to do better than their rivals. In strategy, these unique skills and resources are mentioned as sources of competitive advantage. Bharadwaj,Varadarajan and Fahy (2008) classify two broad sources of competitive advantage:- unique resources (assets) and distinctive skills (capabilities). Day and Wensley, 2016 characterize superior skills as the distinctive capabilities of a firm’s personnel that set them apart from the personnel of competing firms and superior resources as more tangible requirements for advantage that enable a firm to exercise its capabilities. These two sets of sources allow a business to perform the various primary and secondary value activities that compose its value chain at a lower cost or lead to differentiation. They create competitive positional advantages in the form of superior customer value by differentiated goods/services, and/or lower relative costs through cost leadership. Firm-specific skills and resources are also referred to as the “drivers” of cost and/or differentiation advantages.
There are varieties of drivers in the literature; these include resource-based drivers such as economies of scale and scope, brand equity, and reputation, and skills-based drivers such as the skills underlying the innovativeness and superior quality of a business’s offerings. Superior skills and resources do not give a business a competitive advantage. They only offer the business an opportunity to use its skills and resources to achieve competitive cost and/or differentiation advantages. Thus, one must identify the skills and resources that have the greatest potential to endow the firm with enduring competitive advantages. Aaker, (2010) stated that multiple sources of competitive advantage are necessary for a business to compete successfully. Logistics management has always been concerned with lead-times. In particular, the order-to-delivery cycle has been seen as a major element in the customer service process. However, companies are now increasingly coming to recognise that the way in which ‘time’ is managed throughout the logistics system – from procurement of materials through to the receipt of payment for goods sold – is a key determinant of competitive advantage. Not only is work-in-progress and inventory reduced through a shortening of total logistics lead-time, but responsiveness and flexibility to marketplace requirements is dramatically enhanced. One of the goals of any company selling a product or service is differentiation. A company pitches its unique selling proposition that is going to be most advantageous for it. Successful differentiation requires a good product or service and customer insight (customers’ perception of a company’s product and those of competitors). Setting its products or service apart from its competitors is necessary to create preference and loyalty. Here are a few examples on how companies have maintained competitive advantage.
• Apple – Appealing Design, robust software
Hands-on software, simple product design and unified iTunes ecosystem.
• BMW – Ultimate driving machine
“The ultimate driving machine”. It gives many professional reviews on how BMW’s drive its ergonomic design, maneuverability, non-overweight engine.
• Nike – Brand Power
Brand power, strong bonding with top athletes (Michael Jordan, Brazilian national soccer team), and performance-focused product design. Nike produces products that are customers recognize to be of high value with exclusive features. Nike is also known to use guerrilla marketing to publicize its products e.g. Nike’s use of small Gone Running signs in amusing situations.
• Singapore Air – Distinctive services at premium costs
Distinctive premium services on long-haul business flights at practical costs. It was the first to introduce many services like video-on-demand, hot scented towels, hot meals etc. It uses a young fleet of aircrafts, and its well-dressed ‘Singapore Girl’ cabin crew is a brand icon.
Case derived from: Achieving a competitive advantage through logistics strategy http://www.casestudyinc.com/differentiation-strategy-examples FORMATIVE ASSESSMENT 1 [100 MARKS]
QUESTION 1 (100 MARKS)
With reference to the case study provided examine the scope of operations management and critically discuss any THREE strategies that organisations can implement in order to achieve a competitive advantage through their operations function. (20 Marks)
Mckinsey Consultants have been advocating for businesses to adopt the Business Process Engineering (BPR) methodology to influence their operational performance. Critically evaluate this methodology and how it can be implemented at Apple and Nike. (20 Marks)
Nike in one of its operations has recently noted increases in costs and therefore have been aiming towards improving efficiency. The operations manager Cedric Masuku is interested in determining the productivity of his organisation and would like to know if his organisation is maintaining the manufacturing average of 3% increase in single and multi-factor productivity. Compile a report highlighting if this is being achieved, use the relevant calculations.
He has the following data representing a month from last year and an equivalent month this year:
|Capital invested (rands)||R10000||R10000|
The costs have been determined to be as follows. Labour R10 per hour, Resin R5 per kilogram
Capital 1% per month of investment Energy R0.50 per watt Apple has made available the following information for materials (pints) used in the past 6 weeks. (20 Marks)
|Week of||Pints used|
Given this information determine the following.
Forecast the demand for the week of Oct 12 using a 3-week moving average. (2 Marks)
Using a 3-week weighted moving average with weights of 0.1, 0.3, 0.6 for the most recent week. Forecast demand for the week of October 12. (3 Marks)
Compute the forecast for the week of October 12, using exponential smoothing (given the forecast for August 31 of 360 pints and a smoothing constant a=0.2). (6 Marks)
The demand for electric power supplied by Eskom over the period 2003 to 2009 is shown in the table below in megawatts. Nike wants you to forecast demand for 2010 by using the simple linear regression method (9 Marks)
Being able to closely match demand and supply involves having information about buying patterns a purpose that is fulfilled by forecasting. Forecasting is considered as the art and science of predicting future events (Heizer and Render, 2014:140). Considering this statement critically discuss the strategic importance of forecasts for organisations
Answers to Above Questions on Operations Management
The analysis of the case study on enhancing operational performance indicates that there is significant scope available in the operations management to achieve competitive advantage within the business. It is identified in the study that the distinctive capabilities of a firm’s personnel set them apart from the competitive firms, and it is mainly the personnel that have to manage the operational performance of the organisation. This indicates that there is great scope of opportunities available in achieving competitive advantage through enhancing the operational performance. The three important strategies that an organisation can implement in order to achieve a competitive advantage through their operations functions are:
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