Operations strategy refers to the formulation of broad policies and the design of strategic plans. Its objective is to use the company’s resources in the best possible way to execute the firm’s long-term competitive strategy.
A company’s operations strategy is interrelated with corporate strategy. Additionally, it is one of the main activities performed by operations management. Strategy involves a long-term process aimed at fostering inevitable changes. When talking about operations strategy, it mainly refers to manufacturing operations. However, service operations strategy bears many similarities, especially when the service company utilizes materials as part of its offering.
Operations strategy involves decisions related to the design of a process and the infrastructure necessary to support such process. Process design includes selecting the appropriate technology and evaluating the process over time. It also includes analyzing the role of work-in-process inventory and its location. Decisions about infrastructure involve the logic associated with planning and control systems. It also includes quality assurance, control and management methods, salary structure, and the organization of the operations function.
Because organizational goals change over time, operations strategy must be designed to anticipate future needs. Let’s examine operations strategy from a historical perspective. It is noted that US companies experienced tremendous consumer demand after the war. As a result, manufacturing in the US emphasized producing large volumes of items to meet this demand. In contrast, during the same period, Japanese manufacturing companies focused on managing the quality of their products. The priorities necessary to maintain competitiveness varied for companies in different countries. The key to the success of operations strategy lies in identifying priority options. That is, understanding the consequences of each option and the transactions involved in all of this.
Several basic priorities have been identified in operations management strategy. These priorities include: cost, product quality and reliability, delivery speed, and reliability in delivery. Other priorities include the ability to cope with changes in demand, flexibility, and speed of introducing new products, among other criteria for a specific product. Through various tools provided by industrial engineering, each of these priorities can be explored, which we will describe below.
We can say that price is one of the competitive weapons used in the market. However, the concept of profitability is related to the difference between price and cost. Cost is the variable that allows charging lower prices but still remains profitable. To compete based on price, it is necessary to have an operations function capable of producing at low cost. Therefore, it is important to control events that impact costs, especially those activities that do not add value. Some examples may include location effects, product design, or utilization. We can also mention labor productivity, proper inventory management, among others. An example of an operation strategy focused on cost is IKEA. It offers quality furniture at a low price thanks to the fit achieved between competitive and operational strategies.
IKEA, the world’s largest furniture retailer, epitomizes strategic fit through its seamless integration of corporate vision, mission, and operational strategy. Founded in Sweden in 1943 by Ingvar Kamprad at the age of 17, IKEA has grown into a global powerhouse with a presence in over 50 countries, boasting more than 500 stores and over 225,000 employees worldwide. With its vision to “create a better everyday life for the many people” and mission to “offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them,” IKEA has established itself as a leader in the industry.
At the core of IKEA’s operational strategy lies a commitment to providing high-quality products at affordable prices without compromising customer needs. This operational focus is reflected in its unique structure, which integrates design, manufacturing, distribution, and retail functions seamlessly.
In terms of its operational structure, IKEA has pioneered a self-service model, with showrooms displaying furniture in everyday usage configurations. Its in-house design approach emphasizes modularity and affordability, with products designed to be easily assembled by customers. Within the store, a warehouse setup allows customers to pick up products in flat-packed boxes for convenient transport, aligning with IKEA’s commitment to affordability and convenience.
Furthermore, IKEA’s production process involves partnerships with contractors in both Europe and Asia, enabling cost-effective manufacturing while maintaining product quality. Additionally, IKEA offers a range of in-store services, including childcare facilities and extended opening hours, catering to the needs of its target demographic: middle-income individuals, often with families, who require flexibility in shopping times.
Quality can be divided into two categories: product quality and operational process quality. The quality level in the design of a product will vary according to the market segment it is aimed at.
As it is obvious, a bicycle for ordinary people is of substantially different quality from that of a professional cyclist. The use of special aluminum alloys, gears, and special lightweight chains is important for the cyclist’s performance. These two types of bicycles are designed according to the needs of different customers. The higher quality product has a higher price in the market due to its special features.
The way to establish the appropriate level of quality for a product is to think about customer requirements. Over-designed products, with excessively high quality levels, will be perceived as very expensive. Conversely, under-designed products will lose customers, as they will prefer products that cost a little more but are perceived as items that will bring greater benefits.
Operational Process quality is crucial as it is directly related to product reliability. Regardless of the product, customers want defect-free products. Therefore, the goal of process quality is to produce error-free products. Product specifications, given in dimensional tolerances, precisely define how it should be manufactured. Quality is the fundamental axis of processes to achieve a product with high reliability.
The ability of a company to deliver the product faster than its competitors can be crucial. This can be seen in various markets. For example, a company that offers repair services for equipment connected to computer networks. A company that can offer on-site repairs in just one or two hours will have a significant advantage, especially over rival firms that only guarantee service within 24 hours or more.
This priority refers to the firm’s ability to supply the product or service on the promised delivery date, or even earlier. For an automobile manufacturer, it is very important that its tire supplier provides the necessary quantity and types for daily production. If the tires are not available on the assembly line when the vehicle requires them, it will be necessary to stop the production system until they arrive. The practice of reducing inventory stocks to decrease costs became widespread during the 1980s and 1990s. This has increasingly emphasized delivery reliability as a criterion for evaluating potential alternative suppliers.
A company’s ability to respond to demand variations is an important factor in its ability to compete. This can be observed in many markets. When demand is strong and increasing, costs are continuously reduced as a result of economies of scale, and it is easy to justify investments in new technologies. However, reducing production when demand decreases can involve making many difficult decisions, such as layoffs and asset cuts. The ability to effectively cope with dynamic market demand in the long term is an essential element of operations strategy.
From a strategic perspective, flexibility is the ability of a company to offer a wide variety of products. An important element of this capacity is the time it takes for a company to develop a new one, and also to transform its processes to offer it.
Developing an operations strategy focused on specific criteria related to a product is essential for optimizing efficiency and profitability. When exploring these strategies, it is vital to recognize that priorities may vary depending on the type of product or particular situation.
This perspective is especially highlighted in the field of services, where specific strategies can greatly influence operation success.
It is often observed that the mentioned priorities mainly align with services. This suggests that, in many cases, offering specialized services can boost sales of manufactured products. Establishing an operational strategy that incorporates this interrelation can be key to achieving a strong competitive position in the market.
Adaptability to the particularities of the product or situation becomes a crucial factor. When considering these strategies, factors such as product design, supply chain, and associated logistics must be carefully evaluated. The efficient integration of additional services, whether in the form of extended warranties, specialized installation, or technical assistance, can significantly differentiate a company’s offering compared to competitors.
An example that highlights this strategy is Apple, which not only focuses on manufacturing high-quality electronic products but also provides exclusive services such as personalized technical support and continuous software updates. This integration of product-specific services not only strengthens the value proposition but also creates customer loyalty based on the comprehensive experience.
In summary, an operations strategy focusing on specific criteria related to a product must consider adaptability and the incorporation of specialized services to maximize efficiency and stand out in a competitive market. Below are some examples.
A supplier can be expected to provide technical assistance for product development, especially during the initial stages of design and manufacturing.
A firm may be required to coordinate its activities with those of other companies as part of a complex process. In these cases, manufacturing may be taking place while the development process is still ongoing. Coordinating work between firms, and simultaneous work on a project, will reduce the total time required to complete the project.
An important priority may be the company’s ability to provide support for the product after the sale. This includes the availability of spare parts and possibly modifying older existing products to meet new performance levels. Also, the speed of response to these after-sales needs is often important.
Developing an operations strategy centered on technology entails leveraging innovation to drive efficiency and operational excellence. In this approach, technology stands as the essential core that propels all facets of business operations. Advanced systems such as ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), WMS (Warehouse Management System), and others become the pillars that sustain and optimize each process.
ERP software, as a central element, facilitates the integration of various business functions, from inventory management to human resources planning, providing a holistic and coordinated view.
On the other hand, CRM software enhances customer relationships, improving the understanding of their needs and fostering loyalty.
Meanwhile, WMS optimizes warehouse management, streamlining logistics, and reducing delivery times.
This technological strategy not only drives internal efficiency but also opens opportunities for continuous innovation. The implementation of emerging technologies, such as artificial intelligence or the Internet of Things, can take the strategy to new levels, allowing for greater automation and real-time data-driven decision-making.
A paradigmatic example of this strategy is Amazon, whose operations are based on advanced technological infrastructure. From inventory management to fast delivery, each aspect is optimized using technologies such as machine learning algorithms and advanced robotics systems.
In summary, an operations strategy grounded in technology not only modernizes internal processes but also positions the company at the forefront of innovation. The adoption and continuous evolution of technological systems enable efficient and adaptive operation in a dynamic business environment.
Exploring operations strategies based on other specific criteria opens up a range of opportunities to optimize product offerings. Considering factors such as colors, sizes, and available weights plays a fundamental role in responding to market demands. Furthermore, the strategic location of the manufacturing site emerges as a crucial criterion that influences logistics efficiency and associated costs.
The possibility of customization emerges as a distinctive element in this approach. The ability to adapt products to individual customer preferences not only increases perceived value but can also generate brand loyalty. Likewise, offering product mix options provides flexibility to consumers, allowing them to create customized combinations that meet their specific needs.
Supply chain logistics becomes an essential component when considering these criteria. Efficient management of production, storage, and distribution becomes crucial to ensure the availability and timely delivery of customized products. Companies like Nike have excelled in this aspect by allowing customers to customize their sneakers, combining different colors and styles.
The integration of these criteria not only diversifies the product offering but also translates into greater adaptability to market trends. The ability to quickly respond to changes in demand and consumer preferences becomes a competitive differentiator.
In conclusion, by focusing on specific criteria such as colors, sizes, manufacturing location, and customization, operations strategies can drive efficiency and customer satisfaction. Flexibility to offer product mix options and adapt to individual preferences strengthens the company’s position in a dynamic and competitive market.