Firms compete for: 

• Market Share (Customers) 

• Revenue and profits 

Competitive Advantage 

• Low-cost leadership: Selling products/services for lower $ than comp  

• Only do this if your costs are lower than your competitor's costs 

• More efficient operations allow a lower production cost 

• Differentiation: Charging a premium price for your products/services 

  • Products/Services need to be high-quality to warrant a higher price 

The Five Competitive Forces: Competition is often looked at too narrowly by managers 

The Five Forces: 

• Rivalry among existing competitors 

• Bargaining power of suppliers 

• Bargaining power of customers 

• Threat of new entrants 

• Threat of substitute products/services 

Five forces help you understand what is causing profitability and where constraints are in any industry. 

Rivalry: can be positive-sum or zero-sum. 

Zero-sum game: Your opponent has to lose for you to win 

Positive sum game: Your opponent doesn’t have to lose for you to win 

Strategy formulation: should start with industry analysis. 

The fundamental purpose of strategy is alignment. 

Mission Statement: States a firms purpose

• Clear, concise, and comprehensive

Unique Value Proposition: A set of promises you make to a target audience that are different from other alternatives.

Value proposition is a promise of value 

Benefits can be of three types: 

• Functional 

• Economic 

• Emotional 

3 reference points for differentiation (uniqueness) of your value proposition are: 

• Customers buying from competitors 

• People buying nothing 

• Yourself 

Claims of differentiation: must be made to a specific target audience because value is contextual. 

Evidence used to back up your claims:

1. Objective features 

2. Customer Testimony 

3. Third-party rating agencies 

4. Your own evidence 

SCOR Model (Supply Chain Operations Reference): 

• Identifies basic management practices at different operations levels, for benchmarking and strategy deployment 

Process Capacity

• Maximum capacity

  • Highest achievable level under ideal conditions (for a limited time)

• Effective capacity

• Achievable level under normal conditions(for an extended time)

• Capacity utilization

  • How much available capacity is actually used

• Idle capacity

  • Capacity not being used

Market Opportunity: Customer with needs and wants with a disposable income 

• Goal of investing in capacity is to capture market opportunity 

• Sales and marketing departments are important in forecasting demand to be captured 

  • Too much capacity – wasted resources 

  • Too little inventory – wasted opportunity 

Productive assets: Builds infrastructure needed to produce product/service

• Technology 

• Physical Space 

• Labor 

Investment:  

• When to invest 

• How much to invest 

• What to invest in  

Theory of Constraints 

1. Every process has a constraint 

• Bottleneck: 

  • Any activity that slows the flow down in a process.  

  • Also, any activity where demand exceeds capacity.  

  • You will have many constraints, but only one will be holding you back 

• Serial/Sequential Structure: Processes occur one after another 

• Parallel Structure: Two or more processes occur simultaneously
   

2. Every process has a variance that consumes capacity 

• Variability wastes capacity because variation increases costs 

• Variability increases changeovers, complicates production, generates rework, causes downtime, and more.  

• You can deal with variability by: Eliminating a root cause, adding a buffer or flexibility to the system. 

3. Every process must be managed as a system 

•   Changing one element of a process may impact other elements

•   Process elements are interdependent

  • Activities

  • Inputs/Outputs/Flows

  • Process structures

  • Management policies

4. Process measures 

• Metrics should address performance that are important to customers and the organization 

  • Your measurements should have evidence to back it up 

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5. Continuous Improvement 

• Business Process Reengineering (BPR) 

  • Everything that should be changed, will be changed all at once. From the ground up, redesign everything.  

• Kaizen 

  • Small incremental improvements. These improvements are made constantly and the idea is that over time the process improves significantly. Complete opposite to the BPR process.  

Process mapping and analysis  

6 steps: 

• Decide your goal

  • Goals should be consistent with corporate and operational strategy, realistic

• Identify the critical process

  • Critical processes: 

    • Bottleneck

    • Visible to the customer

    • Consumes largest amount of resources

    • A shared process

• Document the existing process

  • Collect information from relevant employees, customers, suppliers

  • Collect historical records

  • Observe the process in action

• Analyze improvements

  • Value adding activities: 

    • Moves an item closer to what the customer desires

    • Generates revenue

  • Necessary but not value adding

  • Waste generating

• Recommend changes

  • Gather improvement opportunities

  • Combine those ideas in a coherent way

  • Prioritize identified process improvements

• Implement changes

  • Happens in stages

  • Requires trial and error

  • Gradual