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Operations Strategy in Global Environment: Cost or Price, Quality, Delivery Speed

The term “worldwide market” has become a watchword for businesses around the globe in the 21st century. IT has become a requirement for any company’s achievement because internet buying has become a way of life for clients. It is therefore important to give the public what it wants by establishing an operations strategy, a method of knowing where the company is, where it is going, and how its future goals will be reached (Champy, par. 2).

Cost or Price

Production costs in the United States are a major problem owing to the low labor costs enjoyed by overseas rivals. These costs have caused many companies to seek foreign avenues and alternatives.  By following a comprehensive evaluation process, manufacturers can develop a strategy to compete with low-cost global competition and, in turn, offer customers quality products at a competitive price. The first step is for the company to know its customers by making sure consistent communication between management and customers occurs, more commonly known as a “customer-centric approach” (Longo). Second, it is important to create products where domestic production would be most beneficial for U.S. customers, and identify opportunities for products that would be best produced globally. This process, according to Longo, is known as “competencies analysis.” Finally, a target consumer base must be developed in keeping with future marketing trends. Longo also suggests that it is important to evaluate the competitive intensity of companies in the same or similar fields, both local and foreign, and to involve customers in the planning stages of new products.

One important factor in keeping up with Information Technology (IT) changes in the present economy is the willingness to create partnerships and mergers in order to stay ahead of progress. DuPont, long known as a scientific corporation, has now emerged as one of the most innovative companies in the technology field following its collaborative partnership with Computer Sciences Corporation (CSC) and Accenture. The main outsourcing goal of DuPont to achieve decreased expenses for its IT activities and maintenance of apps was accomplished at a rate between 6 and 8% lower than the expected baseline (DuPont).

Operations Strategy in Global Environment: Cost or Price, Quality, Delivery Speed

Until the late 1980s, Canadian steel company Dofasco competed on price by producing as much steel as possible at the lowest possible prices. However, in 1992, it found itself in debt and losing money. The “competing on cost” strategy was not working, and the company realized it had to refocus by developing new and innovative products and providing its customers with solutions for high-quality and specialized applications. The business strategy was called Solutions in Steel and focused on operational excellence, technology, and innovations, as well as intimate customer relationships. By 2000, it was No. 1 among North American steel suppliers. McGraw Hill has included the Dofasco vignette in its sample study (Steelmaker, p. 2) as an example of the importance of formulating a successful business strategy.

There is no doubt that cost and price are two important factors in succeeding in business, but they cannot be the only factors involved. As noted above, pricing strategy is dependent on innovation, cooperation, partnerships, and updating information technology.

Quality

            In marketing, a positive public image does more for a company than offering more for less in the price field. Once the image is established, customers will be willing to pay higher prices for a dependable known brand. One example is Maytag, established for all time as the best appliance a customer can buy. Although partly due to a low-key television ad in which the Maytag repairman never has anything to do, the product has shown itself to be almost maintenance-free in operation. The words “made in Japan” were at one time indicative of low-quality products, but Japan turned things around by manufacturing quality goods—quality rather than quantity—in cars and electronics. This positive image has filtered into all Japanese products.

Company objectives, however, must be carefully defined in terms of quality. For instance, quality at McDonald’s restaurant is very different from quality at a five-star restaurant, which in turn is different from quality at a hospital. Just as cost cannot be discussed without bringing quality into the equation, quality is necessarily related to cost—according to David Pyke, “costs decrease as quality improves” (3). He notes that cost, quality, and delivery speed are interrelated, and one cannot be discussed without bringing in the other two, especially with the recent introduction of what is called “mass customization,” which guarantees rapid delivery of quality customized products. Pyke sets forth eight dimensions of quality as defined by David Garvin: performance, conformance, reliability, durability, serviceability, features, aesthetics, and perceived quality (Pyke 3). It is the customer’s perception of the product that takes precedence in a study of quality. Once that perception has been established, the public will overlook high prices or longer delivery times. For a new product, it might be that flexibility to design changes and delivery would come before quality, and once quality is established, cost can be determined (Pyke 4). In addition, quality must be directly related to human resources policies with reward systems supporting quality goals (Pyke 6).

Flexibility, reliability, and one point of contact—through AT&T’s Enhanced Virtual Private Network Services (Enhanced VPN) are factors that simplify Epta’s ability to be a market leader. Epta provides refrigeration units, display systems, and checkout counters mainly for large supermarkets or hypermarkets, and quality becomes a must in order to satisfy the companies that use Epta’s products. Global marketing relies on dependable computer programs that create one outlet for multiple markets, which leads to market demand on a global level (Epta).

Companies in a global economy need to clearly identify their internal competitive strengths and weaknesses, as well as external opportunities and threats (SWOT Analysis). Global corporate strategy management must take the competition into account. The aim is to develop and create sustainable competitive advantage. Management methods deal with quality criteria, product flexibility, and innovation as factors with the same importance as knowledge of costs (Araujo & Costa). If, in addition, a company can promise speedy product delivery and create trust among their customers with a quality product, making sure they receive it in the fastest possible time, their operations strategy will be successful.

Speed of Delivery

            Customers in higher income groups are not always satisfied with products that meet a need but have no distinguishing personal characteristics. In this high-tech society, they want custom-made goods. The problem has been length of time to customize a product and meet customer expectations without losing market share. Japan’s National Bicycle Industrial Company (NBIC) has utilized information technology to provide what is presently known as “mass customization” (Heiskala et al; Japan’s Personalized). It is a method by which robots, computers, and skilled workers offer high quality Panasonic bicycles within two weeks after an order is entered, using the customer’s personal specifications and creating a bar code that can be used throughout the whole process.

United Plastics Group in the United States has had to face the threat of labor-cost advantage abroad despite foreign producers disadvantages of longer time to market, higher transport and inventory costs, quality concerns, and longer response times. The company agrees with other U.S. based molding companies that molding must specialize. They can no longer’ rely on past marketing methods.

Mack Molding chose to change their product line in their overseas market and increase production of medical molding, which required smaller presses and allowed for faster delivery time. In their domestic market, they were able to supply “super-large-part” molding (Knights, par. 11). They developed special skills to mold large parts such as a golf-cart roof in a single shot and make large structural parts with cosmetic finishes. Mack looks for a customer that needs close contact between design and manufacturing to execute quick product design.

Product lifecycle management (PLM) is an innovative method of bringing new products into the marketplace in a timely fashion. It is both a business and technology strategy that is best recognized for helping to speed products to market. Research lists five core components of PLM for manufacturers to consider:

  • Product Data Management (PDM) A generic term for the repository that manages revision and configuration of specifications to provide a single version of truth.
  • Collaborative Product Design (CPD) Online conferences and apps for designing or visualizing distributed development teams.
  • Direct Material Sourcing (DMS) Automates quote application and promotes the reuse of component or provider to decrease downstream design complexity in the supply chain.
  • Customer Needs Management (CNM) Captures and manages customer requirements through development to ensure the voice of the customer is heard.
  • Product Portfolio Management (PPM) Gives exposure to the NPI pipeline status and encourages company choices to prioritize product financing.

                                                                                                      (AMR Research, par. 6)

            By utilizing this method, manufacturers are supplied with a faster time to market and increased market share. General Motors, by using PLM to simplify its IT infrastructure, has realized more than $1 billion in savings. By rationalizing global product specifications, Procter & Gamble saved millions of dollars in supply chain savings. Sony Ericcson achieved significant time-to-market reductions by modeling cost benefits of product features versus customer value.

Conclusions

            By providing an analysis of the importance of cost or price, quality, and delivery speed in a successful business, it becomes evident that certain areas must be addressed in planning operations strategy. The following factors will determine success or failure:

  • Being aware of global competition
  • Establishing communication with customers
  • Studying future marketing trends
  • Willingness to consider partnerships and mergers
  • Developing positive brand recognition
  • Offering employee incentives
  • Staying flexible and focusing on reliability

Throughout this paper, the above areas are addressed again and again, and a company that makes them a priority will have a far better chance for success than a company that tries to follow outdated strategy methods.

Works Cited;
  • AMR Research Inc. “Is PLM Right for Your Business? Industry Week, 1 January 2007. 6 April 2007. http://www.industryweek.com/ReadArticle.aspx?ArticleID=13217
  • Araujo, J.A.R., & Costa, R.P. “Operations Strategy and Cost Management.” Journal of Information Systems and Technology Management, Vol. 2, No. 3, 2005, pp. 291-303. 5 April 2007. http://www.jistem.fea.usp.br/ojs/index.php/jistem/article/viewFile/25/25
  • Champy, James. “Three Ways to Define and Implement a Corporate Strategy.”  CIO News: Headlines, 13 July 2006, 9 pars. 4 April 2007.  http://searchcio.techtarget.com/columnItem/0,294698,sid19_gci1197761,00.html
  • “DuPont: IT Outsourcing Provides Flexibility for Change.” CSC, 2007, 10 pars. 4 April 2007. http://www.csc.com/industries/chemicalenergynaturalresources/casestudies/4149.shtml
  • “Epta: Global IP Infrastructure Keeps Refrigeration Leader Close to its Customers” (Case Study). AT&T, 2006. 5 April 2007. http://www.corp.att.com/emea/docs/epta_group_061226a.pdf
  • Heiskala, M., Kaija-Stiina, P. and Tiihonen, J. 2005. Mass Customisation of Services: Benefits and Challenges of Configurable Services. Frontiers of e-Business Research. Available from: http://www.ebrc.fi/kuvat/206-221_05.pdf
  • “Japan’s Personalized Bike Production.” Operations Strategy: Defining How Firms Compete. [Internet Exercise Sample] McGraw Hill.ca/college/davis. 2004, Ch. 2, p. 16. 6 April 2007. http://highered.mcgraw-hill.com/sites/dl/free/0070922837/158533/sample_ch2.pdf
  • Knights, Mikell, ed. “Injection Molders’ Weapons: Advanced Technology or Secure Market Niche.” Plastics Technology, 2007, 26 pars. 6 April 2007. http://www.ptonline.com/articles/200701fa2.html
  • Longo, Lou. “Competing With Low-Cost Global Competition.” Manufacturer, Issue No. 1 2004, Stages 1-7. 4 April 2007. http://www.plantemoran.com/Publications/Manufacturer/2004+Issue+No+1/
  • Pyke, David F. “The Way Forward for Operations Strategy.” The Financial Times, 23 October 2000. 5 April 2007.  http://mba.tuck.dartmouth.edu/pages/faculty/dave.pyke/papers/ops_strategy_financial_times.PDF
  • “Steelmaker Dofasco does a turnaround through strategic refocusing.” Operations Strategy: Defining How Firms Compete. [Internet Exercise Sample] McGraw Hill.ca/college/davis. 2004, Ch. 2, p. 2.  4 April 2007. http://highered.mcgraw-hill.com/sites/dl/free/0070922837/158533/sample_ch2.pdf
  • SWOT Analysis. Marketing Teacher, 2000. 6 April 2007. http://www.marketingteacher.com/Lessons/lesson_swot.htm

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