Operations Management

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Operations Management

Chapter 2

Winning Customers and

Competing Effectively

Jones & Robinson

Jones & Robinson: Operations Management

• Explain the concept of order qualifiers (OQs) and order winners (OWs)

• Explain how firms compete on the basis of OQs and OWs

• Understand how operations are affected by market structure and identify alternative structures

• Identify alternative approaches to industrial market segmentation and customer market segmentation and explain the implications of this for operations management

Learning Objectives


• Order qualifying factors are characteristics of a product or service that are required for them even to be considered by a customer, such as holding a recognized quality standard (e.g. ISO 9000) or being able to fly directly to a customers destination airport. Having more of these factors will not normally give firms opportunities to do more business.

Order Qualifiers


• Order winning factors are those characteristics which directly contribute to winning business from customers, such as speed of delivery or the flexibility to increase or decrease production output to meet demand.

They are the key reasons for customers to purchase goods or services and improving the performance of these factors may result in increased business

Order Winners


• *Neely’s (2008) approach to Operations strategy and Order Winners and Order Qualifiers, considering the 5 internal performance priorities:

• Cost• Quality• Dependability• Flexibility• Speed

Competing on OQs and OWs

* Neely,A. (2008) 'Business Performance Measurement: Unifying Theory and Integrating Practice'


Competing on Cost


Competing on Quality


Competing on Flexibility


Competing on Dependability


Competing on Speed


• Lean production / Toyota – cost and quality (BLUE)• Low cost airlines / easyJet – cost and

dependability(PINK)• Agile manufacturing / Benetton – flexibility and

speed(GREEN)• Mass customization / Dell – flexibility and

cost(YELLOW)• eCommerce / Amazon.com – flexibility and

speed(WHITE)

Turning Ows into Operations Strategies


Markets typically have certain characteristics, such as:

• Relative strength of buyers and sellers, • Level of industry concentration • Degree of collusion amongst sellers and /or

buyers, • level and forms of competition, • extent of product differentiation,• ease of entry into and exit from the market.

Market Structures


• Perfect Competition: many buyers and sellers, none being able to influence prices.

• Imperfect competition: many buyers and sellers, but due to buyers imperfect knowledge of prices some opportunities for sellers to control prices

• Oligopoly: several large sellers who have some control over market mechanisms.

• Duopoly: two dominant sellers with considerable control over supply and prices

• Monopoly: single seller with considerable control over supply and prices

• Oligopsony: several large buyers with some control over demand and prices

• Monopsony: single buyer with considerable control over demand and prices

Types of Market Structure


Macro and Micro segmentation:•Bonoma and Shapiro (1984) suggested that both macro and micro criteria could be combined into a multi-step approach, considering most of the criteria in a specific sequence:•Demographics: industry, company size, customer location •Operating variables: company technology, product/brand use status, customer capabilities •Purchasing approaches: purchasing function, power structure, buyer-seller relationships, purchasing policies, purchasing criteria •Situational factors: urgency of order, product application, size of order

Industrial Market Segmentation


• Geographic variables include such criteria as region of the world, country, population density; climate type; or degree of urbanization.

• Demographic variables include gender, age, family size and type, income, occupation, education level, religion and ethnicity.

• Psychographic (or lifestyle) variables are based on consumers’ activities, interests, attitudes, opinions, and values.

• Behavioural variables are based on how consumers act towards certain products and services.

Customer Market Segmentation


• Order Qualifiers (OQs) are characteristics of a product or service that are required even to be considered by a customer.

• Order Winners (OWs) are those factors which contribute directly to winning business from customers.

• Firms can either compete on a combination of a number of factors such as cost, quality, flexibility, dependability and speed, or they can compete on the same OWs as their competitors but do it better.

Summary


• Markets are structures which allow the exchange of goods and services. Alternative structures are perfect competition; imperfect competition; oligopoly; duopoly; monopoly; oligopsony; monopsony.

• Industrial markets can be segmented by:– Demographics– Operating variables– Purchasing approaches– Situation factors– Buyer’s personal characteristics

Summary


• Customer markets can be segmented by:– Geographic approaches – physical location

– Demographic approaches – social and economic factors

– Psychographic approaches – attitudes and values

– Behavioural approaches – how the product or service is used

Summary

Documents

Operations Management