Most companies develop competitive priorities when managers lose sight of operations’ primary reason for being to produce quality products and services that consumers want at prices that seem reasonable. This relates back to measures of organizational effectiveness: the ability to set the “right” goals, ones that build on organizational strengths and meet the needs and wants of potential consumers. Of course, individual needs and wants vary widely, as do price perceptions. Rather than try to be all things to all consumers, effective managers make strategic decisions about how their organizations can best meet their customers’ competitive priorities, and then adjust their operations accordingly. After all, customers use an organization’s products and services in their own competitive contexts. The four major competitive priorities for operations management are pricing, quality level, quality reliability, and flexibility.
Pricing: For many consumers, price is a major consideration, either because their funds are limited or because the differences between a higher priced item and a lower priced item do not seem justified. One task of the operations manager is to keep costs down so that organization can offer “good” prices and still make a profit.
Earl Scheib, Inc., of Beverly Hills, which operates a nationwide chain of discount car-repair shops offering low priced paint jobs, is an example of an organization that has built sales volume through low prices. Scheib’s low prices have resulted in annual sales increases of 15 percent and earnings increases of almost 50 percent. At the same time, Scheib protects its profit margins by careful cost accounting. Cost accounting is also important in retail stores, since a name brand good offers the same quality and warranty whether it is bought in a luxurious department store or a discount warehouse.
Although pricing considerations are usually associated with for profit organizations, they are also a concern of nonprofit organizations (such as charities and professional associations) and government agencies, which charge “prices” in the form of dues, donations, taxes, and user fees. To increase consumer satisfaction and avoid complaints, these organizations need to use operations management to keep prices down while still providing high quality service.
Quality Level: Quality level has two components: high performance design and fast delivery time. Characteristics of high performance design are superior features, close tolerances and greater durability of the product or service. An example is Maytag washers and dryers. In an industry marked by highly competitive products and prices, Maytag has been able to charge premium prices because customers believe in the superior capability and the expected longer life of its washers and dryers. Customers also expect efficient repair schedules if anything does go wrong with a Maytag product. Quality level is also exemplified by Pizza Hut employees, who offer quick service guarantees during the weekday lunch hour.
Quality Reliability: Quality reliability means consistent quality and on time delivery. Consistent quality measures the frequency with which the design specifications are met. McDonald’s restaurants are world renowned for uniformly achieving their design specifications. You can expect the same quality standards whether you eat at a McDonald’s in Charlotte, New York, or Paris. Toyota’s small cars are not noted for the ability to compete with Cadillacs on quality level (consequently, Toyota’s price is much lower), but they are world renowned for their quality reliability they are highly consistent in quality from one car to another. In general, the “lean production” system pioneered by Toyota and other companies has stressed the organizational and managerial aspects of production, including reduction of inventories and process times, just-in time inventory, continuous improvement, and a skilled labor force. This model has worked extremely efficiently under the conditions of a totally cooperative environment and an absolute dedication to work of all employees.
Flexibility refers to both product and volume flexibility. Product flexibility means that product designs can be changed quickly and that managers emphasize making such changes to please customers they customize products to individual preference. In this case, the level of output for an individual product is necessarily low because the firm competes primarily on its ability to produce difficult, one-of-a-kind products. This is the exact opposite of mass production, where standardization of the product has occurred and the producer makes large quantities of one team.