Production strategy, operational performance objectives, and decision areas

The study of production strategy begins, from a content point of view, with Skinner’s pioneering work identifying production as an important source of competitive advantage.

Conceptually, production strategy refers to the establishment of policies and plans that promote the efficient use of resources, in order to ensure the achievement of company objectives. In a market-based approach to operations strategy, a company develops a strategy by first analyzing the markets and customers it wants to reach and win over.

Production strategy can also refer to the establishment of broad policies and plans for resource usage aiming at sustaining competitive strategy over the long term. Production strategies are developed using “competitive criteria” conducive to an effective analysis of the positioning of products and goods.

Production strategy can be analyzed in several ways, according to Skinner, regarding the importance of production for company strategy. Manufacturing tasks, or “strategic priorities” as some authors prefer, were first identified by Skinner as being productivity, service, quality and return on investment. According to Garvin, most publications focus on four main competitive priorities: cost, quality, delivery and flexibility. To these four, he adds services.

The objective of the production strategy is to lay out a pattern for consistent decision-making with regard to the production process, providing the company with guidance on the best way to use resources, in order to support a competitive advantage.

As a complement, Slack, et al. (2010), identify five interrelated operational performance objectives that are part of all types of operations: quality, flexibility, speed, dependability and cost (see Figure 1).

Quality refers to executing actions correctly. In other words, manufacture products or provide services free from defects, thus building customer satisfaction.

Flexibility involves developing and launching new products and services frequently and modifying the production schedule in the face of unexpected situations, while preventing a drop in quality.

Speed implies executing activities as quickly as possible, reducing lead time (the period between the beginning and end of an activity).

Dependability means ensuring commitments made to customers are delivered on time, and fulfilling buyers’ requests correctly.

Finally, cost is about achieving objectives previously set at the lowest possible cost, maximizing the organization’s revenue.

Decision areas assist a company in determining its needs, in terms of structure and infrastructure, so as to meet its performance objectives.

According to Hayes and Wheelwright (1985), decision areas can be classified into two categories according to their nature: structural and infrastructural.

Structural decisions have long-term impacts, are difficult to reverse or modify, and require significant capital investment. Decisions regarding capacity, facilities, technology, and vertical integration are classified as structural.

The decision areas of an infrastructural nature are related to more operational aspects of the business. The results obtained from decisions taken in this area can be short-, medium- or long-term, but capital investments in general are less necessary, and reversing decisions is less problematic (although losses may result). The decision areas of an infrastructural nature are human resources, quality, planning and control of production / materials, new products, performance measures, and organization.

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