Sales and operations Year 1
Creating competitive advantage
Learning objectives
Explain the concept of order winner and order qualifiers
List and describe the 5 elements of creating a competitive advantage
Describe the interaction between different organizational functions (Porter)
Recognize the importance of each element’s role in creating value
The ability of firms to identify customer needs and to develop an appropriate range of
products or services to develop an appropriate range of products or services to meet
these needs is essential for successful operations. Hill identified competitive factors which
firms can use to win business. These factors are called order qualifying and order winner
factors.
Order qualifying factors are characteristics that are required for it even to be considered
by a customer (delivery). Order winners are those characteristics which directly
contribute to winning business from customers (speed of delivery). They are the key
reasons for customers to purchase goods/services and improving the performance of the
factors may result in better business. These factors change as customers’ requirements
change and competition increases.
The factors can be translated into these 5 internal performance objectives:
Cost
Quality
Flexibility
Dependability
Speed
Cost
The ability to provide products at a price the customer is willing to pay while still retaining
a profit for the organization is the essence of good cost control.
Manufacturing costs: refers to the actual costs of making the product/delivering the
service. It is all the direct costs associated with the operations activity.
Value added: refers to all the activities carried out by an organization that increase
the worth of a product or service and for which the customer is willing to pay. These
are created by a set of operations which together are referred to as the value chain.
Selling price: the price at which a product is priced will depend on the sensitivity to
price of the particular market.
Running costs: refers to how much it will cost the buyer to use and operate whatever
they purchased. For example, a bus company wants to know how much it costs.
Service costs: some products (cars) need regular maintenance and servicing.
Speed
The ability to provide products or services with as short a time delay as possible between
customer order and delivery is essential
Quote generation: the time that is needed to prepare a quotation to the customer
once the final concept and specification have been agreed.
Delivery speed: the time taken for the organization to deliver the product or service to
the customer once an order has been received.
Delivery frequency: the number of deliveries.
Production speed: the overall time taken internally to produce a product and it being
ready for delivery.
New product development speed: the time taken for the organization to introduce
new products to the market from initial concept to final prototype.
,Sales and operations Year 1
Quality
This is one of the most important criteria for customers to evaluate before purchase. The
perception of quality varies per customer. Quality standards exist for most industry
sectors and are seen as important order qualifiers but can also be a major order winner.
Performance
Refers to how well the product does what it is meant to do/how well it meets its
specification.
Features
The added refinements which support the primary requirement.
Consistency
Refers to the ability of the product or service to consistently perform to its
specifications over time.
Conformance
Refers to the product or service meeting its technical specification.
Technical durability
Refers to the ability to be able to absorb slight variations in conditions and still
perform to specification. May also be referred to as robustness.
Serviceability
Refers to the ability of a product to be maintained and continue to work acceptably
over an extended time period without undue deterioration.
Aesthetics
Refers to the sensory characteristics; look, feel, sound, appearance etc.
Perceived quality
The notion of customer satisfaction and whether there is a gap between the
expectations and the perception.
Value for money
The combination of cost and price.
Flexibility
The ability to change a product or service offering to suit customers’ needs has become
ever more important.
Material quality
The ability to absorb small differences in raw material quality without affecting the
final product (different woods for furniture).
Output quality
The ability to offer different standards of output (airline classes).
New product
The ability to introduce new products/services to the market.
Modified product
The ability to modify existing products/services.
Deliverability
The ability to react to changes in delivery times requested by customers.
Volume
The ability to increase or decrease output to meet demand.
Mix
The ability to provide a wide range of products or services.
Resource mix
The ability to offer product/service flexibility by having a mix of resources available
(printers that print a variety of materials in a range of volumes).
, Sales and operations Year 1
Dependability
This is the ability of an organization to consistently meet its promises to the customer. A
key element of managing supply chain relationships is the building of trust between
buyers and sellers. Dependability is a major feature here.
Schedule adherence: the ability to meet scheduled requirements.
Delivery performance: the ability to meet a required standard for delivery.
Price performance: the ability to meet commitments to the customer for delivering its
product or service at the agreed price.
Ability to keep promises: the ability to supply the product/services when it says it will.
Safety: the ability to ensure that its user comes to no harm.
The value that’s created and captured by a company is the profit margin:
Value created & captured – cost of creating that value = profit margin.
The more value an organization creates, the more profitable it is likely to be. When you
provide more value to your customers, you build competitive advantage.
Primary activities
These relate directly to the physical creation, sale, maintenance and support of a product
or service.
Inbound logistics
All the processes related to receiving, storing and distributing inputs internally. Your
supplier relationships are key factor in creating value here.
Operations
The transformation activities that change inputs into outputs that are sold.
Outbound logistics
These activities deliver your product or service to the customer; collection, storage,
distribution systems, and they may be internal or external to the organization.
Marketing and sales
All the processes used to persuade clients to purchase from you instead of your
competitors. The benefits you offer, how well you communicate them etc.
Creating competitive advantage
Learning objectives
Explain the concept of order winner and order qualifiers
List and describe the 5 elements of creating a competitive advantage
Describe the interaction between different organizational functions (Porter)
Recognize the importance of each element’s role in creating value
The ability of firms to identify customer needs and to develop an appropriate range of
products or services to develop an appropriate range of products or services to meet
these needs is essential for successful operations. Hill identified competitive factors which
firms can use to win business. These factors are called order qualifying and order winner
factors.
Order qualifying factors are characteristics that are required for it even to be considered
by a customer (delivery). Order winners are those characteristics which directly
contribute to winning business from customers (speed of delivery). They are the key
reasons for customers to purchase goods/services and improving the performance of the
factors may result in better business. These factors change as customers’ requirements
change and competition increases.
The factors can be translated into these 5 internal performance objectives:
Cost
Quality
Flexibility
Dependability
Speed
Cost
The ability to provide products at a price the customer is willing to pay while still retaining
a profit for the organization is the essence of good cost control.
Manufacturing costs: refers to the actual costs of making the product/delivering the
service. It is all the direct costs associated with the operations activity.
Value added: refers to all the activities carried out by an organization that increase
the worth of a product or service and for which the customer is willing to pay. These
are created by a set of operations which together are referred to as the value chain.
Selling price: the price at which a product is priced will depend on the sensitivity to
price of the particular market.
Running costs: refers to how much it will cost the buyer to use and operate whatever
they purchased. For example, a bus company wants to know how much it costs.
Service costs: some products (cars) need regular maintenance and servicing.
Speed
The ability to provide products or services with as short a time delay as possible between
customer order and delivery is essential
Quote generation: the time that is needed to prepare a quotation to the customer
once the final concept and specification have been agreed.
Delivery speed: the time taken for the organization to deliver the product or service to
the customer once an order has been received.
Delivery frequency: the number of deliveries.
Production speed: the overall time taken internally to produce a product and it being
ready for delivery.
New product development speed: the time taken for the organization to introduce
new products to the market from initial concept to final prototype.
,Sales and operations Year 1
Quality
This is one of the most important criteria for customers to evaluate before purchase. The
perception of quality varies per customer. Quality standards exist for most industry
sectors and are seen as important order qualifiers but can also be a major order winner.
Performance
Refers to how well the product does what it is meant to do/how well it meets its
specification.
Features
The added refinements which support the primary requirement.
Consistency
Refers to the ability of the product or service to consistently perform to its
specifications over time.
Conformance
Refers to the product or service meeting its technical specification.
Technical durability
Refers to the ability to be able to absorb slight variations in conditions and still
perform to specification. May also be referred to as robustness.
Serviceability
Refers to the ability of a product to be maintained and continue to work acceptably
over an extended time period without undue deterioration.
Aesthetics
Refers to the sensory characteristics; look, feel, sound, appearance etc.
Perceived quality
The notion of customer satisfaction and whether there is a gap between the
expectations and the perception.
Value for money
The combination of cost and price.
Flexibility
The ability to change a product or service offering to suit customers’ needs has become
ever more important.
Material quality
The ability to absorb small differences in raw material quality without affecting the
final product (different woods for furniture).
Output quality
The ability to offer different standards of output (airline classes).
New product
The ability to introduce new products/services to the market.
Modified product
The ability to modify existing products/services.
Deliverability
The ability to react to changes in delivery times requested by customers.
Volume
The ability to increase or decrease output to meet demand.
Mix
The ability to provide a wide range of products or services.
Resource mix
The ability to offer product/service flexibility by having a mix of resources available
(printers that print a variety of materials in a range of volumes).
, Sales and operations Year 1
Dependability
This is the ability of an organization to consistently meet its promises to the customer. A
key element of managing supply chain relationships is the building of trust between
buyers and sellers. Dependability is a major feature here.
Schedule adherence: the ability to meet scheduled requirements.
Delivery performance: the ability to meet a required standard for delivery.
Price performance: the ability to meet commitments to the customer for delivering its
product or service at the agreed price.
Ability to keep promises: the ability to supply the product/services when it says it will.
Safety: the ability to ensure that its user comes to no harm.
The value that’s created and captured by a company is the profit margin:
Value created & captured – cost of creating that value = profit margin.
The more value an organization creates, the more profitable it is likely to be. When you
provide more value to your customers, you build competitive advantage.
Primary activities
These relate directly to the physical creation, sale, maintenance and support of a product
or service.
Inbound logistics
All the processes related to receiving, storing and distributing inputs internally. Your
supplier relationships are key factor in creating value here.
Operations
The transformation activities that change inputs into outputs that are sold.
Outbound logistics
These activities deliver your product or service to the customer; collection, storage,
distribution systems, and they may be internal or external to the organization.
Marketing and sales
All the processes used to persuade clients to purchase from you instead of your
competitors. The benefits you offer, how well you communicate them etc.
