Syllabus Reference:
Role of Operations Management
strategic role of operations management – cost leadership, good/service differentiation
Role of Operations Management
Operations refers to the business processes that involve transformation or, more generally, ‘production’.
It is a term that applies both to the manufacturing and services sector. In manufacturing, operations refers to the
processes involved in turning raw materials and resources into outputs of finished goods or products. Examples
include a vehicle manufacturer turning steel into cars or an oil refiner converting crude oil into petrol or paraffin for
candle making. In the services sector, operations refers to the processes involved in actually carrying out the service.
Examples include the provision of professional advice by a solicitor and the washing, cutting and styling of hair by a
hairdresser.
STRATEGIC ROLE OF OPERATIONS MANAGEMENT
The strategic role refers to the long-term objective of a business. Therefore, the strategic role of operations
management involves allocating resources efficiently to gain a long-term competitive advantage.
Business can achieve this in two ways: Cost leadership or good/service differentiation.
Cost Leadership
Cost leadership describes how a business can work to achieve a competitive
advantage. It is where a business aims to be the lowest cost manufacturer within
its industry.
A cost strategy where a business sets out to provide customers with the best
value for a relatively low price has been found to provide a sustainable
competitive advantage. Market share is gained by appealing to price-sensitive
customers by providing them either with the lowest price in the target market or
the lowest price compared to the value customers received. Products include the basic, no frills type with fewer
features, perhaps lower quality and using low-cost packaging and with limited varieties of models.
Cost leadership can be achieved by:
• Economies of Scale: This is where businesses are able to reduce the average cost of each product by
buying/manufacturing in bulk.
• access to cheaper raw materials
• inventing innovative method of production
• outsourcing product servicing so that the business focuses on its core function rather than after sales
service and warranty administration
• exclusive access to a large source of low-cost inputs
• distributing the product using dealers who work with lower profit margins
• using low-cost promotion such as printed flyers.
However, a cost leadership strategy may not be sustainable in the long run unless the benefits can be maintained with
effective marketing, finance and human resources strategies.
Good/Service Differentiation
A business may decide that a better strategy to achieve a sustainable advantage in a competitive market is to
differentiate its products rather than aiming to be the lowest cost supplier. Customers have ever-increasing
expectations about quality, service and technology. A product may achieve a greater market share because it is
uniquely different to its competitors. This would be more realistic for small/new businesses entering a highly
competitive market where the market leader is already producing at very low prices.
Good/service differentiation is where a business aims to make quality products that are unique.
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Role of Operations Management
strategic role of operations management – cost leadership, good/service differentiation
Role of Operations Management
Operations refers to the business processes that involve transformation or, more generally, ‘production’.
It is a term that applies both to the manufacturing and services sector. In manufacturing, operations refers to the
processes involved in turning raw materials and resources into outputs of finished goods or products. Examples
include a vehicle manufacturer turning steel into cars or an oil refiner converting crude oil into petrol or paraffin for
candle making. In the services sector, operations refers to the processes involved in actually carrying out the service.
Examples include the provision of professional advice by a solicitor and the washing, cutting and styling of hair by a
hairdresser.
STRATEGIC ROLE OF OPERATIONS MANAGEMENT
The strategic role refers to the long-term objective of a business. Therefore, the strategic role of operations
management involves allocating resources efficiently to gain a long-term competitive advantage.
Business can achieve this in two ways: Cost leadership or good/service differentiation.
Cost Leadership
Cost leadership describes how a business can work to achieve a competitive
advantage. It is where a business aims to be the lowest cost manufacturer within
its industry.
A cost strategy where a business sets out to provide customers with the best
value for a relatively low price has been found to provide a sustainable
competitive advantage. Market share is gained by appealing to price-sensitive
customers by providing them either with the lowest price in the target market or
the lowest price compared to the value customers received. Products include the basic, no frills type with fewer
features, perhaps lower quality and using low-cost packaging and with limited varieties of models.
Cost leadership can be achieved by:
• Economies of Scale: This is where businesses are able to reduce the average cost of each product by
buying/manufacturing in bulk.
• access to cheaper raw materials
• inventing innovative method of production
• outsourcing product servicing so that the business focuses on its core function rather than after sales
service and warranty administration
• exclusive access to a large source of low-cost inputs
• distributing the product using dealers who work with lower profit margins
• using low-cost promotion such as printed flyers.
However, a cost leadership strategy may not be sustainable in the long run unless the benefits can be maintained with
effective marketing, finance and human resources strategies.
Good/Service Differentiation
A business may decide that a better strategy to achieve a sustainable advantage in a competitive market is to
differentiate its products rather than aiming to be the lowest cost supplier. Customers have ever-increasing
expectations about quality, service and technology. A product may achieve a greater market share because it is
uniquely different to its competitors. This would be more realistic for small/new businesses entering a highly
competitive market where the market leader is already producing at very low prices.
Good/service differentiation is where a business aims to make quality products that are unique.
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