Cost leadership is a strategy used to create a low cost of operation within the niche. This approach involves aiming to have the lowest cost in the market but at the same time having the highest profits. Therefor customers are buying goods for a better price but at the same time the business is making a profit so it suits both parties.In order to use this approach the business needs to look at two important aspects of profit which are minimising cost and maximising revenue.
A company can minimise its cost in the following ways
-Inventing an inovative method of production that leads to cheaper production cost
-Offering high volume of standard components and with limited varieties of models
-Outsourcing product servicing so that the business focuses on its core function.
-Economies of scale refers to cost advantages that can be created because of an increase in scale of business operations.
If the business would be able to achieve and maintain cost leadership then it would give them a great competitive advantage.
A great example of a company which used the cost leadership approach to gain a competitive advantage is the Irish airline RyanAir.RyanAir redesigned their model of an airline to develop a an operation with very low costs.The average cost of a RyanAir ticket within Europe is $48 in compsrison to $330 on British airways.To reduce operation cost they
-only produce one type of aircraft to reduce servicing and maintaining costs
-not providing free drinks and food (pay for what you use)
-not allocating seats
-reducing the amount of baggage pasengers can take
-only have one class of seat,economy
Another strategic role of operations management is good/service differentiation.Product differentition is a business strategy wherby the business seeks to be competitive on the basis of characteristics of its good and services that set it apart from it rivals. These characteristics could be based on