Operations and Supply Chain Strategies

Chapter 2

Text: Introduction to Operations and Supply Chain Management

Custom edition for Farmingdale State College

Authors: Cecil Bozarth & Robert Handfield

Where appropriate reference text page numbers will be on bottom of slides

OSC may be used as an abbreviation of Operations and Supply Chain

Chapter Objectives
Chapter 2

Be able to:
Explain the relationship between business and functional strategies and the difference between structural and infrastructural elements. Describe some of the main operations and supply chain decision categories. Explain the customer-value concept and calculate a value-index score. Differentiate between order winners and qualifiers. Explain why this difference is important to developing operations and supply chain strategy. Discuss the concept of trade-offs and give an example. Define core competencies and give an example of how they can be used in the operations and supply chain areas for competitive advantage. Explain the importance of strategic alignment and describe the four stages of alignment between the operations and supply chain strategy and the business strategy.

Apple ipod
Marketing Success Supply Chain Success

Intro Oct 01 ipod dominated market for portable media players Constant renewal of product; new generation every year Partnering with suppliers
Capable of quantity and quality Global Rapid response

Partnering with logistics & retailers

Walmart/Best buys Without extra cost Without extra inventory

Informational supply chain

Download music & videos Download software & upgrades

Business Elements
Two Major Decision Categories

Structural
Difficult to change:
Buildings Equipment Computer systems Other capital assets Changed infrequently

Infrastructural
Relatively easy to change:
People Policies Decision rules Organizational structure Replaced vs Changed

To compete successfully all elements must work together

Definitions
Strategies
The mechanisms by which businesses coordinate their decisions regarding structual & infrastructural elements

Mission Statement
A statement that explains why an organization exists. It describes its core values and identifies the domain

Definitions
Business Strategy
Long-term master plan for the company; establishes the general direction

Functional Strategies
Further develop the business strategy in segments of the business must be aligned and coordinated

Core Competencies
Organizational strengths that provide focus and foundation for the companys strategies

Business Strategy must

Identify target customers & markets Set time frames and performance objectives Define the role of supply chain partners Identify & support development of core competencies

A Top-Down Model of Strategy

Goals Mission Statement Business Strategy

Marketing Strategy

R&D Strategy

Operations Strategy

Supply Chain Strategy

Financia l Strategy

Operations and Supply Chain Decisions ...

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Operations and Supply Chain Strategies

Definition: how structural & infrastructural elements within Operations & Supply Chain will be aquired & developed to support the overall business strategy

The three primary objectives

Choose mix of structure and infrastructure based upon dimensions valued by customer Ensure the mix aligned with the overall business strategy

Does it support the development of core competencies?

Functional Strategy
Translates the business strategy into functional terms for other departments or functions. Assures coordination with other departments or functions. Provides direction and guidance for operations and supply chain decisions.

Key Interactions
Finance
Budgeting. Analysis. Funds.

MIS
What IT solutions to make it all work together?

Human Resources
Skills? Training? # of Employees?

Design
Sustainability. Quality. Manufacturability.

Supply Chain and Operations

Marketing
What products? What volumes? Costs? Quality? Delivery?

Accounting
Performance measurement systems. Planning and control.

Decisions Guided by the Structural Strategy

Capacity Facilities Technology Vertical Integration
Size? Timin g? Type?

Size? Location? Equipment? Processes? Information systems? Direction? Extent?

Decisions Guided by the Infrastructural Strategy

Organization
Control/reward systems? Centralization/decentralization? Workforce skilled/semi-skilled? Supplier selection/performance metrics? Procurement systems? Sourcing strategy?

Sourcing and Purchasing

Planning and Control

Process and Quality

Forecasting? Inventory management? Production planning/control?

Continuous improvement processes? Business process management SPC/Six Sigma Development process? Organization/supplier roles?

Product and Service Design

Value Analysis
A process for determining the best choice when there are no unambiguous formulas for doing so. Helps maintain focus in gathering and assessing relevant data.
(also called a preference matrix).

Value Index Determination

A measure that used performance & importance scores of various dimensions of performance to calculate a score to indicate the overall value of an item to a customer

V I n Pn
Where:

n 1

In = Importance of value dimension (criteria) n

Pn = Performance of candidate with regard to dimension n N = total number of value dimensions evaluated (Higher values represent higher importance or performance)

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Value Analysis Thoughts

Requires definition of criteria and their
importance beforehand to avoid bias

It is useful if the importance or weighting values

add up to 100%

A threshold score can set by evaluating the

current situation, if it exists, using the selected analysis criteria

Requires careful definition of scoring values for

performance assessment (highest value represents most desirable result)

Prioritizing:
Where Must We Excel?
Potential dimensions of distinct competence
(Four Performance Dimensions)

Quality (performance, conformance, reliability) Time (delivery speed and reliability, development

speed)
Flexibility (mix, changeover, volume) Cost (labor, material, engineering, quality-related)

What does the customer value?

Quality
The characteristics of a product or service which bear on its ability to satisfy stated or implied needs

Performance Quality
the basic operational characteristics of a product or service

Conformance Quality
to what degree the product or service meets specifications

Reliability Quality
The length of time a product will perform correctly without failing or requiring maintenance
To remain competitive, operations and supply chain must consistently meet or exceed customer expectations on quality dimensions

Time
Delivery speed
how quickly the OSC can fulfill on order or need once it has been identified.

Delivery Reliability
the ability to deliver goods or services when promised and the accuracy of he quantity shipped

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Flexibility
How quickly OSC can respond to the unique needs of different customers

Mix flexibility
the ability to produce a wide range of products or services

Changeover flexibility
the ability to provide a new product with minimal delay

Volume flexibility
the ability to produce whatever volume the customer needs
Flexibility is of particular importance in Research and Development
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Cost
Cost is always a concern, even if a company primarily competes on a different performance dimension.

Cost covers a wide range of activities, most common categories are

Labor Costs Material Costs Engineering Costs Quality-related costs

There are many cost categories, many are specific to the issues facing a particular firm. OSC are targets for cost management because they account for much of an organizations cost.
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Trade-offs between Performance Dimensions

No organization can sustain a competitive advantage on all performance dimensions indefinitely. Excellence in one dimension may conflict with excellence in another

All organizations must make trade-offs or decisions among dimensions to emphasize some at the expense of others.
Most OSC decisions will require trade-offs To optimize this decision making, OSC managers must know which dimensions are valued most by their customers
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Priority Trade-Offs
Generally very difficult to excel at all four performance dimensions. Some common conflicts
Low cost versus high quality Low cost versus flexibility Delivery reliability versus flexibility Conformance quality versus product flexibility

Order Winners and Qualifiers

Winners:
Differentiators performance not yet duplicated by competitors Competitive advantage performance better than all or most of the competitors

Qualifiers
Minimum acceptable level of performance Over time, Differentiators Winners Qualifiers as competition intensifies.

Alignment between OSC strategies and the overall business strategy

The goal is to develop an OSC stategy that supports the business strategy Management should know
How each OSC structural & infrastructural choice supports the customers order winners & qualifiers What trade-offs had to be considered in these decisions

However some organizations are not as far along towards achieving this than are others.
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Stages of Alignment between OSC strategies and the overall business strategy
Neutral External Supportive

Stage 2 Industry Practice

Stage 4 Actively Engaged

Internal

Stage 1 Not linked

Stage 3 Participation (Closing the loop)

Stage 1 Internally neutral efforts are to minimize negative potential in OSC areas. No link to business strategy Stage 2 Externally neutral industry practice followed. No link to business strategy Stage 3 Internally supportive OSC areas participate in strategic debate. It is understood that OSC must be aligned with business strategy Stage 4 Externally Supportive OSC areas support business strategy and explore/improve core competencies
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Operations and Supply Chain Strategies Case Study

Catherines Confectionaries