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Corporate Strategy and its Connection to Operations
Corporate Mission
• The mission of the organization– defines its purpose, i.e., what it contributes to society
– states the rationale for its existence
– provides boundaries and focus
– defines the concept(s) around which the company can rally
• Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.
Corporate Mission Examples
• Merck: The mission of Merck is to provide society with superior products and services-innovations and solutions that improve the quality of life and satisfy customer needs-to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.
• FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.
Corporate Strategy
• The organization’s action plan to achieve its mission
• The corporate strategy translates into more detailed strategies for each functional area (i.e., Operatios, Finance, Marketing)
• Generally speaking, these strategies seek to exploit (external) opportunities and (internal) strengths, neutralize (external) threats, and address (internal) weaknesses
Defining the Corporate Strategy
Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)
Cost Leadership (Price; e.g., Wal-Mart, Southwest Airlines, Generic Drugs)
Responsiveness (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services)
Competitive Advantage through whichthe company market share is attracted
OM’s contribution to Corporate Strategy
Differentiation
Responsiveness
Cost Leadership
Design & Volume Flexibility Low Cost
Fast & Dependable Delivery
Quality
After-Sale Service
Broad Product Line
Product Process Quality Location Layout Human ResourcesSupply Chain Inventories Scheduling Maintenance
Critical Success factors and Activity Maps
• Critical Success Factors (CSF): Those activities or factors that are key to achieving and maintaining competitive advantage.
• Activity Map: A graphical representation of the links among the competitive advantage, CSF’s, and the company supporting activities.
• Example: Figure 2.7-Activity Mapping of Southwest Airlines’ Low Cost Corporate Strategy
Strategy Development Process (J. Heizer & B. Render, “Operations Management”, Prentice Hall)
Environmental AnalysisUnderstand the environment, customers, industry, and competitors
Identify your strengths, weaknesses, opportunities and threats.
Determine Corporate MissionState the reason for the firm’s existence and
identify the value it wishes to create
Form a StrategyBuild and maintain a competitive advantage, such as low price,
quick delivery or quality, by identifying and developing the critical success factors
The operations frontier, trade-offs, and the operational effectiveness
Differentiation
Cost Leadership
Responsiveness
Expanding the operations frontier:Dell’s “revolution” in the PC market
• Dell’s competitive advantage: Provide customized PC configurations, with short delivery times and affordable prices.
• Dell’s success in PC market:
The CSF’s underlying Dell’s competitive advantage
• Very high product (configurable) variety – mass customization!
• Direct fulfillment - no intermediaries• No production launch until customer order booked (pure
pull!)• Very low finished goods inventory (costs) – high inventory
turns (raw material inventory influenced by “recommended configurations”)
• High velocity material flows & fulfillment
Vir
tual
Inte
gra
tio
n
Customer
Dell
Suppliers
Dell Supply Chain
PUSH
PULL
PC SUPPLY CHAINS
Typical PC Supply Chain(Compaq, HP, IBM, etc.)
Customer
DistributionChannels
Manufacturer
Suppliers
PUSH
PULL
Supporting Dell’s competitive advantage through a new operational model
• Focused on strategic partnerships: suppliers down from 200 to 47
• Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour
• Suppliers own inventory until used in production• Demand pull throughout value chain – “information for
inventory” substitution• Demand forecasting is critical – changes are shared immediately
within Dell and with supply base• Customers frequently steered to “recommended configurations”
with high availability to balance supply and demand• External logistics supplier used to manage inbound supply chain
Dell performance
Emerging factors and trends enabling Dell’s strategy
• The commoditization of the PC industry– Standardized and interchangeable components
– Emergence of reliable manufacturing service providers
• Recent advances in Supply Chain Management– Information Technology (IT) platforms that allow the effective
and efficient information exchange and coordination across the entire supply chain
– 3rd party logistics service providers
– Emerging emphasis on virtual rather than vertical company integration
Factors affecting Corporate Strategy• External
– Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively
– New industry entrants– Development of substitute products– Development of new technologies– Legal developments (e.g., environmental concerns and regulations)– Economic and political developments (e.g., new international agreements,
political crises)
• Internal– Company politics and restructuring– Modified relationships with customers and suppliers– Product Life Cycle
Strategy and Issues during a Product’s Life(J. Heizer & B. Render, “Operations Management”, Prentice Hall)
Introduction Growth Maturity Decline
Time
Sales
• Best period to increase market share
•R&D engineering critical
• Frequent product and process changes•Short production runs•High production costs•Limited models•Attention to quality
•Practical to change price or quality image•Strengthen niche
•Forecasting critical•Products and process reliability•Increase capacity•Shift towards product focus•Enhance distribution
•Poor time to change image, price or quality•Competitive costs become critical•Defend market position
•Standardization - minor product changes•Optimum capacity•Process stability•Long production runs
•Cost control critical
•Little product differentiation•Overcapacity in the industry•Reduce capacity and eventually prune line to eliminate items not returning good margin
The opportunities and challenges of globalization
Some basic definitions
• International business: A firm that engages in cross-border transactions.
• Multinational corporation (MNC): A firm that has extensive involvement in international business, owing or controlling facilities in more than one country.
Building competitive advantage through globalization
• Cost reductions: labor, transportation, taxation (free trade zones), tarrifs, etc.
• Easier access to local markets; ability to understand and adjust better to the local markets and cultures;
• Ability to create new markets and expand the life cycle of existing products
• Ability to tap to the local expertise or unique resources
• Ability to interact with and learn from the local industry
The challenges underlying the deployment and support of
global operations
• The provided products and services need to appeal to the local markets => need for broader product lines and customization
• Need to coordinate the production activity across a geographically dispersed network
• Need to understand and systematically assess the pros and cons offered by the various geographical locations– Technological infrastructure– Labor skills and education– Political stability and legal issues (prod. Liability laws, export restrictions)– Economic factors (tax and interest rates, availability of raw materials, etc.)– Social and cultural aspects (language, work ethic, etc.)
• Need to align the provided products and services, as well as the deployed production and business functions to the local culture and ethics
Global Operations Strategies
• International
• Multi-domestic
• Global
• Transnational
c.f. Figure 3.2 of page 67