Operations and Supply Chain Strategies

Chapter 2

Text: Introduction to Operations and Supply Chain ManagementCustom 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 ObjectivesChapter 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 ipodMarketing 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 ElementsTwo Major Decision Categories

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

Relatively easy to change:– People– Policies– Decision rules– Organizational

structure– Replaced vs Changed

To compete successfully all elements must work together

Structural Infrastructural

Definitions• Strategies

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

• Mission StatementA statement that explains why an organization exists.

It describes it’s core values and identifies the domain

Definitions• Business Strategy

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

• Functional StrategiesFurther develop the business strategy

in segments of the business — must be aligned and coordinated

• Core CompetenciesOrganizational strengths that provide

focus and foundation for the company’s 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

BusinessStrategy

MarketingStrategy

Financial

Strategy

OperationsStrategy

Operations and Supply Chain Decisions ...

Goals

MissionStatement

Supply ChainStrategy

R&DStrategy

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Operations and Supply Chain Strategies

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?

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

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

Supply Chain and

Operations

FinanceBudgeting.Analysis.Funds.

MarketingWhat products?What volumes?Costs? Quality?Delivery?

HumanResourcesSkills? Training?# of Employees?

AccountingPerformance measurement systems.Planning and control.

MISWhat IT solutionsto make it all worktogether?

DesignSustainability.Quality.Manufacturability.

Decisions Guided by the Structural Strategy

Size?Timing?Type?

Size?Location?

Equipment?Processes?Information systems?

Direction?Extent?

Capacity

Facilities

Technology

Vertical Integration

Decisions Guided by the Infrastructural Strategy

Organization

Sourcing and Purchasing

Planning and Control

Process and Quality

Product and Service Design

Control/reward systems?Centralization/decentralization?Workforce – skilled/semi-skilled?

Supplier selection/performance metrics?Procurement systems?Sourcing strategy?

Forecasting?Inventory management?Production planning/control?

Continuous improvement processes?Business process managementSPC/Six Sigma

Development process?Organization/supplier roles?

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

n

N

nnPIV

1Where:

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)

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

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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

• Performance Qualitythe basic operational characteristics of a product or service

• Conformance Qualityto what degree the product or service meets specifications

• Reliability QualityThe length of time a product will perform correctly without failing or requiring maintenance

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

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

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Flexibility

• Mix flexibilitythe ability to produce a wide range of products or services

• Changeover flexibilitythe ability to provide a new product with minimal delay

• Volume flexibilitythe ability to produce whatever volume the customer needs

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

Flexibility is of particular importance in Research and Development

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Cost

• 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 organization’s cost.

Cost is always a concern, even if a company primarily competes on a different performance dimension.

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Trade-offs between Performance Dimensions

No organization can sustain a competitive advantage on all performance dimensions indefinitely….

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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Excellence in one dimension may conflict with excellence in another

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 customer’s 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

Stage 2

Industry Practice

Stage 4

Actively Engaged

Stage 1

Not linked

Stage 3

Participation

(Closing the loop)

External

Internal

Neutral Supportive

• 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

Catherine’s Confectionaries