bozarth_opscm3_ppt_02.ppt Operations and supply chain management

Operations and Supply Chain
Strategies
Chapter 2

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 2 - 2
Chapter Objectives
Be able to:
 Explain the relationship between business strategies and functional strategies and
the difference between structural and infrastructural elements of the business.
 Describe the main operations and supply chain decision categories.
 Explain the concept of customer value and calculate a value index score.
 Differentiate between order winners and qualifiers and explain why this difference is
important to developing the operations and supply chain strategy for a firm.
 Discuss the concept of trade-offs and give an example.
 Define core competencies and give an example of how core competencies in the
operations and supply chain areas can be used 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.

Business Elements
Structural
(Tangible)
 Buildings
 Equipment
 Computer systems
 Other capital assets
Infrastructural
(Intangible)
 People
 Policies
 Decision rules
 Organizational
structure

Definitions
 Strategies - The mechanisms by which businesses
coordinate their decisions regarding their structural and
infrastructural elements.
 Mission Statement - Explains why an organization
exists and what is important to the organization (its core
values) and identifies the organization’s domain.

Definitions
 Business Strategy - The strategy that identifies a
firm’s targeted customers and sets time frames and
performance objectives for the business.
 Functional Strategy - A strategy that translates a
business strategy into specific functional areas.
 Core Competency - An organizational strength or
ability that customers find valuable and competitors find
difficult or impossible to copy.

A Top-Down Model of Strategy
Figure 2.1

Operations and
Supply Chain Strategies
The operations and supply chain strategy is a functional
strategy that indicates how the structural and
infrastructural elements within the operations and
supply chain areas will be acquired and developed to
support the overall business strategy.
 What mix of structural and infrastructural elements ?
 Is the mix aligned with the business strategy?
 Does it support the development of core competencies?

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

Key Interactions
Supply Chain and
Operations
Finance
Budgeting.
Analysis.
Funds.
Marketing
What products?
What volumes?
Costs? Quality?
Delivery?
Human
Resources
Skills? Training?
# of employees?
Accounting
Performance measurement systems.
Planning and control.
MIS
What IT solutions
to make it all work
together?
Design
Sustainability.
Quality.
Manufacturability.

Decisions Guided by the
Structural Strategy
Capacity
 Amount, Type, Timing
Facilities
 Services/Manufacturing, Warehouses, Distribution hubs
 Size, location, degree of specialization
Technology
 Services/Manufacturing, Material handling equipment,
Transportation equipment, Information systems

Decisions Guided by the
Infrastructural Strategy
Organization
 Structure, Control/reward systems, Workforce decisions
Sourcing/Purchasing
 Sourcing strategies, Supplier selection, Supplier performance
measurement
Planning and Control
 Forecasting, Tactical planning, Inventory management, Production
planning and control
Business Processes and Quality Management
 Six Sigma, Continuous improvement, Statistical process control
Product and service development
 The developmental process, Organizational and supplier roles

Customer Value
 Value Analysis - A process for assessing the value
of a product or service.
 Value Index - A measure that uses the performance
and importance scores for various dimensions of
performance for an item or a service to calculate a score
that indicates the overall value of an item or a service to
a customer.

Value Index
Determination
n
n
i
n P
I
V 


1
Where:
V = Value index for product or service
In = Importance of dimension n
Pn = Performance with regard to dimension n

Value Analysis:
Introduce new product?
Performance Importance Score Value
Criterion (A) (B) (A x B)
Market potential 30
Unit profit margin 20
Operations compatibility 20
Competitive advantage 15
Investment requirement 10
Project risk 5
100%
Threshold score = 720

Value Analysis:
Market potential 30 6
Unit profit margin 20 10
Operations compatibility 20 6
Competitive advantage 15 10
Investment requirement 10 3
Project risk 5 4

Market potential 30 6 180
Unit profit margin 20 10 200
Operations compatibility 20 6 120
Competitive advantage 15 10 150
Investment requirement 10 3 30
Project risk 5 4 20
Value Index = 700
Not at this time!
Value Analysis:

Four Performance Dimensions
Quality
Time
Flexibility
Cost

 Quality
 Performance Quality – The basic operating
characteristics of the product or service.
 Conformance Quality – Was the product made or
the service performed to specifications?
 Reliability Quality – Will a product work for a long
time without failing?

 Time
 Delivery Speed - The ability for the operations or
supply chain function to quickly fulfill a need once
it has been identified.
 Delivery Reliability – The ability to deliver products
or services when promised.

 Flexibility
 Mix Flexibility – The ability to produce a wide
range of products or services.
 Changeover Flexibility – The ability to produce a
new product with minimal delay.
 Volume Flexibility – The ability to produce
whatever volume the customer needs.

 Cost
 Labor costs
 Material costs
 Engineering costs
 Quality-related costs

Trade-offs among Performance
Dimensions
 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
Order Qualifiers
 Order Winners
A performance dimension that differentiates a company’s
products and services from its competitors.
 Order Qualifiers
A performance dimension on which customers expect a
minimum level of performance to be considered.

“Best in
Class”
Minimum
Needs
Cost Quality Speed Flexibility
The Idea Behind
Prioritizing

“Best in
Class”
Minimum
Needs
Cost Quality Speed Flexibility
Comparing Two Software
Development Firms

Measurements
 Performance against
 Customer needs
 Business objectives or standards
 Comparisons to competitors
 Comparisons to “best in class”

Stages of Alignment Between Supply Chain
and Operations Strategies
 Stage 1 – Internally neutral
 Minimize negative potential in the operations and supply
chain areas.
 Stage 2 – Externally neutral
 Follow industry practice.
 Stage 3 – Internally supportive
 Align structural and infrastructural elements with business
strategy.
 Stage 4 – Externally supportive
 Seek to exploit core competencies.

Closing the Loop Between Business Strategy
and Functional Area Strategies
Figure 2.5

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

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