Operations and Supply Chain Strategies

Chapter Objectives
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.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 2

Business Elements
Structural Difficult to change:
Buildings Equipment Computer systems Other capital assets

Infrastructural Relatively easy to change:

People Policies Decision rules Organizational structure

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 3

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 4

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 ...

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 5

Operations and Supply Chain Strategies

Design, operation, and improvement of the operations and supply chain systems and processes
What mix of structure and infrastructure? Is the mix aligned with the business strategy? Does it support the development of core competencies?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 6

Functional Strategy
Translates the business strategy into functional terms.
Assures coordination with other areas. Provides direction and guidance for operations and supply chain decisions.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 7

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?
Chapter 2, Slide 8

Accounting
Performance measurement systems. Planning and control.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Decisions Guided by the Structural Strategy

Capacity
Facilities Technology Vertical Integration
Size? Timing? Type? Size? Location?
Equipment? Processes? Information systems? Direction? Extent?
Chapter 2, Slide 9

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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 management SPC/Six Sigma Development process? Organization/supplier roles?
Chapter 2, Slide 10

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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).
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 11

Value Index Determination

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)
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 12

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)
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 13

Value Analysis:
Introduce new product?
Threshold score = 720
Performance Criteria
Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk

Importance Score (A) (B)

30 20 20 15 10 5 100%

Value (A x B)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 14

Value Analysis:
Introduce new product?
Threshold score of current product = 720

Performance Criterion
Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk

Importance Score (A) (B)

30 20 20 15 10 5 6 10 6 10 3 4

Value (A x B)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 15

Value Analysis:
Introduce new product?
Threshold score = 720
Performance Criterion
Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk

Importance Score (A) (B)

30 20 20 15 10 5 6 10 6 10 3 4 Value Index =

Value (A x B)
180 200 120 150 30 20 700

Not at this time!

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 16

Prioritizing:
Where Must We Excel? Potential dimensions of distinct

competence
Quality (performance, conformance, reliability)

Time (delivery speed and reliability, development

speed) Flexibility (mix, changeover, volume)

Cost (labor, material, engineering, quality-related)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 17

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.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 2, Slide 18

The Idea Behind Prioritizing:

Best in Class

Minimum Needs Cost Design Quality Speed Flexibility

Chapter 2, Slide 19

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Comparing Two Software Development Firms

Best in Class

Minimum Needs Cost Design Quality Speed Flexibility

Chapter 2, Slide 20

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Measurements
Performance against:
Customer needs

Business objectives or standards

Comparisons to competitors Comparisons to best in class.

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 21

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 22

Stages of Alignment between Supply Chain and Operations Strategies

Neutral Stage 2 Industry Practice Stage 1 Not linked Supportive Stage 4 Actively Engaged Stage 3 Participation (Closing the loop)

External

Internal

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 23

Operations and Supply Chain Strategies Case Study

Catherines Confectionaries