Operations and Supply Strategies Operations and supply strategy is concerned with setting broad policies and plans

for using the resources of a firm to best support its long-term competitive strategy. A firms operations and supply strategy is comprehensive through its integration with corporate strategy. The strategy involves a long-term process that must foster inevitable change. An operations and supply strategy involves decisions that relate to the design of a process and the infrastructure needed to support the process. Process design includes the selection of appropriate technology, sizing the process over time, the role of inventory in the process, and locating the process. The infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structures, and organisation of the operations function. Operations and supply strategy can be viewed as part of a planning process that coordinates operational goals with those of the larger organisation. Since the goals of the larger organisation change over time, the operations strategy must be designed to anticipate future needs. A firms operations capabilities can be viewed as a portfolio best suited to adapt to the changing product and/or service needs of the firms customers. Objectives of Operations and SCM The objectives of operations and SCM are as follows: 1) To help management choose the right mix of structural and infrastructural elements based on a clear understanding of the performance dimensions valued by customers and the trade-off involved. 2) To ensure that the firms structural and infrastructural choices are strategically aligned with the firms business strategy. 3) To support the development of core competencies in the firms operations and supply chains. These three objectives bring up a whole list of concepts performance dimensions and customer value, trade-offs, strategic alignment, and core competencies in the operations and supply chain areas. Customer Value Operations and supply chains help firms to provide products or services that someone values. But how should we define value? To begin, most customers evaluate products and services based on multiple

performance dimensions such as performance quality, delivery speed, after-sales support, and cost. The organisation that provides the best mix of these dimensions will be seen as providing the highest value. Four Performance Dimensions Operations and supply chains can have an enormous impact on business performance. Experience suggests that four generic performance dimensions are particularly relevant to operations and supply chain activities. These are: 1) Quality; 2) Time; 3) Flexibility; and 4) Cost. Let us look at each of these performance dimensions in depth: 1) Quality: It is defined as the characteristics of a product or service that bear on its ability to satisfy stated or implied needs. The concept of quality is broad, with a number of sub-dimensions, including performance quality, conformance quality, and reliability quality. The relative importance of these quality dimensions will differ from one customer to the next. One buyer may be more interested in performance, another in reliability. To compete on the basis of quality, a firms operations and supply chain must consistently meet or exceed customer expectations or requirements on the most critical quality dimensions. 2) Time: It has two basic characteristics; speed and reliability. Delivery speed generally refers to how quickly the operations or supply chain function can fulfil a need, once it has been identified. Delivery reliability refers to the ability to deliver products or services when promised. Note that a firm can have long lead times, yet still maintain a high degree of delivery reliability. Typical measures of delivery reliability include the percentage of orders that are delivered by the promised time and the average tardiness of late orders. A measure of delivery reliability is the accuracy of the quantity shipped. For example, Sams Club demands 95 per cent accuracy in stock deliveries from suppliers. If suppliers ship more than the quantity ordered, they are still considered to be in error. Some firms will consider a partial shipment to be on time if it arrives by the

promised date, but others will accept only complete shipments, delivered within the scheduled window. 3) Flexibility: Many operations and supply chains compete by responding to the unique needs of different customers. Both manufacturing and service firms can demonstrate flexibility. For example, a full-service law firm will handle any legal issue a client faces. A full-service hotel will go to great lengths to fulfil a guests every need. For example, a staff member at the Ritz-Carlton in Dearborn, Michigan, once notices a guest standing outside the gift shop, waiting for it to open. The employee found out what the guest wanted, picked it up when the shop opened, and waited outside a conference hall to deliver it to the guest. Many firms distinguish among several types of flexibility, including mix flexibility, changeover flexibility. Flexibility has become particularly valuable in new product development. Some firms compete by developing new products or services faster than their competitors, a competitive posture that requires operations and supply chain partners who are both flexible and willing to work closely with designers, engineers, and marketing personnel. 4) Cost: It is always a concern, even for companies that compete primarily on some other dimension. However, cost covers such a wide range of activities that companies commonly categorise costs in order to focus their cost management efforts. Some typical cost categories include: i) Labour costs, ii) Material costs, iii) Engineering costs, and iv) Quality-related costs (including failure costs, appraisal costs, and prevention costs). This is just the tip of the iceberg firms have developed literally thousands of different cost categories, many of which are specific to the issue facing a particular firm. The point is that operations and supply chain activities are natural targets for cost management efforts because they typically account for much of an organisations costs. As such, cost is an important performance dimension, and we will return to it frequently throughout this book. Trade-Offs among Performance Dimensions Take a moment to think about the differences between a world-class sprinter and a marathon runner. The sprinter has trained for explosive

speed off the line, while the marathon runner has trained for paced distance running. Both athletes are in peak condition, yet neither would dream of competing in both events. The same is true in business. In a competitive marketplace, no firm can sustain an advantage on all performance dimensions indefinitely. Excellence in some dimensions may conflict with excellence in others, preventing any one firm from becoming the best in all. In such cases, firms must make trade-offs, or decisions to emphasise some dimensions at the expense of others. Nearly all operations and supply chain decisions require such trade-offs. Stages of Alignment with the Business Strategy The ultimate goal of any firm is to develop an operations and supply chain strategy that supports its business strategy. Management should be able to state how each operations and supply chain structural or infrastructural choice supports the customers order winners and qualifiers and what trade-offs had to be considered when making these choices. Some organisations are further along toward achieving this than are others. They described four stages of alignment, and although the stages originally referred to manufacturing, their descriptions apply equally well to the operations and supply chain areas today. The four stages are as follows: Stage 1: Internally Neutral: In this stage, management seeks only to minimise any negative potential in the operations and supply chain areas. There is no effort made to link these areas with the business strategy. Stage 2: Externally Neutral: Here industry practice is followed, based on the assumption that what works for competitors will work for the company. Still, there is no effort made to link the operations and supply chain areas with the overall business strategy. Stage 3: Internally Supportive: At this stage, the operations and supply chain areas participate in the strategic debate. Management recognises that the operations and supply chain structural and infrastructural elements must be aligned with the business strategy. Stage 4: Externally Supportive: At this stage, the operations and supply areas do more than just support the business strategy the business strategy actively seeks to exploit the core competencies found within these areas.

To make logical and consistent decisions, operations and supply chain managers must understand which performance dimensions are most valued by the firms targeted customers and act accordingly. Order Winners and Order Qualifiers Some managers use the concepts of order winners and order qualifiers to highlight the relative importance of different performance dimensions. Order winners are performance dimensions that differentiate a companys products and services from those of its competitors. Firms win the customers business by providing superior levels of performance on order winners. Order qualifiers are performance dimensions on which customers expect a minimum level of performance. Superior performance on an order qualifier will not, by itself, give a company a competitive advantage. The industrial chemical market offers an example to illustrate the difference between order winners and order qualifiers. Buyers of industrial chemicals expect a certain level of purity (i.e., conformance quality) before they will even consider purchasing a chemical from a particular source. Because all potential sources must meet this minimum requirement, purity is incredibly important. Once the purity requirement has been satisfied, however, other performance dimensions such as cost, delivery speed, and flexibility will be used to determine the best source. From the suppliers perspective, product quality is the order qualifier; cost, delivery speed, and flexibility are order winners.