Chapter 2

Strategy and Sustainability

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
Compare how operations and supply chain strategy relates to marketing and finance. Understand the competitive dimensions of operations and supply chain strategy. Identify order winners and order qualifiers. Understand the concept of strategic fit. Describe how productivity is measured and how it relates to operations and supply chain processes. Explain how the financial markets evaluate a firms operations and supply chain performance.
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A Sustainable Strategy

Shareholders: Those individuals or companies that legally own one or more shares of stock in the company Stakeholders: Those individuals or organizations who are influenced, either directly or indirectly, by the actions of the firm

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Triple Bottom Line

Social: pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts is business Economic: the firms obligation to compensate shareholders who provide capital via competitive returns on investment Environmental: the firms impact on the environment
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What is Operations and Supply Strategy?

Operations and supply strategy: setting broad policies and plans for using the recourses of a firm to best support its long-term competitive strategy
Part of a planning process that coordinates operational goals with those of the larger organization

Operations effectiveness relates to the core business processes needed to run the business
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Closed-Loop Strategy Process Continued

Activity 1 is performed at least yearly and is where the overall strategy is developed Activity 2 is where the overall strategy is refined and updated as often as four times a year Activity 3 is where operational plans that relate to functional areas such as marketing, manufacturing, and so on, are coordinated
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Competitive Dimensions
Price: make the product or deliver the service cheap Quality: make a great product or deliver a great service Delivery speed: make the product or deliver the service quickly Delivery reliability: deliver it when promised Coping with changes in demand: change its volume Flexibility and new product introduction speed: change it
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Other Product-Specific Criteria

1. 2. 3. 4. 5.

Technical liaison and support Meeting a launch date Supplier after-sale support Environmental impact Other dimensions

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Dealing with Trade-offs

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality For example, if we improve customer service problem solving by crosstraining personnel to deal with a widerrange of problems, they may become less efficient at dealing with commonly occurring problems
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Order Qualifiers and Winners Defined

Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers Order winners: the criteria that differentiates the products and services of one firm from another

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Strategic Fit: Fitting Operational Activities to Strategy

All the activities that make up a firms operation relate to one another To be efficient, must minimize total cost without compromising on customer needs Activity-system maps show how a companys strategy is delivered through a set of tailored activities

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Productivity Measurement

Productivity is a common measure of how well an organization is using its resources

Fundamental to understanding operationsrelated performance

In its broadest sense productivity is outputs divided by inputs

To increase productivity, we want to make this ratio as large as practical

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Productivity Measurement

Continued

Productivity is a relative measure

Can be compared with similar operations within its industry Can be compared over time

Productivity may be expressed as:

1. Partial measures: output to one input 2. Multifactor measures: output to a group of inputs 3. Total measures: output to all inputs

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How Does Wall Street Evaluate Operations Performance?

Comparing firms from an operations view is important to investors
Earnings growth is a function of profitability Profits can increase through higher sales or lower costs Highly efficient firms shine during recession periods

When evaluating large productivity, it is important to look for unusual explanations

Want to avoid one-time events

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