Operations and Supply Chain Strategies

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 Chapter 2, Slide 2
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Business Elements
Structural Infrastructural
Difficult to change: Relatively easy to
– Buildings change:
– Equipment – People
– Computer systems – Policies
– Other capital assets – Decision rules
– Organizational
structure
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 company’s
strategies
A Top-Down Model of
Strategy
Goals
Mission Business
Statement Strategy
Marketing R&D Operations Supply Chain Financia

Strategy Strategy Strategy Strategy l
Strategy
Operations and Supply Chain Decisions ...

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?
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
Finance MIS
Budgeting.
What IT solutions Human
to make it all work
Analysis.
together? Resources
Funds. Skills? Training?
# of Employees?
Design Supply Chain
Sustainability. and
Quality. Operations Marketing
Manufacturability.
What products?
Accounting What volumes?
Performance measurement systems. Costs? Quality?
Planning and control. Delivery?
Decisions Guided by the
Structural Strategy
Capacity Size?
Timing?
Type?
Facilities Size?
Location?
Technology Equipment?
Processes?
Information systems?
Vertical Direction?
Extent?
Integration
Decisions Guided by the
Infrastructural Strategy
Organization Control/reward systems?
Centralization/decentralization?
Workforce – skilled/semi-skilled?
Sourcing and Supplier selection/performance metrics?
Purchasing Procurement systems?
Sourcing strategy?
Planning and Forecasting?
Control Inventory management?
Production planning/control?
Process and Quality Continuous improvement processes?
Business process management
SPC/Six Sigma
Product and Service Development process?
Design 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
V   I nPn
n 1
Where:
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)
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)
Value Analysis:
Introduce new product?
Threshold score = 720
Performance Importance Score Value

Criteria (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%
Value Analysis:
Threshold score of current product = 720

Criterion (A) (B) (A x B)
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
Value Analysis:
Threshold score = 720

Criterion (A) (B) (A x B)
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!

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)
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.
The Idea Behind Prioritizing:
“Best in
Class”
Minimum
Needs
Cost Design Speed Flexibility

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

Quality
Measurements
• Performance against:
Customer needs
Business objectives or standards
• Comparisons to competitors
• Comparisons to “best in class.”
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
Stages of Alignment between Supply
Chain and Operations Strategies
Neutral Supportive
Stage 2 Stage 4
External Industry Practice Actively Engaged
Stage 1 Stage 3
Internal Not linked Participation
(Closing the loop)
Operations and Supply Chain
Strategies Case Study
Catherine’s Confectionaries

Operations and Supply Chain Strategies

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Operations and Supply

Marketing R&D Operations Supply Chain Financia

Operations and Supply Chain Decisions ...

– What mix of structure and infrastructure?

– Is the mix aligned with the business strategy?

– Does it support the development of core

• Assures coordination with other

• Provides direction and guidance for

(also called a preference matrix).

Performance Importance Score Value

Performance Importance Score Value

Performance Importance Score Value

Value Index = 700

Not at this time!

Potential dimensions of distinct

Over time, Differentiators   Winners  

Cost Design Speed Flexibility

Cost Design Speed Flexibility

• Comparisons to “best in class.”

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