Operations and Supply Chain Strategy CHAPTER 2 Operations and Supply Chain Strategy McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Higher Education. All rights reserved.

Learning Objectives LO2-1 Describe link between operations and strategic planning LO2-2 Describe the links between the essential elements of operations strategy LO2-3 Describe customer desired outcomes LO2-4 Explain product- and process- priorities and links to competitive advantage LO2-5 Explain the use of various performance metrics

Strategic Planning: Operations Strategy Defined Operations Strategy: A set of competitive priorities coupled with supply chain structural and infrastructural design choices intended to create capabilities that support a set of value propositions targeted to address the needs of critical customers LO2-1

Levels of Strategic Planning Environment Corporate Culture Strategic Questions What business(es) should we be in? How do we compete? How do we best support the SBU strategy? Structure Infrastructure Corporate Strategy Business Strategies SBU SBU SBU Operations Strategy Finance, Marketing, etc. Strategies Figure 2-1 LO2-2

Levels of Strategic Planning: Corporate Strategy Corporate Strategy: overall mission and target businesses Long time horizon Overall values, direction and goals Acquisitions and divestitures Performance metrics Risk management LO2-2

Levels of Strategic Planning: Strategic Business Unit Strategic Business Unit (SBU): semi-independent organization for different products or markets Identification of customer or market segments Appropriate competitive priorities Constrained by corporate strategy More detailed Shorter time horizon LO2-2

Levels of Strategic Planning: Functional Strategy Functional strategy: determines how functions support business unit strategies Management of critical resources Key metrics Identification of capabilities Coordination of activities SBU to attain its overall objectives? LO2-2

Developing an Operations Strategy Critical Customer: critical to firm’s success and receives firm’s focus Value Proposition: tangible and intangibles that customers expect from a firm Capabilities: what a firm does well, defines types of problems a firm can proficiently address address proficiently. Figure 2-2 LO2-3

Product-Related Competitive Priorities How customer’s problem is ‘solved’ Quality: fitness for consumption in terms of meeting customer needs & desires Timeliness: delivery or availability when customer wants Cost: expenses incurred is acquiring or using the product LO2-4

Competitive Priorities: Quality Quality: How ‘fit’ is your product according to your customers needs?  Performance Aesthetics Features Service/support Conformance Perceived quality Reliability Durability LO2-4

Competitive Priorities: Timeliness Timeliness: Is your product delivered to your customers when they want it? Reliability Speed Availability LO2-4

Competitive Priorities: Cost Cost: How much does it cost to acquire and use your product? Purchase Transaction Maintenance/repair Operating Salvage/disposal LO2-4

Capabilities Defined Capabilities: unique and superior abilities based upon the firm’s routines, skills and processes Key areas for capability-building investment and development efforts: Processes Planning systems Technology People and culture Supply chain relations LO2-4

Strategic Areas in Operations Management: Structure Decision Domain OM Issues Considered Other Functional Groups Capacity Amount, timing and type Finance, Marketing Facilities Size, location, specialization Technology Hardware, software, IS Finance, Engineering, IT, HR Supply Chain Network Supply network Customer network Finance, Engineering, Marketing, Sales From Table 2-3 LO2-4

Strategic Areas in Operations Management: Infrastructure Decision Domain OM Issues Considered Other Functional Groups Workforce Skills, training, policies, etc. Human Resources Production Planning and Control Procedures, workflow, costs, controls, metrics, etc. Finance, Human Resources Product/Process Innovation Improvements, NPI, intellectual property, etc. Engineering, Human Resources Organization & Management Centralization, hierarchy, relationships, metrics, etc. Human Resources, Marketing From Table 2-3 LO2-4

Strategic Profit Model LO2-5

OM and SC Strategy Summary Strategic planning happens at multiple levels Strategic planning begins with the customer OM strategy brings together: critical customers, value propositions and operations capabilities Competitive priorities address product and process issues Future capabilities depend on existing core competencies Strategy involves multiple functions and SC partners Must be fit between the elements of #3 above Strategic assessment tools are needed