1. Operations and Supply Chain Strategies Chapter 2

2. Text: Introduction to Operations and Supply Chain Management
Custom edition for Farmingdale State College
Authors: Cecil Bozarth & Robert Handfield
Where appropriate reference text page numbers will be on bottom of slides
OSC may be used as an abbreviation of Operations and Supply Chain

3. Chapter Objectives Chapter 2
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.

4. Apple ipod Marketing Success Supply Chain Success
Intro Oct 01 ipod dominated market for portable media players
Constant renewal of product; new generation every year
Partnering with suppliers
Capable of quantity and quality
Global
Rapid response
Partnering with logistics & retailers
Walmart/Best buys
Without extra cost
Without extra inventory
Informational supply chain
Download music & videos
Download software & upgrades

5. Business Elements Two Major Decision Categories
Structural Infrastructural
Difficult to change:
Buildings
Equipment
Computer systems
Other capital assets
Changed infrequently
Relatively easy to change:
People
Policies
Decision rules
Organizational structure
Replaced vs Changed
To compete successfully all elements must work together

6. Definitions Strategies Mission Statement
The mechanisms by which businesses coordinate their decisions regarding structual & infrastructural elements
Mission Statement
A statement that explains why an organization exists. It describes it’s core values and identifies the domain

7. 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

8. Business Strategy must
Identify target customers & markets
Set time frames and performance objectives
Define the role of supply chain partners
Identify & support development of core competencies

9. A Top-Down Model of Strategy
Business
Strategy
Marketing
Financial
Operations
Operations and Supply Chain Decisions ...
Goals
Mission Statement
Supply Chain
R&D

10. Pg 25

11. Operations and Supply Chain Strategies
Definition: how structural & infrastructural elements within Operations & Supply Chain will be aquired & developed to support the overall business strategy
The three primary objectives
Choose mix of structure and infrastructure based upon dimensions valued by customer
Ensure the mix aligned with the overall business strategy
Does it support the development of core competencies?

12. Functional Strategy
Translates the business strategy into functional terms for other departments or functions.
Assures coordination with other departments or functions.
Provides direction and guidance for operations and supply chain decisions.

13. Supply Chain and Operations
Key Interactions
MIS
What IT solutions
to make it all work
together?
Finance
Budgeting.
Analysis.
Funds.
Human
Resources
Skills? Training?
# of Employees?
Design
Sustainability.
Quality.
Manufacturability.
Supply Chain and Operations
Marketing
What products?
What volumes?
Costs? Quality?
Delivery?
Accounting
Performance measurement systems.
Planning and control.

14. Decisions Guided by the Structural Strategy
Capacity
Size?
Timing?
Type?
Facilities
Size?
Location?
Technology
Equipment?
Processes?
Information systems?
Vertical Integration
Direction?
Extent?

15. Decisions Guided by the Infrastructural Strategy
Organization
Control/reward systems?
Centralization/decentralization?
Workforce – skilled/semi-skilled?
Sourcing and Purchasing
Supplier selection/performance metrics?
Procurement systems?
Sourcing strategy?
Planning and Control
Forecasting?
Inventory management?
Production planning/control?
Continuous improvement processes?
Business process management
SPC/Six Sigma
Process and Quality
Development process?
Organization/supplier roles?
Product and Service Design

16. 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).
Some examples are:
Choosing which home to buy or apartment to rent
Picking a location for a new factory
Selecting the best person for a new position
Deciding which supplier to use other than for lowest price
Deciding which features to include in a new product

17. Value Index Determination
A measure that used performance & importance scores of various dimensions of performance to calculate a score to indicate the overall value of an item to a customer
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)

18. Pg 28

19. Pg 29

20. 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)
People may not be comfortable with this… but, that may be exactly what’s required!
Encourages identification of less important factors.
A higher score to reflect the more desirable outcome and to avoid biasing a choice.
A potential problem that can be solved by eliminating any alternative that fails to meet the minimum acceptable score for that criterion.

21. Prioritizing: Where Must We Excel?
Potential dimensions of distinct competence (Four Performance Dimensions)
Quality (performance, conformance, reliability)
Time (delivery speed and reliability, development speed)
Flexibility (mix, changeover, volume)
Cost (labor, material, engineering, quality-related)
What does the customer value?

22. Quality
The characteristics of a product or service which bear on its ability to satisfy stated or implied needs
Performance Quality the basic operational characteristics of a product or service
Conformance Quality to what degree the product or service meets specifications
Reliability Quality The length of time a product will perform correctly without failing or requiring maintenance
To remain competitive, operations and supply chain must consistently meet or exceed customer expectations on quality dimensions

23. Time
Delivery speed how quickly the OSC can fulfill on order or need once it has been identified.
Delivery Reliability the ability to deliver goods or services when promised and the accuracy of he quantity shipped
Pg 30

24. Flexibility
How quickly OSC can respond to the unique needs of different customers
Mix flexibility the ability to produce a wide range of products or services
Changeover flexibility the ability to provide a new product with minimal delay
Volume flexibility the ability to produce whatever volume the customer needs
Flexibility is of particular importance in Research and Development
Pg 31

25. Cost
Cost is always a concern, even if a company primarily competes on a different performance dimension.
Cost covers a wide range of activities, most common categories are
Labor Costs
Material Costs
Engineering Costs
Quality-related costs
There are many cost categories, many are specific to the issues facing a particular firm. OSC are targets for cost management because they account for much of an organization’s cost.
Pg 31

26. Trade-offs between Performance Dimensions
No organization can sustain a competitive advantage on all performance dimensions indefinitely….
All organizations must make trade-offs or decisions among dimensions to emphasize some at the expense of others.
Most OSC decisions will require trade-offs
To optimize this decision making, OSC managers must know which dimensions are valued most by their customers
Excellence in one dimension may conflict with excellence in another
Pg 32

27. 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

28. Order Winners and Qualifiers
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.
Discussion about how today’s exceptional performance becomes tomorrow’s standard customer expectation.

30. Alignment between OSC strategies and the overall business strategy
The goal is to develop an OSC stategy that supports the business strategy
Management should know
How each OSC structural & infrastructural choice supports the customer’s order winners & qualifiers
What trade-offs had to be considered in these decisions
However some organizations are not as far along towards achieving this than are others.
Pg 33

31. Stages of Alignment between OSC strategies and the overall business strategy
Neutral
Supportive
Stage 2
Industry Practice
Stage 4
Actively Engaged
Stage 1
Not linked
Stage 3
Participation
(Closing the loop)
External
Internal
Stage 1 – Internally neutral – efforts are to minimize negative potential in OSC areas. No link to business strategy
Stage 2 – Externally neutral – industry practice followed. No link to business strategy
Stage 3 – Internally supportive – OSC areas participate in strategic debate. It is understood that OSC must be aligned with business strategy
Stage 4 – Externally Supportive – OSC areas support business strategy and explore/improve core competencies
Pg 34

32. Operations and Supply Chain Strategies Case Study
Catherine’s Confectionaries