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 Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Business Elements Structural Difficult to change: Infrastructural Buildings Equipment Computer systems Other capital assets Infrastructural Relatively easy to change: People Policies Decision rules Organizational structure © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

A Top-Down Model of Strategy Business Strategy Marketing Financial Operations Operations and Supply Chain Decisions ... Goals Mission Statement Supply Chain R&D © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Functional Strategy Translates the business strategy into functional terms. Assures coordination with other areas. Provides direction and guidance for operations and supply chain decisions. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Decisions Guided by the Structural Strategy Capacity Size? Timing? Type? Facilities Location? Technology Equipment? Processes? Information systems? Vertical Integration Direction? Extent? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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? Process and Quality Continuous improvement processes? Business process management SPC/Six Sigma Product and Service Design Development process? Organization/supplier roles? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Value Index Determination 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) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Value Analysis: Introduce new product? 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% Threshold score = 720 Threshold score is value determined by existing product to these criteria. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Value Analysis: Introduce new product? Threshold score of current product = 720 Performance Importance Score Value 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 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Value Analysis: Introduce new product? Performance Importance Score Value 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 Threshold score = 720 Not at this time! © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

The Idea Behind Prioritizing: “Best in Class” Minimum Needs Cost Design Quality Speed Flexibility © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Comparing Two Software Development Firms “Best in Class” Minimum Needs Cost Design Quality Speed Flexibility © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Measurements Performance against: Comparisons to competitors Customer needs Business objectives or standards Comparisons to competitors Comparisons to “best in class.” © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Stages of Alignment between Supply Chain and Operations Strategies Neutral Supportive Stage 2 Industry Practice Stage 4 Actively Engaged Stage 1 Not linked Stage 3 Participation (Closing the loop) External Internal © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Operations and Supply Chain Strategies Case Study Catherine’s Confectionaries