Operations and Supply Chain Strategies

Chapter 2, Slide 2 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Operations Strategy Operations Management Design, operation, and improvement of the operations systems and processes What direction? What focus?

Chapter 2, Slide 3 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Process View of Operations INPUTSTRANSFORMATION /OUTPUTS CONVERSION Materials “Needs” Facilities Equipment Information People Goods Services

Chapter 2, Slide 4 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Old View of Operations Operations is necessary, but not a source of strategic advantage. Minimize costs. High volume, standard products (Economies of scale).

Chapter 2, Slide 5 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Into the 1980s... Operations: Usually static, with technological jumps Buffers Marketing: Segmentation Niche marketing Pricing strategies, etc. Finance: Cash flow management Leveraging Buyouts, etc. “Closed” System

Chapter 2, Slide 6 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield A Top-Down Model of Strategy Business Strategy Marketing Strategy Financial Strategy Operations Strategy Operations Decisions... Goals Mission Statement

Chapter 2, Slide 7 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Definitions Business Strategy Long-term master plan for the company; establishes the general direction Goals Performance targets and milestones Functional Strategies Further develop the business strategy in segments of the business — must be aligned and coordinated

Chapter 2, Slide 8 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Operations Strategy Translates the business strategy into operations terms. Assures coordination with other areas. Provides direction and guidance for operations decisions.

Chapter 2, Slide 9 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Key Interactions Operations Finance Budgeting. Analysis. Funds. Marketing What products? What volumes? Costs? Quality? Delivery? Human Resources Skills? Training? # of Employees? Accounting Performance measurement systems. Planning and control. MIS What IT solutions to make it all work together? Design Sustainability. Quality. Manufacturability.

Chapter 2, Slide 10 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Decisions Guided by the Operations Strategy - I Capacity Size? Timing? Type? Facilities Size? Location? Technology Equipment? Processes? Information systems? Vertical Integration Direction? Extent?

Chapter 2, Slide 11 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Decisions Guided by the Operations Strategy - II Workforce Skills? Wages? Availability? Quality Level? Defect monitoring? Prevention and improvement? Planning and Control Sourcing? Scheduling? Prioritizing? Organization Chains of command? Reward systems? Etc.

Chapter 2, Slide 12 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Example: Acme Furniture Business Strategy Marketing Strategy Financial Strategy Operations Strategy Become a dominant player in the high-end furniture market  Gallery stores  Advertising, etc.  High quality  Wide variety  Volume flexibility  Fund growth

Chapter 2, Slide 13 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Acme Furniture New marketing strategy — Gallery stores Wide variety Lower per unit volumes New, unique designs Premium prices

Chapter 2, Slide 14 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Impact of the “wrong” Operations Strategy? High Volume Standard Products New, Unique Products Operations Marketing Low Volume

Chapter 2, Slide 15 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Prioritizing: Where Must We Excel? Potential sources of distinct competence Quality (performance, conformance, reliability) Time (delivery speed and reliability, development speed) Flexibility (mix, changeover, volume) Cost (labor, material, engineering, quality-related)

Chapter 2, Slide 16 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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 With time, Winners become Qualifers

Chapter 2, Slide 17 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield “Best in Class” Minimum Needs CostDesign Quality SpeedFlexibility The Idea Behind Prioritizing:

Chapter 2, Slide 18 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield “Best in Class” Minimum Needs CostDesign Quality SpeedFlexibility Comparing Two Software Development Firms

Chapter 2, Slide 19 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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).

Chapter 2, Slide 20 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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)

Chapter 2, Slide 21 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Value Analysis: Introduce new product? PerformanceImportanceScoreValue Criteria(A)(B)(A x B) Market potential30 Unit profit margin20 Operations compatibility20 Competitive advantage15 Investment requirement10 Project risk5 100% Threshold score = 800

Chapter 2, Slide 22 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Value Analysis: Introduce new product? PerformanceImportanceScoreValue Criterion(A)(B)(A x B) Market potential308 Unit profit margin2010 Operations compatibility206 Competitive advantage1510 Investment requirement102 Project risk54 Threshold score of current product = 800

Chapter 2, Slide 23 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Value Analysis: Introduce new product? PerformanceImportanceScoreValue Criterion(A)(B)(A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement10220 Project risk5420 Value Index =750 Threshold score = 800 Not at this time!

Chapter 2, Slide 24 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Measurements Performance against:  Customer needs  Business objectives or standards Comparisons to competitors Comparisons to “best in class.”