Transcript Class Notes

Operations and Supply
Chain Strategies
Chapter 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
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.
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
Business Elements
Two Major Decision Categories
Structural
Infrastructural
Difficult to change:
Relatively easy to
change:
–
–
–
–
–
Buildings
Equipment
Computer systems
Other capital assets
Changed infrequently
–
–
–
–
People
Policies
Decision rules
Organizational
structure
– Replaced vs Changed
To compete successfully all elements must work together
Definitions
• Strategies
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
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
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
A Top-Down Model of
Strategy
Goals
Mission
Statement
Marketing
Strategy
Business
Strategy
R&D
Strategy
Operations
Strategy
Supply Chain
Strategy
Financia
l
Strategy
Operations and Supply Chain Decisions ...
Pg 25
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?
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.
Key Interactions
MIS
Finance
What IT solutions
to make it all work
together?
Budgeting.
Analysis.
Funds.
Design
Sustainability.
Quality.
Manufacturability.
Supply Chain
and
Operations
Accounting
Performance measurement systems.
Planning and control.
Human
Resources
Skills? Training?
# of Employees?
Marketing
What products?
What volumes?
Costs? Quality?
Delivery?
Decisions Guided by the
Structural Strategy
Capacity
Size?
Timin
g?
Type?
Facilities
Size?
Location?
Technology
Equipment?
Processes?
Information systems?
Vertical
Integration
Direction?
Extent?
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?
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
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
N
V   I n Pn
Where:
n 1
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)
Pg 28
Pg 29
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)
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?
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
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
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
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
Trade-offs between Performance Dimensions
No organization can sustain a competitive advantage
on all performance dimensions indefinitely….
Excellence in one dimension may conflict with
excellence in another
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
Pg 32
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
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.
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
Stages of Alignment between OSC strategies
and the overall business strategy
Neutral
Supportive
External
Stage 2
Industry Practice
Stage 4
Actively Engaged
Internal
Stage 1
Not linked
Stage 3
Participation
(Closing the loop)
• 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
Operations and Supply Chain
Strategies Case Study
Catherine’s Confectionaries