Transcript strategy 2006.ppt

Strategy
What is a strategy in general ?
Why do we need a strategy?
What does a strategy tell us?
Decisions that must support the strategy
• Structure
– delivery system
– facility design
– location
– capacity planning
• Infrastructure (management)
– service encounter
– quality
– information
– capacity ?
Strategy 1
Strategy concepts
• Almost every decision we make must support our
company’s (supply chain’s) strategy
• Decisions that do not support the strategy tend to
lower the value received by our customers.
– This happens far to frequently because most managers
are pushed in other directions by company policies and
procedures
• Go back to research discussed in previous class
– Measurement systems are often designed to foil
strategy.
• Hall Mark DC / Harlan / Armor
– Managers do not understand the concept of total cost
Strategy 2
Total cost
• Total cost is one of the most important ideas I can
disseminate to you.
– Price - is the dollar expenditure to purchase an input
– Total cost is all of the costs associated with the input
– The two often differ significantly both within an
organization and in different organizations.
• The total cost of an item will be determined by our strategy
and can include: price, costs of poor quality, costs of late
shipments, and many other costs. The total cost equation
should also quantify the benefits of things like faster
delivery (which may have a higher price)
Strategy 3
Total cost example
• You are in charge of buying food for an important client
meeting. Your boss instructs you to spend as much as you
have too, but no more. So you have the supermarket cater
the affair by preparing a 20 dollar cold cut tray. In addition,
you buy a few bottles of soda. To lend an air of class to the
event you also purchase some quality disposable
implements and plates. What is the total costs of this event
if the client is:
• Buying your service because of your quality reputation?
• Is a customer who wants you to help them market their
environmentally (and animal) friendly products ?
• A customer known to make purchase decisions based
entirely on getting the lowest price ?
Strategy 4
Some real world examples of managers not
understanding total costs
• Caterpillar running low volume engines in large
batches to save on set-up costs
• Bridge in Kansas
• Saving 10 cents a pound on ground beef
• Getting paid when the street is re-paved in Philly
– Or the sinking expressway
Our strategy determines the total cost of a decision
(note that in general price does not vary)
Strategy 5
Our supply chain’s total costs equation is
determined by our strategy
• Cost leadership (need not be low price) strategy
– South West Airlines
– General Motors
– McDonalds
• what has the market told McDonalds about low prices ?
– Post office
– Wal-Mart
– OSU ?
• We say value but…
Strategy 6
Some generic cost leadership activities
• Low cost customers (segmentation)
– banks who only deal with people with good credit
– TIAA CREF
• Standardization
– McDonalds
– Southwest
• Reduce “unnecessary” interactions
– ATM
– Dell
• Taking a service off line - separate the customer from
delivery of the service (can you say inventory buffer)
– Economies of scale
– Film processing
Strategy 7
Differentiation strategy
• Creating something that is unique (often higher
quality, faster delivery, or a level of innovation
not available elsewhere)
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Ritz Carlton Hotels
Federal Express
Herman Miller office furniture
Harvard University
Dell Computer
Subway Sandwiches
One hour photo shops
Strategy 8
Some generic differentiation activities
• Tangibility – important for services
– many car dealers wash your car when it comes in for
service - why?
• Customization of a standard product
– people pay a bit more and wait a bit longer at Burger
King to have it their way
– an insurance agent who comes to your house on your
time
• Quality
– Lexus
• Speed / reliability – Federal Express
Strategy 9
Focus
• We deal with only a specific segments of
customers - this is often a version of
differentiation.
• Basically the key distinction between focus and
differentiation is attempted market penetration.
• Many regional operations have a focus strategy
– Fox sports has different regional broadcasts (focus)
– ESPN is the all sports for the entire country network
(differentiation)
Strategy 10
A different and potentially more useful way to
view strategy
• Our strategy is our stated way of satisfying (we hope)
customers. But it ignores one key element; customer
expectations. So we have another way of looking at the
way we meet customer expectations for:
Availability
Convenience
Dependability
Price
Quality
Reputation
Safety
Speed
Selection
Customization
Often put into 4 generic categories of: price, quality, delivery,
and flexibility
Strategy 11
Order winners verses qualifiers
• On any of the previously listed (not an exhaustive
list) criteria our customers will have a minimally
acceptable level which our company / supply
chain must achieve to be considered as a potential
provider.
– The minimal accepted level is an order qualifier
• On some criteria our company / supply chain will
exceed minimal expectations. If customers value
this additional performance we will have a way of
winning orders.
– Order winners are what customers use to chose between
qualified (meet order qualifiers) suppliers of a process
Strategy 12
“When flawless isn’t good enough”
• Recent JD powers data.
– Traditional measure of auto quality – defects per car
• This is a conformance based measure of quality
• Today the American firms do pretty well on these measures –
certainly better than ever before
– Customers now expect a car to be defect free – in other
words doing this is not enough – it is an order qualifier
– Now quality encompasses other elements of quality
such as functionality, aesthetics, fit and finish, and so
on.
Strategy 13
Order winners and qualifiers: a way to view
competitive priorities
• Order qualifier: those
attributes our product or
service must have to
compete
– Airline
• safety
• access (to destinations)
– Fast food
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safety
quick (drive in?)
low price
easy access
• Order winner: those
attributes that differentiate
our product or service:
– Airline:
• price (Southwest)
• speed (British air)
• access (American)
– Fast food
• speed (McDonalds)
• customization (Burger
King)
• healthy (Sub-way)
Strategy 14
Conclusions
• Our strategy should guide all other decisions.
• We should purchase goods and services on a total
cost basis not a price basis.
• Our total cost equation is partially determined by
our strategy
• Classical definitions of strategy (cost leadership,
differentiation, focus) may tell us how we win
orders but they do not include order qualifiers.
Strategy 15