Operations and Supply Chain Strategies Chapter Objectives Be

Operations and Supply Chain Strategies

Chapter Objectives Be able to: q Explain the relationship between business and functional strategies and the difference between structural and infrastructural elements. q Describe some of the main operations and supply chain decision categories. q Explain the customer-value concept and calculate a value-index score. q Differentiate between order winners and qualifiers. Explain why this difference is important to developing operations and supply chain strategy. q Discuss the concept of trade-offs and give an example. q Define core competencies and give an example of how they can be in the. Prentice operations and supply chain ©used 2008 Pearson Hall --- Introduction to Operations and areas Supply for competitive 2 Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 advantage.

Business Elements Structural Difficult to change: – – 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 3

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 4

A Top-Down Model of Strategy Goals Mission Statement Marketing Strategy Business Strategy R&D Strategy Operations Strategy Supply Chain Strategy Financi al Strateg y Operations and Supply Chain Decisions. . . © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 5

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 6

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 7

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. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Human Resources Skills? Training? # of Employees? Marketing What products? What volumes? Costs? Quality? Delivery? 8

Decisions Guided by the Structural Strategy Capacity Facilities Technology Vertical Integration üSize? üTiming? üType? üSize? üLocation? üEquipment? üProcesses? üInformation systems? üDirection? üExtent? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 9

Decisions Guided by the Infrastructural Strategy Organization Sourcing and Purchasing Planning and Control Process and Quality Product and Service Design üControl/reward systems? üCentralization/decentralization? üWorkforce – skilled/semi-skilled? üSupplier selection/performance metrics? üProcurement systems? üSourcing strategy? üForecasting? üInventory management? üProduction planning/control? üContinuous improvement processes? üBusiness process management üSPC/Six Sigma üDevelopment process? üOrganization/supplier roles? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 10

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). © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 11

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 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply performance) Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 12

Value Analysis – Thoughts ü Requires definition of criteria and their importance beforehand to avoid bias ü It is useful if the importance or weighting values add up to 100% ü A threshold score can set by evaluating the current situation, if it exists, using the selected analysis criteria ü Requires careful definition of scoring values for performance assessment (highest value represents most desirable result) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 13

Value Analysis: Introduce new product? Threshold score = 720 Performance Criteria Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk Importance Score (A) (B) Value (A x B) 30 20 20 15 100% © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 14

Value Analysis: Introduce new product? Threshold score of current product = 720 Performance Criterion Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk Importance Score (A) (B) 30 20 20 15 10 5 Value (A x B) 6 10 3 4 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 15

Value Analysis: Introduce new product? Threshold score = 720 Performance Criterion Importance Score (A) (B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk 30 20 20 15 10 5 Value (A x B) 6 10 3 4 180 200 120 150 30 20 Value Index = 700 Not at this time! © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 16

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 17

Order Winners and Qualifiers • Winners: Ø Differentiators — performance not yet duplicated by competitors Ø Competitive advantage — performance better than all or most of the competitors • Qualifiers Ø Minimum acceptable level of performance Over time, Differentiators Winners Qualifiers as competition intensifies. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 18

The Idea Behind Prioritizing: “Best in Class” Minimum Needs Cost Design Quality Speed © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Flexibility 19

Comparing Two Software Development Firms “Best in Class” Minimum Needs Cost Design Quality Speed © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Flexibility 20

Measurements • Performance against: þCustomer needs þBusiness 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 21

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 22

Stages of Alignment between Supply Chain and Operations Strategies Neutral Supportive External Stage 2 Industry Practice Stage 4 Actively Engaged Internal Stage 1 Not linked Stage 3 Participation (Closing the loop) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 23

Operations and Supply Chain Strategies Case Study Catherine’s Confectionaries © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 1, Slide