McGraw-Hill/Irwin

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Chapter 2

Strategy and Sustainability

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Learning Objectives

1. Understand the competitive dimensions of operations and supply chain strategy.

2. Identify order winners and order qualifiers.3. Understand the concept of strategic fit.4. Describe how productivity is measured and

how it relates to operations and supply chain processes.

5. Explain how the financial markets evaluate a firm’s operations and supply chain performance.

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A Sustainable Strategy

• Shareholders: Those individuals or companies that legally own one or more shares of stock in the company

• Stakeholders: Those individuals or organizations who are influenced, either directly or indirectly, by the actions of the firm

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Triple Bottom Line

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Triple Bottom Line Continued

• Social: pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts is business

• Economic: the firm’s obligation to compensate shareholders who provide capital via competitive returns on investment

• Environmental: the firm’s impact on the environment

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What is Operations and Supply Strategy?

• Operations and supply strategy: setting broad policies and plans for using the recourses of a firm to best support its long-term competitive strategy– Part of a planning process that coordinates

operational goals with those of the larger organization

• Operations effectiveness relates to the core business processes needed to run the business

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Competitive Strategy: The Positioning View

• SWOT Analysis– Strengths– Weaknesses– Opportunities– Threats

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Levels of Strategy-Making

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Closed-Loop Strategy Process

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Closed-Loop Strategy Process Continued

• Activity 1 is performed at least yearly and is where the overall strategy is developed

• Activity 2 is where the overall strategy is refined and updated as often as four times a year

• Activity 3 is where operational plans that relate to functional areas such as marketing, manufacturing, and so on, are coordinated

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Competitive Dimensions

• Price: make the product or deliver the service cheap

• Quality: make a great product or deliver a great service

• Delivery speed: make the product or deliver the service quickly

• Delivery reliability: deliver it when promised• Coping with changes in demand: change its

volume• Flexibility and new product introduction

speed: change it

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Other Product-Specific Criteria

1. Technical liaison and support2. Meeting a launch date3. Supplier after-sale support4. Environmental impact5. Other dimensions

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Dealing with Trade-offs

• For example, if we reduce costs by reducing product quality inspections, we might reduce product quality

• For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems

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Order Qualifiers and WinnersDefined

• Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers

• Order winners: the criteria that differentiates the products and services of one firm from another

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Strategic Fit: Fitting Operational Activities to Strategy

• All the activities that make up a firm’s operation relate to one another

• To be efficient, must minimize total cost without compromising on customer needs

• Activity-system maps show how a company’s strategy is delivered through a set of tailored activities

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Mapping Activity Systems at IKEA

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Productivity Measurement

• Productivity is a common measure of how well an organization is using its resources– Fundamental to understanding operations-

related performance• In its broadest sense productivity is

outputs divided by inputs– To increase productivity, we want to make

this ratio as large as practical

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Productivity Measurement Continued

• Productivity is a relative measure– Can be compared with similar operations

within its industry– Can be compared over time

• Productivity may be expressed as:1. Partial measures: output to one input2. Multifactor measures: output to a group of

inputs3. Total measures: output to all inputs

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Examples of Productivity Measures

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Partial Measures of Productivity

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How Does Wall Street Evaluate Operations Performance?

• Comparing firms from an operations view is important to investors– Earnings growth is a function of profitability– Profits can increase through higher sales or lower

costs– Highly efficient firms shine during recession periods

• When evaluating large productivity, it is important to look for unusual explanations– Want to avoid one-time events

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Efficiency Measures Used by Wall Street

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