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Operations and Supply Chain Strategies
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 2
Chapter Objectives
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.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 3
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
Chapter 2, Slide 4
Definitions• Business Strategy
Long-term master plan for the company; establishes the general direction
• Functional StrategiesFurther develop the business strategy
in segments of the business — must be aligned and coordinated
• Core CompetenciesOrganizational 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
Chapter 2, Slide 5
A Top-Down Model of Strategy
BusinessStrategy
MarketingStrategy
Financial
Strategy
OperationsStrategy
Operations and Supply Chain Decisions ...
Goals
MissionStatement
Supply ChainStrategy
R&DStrategy
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 6
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
Chapter 2, Slide 7
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
Chapter 2, Slide 8
Key Interactions
Supply Chain and
Operations
FinanceBudgeting.Analysis.Funds.
MarketingWhat products?What volumes?Costs? Quality?Delivery?
HumanResourcesSkills? Training?# of Employees?
AccountingPerformance measurement systems.Planning and control.
MISWhat IT solutionsto make it all worktogether?
DesignSustainability.Quality.Manufacturability.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 9
Decisions Guided by the Structural Strategy
Capacity Size?
Timing?
Type?
Facilities Size?
Location?
Technology Equipment?
Processes?
Information systems?
Vertical Integration
Direction?
Extent?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 10
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?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 11
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
Chapter 2, Slide 12
Value Index Determination
n
N
nnPIV
1Where:
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)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 13
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)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 14
Value Analysis:Introduce new product?
Performance Importance Score ValueCriteria (A) (B) (A x B)
Market potential 30Unit profit margin 20Operations compatibility 20Competitive advantage 15Investment requirement 10Project risk 5
100%
Threshold score = 720
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 15
Value Analysis:Introduce new product?
Performance Importance Score ValueCriterion (A) (B) (A x B)
Market potential 30 6Unit profit margin 20 10Operations compatibility 20 6Competitive advantage 15 10Investment requirement 10 3Project risk 5 4
Threshold score of current product = 720
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 16
Value Analysis:Introduce new product?
Performance Importance Score ValueCriterion (A) (B) (A x B)
Market potential 30 6 180Unit profit margin 20 10 200Operations compatibility 20 6 120Competitive advantage 15 10 150Investment requirement 10 3 30Project risk 5 4 20
Value Index = 700
Threshold score = 720
Not at this time!
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 17
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
Chapter 2, Slide 18
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.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 19
“Best in Class”
MinimumNeeds
Cost DesignQuality
Speed Flexibility
The Idea Behind Prioritizing:
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 20
“Best in Class”
MinimumNeeds
Cost DesignQuality
Speed Flexibility
Comparing Two Software Development Firms
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 2, Slide 21
Measurements
• Performance against:
Customer needs
Business 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
Chapter 2, Slide 22
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
Chapter 2, Slide 23
Stages of Alignment between Supply Chain and Operations Strategies
Stage 2
Industry Practice
Stage 4
Actively Engaged
Stage 1
Not linked
Stage 3
Participation
(Closing the loop)
External
Internal
Neutral Supportive
Operations and Supply Chain Strategies Case Study
Catherine’s Confectionaries