Operations and Supply Chain Strategies. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield,

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