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Operations and Supply Chain Strategies

Operations Strategy
Operations Management

Design, operation, and improvement of the operations systems and processes


What direction? What focus?

Process View of Operations


INPUTS TRANSFORMATION / CONVERSION OUTPUTS

Materials Needs

Facilities Equipment Information People

Goods Services

Old View of Operations


Operations is necessary, but not a source of

strategic advantage.
Minimize costs. High volume, standard products

(Economies

of scale)

Into the 1980s ...


Closed System Operations: Marketing: Segmentation Niche marketing Pricing strategies, etc. Finance: Cash flow management Leveraging Buyouts, etc.

Usually static, with technological jumps

Buffers

Definitions
Business Strategy

Long-term master plan for the company; establishes the general direction
Goals

Performance targets and milestones


Functional Strategies

Further develop the business strategy in segments of the business must be aligned and coordinated

A Top-Down Model of Strategy

Operations & Supply Chain Strategy


A functional strategy that indicates how Structural and Infrastructural elements within the operations and supply chain areas will be acquired and developed to support the overall business strategy
Translates

the operations terms

business

strategy

into

Assures coordination with other areas. Provides direction and guidance for operations

decisions

Structural Decisions
Capacity Facilities
Size? Timing? Type? Size? Location?

Technology
Vertical Integration

Equipment? Processes? Information systems? Direction? Extent?

Infrastructural Decisions
Workforce Quality
Skills? Wages? Availability? Level? Defect monitoring? Prevention and improvement? Sourcing? Scheduling? Prioritizing? Chains of command? Reward systems? Etc.

Planning and Control


Organization

Example: Acme Furniture


Business Strategy Become a dominant player in the high-end furniture market

Marketing Strategy

Operations Strategy

Financial Strategy

Gallery stores Advertising, etc.

High quality Wide variety Volume flexibility

Fund growth

Acme Furniture
New marketing strategy Gallery stores

Wide variety
Lower per unit volumes New, unique designs Premium prices

Impact of the wrong Operations Strategy?


Standard Products

Operations
Low Volume High Volume

Marketing
New, Unique Products

Prioritizing:
Where Must We Excel?
Potential sources of distinct competence
Quality (performance, conformance, reliability) Quality is defined as the characteristics of a product

or service that bear on its ability to satisfy stated or implied needs.


Time (delivery speed and reliability)
Flexibility (mix, changeover, volume) Cost (labor, material, engineering, quality-related)

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

With time, Winners become Qualifers

The Idea Behind Prioritizing:


Best in Class

Minimum Needs Cost Design Quality Speed Flexibility

Chemical Firm Example

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).

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)

Value Analysis:
Introduce new product?
Threshold score = 800
Performance Criteria
Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk

Importance Score (A) (B)


30 20 20 15 10 5 100%

Value (A x B)

Value Analysis:
Introduce new product?
Threshold score of current product = 800

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 8 10 6 10 2 4

Value (A x B)

Value Analysis:
Introduce new product?
Threshold score = 800
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 8 10 6 10 2 4 Value Index =

Value (A x B)
240 200 120 150 20 20 750

Not at this time!

Measurements
Performance against:

Customer needs

Business objectives or standards


Comparisons to competitors

Comparisons to best in class.