Operations and Supply Chain Strategies
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 2
Operations Strategy
Operations Management
Design, operation, and improvement of the operations systems and processes
• What direction?
• What focus?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 3
Process View of Operations
INPUTS TRANSFORMATION / OUTPUTS CONVERSION
• Materials• “Needs”
• Facilities• Equipment• Information• People
• Goods• Services
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 4
Old View of Operations• Operations is necessary, but not a
source of strategic advantage.
• Minimize costs.
• High volume, standard products(Economies of scale).
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 5
Into the 1980s ...
Operations:
Usually static,with technological jumps
Buf
fers
Marketing:SegmentationNiche marketingPricing strategies, etc.
Finance:Cash flow managementLeveragingBuyouts, etc.
“Closed” System
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 6
A Top-Down Model of Strategy
BusinessStrategy
MarketingStrategy
FinancialStrategy
OperationsStrategy
Operations Decisions ...
Goals
MissionStatement
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 7
Definitions• Business Strategy
Long-term master plan for the company; establishes the general direction
• GoalsPerformance targets and milestones
• Functional StrategiesFurther develop the business
strategy in segments of the business — must be aligned and coordinated
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 8
Operations Strategy
• Translates the business strategy into operations terms.
• Assures coordination with other areas.
• Provides direction and guidance for operations decisions.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 9
Key Interactions
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.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 10
Decisions Guided by the Operations Strategy - I
Capacity Size?
Timing?
Type?
Facilities Size?
Location?
Technology Equipment?
Processes?
Information systems?
Vertical Integration
Direction?
Extent?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 11
Decisions Guided by the Operations Strategy - II
Workforce Skills?
Wages?
Availability?
Quality Level?
Defect monitoring?
Prevention and improvement?
Planning and Control
Sourcing?
Scheduling?
Prioritizing?
Organization Chains of command?
Reward systems?
Etc.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 12
Example: Acme Furniture
BusinessStrategy
MarketingStrategy
FinancialStrategy
OperationsStrategy
Become a dominant playerin the high-end furnituremarket
Gallery stores Advertising, etc.
High quality Wide variety Volume flexibility
Fund growth
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 13
Acme Furniture• New marketing strategy — Gallery
stores
• Wide variety
• Lower per unit volumes
• New, unique designs
• Premium prices
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 14
Impact of the “wrong” Operations Strategy?
HighVolume
StandardProducts
New, UniqueProducts
Operations
Marketing
LowVolume
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 15
Prioritizing: Where Must We Excel?
Potential sources of distinct competence
• Quality (performance, conformance, reliability)
• Time (delivery speed and reliability, development
speed)
• Flexibility (mix, changeover, volume)
• Cost (labor, material, engineering, quality-related)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 16
Order Winners and Qualifiers
• Winners:Differentiators — performance not yet
duplicated by competitorsCompetitive advantage — performance better
than all or most of the competitors
• QualifiersMinimum acceptable level of performance
With time, Winners become Qualifers
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 17
“Best in Class”
MinimumNeeds
Cost DesignQuality
Speed Flexibility
The Idea Behind Prioritizing:
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 18
“Best in Class”
MinimumNeeds
Cost DesignQuality
Speed Flexibility
Comparing Two Software Development Firms
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 19
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).
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 20
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)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 21
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 = 800
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 22
Value Analysis:Introduce new product?
Performance Importance Score ValueCriterion (A) (B) (A x B)
Market potential 30 8Unit profit margin 20 10Operations compatibility 20 6Competitive advantage 15 10Investment requirement 10 2Project risk 5 4
Threshold score of current product = 800
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 23
Value Analysis:Introduce new product?
Performance Importance Score ValueCriterion (A) (B) (A x B)
Market potential 30 8 240Unit profit margin 20 10 200Operations compatibility 20 6 120Competitive advantage 15 10 150Investment requirement 10 2 20Project risk 5 4 20
Value Index = 750
Threshold score = 800
Not at this time!
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 24
Measurements
• Performance against:
Customer needs
Business objectives or standards
• Comparisons to competitors
• Comparisons to “best in class.”
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