Operations and Supply

Chain Strategies
 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 Chapter 2, Slide 2
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Business Elements
Structural Infrastructural
Difficult to change: Relatively easy to
– Buildings change:
– Equipment – People
– Computer systems – Policies
– Other capital assets – Decision rules
– Organizational
structure

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 3
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Definitions
• Business Strategy
Long-term master plan for the company;
establishes the general direction
• Functional Strategies
Further develop the business strategy in
segments of the business — must be aligned
and coordinated
• Core Competencies
Organizational strengths that provide
focus and foundation for the company’s
strategies
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 4
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 A Top-Down Model of
Strategy
Goals
Mission Business
Statement Strategy

Marketing R&D Operations Supply Chain Financia

Strategy Strategy Strategy Strategy l
Strategy

Operations and Supply Chain Decisions ...

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 5
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 6
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 7
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Key Interactions
Finance MIS
Budgeting.
What IT solutions Human
to make it all work
Analysis.
together? Resources
Funds. Skills? Training?
# of Employees?
Design Supply Chain
Sustainability. and
Quality. Operations Marketing
Manufacturability.
What products?
Accounting What volumes?
Performance measurement systems. Costs? Quality?
Planning and control. Delivery?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 8
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Decisions Guided by the
Structural Strategy
Capacity Size?
Timing?
Type?
Facilities Size?
Location?

Technology Equipment?
Processes?
Information systems?
Vertical Direction?
Extent?
Integration
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 9
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Decisions Guided by the
Infrastructural Strategy
Organization Control/reward systems?
Centralization/decentralization?
Workforce – skilled/semi-skilled?
Sourcing and Supplier selection/performance metrics?
Purchasing Procurement systems?
Sourcing strategy?
Planning and Forecasting?
Control Inventory management?
Production planning/control?
Process and Quality Continuous improvement processes?
Business process management
SPC/Six Sigma
Product and Service Development process?
Design Organization/supplier roles?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 10
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 11
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Value Index Determination

N
V   I nPn
n 1
Where:
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 Chapter 2, Slide 12
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 13
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Value Analysis:
Introduce new product?
Threshold score = 720

Performance Importance Score Value

Criteria (A) (B) (A x B)
Market potential 30
Unit profit margin 20
Operations compatibility 20
Competitive advantage 15
Investment requirement 10
Project risk 5
100%

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 14
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Value Analysis:
Introduce new product?
Threshold score of current product = 720

Performance Importance Score Value

Criterion (A) (B) (A x B)
Market potential 30 6
Unit profit margin 20 10
Operations compatibility 20 6
Competitive advantage 15 10
Investment requirement 10 3
Project risk 5 4

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 15
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Value Analysis:
Introduce new product?
Threshold score = 720

Performance Importance Score Value

Criterion (A) (B) (A x B)
Market potential 30 6 180
Unit profit margin 20 10 200
Operations compatibility 20 6 120
Competitive advantage 15 10 150
Investment requirement 10 3 30
Project risk 5 4 20

Value Index = 700

Not at this time!

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 16
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 17
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 18
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 The Idea Behind Prioritizing:

“Best in
Class”

Minimum
Needs

Cost Design Speed Flexibility

Quality
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 19
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Comparing Two Software
Development Firms
“Best in
Class”

Minimum
Needs

Cost Design Speed Flexibility

Quality
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 20
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 21
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 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 Chapter 2, Slide 22
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
 Stages of Alignment between Supply
Chain and Operations Strategies

Neutral Supportive
Stage 2 Stage 4
External Industry Practice Actively Engaged

Stage 1 Stage 3
Internal Not linked Participation
(Closing the loop)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 2, Slide 23
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Operations and Supply Chain
Strategies Case Study

Catherine’s Confectionaries