Text: Introduction to Operations and Supply Chain
Management
Custom edition for Farmingdale State College
Authors: Cecil Bozarth & Robert Handfield
Where appropriate reference text page numbers will be on bottom of slides
OSC may be used as an abbreviation of Operations and Supply Chain

Chapter 2
 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.

Marketing Success
Supply Chain Success
• Intro Oct 01 ipod dominated market for portable media players
• Constant renewal of product; new generation every year
• Partnering with suppliers
• Capable of quantity and quality
• Global
• Rapid response
• Partnering with logistics & retailers
• Walmart/Best buys
• Without extra cost
• Without extra inventory
• Informational supply chain
• Download music & videos
• Download software & upgrades

Two Major Decision Categories
Structural Infrastructural
Difficult to change:
– Buildings
– Equipment
– Computer systems
– Other capital assets
– Changed infrequently
Relatively easy to change:
– People
– Policies
– Decision rules
– Organizational structure
– Replaced vs Changed
To compete successfully all elements must work together

• Strategies
The mechanisms by which businesses coordinate their decisions regarding structual
& infrastructural elements
• Mission Statement
A statement that explains why an organization exists. It describes it’s core values and identifies the domain

• 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

• Identify target customers & markets
• Set time frames and performance objectives
• Define the role of supply chain partners
• Identify & support development of core competencies

Mission
Statement
Goals
Business
Strategy
Marketing
Strategy
R&D
Strategy
Operations
Strategy
Supply Chain
Strategy
Operations and Supply Chain Decisions ...
Financia l
Strategy

Pg 25

Definition: how structural & infrastructural elements within Operations &
Supply Chain will be aquired & developed to support the overall business strategy
The three primary objectives
– Choose mix of structure and infrastructure based upon dimensions valued by customer
– Ensure the mix aligned with the overall business strategy
– Does it support the development of core competencies?

• Translates the business strategy into functional terms for other departments or functions.
• Assures coordination with other departments or functions.
• Provides direction and guidance for operations and supply chain decisions.

Finance
Budgeting.
Analysis.
Funds.
MIS
What IT solutions to make it all work together?
Human
Resources
Skills? Training?
# of Employees?
Design
Sustainability.
Quality.
Manufacturability.
Supply Chain and
Operations
Accounting
Performance measurement systems.
Planning and control.
Marketing
What products?
What volumes?
Costs? Quality?
Delivery?

Capacity Size?
Timin g?
Type?
Facilities Size?
Location?
Technology
Vertical
Integration
Equipment?
Processes?
Information systems?
Direction?
Extent?

Organization
Control/reward systems?
Centralization/decentralization?
Workforce
– skilled/semi-skilled?
Sourcing and
Purchasing
Planning and Control
Process and Quality
Product and
Service Design
Supplier selection/performance metrics?
Procurement systems?
Sourcing strategy?
Forecasting?
Inventory management?
Production planning/control?
Continuous improvement processes?
Business process management
SPC/Six Sigma
Development process?
Organization/supplier roles?

• 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).

Where:
A measure that used performance & importance scores of various dimensions of performance to calculate a score to indicate the overall value of an item to a customer
 N
V  n

1
I n
P n
I n
= Importance of value dimension (criteria) n
P n
= Performance of candidate with regard to dimension n
N = total number of value dimensions evaluated
(Higher values represent higher importance or performance)

Pg 28

Pg 29


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)

Where Must We Excel?
Potential dimensions of distinct competence
(Four Performance Dimensions)
• Quality (performance, conformance, reliability)
• Time (delivery speed and reliability, development speed)
• Flexibility (mix, changeover, volume)
• Cost (labor, material, engineering, quality-related)
What does the customer value?

The characteristics of a product or service which bear on its ability to satisfy stated or implied needs
• Performance Quality the basic operational characteristics of a product or service
• Conformance Quality to what degree the product or service meets specifications
• Reliability Quality
The length of time a product will perform correctly without failing or requiring maintenance
To remain competitive, operations and supply chain must consistently meet or exceed customer expectations on quality dimensions

• Delivery speed how quickly the OSC can fulfill on order or need once it has been identified.
• Delivery Reliability the ability to deliver goods or services when promised and the accuracy of he quantity shipped
Pg 30

How quickly OSC can respond to the unique needs of different customers
• Mix flexibility the ability to produce a wide range of products or services
• Changeover flexibility the ability to provide a new product with minimal delay
• Volume flexibility the ability to produce whatever volume the customer needs
Flexibility is of particular importance in Research and Development
Pg 31

Cost is always a concern, even if a company primarily competes on a different performance dimension.
• Cost covers a wide range of activities, most common categories are
• Labor Costs
• Material Costs
• Engineering Costs
• Quality-related costs
There are many cost categories, many are specific to the issues facing a particular firm. OSC are targets for cost management because they account for much of an organization’s cost.
Pg 31

Trade-offs between Performance Dimensions
No organization can sustain a competitive advantage on all performance dimensions indefinitely….
Excellence in one dimension may conflict with excellence in another
All organizations must make trade-offs or decisions among dimensions to emphasize some at the expense of others.
• Most OSC decisions will require trade-offs
• To optimize this decision making, OSC managers must know which dimensions are valued most by their customers
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• 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

• 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.

Alignment between OSC strategies and the overall business strategy
• The goal is to develop an OSC stategy that supports the business strategy
• Management should know
• How each OSC structural & infrastructural choice supports the customer’s order winners & qualifiers
• What trade-offs had to be considered in these decisions
• However some organizations are not as far along towards achieving this than are others.
Pg 33

Stages of Alignment between OSC strategies and the overall business strategy
Neutral Supportive
External
Internal
Stage 2
Industry Practice
Stage 1
Not linked
Stage 4
Actively Engaged
Stage 3
Participation
(Closing the loop)
• Stage 1 – Internally neutral – efforts are to minimize negative potential in
OSC areas. No link to business strategy
• Stage 2 – Externally neutral – industry practice followed. No link to business strategy
• Stage 3 – Internally supportive – OSC areas participate in strategic debate.
It is understood that OSC must be aligned with business strategy
• Stage 4 – Externally Supportive – OSC areas support business strategy and explore/improve core competencies
Pg 34