Chapter 2: Operations and Supply Chain Strategies

2.1 Elements of the Business

Structural element One of two major decision categories addressed by a strategy.

Includes tangible resources, such as buildings, equipment and computer systems.
Typically require large capital investments that are difficult to reverse.
Due to their cost and inflexibility they are changed infrequently and are only changed
after much deliberation.
Infrastructural element One of two major decision categories addressed by a strategy.
Includes the policies, people, decision rules and organisational structure choices made by
a firm.
These elements are not as visible as structural elements, but they are just as important.

2.2 Strategy

Strategy a mechanism by which a business coordinates its decisions regarding its

decisions regarding structural and infrastructural elements.

Mission statement a statement that explains why an organisation exists. It describes

what is important to the organisation, called its core values, and identifies the
organizations domain.
Business strategy the strategy that identifies a firms targeted customers and sets time
frames and performance objectives for the business.
Core competency an organisational strength or ability, developed over a long period,
that customers find valuable and competitors find difficult or impossible to copy.
Core competencies can take many forms and even shift over time.

Functional strategy a strategy that translates a business strategy into specific actions
for functional areas such as marketing, human resources, and finance. Functional
strategies should align with the overall business strategy and with each other.
Operations and Supply Chain strategy may include the manufacturing or service
processes needed to make a specific product, how suppliers will be evaluated and
selected, and how the products will be distributed.
When different levels of the strategic planning process fit together well, an organisation
has good strategic alignment.
A firms strategies should also be aligned across the functional areas.

2.3 Operations and Supply Chain Strategies

Operations and Supply Chain Strategies 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.
Primary objectives of an operations and supply chain strategy: 1) Help management
choose the right mix of structural and infrastructural elements, based on a clear
understanding of the performance dimensions valued by customers and the trade-offs
involved. 2) ensure that the firms structural and infrastructural choices are strategically
aligned with the firms business strategy. 3) Support the development of core
competencies in the firms operations and supply chains.
Customer value
Most customers evaluate products and services based on multiple performance
dimensions, such as performance quality, delivery speed, after-sales support, and cost.
Value index a measure that uses the performance and importance scores for various
dimensions of performance of an item or a service to calculate a score that indicates the
overall value of an item or service to a customer.
n

V = I n P n
i=1

V = Value index for product or service

I n = Importance of dimension n

Pn = Performance with regard to dimension n

Four Performance Dimensions

Quality the characteristics of a product or service that bear on its ability to satisfy
stated or implied needs.
Performance quality a subdimension of quality that addresses the basic operating
characteristics of a product or service.

Conformance quality - a subdimension of quality that addresses whether a product was

made or a service performed to specifications.
Reliability quality - a subdimension of quality that addresses whether a product will
work for a long time without failing or requiring maintenance.
Time
Delivery speed a performance dimension how quickly the operations and supply chain
function can fulfil a need once it has been identified.
Delivery reliability - a performance dimension that refers to the ability to deliver
products and services when promised.
A firm can have long lead times yet still maintain a high degree of delivery reliability.
Measures of delivery reliability include the percentage of orders delivered by the
promised time, the average tardiness of late orders and the accuracy of the quantity
shipped (if suppliers ship more than the quantity ordered, they are still considered to be in
error.)
Delivery reliability is very important to companies that are linked together in a supply
chain.
Delivery window the acceptable time range in which deliveries can be made.
Suppliers can be charged a penalty fee if deliveries are late.
Flexibility a performance dimension that considers how quickly operations and supply
chains can respond to the unique needs of customers.
Mix flexibility the ability to produce a wide range of products or services.
Change over flexibility - the ability to provide a new product with minimal delay.
Volume flexibility - the ability to produce whatever volume the customer needs.
Some firms compete by developing new products or services faster than competitors.
A competitive posture that requires operations and supply chain partners who are both
flexible and willing to work closely with designers and engineers and marketing
personnel.
Cost is always a concern, it includes; labour costs, material costs, engineering costs and
quality-related costs (including failure costs, appraisal costs, and prevention costs)
Operations and Supply Chains are natural targets for cost management efforts because
they typically account for much of an organisations costs.
Trade-Offs among Performance Dimensions
No firm can sustain an advantage on all performance dimensions indefinitely.
Trade-off a decision by a firm to emphasize one performance dimension over another,
based on the recognition that excellence on some dimensions may conflict with
excellence on others.
Almost all operations and supply chain decisions require trade-offs.
Operations and Supply chain managers must understand which performance dimensions
are most valued by the firms target customers & act accordingly.
Order Winners and Order Qualifiers

Order winners a performance dimension that differentiates a companys products and

services from competitors. Firms win a customers business by providing superior levels
of performance on order winners.
Order qualifier a performance dimension on which customers expect a minimum level
of performance. Superior performance on an order qualifier will not, by itself, give a
company a competitive advantage.
Stages of Alignment with the Business Strategy
Ultimate goal of any firm is to develop an operations and supply chain strategy that
supports its business strategy.
Stage 1 Internally neutral: management seeks only to minimise negative potential in the
operations and supply chain areas. There is no effort made to link these areas with the
business strategy.
Stage 2 Externally neutral: industry practice is followed, based on the assumption that
what works for competitors will work for the company. There is no effort made to link
the operations and supply chain areas to the overall business strategy.
Stage 3 Internally Supportive: the operations and supply chain areas participate in the
strategic debate. Management recognises that the operations and supply chain structural
and infrastructural elements must be aligned with the business strategy.
Stage 4 Externally Supportive: the operations and supply chain areas do more than just
support the business strategy: The business strategy actively seeks to exploit the core
competencies found within these areas.
Cross-docking: is a practice in the logistics of unloading materials from an incoming
semi-trailer truck or railroad car and loading these materials directly into outbound
trucks, trailers, or rail cars, with little or no storage in between.

Helps keep costs low and the availability of goods high performance dimensions that
targeted customers value highly.