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This 8 page Class Notes was uploaded by Rachel Fikse on Wednesday January 20, 2016. The Class Notes belongs to INSC 30313 at Texas Christian University taught by Carrie Kemmer in Spring 2016. Since its upload, it has received 50 views. For similar materials see Supply Chain Management in Economcs at Texas Christian University.
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Date Created: 01/20/16
Supply Chain Chapter 2: Operations and Supply Chain Strategy I. Introduction a. Operations strategy: a set of competitive priorities coupled with supply chain structural and infrastructural design choices intended to create capabilities that support a set of value propositions targeted to address the needs of critical customers II. Levels of Strategic Planning a. Internally, there is a hierarchy of strategic plans consisting of i. Corporate planning ii. Strategic business unit (SBU) planning iii. Functional planning b. Corporate Strategic Planning i. The broadest in scope and the least constrained of the three levels of strategic planning ii. Decisions made at this level limit the choices that can be made at lower strategic planning levels iii. Corporate strategy: determines the overall mission of the firm and the types of businesses that the firm wants to be in 1. Covers a long time horizon, setting the overall values, direction, and goals of the firm as a whole c. Business Unit Strategic (SBU) Planning i. Strategic business units (SBUs): the semi-independent organizations used to manage different product and market segments 1. Can be organized along product, market, or geographic dimensions ii. Business unit strategy: determines how a strategic business unit will compete iii. Business model: the combination of the choices determining the customers an SBU will target, the value propositions it will offer, and the supply chain/operations management capabilities it will employ 1. Changes in technologies, competitors, and markets an at the same time destroy the viability of an existing business model while giving rise to new ones iv. SWOT: a strategic planning technique to help firms identify opportunities where they can develop a sustainable competitive advantage and areas where the firm is significantly at risk d. Functional Strategic Planning i. Functional strategy: determines how the function will support the overall business unit strategy ii. The most detailed as well as the most constrained, as it must operate within a set of decisions made in the corporate and SBU strategic plans III. Developing Operations Strategy: Creating Value Through Strategic Choices a. At the heart of operations strategy are choices made in three primary areas: i. Critical customer is the customer or customer segment receiving priority because it is critical to the firm’s current or future success ii. Value proposition is all of the tangible and intangible “benefits” that customers can expect to obtain by using the products offered by the firm iii. Capabilities are operational activities that the firm can perform well; these define the types of problems and solutions that operations can address proficiently b. Operations managers must develop a deep understanding of their critical customers i. First, means understanding what these customers value in products ii. Second, the critical features of the value proposition need to be communicated in terms that make sense to operations managers iii. Third, strategic initiatives must be launched c. Critical Customers i. Customers: parties that use or consume the products of operations management processes 1. Not necessarily the end user ii. Critical customer: a customer that the firm has targeted as being important to its future success 1. May be responsible for the largest current or future sales of the firm, or it may be the one with the highest prestige d. Assessing Customer Wants and Needs i. Product-specific traits can be classified into one of three categories: 1. Order winners: product traits that cause a customer to select one product over its competitors 2. Order qualifiers: product traits that must be met at a certain level for the product to be considered by the customer 3. Order losers: product traits that if not satisfied, cause the loss of either the current order or future orders ii. Several factors to remember: 1. Order winners and order qualifiers form the basis for customers’ expectations a. Order losers result from customers’ actual experiences with the firm and its operations management processes 2. Order winners, order qualifiers, and order losers vary by customer 3. These traits vary over time e. Value Propositions and Competitive Priorities i. Value proposition: a collection of product and service features that is both attractive to customers and different than competitors’ offerings 1. Critical because not only defines how the firm competes, but also determines the types of products that the firm will (and will not) offer ii. A well designed value proposition has 4 characteristics: 1. Offers a combination of product features that customers find attractive and are willing to pay for 2. Differentiates the firm from its competition in a way that is difficult to imitate 3. Satisfies the financial and strategic objectives of the firm 4. Can be reliably delivered given the operational capabilities of the firm and its supporting supply chain iii. The value proposition reflects the order winners, order qualifiers, and order losers for a critical customer segment iv. Need to clearly specify what the operations management system must do better than its rivals, what it must do at least as well as its rivals, and what it must avoid doing f. Product-Related Competitive Priorities i. Product-related priorities address the customer’s problem to be “solved” and are communication in terms of the quality, timeliness, and cost of the product “solution” ii. Operations managers need to communicate which attributes are of highest priority and lowest priority, respectively, in accordance with the order winners and qualifiers of the targeted critical customers iii. Priorities include: 1. Quality: a product’s fitness for consumption in terms of meeting customers’ needs and desires 2. Timeliness: the degree to which a product is delivered or available when the customer wants it 3. Lead time: the amount of time that passes between the beginning and ending of a set of activities; 2 types: a. Time to market: the total time that a firm takes to conceive, design, test, produce, and deliver a new or revised product for the marketplace b. Order-to-delivery lead time: the time that passes from the instant the customer places an order for a product until the instant that the customer receives the product 4. Cost: the expenses incurred in acquiring an using a product g. Process-Related Competitive Priorities i. Innovation: both radical and incremental changes in process and products 1. An important way to create new demand 2. A response to emerging customer needs, or it can even be a way to create new needs 3. Operations managers located in various functions throughout the supply chain typically have two sets of innovation-related priorities: a. Support product innovation b. Drive process innovation ii. Flexibility: an operation’s ability to respond efficiently to changes in products, processes (including supply chain relationships), and competitive environments iii. Sustainability: maintaining operations that are both profitable and non-damaging to society or the environment 1. “Triple bottom line”: approach to corporate performance measurement that focuses on a company’s total impact measured in terms of profit, people (social responsibility), and the plant (environmental responsibility) a. Also referred to as the TBL, 3BL, or 3Ps iv. Risk management: developing operations that anticipate and deal with problems resulting from natural events, social factors, economic issues, or technological issues h. Capabilities: Strengths and Limitations of Supply Chain Operations i. Capabilities: unique and superior operational abilities that stem from the routines, skills, and processes that the firm develops and uses ii. Usually, abilities to deliver superior performance come from investments and developmental efforts in one or more of the following areas: 1. Processes – specialized routines, procedures, and performance measurement systems that guide operational activities 2. Planning systems – access and development of sources of information, and use of proprietary decision support systems and processes 3. Technology – proprietary usage of hardware or software that enables the firm to do things different and/or better than competitors 4. People and culture- skills, associated training programs, and cultural norms for the company that produce better motivation and performance. The impact of culture must be recognized at both a corporate and at a national level 5. Supply chain relationships- unique and exclusive relationships with customers and suppliers that are unmatched by competitors iii. Core capabilities: the skills, processes, and systems that are unique to the firm and that enable it to deliver products that are both valued by the customer and difficult for competitors to imitate i. Maintaining the Fit between Customer Outcomes, Value Propositions, and Capabilities i. Fit: the extent to which there is alignment between the firm’s operational capabilities, its value proposition, and the desires of its critical customers 1. At the heart of operations strategy ii. Firm may find itself using technologies that have become obsolete. Under such conditions, management has 3 options: 1. Live with the mismatch (which means reduced profits and potential opportunities for the competition) 2. Change the critical customers to those who value the solutions provided by the firm 3. Change the operational capabilities IV. Developing Operations Strategy: Creating Value Through Execution a. Strategy deployment consists of 2 interrelated activities: i. Execution- to carry out plans and initiatives in order to deliver the realized value to customers ii. Feedback/measurement – to assess, communicate, and manage performance in ways that capture lessons learned and focus attention on areas needing improvement b. Operations strategy is ultimately defined by what is done over time, not by what is written down as plans i. Strategic initiatives typically address operations that are spread across internal functions as well as across organizations making up the supply chain ii. Initiatives need to be coordinated across internal supply management, logistics, marketing, sales, and engineering groups in order to ensure that consistent decisions are made iii. P. 39 – Table 2-3: Strategic Decision Areas in Operations Management 1. The first four decision categories are capacity, facilities, technology, and supply chain network a. Structural in nature b. Affect strategy and the physical operations management system 2. The remaining four decision areas – workforce, production planning and control, product/process innovation, and organization a. Infrastructural in nature b. Decisions in these areas determine what is done, when it is done, and who does it c. Feedback/Measurement: Communicating and Assessing Operations Strategy i. Performance measurement plays very important roles in operations strategy 1. First, performance measures communicate strategic intentions, as formulated at the corporate/SBU/functional level, to operational personnel 2. Second, performance measures control operations a. By establishing metrics, a performance measurement system establishes how performance is measure, the standard against which performance is to be compared, and the consequences of exceeding or not meeting the standard d. The Strategic Profit Model i. Strategic Profit Model (SPM): Also known as the DuPont Model, it is a model that shows how operational changes affect the overall performance of a business unit 1. Shows how income an balance sheet data are interrelated, and how operational changes affect the overall performance of a business unit 2. Converts operational changes (often measured in time, defects, labor hours, etc.) into financial impacts (measured in dollars and returns) 3. Useful for evaluating both operational and marketing- based plans and actions, and answering “what if” questions 4. Calculations in the SPM then reflect the impacts of these changes on finance measures e. The Balanced Scorecard i. Balanced scorecard: an integrative approach for developing strategic, organizational-level metrics 1. Unlike SPM, encourages the use of a mix of financial metrics and nonfinancial, operational metrics 2. Seeks to integrate these various metrics into a meaningful whole, creating a strategic framework for action 3. Assumes that success is based on balanced management of activities in four major areas: financial, internal business processes, learning and growth, and customer satisfaction 4. Provides a mechanism by which focused short-term plans and improvement initiatives are aligned with long-term strategic objectives ii. The balanced scorecard helps to: 1. Set direction and communicate specific objectives and goals 2. Define measures that indicate degree of achievement of specific objectives 3. Determine the relative importance of the targets of opportunities for improvement 4. Maintain consistency and alignment between the corporate-level objectives and the operational initiatives, and the objectives/initiatives and strategic objectives and annual goals iii. Helps to create a cycle of planning, action, assessment, and feedback iv. Also prevents management from focusing on one area to the detriment of the other three areas f. The Supply Chain Operational Reference Model i. Supply Chain Operational Reference Model (SCOR): a model for assessing, charting, and describing supply chain processes and their performance ii. Model includes more than just metrics; it provides tools for charting and describing supply chain processes iii. Also describes supply chain management best practices and technology iv. Identifies basic management practices at different levels of operation 1. One of basic tenets of the SCOR model is that metrics should cascade hierarchically from one level to the next v. Addresses 5 basic dimensions of performance: 1. Delivery reliability – performance of the supply chain in delivering the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer 2. Responsiveness – the velocity at which a supply chain provides products to the customer 3. Flexibility – the agility of a supply chain in responding in marketplace changes to gain or maintain competitive advantage 4. Costs – the costs associated with operation the supply chain 5. Asset management efficiency – the effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital vi. Model identifies performance metrics for each of these dimensions vii. One of objectives of the SCOR model is to provide a framework for benchmarking and for deploying strategy
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