Because learning changes everything.

Chapter 2

STRATEGY AND SUSTAINABILITY

© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.
 Sustainable Operations
Sustainability – the ability to meet current resource needs without compromising
the ability of future generations to meet their needs.
The firm’s strategy describes how it will create and sustain value for its current
shareholders.
• Shareholders – individuals or companies that legally own one or more shares
of stock in the company.
• Stakeholders – individuals or organizations who are directly or indirectly
influenced by the actions of the firm.
The goal of sustainability means that the scope of the firm’s strategy must focus
on three areas (the triple bottom line).
• Social responsibility – business practices should be fair to labor, the
community, and the region where the firm conducts business.
• Economic prosperity – shareholders must be compensated via a competitive
return.
• Environmental stewardship – the company should protect the environment as
much as possible.
© McGraw Hill, LLC 2
 APPHARVEST: An example of a Sustainable
farming
APPHARVEST was launched as a Sustainability and technology focused venture
in 2018 to radically improve growing vegetables.
APPHARVEST is a tech start up based in Appalachia region of eastern Kentucky
formed by merger with a SPAC (Novis capital corp.).
• This high-tech farm grows tomatoes and other veggies efficiently year-round.
• Uses computer controlled lighting, water and nutrient application.
• Grows 30 times more per acre compared to an open farm.
• Has 700000 tomato plants, 500 beehives for pollination.
• Plans to ship 49000 pounds of tomatoes per hour using automatic cart harvest
through pre-programmed routes.
• Quality inspections track weight, color, sugar content and softness.
• Takes strategic advantage of the fact that 70% of the US population lives
within one-day drive from the farm.
• Will this be a significant part of future farming?

© McGraw Hill, LLC 3

 Triple Bottom Line
Exhibit 2.1

Access the text alternative for slide images.

© McGraw Hill, LLC 4
 Triple Bottom Line (People, planet, profit)
Social responsibility.
• Fair and beneficial business practices towards labor, community and the region it
operates.
• Forbid child labor, safe work environment, fair salaries, sustainable work hours.
• Giving back to the community through health care, education, special programs.

Environmental stewardship.
• Protect the environment to the greatest extent possible.
• Cause no harm at a minimum.
• Manage ecological footprint by managing resource consumption and reducing waste.
• Assess and act on cradle-to-grave cost.

Economic prosperity.
• Meet firm’s obligation to the investors through competitive ROI.
• Promote growth and long term value.
• Beyond profit, provide lasting economic benefit to society.
© McGraw Hill, LLC 5
 Operations and Supply Chain Strategy

Setting broad policies and plans for using the resources of a firm –
must be integrated with corporate strategy.
• Corporate strategy provides overall direction and coordinates
operational goals with those of the larger organization.

Operations effectiveness – performing activities in a manner

that best implements strategic priorities at a minimum cost.

© McGraw Hill, LLC 6

 Formulating Operations and Supply Chain
Strategy
Exhibit 2.2

Access the text alternative for slide images.

© McGraw Hill, LLC 7
 Competitive Dimensions 1

Cost or Price
• Make the product or deliver the service cheap.

Quality
• Make a great product or delivery a great service.

Delivery Speed
• Make the product or deliver the service quickly.

Delivery Reliability
• Deliver it when promised.

Coping with Changes in Demand

• Change its volume.

© McGraw Hill, LLC 8

 Competitive Dimensions 2

Flexibility and New-Product Introduction Speed

• Change it (offer a wide variety of existing products and introduce new products
quickly).

Other Product-Specific Criteria

• Support it (technical assistance, meeting launch dates, after-sale support,
environmental impact).

© McGraw Hill, LLC 9

Walmart Stores, Inc.
www.walmartstores.com

 10,482 retail units in 19 countries (as of 31 July 2023)

 2.1 million associates worldwide
 1.6 million associates in the U.S.
 0.5 million international associates
 Approx. 70% full-time
 U.S. population: 334.2 million (January 2023)
 210 distribution centers (DCs)
 Every DC supports 90 to 100 stores in a 150+ mile radius
 Walmart's transportation has a fleet of 9,000 tractors,
80,000 trailers and more than 11,000 drivers.
Walmart Stores, Inc.
Five-Year Summary 2019 – 2023

Walmart Stores, Inc.

Five-Year Summary of Operations

FYE 1/31/19 FYE 1/31/20 FYE 1/31/21 FYE 1/31/22 FYE 1/31/23
Net Sales (US$ Billion) $510.329 $519.926 $555.233 $567.762 $605.881
% Increase 2.9% 1.9% 6.8% 2.3% 6.7%
Operating Income (US$ Billion) $21.957 $20.568 $22.548 $25.492 $20.428
As % of Net Sales 4.3% 4.0% 4.1% 4.5% 3.4%
% Increase over Previous FY 7.4% -6.3% 9.6% 13.1% -19.9%

Store Counts
Walmart U.S. 4,769 4,756 4,743 4,742 4,717
Walmart International 5,993 6,146 6,101 5,251 5,306
Sam's Clubs 599 599 599 600 600
Total Worldwide 11,361 11,501 11,443 10,593 10,623
Note: Walmart sold its retail operations in the U.K. and Japan in February 2021 and March 2021, respectively.

2022 GDP [in US$ Billion; source: World Bank]

#22 Argentina $632.770
#23 Sweden $585.939
Walmart International
Operations currently in 19 countries outside the US
 International markets:
 Africa
 Canada
 Central America
 Chile
 China
 India
 Mexico
What Makes Walmart Successful?

 What is Walmart’s overall competitive strategy?

 What are the key elements of Walmart’s

operations and supply chain strategy?
 Some Other Dimensions
Technical liaison and support
• A supplier may be expected to provide technical assistance for product
development.
Ability to meet a launch date
• Requirement to coordinate with other firms on a complex project.

Supplier after-sales support

• Involves the availability of replacement parts.

Environmental impact
• Related to criteria such as carbon dioxide emissions, the use of
nonrenewable resources, etc.
Other dimensions
• Colors available, size, weight, location, customization.
© McGraw Hill, LLC 14
 Trade-Offs
Management must decide which parameters of performance
are critical and concentrate resources on those
characteristics.
• An operation cannot simultaneously excel on all
competitive dimensions.
• For example, a firm that is focused on low-cost production
may not be capable of quickly introducing new products.
• A strategic position is not sustainable unless there are
compromises with other positions.
Straddling – seeking to match a successful competitor by
adding features, services, or technology to existing activities.
• Often a risky strategy.
© McGraw Hill, LLC 15
 Order Winners and Order Qualifiers
Describe marketing-oriented dimensions that are keys to
competitive success.
Order winners are criteria that differentiate the products or
services of one firm from those of another.
• Features that customers use to determine which product to
ultimately purchase.
Order qualifiers are screening dimensions that permit a firm’s
products to be considered as possible candidates for
purchase.
• Features customers will not forego.

© McGraw Hill, LLC 16

 Activity-System Maps
• Diagrams that show how a company’s strategy is delivered through a
set of supporting activities.
• I KEA example:
A

Exhibit 2.3

Access the text alternative for slide images.

© McGraw Hill, LLC 17
 Assessing Risk
COVID-19 Supply chain disruptions is the most recent dramatic
example of supply chain risk. There have been many less
dramatic ones and it will always be there.
It is important to evaluate the relative riskiness of their operations
and strategies in the face of Uncertainty in the environment.
Supply chain risk is the likelihood of a disruption that would impact
the ability of a company to continuously supply products or
services.
• Supply chain coordination risks are associated with the day-to-
day management of the supply chain.
• Disruption risks are caused by natural or manmade disasters or
a pandemic.

© McGraw Hill, LLC 18

 Risk Management Framework
1. Identify the sources of potential disruptions.
• Highly situation-dependent.
• Focus should be on highly unlikely events.

2. Assess the potential impact of the risk.

• Goal is to quantify the probability and impact.

3. Develop plans to mitigate the risk.

• Detailed strategy for minimizing the impact of the risk.

© McGraw Hill, LLC 19

 Risk Mitigation Strategies
Exhibit 2.4
Risk Risk Mitigation Strategy
Natural disaster Contingency planning (alternate sites, etc.), insurance
Country risks Hedge currency, produce/source locally
Supplier failures Multiple suppliers
Network provider Support of redundant digital networks
failures
Regulatory risk Up-front and continuing research; good legal advice, compliance
Commodity price Multisourcing, commodity hedging
risks
Logistics failure Safety stock, detailed tracking, and alternate suppliers
Inventory risks Pool inventory, safety stock
Major quality failure Careful selection and monitoring of suppliers
Loss of customers Service/product innovation
Theft and vandalism Insurance, security precautions, knowledge of likely risks, etc.

© McGraw Hill, LLC 20

 Supply Chain Risk Matrix
• Different supply chain strategies are exposed to specific types of risk –
the supply chain risk matrix shows the level and type of risk for various
strategies.
Exhibit 2.4

Access the text alternative for slide images.

© McGraw Hill, LLC 21
 Productivity Measurement
Productivity - a common measure of how well resources are used.
Outputs
Productivity =
Inputs
Productivity is called a relative measure.
• Must be compared to something else to be meaningful.
• Company can compare itself with similar operations within its industry.
• Measuring productivity over time within the same operation.

Partial productivity measures the ratio of some output to a single input.

Multifactor productivity measures the ratio of some output to a group of
inputs.
Total productivity measures the ratio of all outputs to all inputs.

© McGraw Hill, LLC 22

 Productivity Measurement – Example (p. 37)

Exhibit 2.5

Access the text alternative for slide images.

© McGraw Hill, LLC 23
 Partial Measures of Productivity – Example
(p.37)

Business Productivity Measure

Restaurant Customers (meals) per labor hour
Retail store Sales per square foot
Chicken farm Pounds of meat per pounds of feed
Utility plant Kilowatt-hours per ton of coal
Paper mill Tons of paper per cord of wood

Exhibit 2.5

© McGraw Hill, LLC 24