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Operations and Supply Chain

Strategies
Chapter 2

Chapter Objectives
Be able to:
 Explain the relationship between business strategies and functional strategies
and the difference between structural and infrastructural elements of the
business.
 Describe the main operations and supply chain decision categories.
 Explain the concept of customer value and calculate a value index score.
 Differentiate between order winners and qualifiers and explain why this
difference is important to developing the operations and supply chain strategy
for a firm.
 Discuss the concept of trade-offs and give an example.
 Define core competencies and give an example of how core competencies in the
operations and supply chain areas can be used 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.
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Business Decisions

2-3

Business Elements

Structural (Tangible):
 Buildings
 Equipment
 Information systems
 Other capital assets
 Cost and inflexibility

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Business Elements
Infrastructural
(Intangible)
 People
 Policies
 Decision rules
 Organizational
structure

2-6

Business Elements

For a business to compete successfully, all these

elements must work together
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Definitions
 Strategies –
 The mechanisms by which businesses coordinate their
decisions regarding their structural and infrastructural
elements.
 As Harvard Business School professor Michael Porter puts
it, “Strategy is creating fit among the company’s activities.
The success of a strategy depends on doing many things
well—not just a few—and integrating among them.”
 Strategies can be thought of as long-term game plans.
 Most organizations have more than one level of strategy,
from upper-level business strategies to more detailed,
functional-level strategies.

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Definitions
 Mission Statement
 Explains why an organization exists and
 what is important to the organization (its core
values) and
 identifies the organization’s domain.

What are HCMUT missions?

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Definitions
 Business Strategy - The strategy that identifies a firm’s
targeted customers and sets time frames and performance
objectives for the business.
 Clearly identify the firm’s targeted customers and broadly
indicate what the operations and supply chain functions
need to do to provide value to these customers.
 Set time frames and performance objectives that
managers can use to track the firm’s progress toward
fulfilling its business strategy.
 Identify and support the development of core
competencies in the operations and supply chain areas.

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Definitions
 Core Competency - An organizational strength or
ability that customers find valuable and competitors find
difficult or impossible to copy.

Why do you prefer or choose …?

Honda
Vinhomes
Tiki
Lazada
Walmart
Tesla
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Definitions
 Functional Strategy –
A strategy that translates a business strategy into specific functional areas
such as marketing, human resources, and finance .
Functional strategies should align with the overall business strategy and
with each other.

What are HCMUT functional strategies?

2 - 15

Functional Strategy
 Translates the business strategy into
functional terms.

 Assures coordination with other areas.

 Provides direction and guidance for

operations and supply chain decisions.

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A Top-Down Model of Strategy

2 - 18

Operations and
Supply Chain Strategies
The operations and supply chain strategy is a functional
strategy that indicates how the structural and
infrastructural elements within the operations and
supply chain areas will be acquired and developed to
support the overall business strategy.

 What mix of structural and infrastructural elements ?

 Is the mix aligned with the business strategy?
 Does it support the development of core competencies?

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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 and
Sustainability. Operations
Quality.
Manufacturability.
Marketing
What products?
Accounting What volumes?
Performance measurement systems. Costs? Quality?
Planning and control. Delivery?

2 - 20

Decisions Guided by the

Structural Strategy
Capacity
 Amount of capacity
 Type of capacity
 Timing of capacity changes (lead, lag, or match market
demands)
Facilities
 Services/Manufacturing, Warehouses, Distribution hubs
 Size, location, degree of specialization
Technology
 Services/Manufacturing, Material handling equipment,
Transportation equipment, Information systems
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Decisions Guided by the

Infrastructural Strategy
Organization
 Structure, Control/reward systems, Workforce decisions
Sourcing/Purchasing
 Sourcing strategies, Supplier selection, Supplier performance
measurement
Planning and Control
 Forecasting, Tactical planning, Inventory management, Production
planning and control
Business Processes and Quality Management
 Six Sigma, Continuous improvement, Statistical process control
Product and service development
 The developmental process, Organizational and supplier roles
2 - 22

Operations and
Supply Chain Strategies
Three 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 firm’s structural and
infrastructural choices are strategically aligned
with the firm’s business strategy.
3. Support the development of core competencies
in the firm’s operations and supply chains. 2 - 23

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Customer Value
 Value Analysis - A process for assessing the
value of a product or service.
 Operations and supply chains help firms provide
products or services that someone values
 Most customers evaluate products and services
based on multiple performance dimensions, such
as performance quality, delivery speed, after-sales
support, and cost.
 Provides the best mix of these dimensions will be
seen as providing the highest value

2 - 24

Customer Value
 Value Index - A measure that uses the performance
and importance scores for various dimensions of
performance for an item or a service to calculate a score
that indicates the overall value of an item or a service to
a customer.

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Value Index
Determination
n
V   I n Pn
i 1
Where:
V = Value index for product or service
In = Importance of dimension n
Pn = Performance with regard to dimension n

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Customer Value
Problem! (You have 10 minutes to complete!)
You want to buy a laptop to use for your SCM
assignments.
1. Which dimentions (criteria) do you focus on
evaluating the choices?
2. Which laptops candidates do you considered?
3. Based on the Value Index, which one is
selected?

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Value Analysis:
Introduce new product?
Threshold score = 720

Performance Importance Score Value

Criterion (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%

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Value Analysis:
Introduce new product?
Threshold score = 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

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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!

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Four Performance Dimensions

Four generic performance dimensions are particularly
relevant to operations and supply chain activities:

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Four Performance Dimensions

 Quality - the characteristics of a product or

service that bear on its ability to satisfy stated or
implied needs.
 Performance Quality – The basic operating
characteristics of the product or service.

 Conformance Quality – Was the product made or

the service performed to specifications?

 Reliability Quality – Will a product work for a long

time without failing?
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Four Performance Dimensions

 Time
 Delivery Speed - The ability for the operations or
supply chain function to quickly fulfill a need once
it has been identified.

 Delivery Reliability – The ability to deliver

products or services when promised.

 Delivery reliability and delivery speed are critical

performance dimensions for perishable goods
such as fruits and vegetables. 2 - 33

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Four Performance Dimensions

 Flexibility
 Mix Flexibility – The ability to produce a wide
range of products or services.

 Changeover Flexibility – The ability to produce a

new product with minimal delay.

 Volume Flexibility – The ability to produce

whatever volume the customer needs.

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Four Performance Dimensions

 Cost - “cost” covers such a wide range of

activities that companies commonly
categorize costs in order to focus their cost
management efforts
• Labor costs
• Material costs
• Engineering costs
• Quality-related costs 2 - 35

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Trade-offs among Performance

Dimensions
 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
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. 2 - 36

Order Winners and

Order Qualifiers
 Order Winners
A performance dimension that differentiates a company’s
products and services from its competitors.
Firms win a customer’s business by providing superior levels
of performance on order winners.

 Order Qualifiers
A performance dimension on which customers expect a
minimum level of performance to be considered.
Superior performance on an order qualifier will not, by itself,
give a company a competitive advantage.
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Order Winners and

Order Qualifiers

Performance of Two Chemical Suppliers vis-à-vis 2 - 38

Customers’ Order Winners and Qualifiers

The Idea Behind

Prioritizing
“Best in
Class”

Minimum
Needs

Cost Quality Speed Flexibility

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Comparing Two Software

Development Firms
“Best in
Class”

Minimum
Needs

Cost Quality Speed Flexibility

2 - 40

Measurements
 Performance against
 Customer needs
 Business objectives or standards

 Comparisons to competitors

 Comparisons to “best in class”

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Stages of Alignment Between Supply Chain

and Operations Strategies
 Stage 1 – Internally neutral
 Minimize negative potential in the operations and supply
chain areas.
 Stage 2 – Externally neutral
 Follow industry practice.
 Stage 3 – Internally supportive
 Align structural and infrastructural elements with business
strategy.
 Stage 4 – Externally supportive
 the operations and supply areas do more than just support
the business strategy
 Seek to exploit core competencies. 2 - 42

Core Competencies in
Operations and Supply Chains

Develop core competencies within the operations and

supply chain areas

• Keep costs low and the availability of goods high performance

dimensions that its targeted customers value highly.
• Just as importantly, a core competency that will serve the company
well even as the marketplace changes. 2 - 43

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Closing the Loop Between Business Strategy

and Functional Area Strategies

Core competencies at the

functional level can feed
back into the business
strategy

2 - 44

Chapter Objectives
Be able to:
 Explain the relationship between business strategies and functional strategies
and the difference between structural and infrastructural elements of the
business.
 Describe the main operations and supply chain decision categories.
 Explain the concept of customer value and calculate a value index score.
 Differentiate between order winners and qualifiers and explain why this
difference is important to developing the operations and supply chain strategy
for a firm.
 Discuss the concept of trade-offs and give an example.
 Define core competencies and give an example of how core competencies in the
operations and supply chain areas can be used 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.
2 - 45

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