©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 1

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 2

Operations Strategy

Operations Management

Design, operation, and improvement of the operations systems and processes

• What direction?

• What focus?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 3

Process View of Operations

INPUTS TRANSFORMATION / OUTPUTS CONVERSION

• Materials• “Needs”

• Facilities• Equipment• Information• People

• Goods• Services

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 4

Old View of Operations• Operations is necessary, but not a

source of strategic advantage.

• Minimize costs.

• High volume, standard products(Economies of scale).

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 5

Into the 1980s ...

Operations:

Usually static,with technological jumps

Buf

fers

Marketing:SegmentationNiche marketingPricing strategies, etc.

Finance:Cash flow managementLeveragingBuyouts, etc.

“Closed” System

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 6

A Top-Down Model of Strategy

BusinessStrategy

MarketingStrategy

FinancialStrategy

OperationsStrategy

Operations Decisions ...

Goals

MissionStatement

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 7

Definitions• Business Strategy Long-

term master plan for the company; establishes the general direction

• GoalsPerformance targets and milestones

• Functional StrategiesFurther develop the business strategy

in segments of the business — must be aligned and coordinated

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 8

Operations Strategy

• Translates the business strategy into operations terms.

• Assures coordination with other areas.

• Provides direction and guidance for operations decisions.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 9

Key Interactions

Operations

FinanceBudgeting.Analysis.Funds.

MarketingWhat products?What volumes?Costs? Quality?Delivery?

HumanResourcesSkills? Training?# of Employees?

AccountingPerformance measurement systems.Planning and control.

MISWhat IT solutionsto make it all worktogether?

DesignSustainability.Quality.Manufacturability.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 10

Decisions Guided by the Operations Strategy - I

Capacity Size?

Timing?

Type?

Facilities Size?

Location?

Technology Equipment?

Processes?

Information systems?

Vertical Integration

Direction?

Extent?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 11

Decisions Guided by the Operations Strategy - II

Workforce Skills?

Wages?

Availability?

Quality Level?

Defect monitoring?

Prevention and improvement?

Planning and Control

Sourcing?

Scheduling?

Prioritizing?

Organization Chains of command?

Reward systems?

Etc.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 12

Example: Acme Furniture

BusinessStrategy

MarketingStrategy

FinancialStrategy

OperationsStrategy

Become a dominant playerin the high-end furnituremarket

Gallery stores Advertising, etc.

High quality Wide variety Volume flexibility

Fund growth

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 13

Acme Furniture• New marketing strategy — Gallery

stores

• Wide variety

• Lower per unit volumes

• New, unique designs

• Premium prices

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 14

Impact of the “wrong” Operations Strategy?

HighVolume

StandardProducts

New, UniqueProducts

Operations

Marketing

LowVolume

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 15

Prioritizing: Where Must We Excel?

Potential sources of distinct competence

• Quality (performance, conformance, reliability)

• Time (delivery speed and reliability, development

speed)

• Flexibility (mix, changeover, volume)

• Cost (labor, material, engineering, quality-related)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 16

Order Winners and Qualifiers

• Winners:Differentiators — performance not yet

duplicated by competitorsCompetitive advantage — performance

better than all or most of the competitors

• QualifiersMinimum acceptable level of performance

With time, Winners become Qualifiers

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 17

“Best in Class”

MinimumNeeds

Cost DesignQuality

Speed Flexibility

The Idea Behind Prioritizing:

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 18

“Best in Class”

MinimumNeeds

Cost DesignQuality

Speed Flexibility

Comparing Two Software Development Firms

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 19

Value Analysis

• 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).

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 20

Value Analysis – Thoughts

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 be 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)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 21

Value Analysis:Introduce new product?

Performance Importance Score ValueCriteria (A) (B) (A x B)

Market potential 30Unit profit margin 20Operations compatibility 20Competitive advantage 15Investment requirement 10Project risk 5

100%

Threshold score = 800

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 22

Value Analysis:Introduce new product?

Performance Importance Score ValueCriterion (A) (B) (A x B)

Market potential 30 8Unit profit margin 20 10Operations compatibility 20 6Competitive advantage 15 10Investment requirement 10 2Project risk 5 4

Threshold score of current product = 800

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 23

Value Analysis:Introduce new product?

Performance Importance Score ValueCriterion (A) (B) (A x B)

Market potential 30 8 240Unit profit margin 20 10 200Operations compatibility 20 6 120Competitive advantage 15 10 150Investment requirement 10 2 20Project risk 5 4 20

Value Index = 750

Threshold score = 800

Not at this time!

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 24

Measurements

• Performance against:

Customer needs

Business objectives or standards

• Comparisons to competitors

• Comparisons to “best in class.”

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 2, Slide 25

The Terry Hill Model

CorporateObjectives

MarketingStrategy

OrderWinners

Manufacturing Strategy

Process Infrastructure

GrowthSurvivalProfitROIOther financial measures

Product markets and segmentsRangeMixVolumesStandardization vs customizationLevel of innovationLeader vs follower

PriceQualityDelivery speed reliabilityDemand increasesColor rangeProduct rangeDesignBrand imageTechnical supportAfter-sales support

Choice of alternative processesTrade-offs in processesRole of inventoryMake or buyCapacity size timing location

Function supportManufacturing planning & control systemsQuality assurance and controlManufacturing systems engineeringClerical proceduresCompensation agreementsWork structuringOrganizational structure