1
A framework for developing an Operations and Supply Chain Management Strategy
Vinod R. SinghalScheller College of Business
Georgia Institute of TechnologyAtlanta, GA, 30332
May 1, 2013Presented in the MOT Program at Sogang University
Seoul, South Korea
2
Overview
ValueBusiness Strategy
OperationsStrategy
3
Value
Shareholder Value
Cash flowsDiscount Rate
EVANPVROA
Costs
Revenues
Capital
Customer SatisfactionCustomer loyalty
Employee SatisfactionEmployee LoyaltyQuality/Defect rate
UptimeCycle time/Lead Time
Inventory turnsSetups
Product dev. timeSupplier Performance
Forecast accuracyPlanning accuracy
Order responsivenessOn-time delivery
Level and improvement
4
Business Strategy
Business Strategy
Inputs - Political, social, and economic factors - Industry analyses - Market analyses - Organizational capabilities/competency analyses - Goals and mission
Outputs - Markets, customer segments - Product and service - Basis of value creation/
competitioncompetitive priorities
5
Competitive Priorities
Cost Low cost/low price
Quality High Conformance QualityHigh Performance Quality
Time Fast delivery time (responsive)On-time delivery (reliability)Development speed (innovativeness)
Flexibility CustomizationVolume FlexibilityProduct-mix flexibility
6
Competitive Priorities
• Different priorities for different market/customer segments
• Choosing the basis of value creation requires trade-offs
• Excel in some
• Match in others or stay within some acceptable range
• Evolution of level and type over time
7
Operations Strategy
• Deciding how to develop, source, make, and deliver products
• Focus on processes / activities
Product development
Process development
Procurement
Production/manufacturing
Distribution/logistics
Ordering
• What processes?
• How to do the processes?
8
Elements of Operations Strategy
• Capacity
- timing (when to add) - amount (big or small) - type (flexible and dedicated) - running capacity (tight/slack)
• Facility
- size (one big or many small) - location (customer, supplier, RM ) - specialization (product, market, process)
9
Elements of Operations Strategy
• Technology
- choice of equipment (level of automation, flexibility) - when to invest in new technology - equipment arrangement (product, process, batch, job, project) - investment in process development/improvement - Research and development - Product technology
• Sourcing
- extent of vertical integration - # of suppliers - single sourcing vs multiple sourcing - relationships with supplier
10
Elements of Operations Strategy
•Control and coordination
- information systems - production planning and control - centralized versus decentralized
• Quality systems
- tools and techniques - philosophy regarding dealing with defects - quality assurance systems (ISO 9000, QS 9000)
11
Elements of Operations Strategy
• Work Force Policies
- skill level/wages - training programs - employment security - teamwork/empowerment
• Organizational Structure
- power structure - role of staff - performance evaluation and reward systems
12
Evaluating Operations Strategy - Alignment
•Among the elements that make up the operations strategy
•Among operations strategy and competitive priorities
• Among operations strategy and other functional strategies
13
Competitive Priorities
• Cost - Automation - Standardization - Dedicated technology - Higher volume - Low variety - product layout
• Quality - Special Equipment - Skilled workforce - High quality material - Product features - High level of training
• Time - Excess Capacity - Tight inventory control - designed for speed - multiple locations • Product –mix Flexibility - General purpose equip. - skilled workforce - cross-trained workforce - process layout
•Volume flexibility - inventory/backlogging - subcontracting/leasing - overtime/slack
14
Evaluating Operating Strategy - Focus
• Same operating system to serve multiple markets with different competitive priorities
• Must realize that different competitive priorities impose different demand on operations systems
• Operating system can perform multiple tasks, but do not expect it to do all the tasks equally well
• Must ask yourself how do you want to compete – key competitive priorities
• Key competitive priorities define the key operations task
• Focus is all about concentrating on these key tasks
15
Antoni Gaudi – Spanish Architect 1852-1926
Antoni Gaudi, the architect, never made part of the
professional team: he was always the boss and thinking
mind of his own works. However, he was conscious of how
useful could be working with other architects, artists, and
artisans, and he used to assign to each one exclusive and
specific task to be performed. He used to say that each
person masters a specific ability or capacity, and that is
what should be exploited instead of asking somebody to
do something this person is not qualified to do.
16
Evaluating Operations Strategy – Improvement
• Perform similar activities better
• Improve across various dimensions of competitive priorities
• Learn and develop new capabilities
17
Evaluating Operations Strategy – Future orientation
• What new capabilities and skills are being generated
- Different ways of reaching the same end
- Proactively plan/manage the building of new capabilities
•Develop flexibility to deal with
- Changing competitive environment
- Shift in relative emphasis on competitive priorities
• Creating strategic options
•Be a source of new opportunities
18
Additional slides
Additional slides
19
Focus
• Focus limits the number of technologies, market segments, product volumes, and quality levels etc. that a plant attempts to handle
• Focus implies limited, concise, and well defined set of tasks
• How to focus?- product- process- geographic regions- customer groups
• Focus can be achieved by organizing a facility into smaller independent plants (plants within a plant)
20
Why do firms lose focus?
• Suboptimization by different functions
• Product proliferation
• The market has changed but operations have not
• What to focus on was never made explicit
• Incremental changes, need for higher utilization and desire for economies of scale (increases overhead/complexity)
21
Focus
• Guard against losing focus
- facility charters
- size of facility
- limit expansion of scope
22
Best Buy
• Segment customers into different groups based on profitability
• Realign your stores to these target customers
• Segmentation (sales data and demographics)
• 5 target groups – core customer groups-Technology enthusiast- Busy suburban mom- Gadget fiend- Price conscious family guy- Small business owner
23
Best Buy
• Redesign stores – capital investment
• Product mix – inventory management
• Hiring and training of employees – experts and specialists
• Employee empowered to satisfy customers
• Employees engaged in innovation and improvement
• Lower turnover (81% to 69%)
24
Best Buy
• Test the concept – seems to work
• Large scale implementation was not successful
• Transformations take time
• Balance need for short-term results versus long-term results
• Can afford the risk because of strong balance sheet
25
Wal Mart
• Key challenges
-Become more productive-Increase sales-Better store experience
• Merchandise not tailored to reflect customer demographics for each stores
• Poor customer service
26
Wal Mart - actions
• Customer driven data to understand customer preferences
• Focus stores based on demographics
• Cut variety and focus on popular items
• Match staffing with customer traffic patterns
• Relocate managers closer to the stores they manage and give them more authority
• Remodel the stores
• Pay attention to details