Operations and Supply Chain

Strategy
Chapter 2
INTRODUCTION to Operation Management
4e, Schroeder
McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc., All

Outline
1. Operations Strategy Model
2. Emphasis on Operations Objectives
3. Linking Strategies
4. Operations Competence
5. Global Scope of Operations
6. Supply Chain Strategy

2-2

Operations Strategy
Operations strategy consists of goals, plans
and a direction for the operations function
that are linked to the business strategy and
other functional strategies, leading to a
competitive advantage for the firm.

2-3

Operations
Strategy Model
(Figure 2.1)

Internal
analysis

Corporate strategy

Business strategy
Operations Strategy
Mission
Distinctive
Competence

External
analysis

Functional strategies in
marketing, finance,
engineering, human
resources, and
information systems

Objectives
(cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)

Consistent pattern of decisions

Results

2-4

Distinctive Competence
Something an organization
does better than any competing
organization that adds value for
the customer.
Something that operations does
better than anyone else.

2-5

Operations Strategic Objectives

Cost
Quality
Delivery
Time
Reliability

Flexibilityschedule or product change

How does a firm use them to gain a competitive
advantage, and how do they trade-off?
2-6

Examples of Important Policies in Operations (Table 2.2)

Policy Type

Policy Area
Span of process
Automation
Process flow
Job specialization
Supervision

Make or buy
Handmade or machinemade
Flexible or specialized
Project, batch, line, or continuous
Centralized or empowered workers

Quality
Systems

Approach
Training
Suppliers

Prevention or inspection
Technical or managerial training
Selected on quality or cost

Capacity

Facility size
Location
Investment

One large or several small facilities

Near markets, labor, or materials
Permanent or temporary

Inventory

Amount
Distribution

High or low levels of inventory

Centralized or decentralized
warehouses
Control in great detail or less detail

Process

Control Systems

Strategic Choices

Policy types = decisions in Chapter 1.

2-7

Linking Operations to Business Strategies

Business strategy alternatives
Product imitator
Operations must focus on keeping costs low.

Product innovator
Operations must maintain flexibility in processes,
labor and suppliers.

Order qualifiers and Winners

Qualifiers: why you consider the product
Winners: why you choose the product
2-8

Linking Operations to Business Strategies

Business strategy alternatives
Product imitator
Order winner = price (keep costs low)
Order qualifiers = flexibility, quality, delivery)

Product innovator
Order winner = flexibility (rapid introduction of
new products)
Order qualifiers = cost, delivery, quality

2-9

Operations Competence
To be sustainable, a distinctive competence must
not only be unique, it must be difficult to
imitate or copy.

2-10

Examples of Operations Distinctive

Competence
Skills of employees
Proprietary equipment or processes
Rapid continuous improvement
Well developed partnerships
Location
Organizational knowledge
Proprietary information or control systems
2-11

Global Scope of Operations

Traditional versus Global company, i.e.
companies operating in one country vs. those
operating in many.
Characteristics of the Global Corporation
are different from the traditional company.
Operations must have a global distinctive
competence.
2-12

Characteristics of Global Corporations

Facilities & plants located worldwide, not country by
country.
Products & services can be shifted among countries.
Sourcing is on a global basis.
Global product design & process technology.
Products fit global tastes.
Demand considered on worldwide basis.
Logistics & inventory control on worldwide basis.
Divisions have world-wide responsibility.
2-13

Supply Chain Strategy

Should aim at achieving a competitive
advantage for the entire supply chain.
Two type of supply chain strategies:
Imitative products (e.g. commodities)
Efficient, low-cost supply chain

Innovative products
Flexible, fast supply chain

Firms must choose the right supply chain for

each product or group of products, and not use
one size fits all.
2-14

Summary
Operations Strategy Model
Emphasis on Operations Objectives
Linking Strategies
Operations Competence
Global Scope of Operations
Supply Chain Strategy
2-15

End of Chapter Two

2-16