Week 1

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Chapter 2:

Operations and Supply Chain Strategy

Operations Management in the

Supply Chain: Decisions and Cases,

6th edition

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Chapter 2 Outline

 McDonald’s Operations Strategy

 Operations Strategy Model

 Emphasis on Operations Objectives

 Linking Strategies: Strategic Decisions

 Competitive Advantage Through Operations

 Global Scope of Operations and Supply Chains

 Supply Chain Strategy

 Environmental and Sustainable Operations

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Operations Strategy

“A consistent pattern of business decisions for

operations and the associated supply chain …

… that are linked to the business strategy and other

functional strategies, leading to a competitive

advantage for the firm.”

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McDonald’s Operations Strategy

• Mission: fast product/service, consistent quality, low

cost, clean/friendly environment

• Operations Objectives: cost, quality, service

• Strategic decisions: process, quality, capacity, inventory

• Distinctive Competence: today - continuous improvement

of the transformation system, and brand (originally:

unique service/supply chain)

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Operations

Strategy

Process

(Figure 2.1)

Consistent pattern of decisions

Internal analysis

External analysis

Mission

Objectives (cost, quality, flexibility, delivery)

Strategic Decisions (process, quality system, capacity, and inventory)

Distinctive Competence

Operations Strategy

Business strategy

Functional strategies in marketing, finance,

engineering, human resources,

and information systems

Results

Corporate strategy

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Operations Strategic Objectives • Cost – resources used

• Quality – conformance to customer expectations

• Delivery – quickly and on time

• Flexibility – ability to rapidly change operations

How does a firm use these objectives to gain a competitive advantage?

What trade-offs exist among the objectives?

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Distinctive Competence

•Something an organization does better than any competing organization that adds value for the customer.

•Examples: patents, proprietary technology, operations innovations

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Examples of Important Strategic Decisions in Operations (Table 2.2)

Strategic Decision Decision Type Strategic Choice

Process Span of process Automation

Process flow

Job specialization

Supervision

Make or buy

Handmade or machine–made;

flexible or hard automation

Project, batch, line or continuous

High or low specialization

Highly decentralized or centralized

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, low cost or foreign

Permanent or temporary

Inventory

Amount

Distribution

Control Systems

High or low levels of inventory

Centralized or decentralized warehouse

Control in greater detail or less detail

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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.

• Customer perspective

• Order Qualifiers: objectives customers consider in the product/service

• Order Winners: objectives that cause customer to choose a particular product/service

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Linking Operations to Business Strategies

• Business strategy alternatives

• Product Imitator

• Order Winner = price (low cost)

• Order Qualifiers = flexibility, quality, delivery

• Product Innovator

• Order Winner = flexibility (rapid introduction of new products)

• Order Qualifiers = cost, delivery, quality

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Global Scope of Operations and Supply Chains

• “Traditional” (multi-country, multi-strategy) versus

“Global” (single-strategy) firm.

• Characteristics of the “Global Corporation” differ from

the traditional company.

• Rethink the supply chain (product design, process design,

location, workforce policies).

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Characteristics of “Global Corporations”

• Facilities & plants located worldwide, not country by country.

• Products & services can be shifted among countries. • Sourcing on a global basis. • Supply chain is global in nature. • Product design & process technology are global. • Products/service fit global tastes. • Demand is considered on worldwide basis. • Logistics & inventory control is on worldwide basis. • Divisions have world-wide responsibility.

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Supply Chain Strategy

• To achieve competitive advantage for the entire supply chain, rather than individual entities.

• Two supply chain strategies: • Imitative Products (e.g. commodities)

• Predictable demand • Efficient, low-cost supply chain

• Innovative Products (e.g. new technologies) • Unpredictable demand • Flexible, fast supply chain

• Firms must design the right supply chain for each product or group of products, and avoid a “one size fits all” strategy.

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Environment & Sustainable Operations

Sustainability: minimizing or eliminating environmental impact of operations.

The ‘greening’ of operations:

• Product development

• Sourcing

• Manufacturing

• Packaging

• Distribution

• Transportation

• Services

• End-of-life management (e.g. recycling)

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Chapter 2 Summary