Chapter 2

Strategy and Sustainability

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Learning Objectives

• Compare how operations and supply chain strategy relates to marketing and finance.

• Understand the competitive dimensions of operations and supply chain strategy.

• Identify order winners and order qualifiers.• Understand the concept of strategic fit.• Describe how productivity is measured and

how it relates to operations and supply chain processes.

• Explain how the financial markets evaluate a firm’s operations and supply chain performance.

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A Sustainable Strategy

• Shareholders: Those individuals or companies that legally own one or more shares of stock in the company

• Stakeholders: Those individuals or organizations who are influenced, either directly or indirectly, by the actions of the firm

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Triple Bottom Line

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Triple Bottom Line Continued

• Social: pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts is business

• Economic: the firm’s obligation to compensate shareholders who provide capital via competitive returns on investment

• Environmental: the firm’s impact on the environment

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What is Operations and Supply Strategy?

• Operations and supply strategy: setting broad policies and plans for using the recourses of a firm to best support its long-term competitive strategy– Part of a planning process that coordinates

operational goals with those of the larger organization

• Operations effectiveness relates to the core business processes needed to run the business

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Closed-Loop Strategy Process

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Closed-Loop Strategy Process Continued

• Activity 1 is performed at least yearly and is where the overall strategy is developed

• Activity 2 is where the overall strategy is refined and updated as often as four times a year

• Activity 3 is where operational plans that relate to functional areas such as marketing, manufacturing, and so on, are coordinated

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Competitive Dimensions

• Price: make the product or deliver the service cheap

• Quality: make a great product or deliver a great service

• Delivery speed: make the product or deliver the service quickly

• Delivery reliability: deliver it when promised• Coping with changes in demand: change its

volume• Flexibility and new product introduction

speed: change it

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Other Product-Specific Criteria

1. Technical liaison and support

2. Meeting a launch date

3. Supplier after-sale support

4. Environmental impact

5. Other dimensions

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Dealing with Trade-offs

• For example, if we reduce costs by reducing product quality inspections, we might reduce product quality

• For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems

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Order Qualifiers and WinnersDefined

• Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers

• Order winners: the criteria that differentiates the products and services of one firm from another

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Strategic Fit: Fitting Operational Activities to Strategy

• All the activities that make up a firm’s operation relate to one another

• To be efficient, must minimize total cost without compromising on customer needs

• Activity-system maps show how a company’s strategy is delivered through a set of tailored activities

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Mapping Activity Systems at IKEA

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Productivity Measurement

• Productivity is a common measure of how well an organization is using its resources– Fundamental to understanding operations-

related performance

• In its broadest sense productivity is outputs divided by inputs– To increase productivity, we want to make

this ratio as large as practical

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Productivity Measurement Continued

• Productivity is a relative measure– Can be compared with similar operations

within its industry– Can be compared over time

• Productivity may be expressed as:1. Partial measures: output to one input

2. Multifactor measures: output to a group of inputs

3. Total measures: output to all inputs

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Examples of Productivity Measures

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Partial Measures of Productivity

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How Does Wall Street Evaluate Operations Performance?

• Comparing firms from an operations view is important to investors– Earnings growth is a function of profitability– Profits can increase through higher sales or lower

costs– Highly efficient firms shine during recession periods

• When evaluating large productivity, it is important to look for unusual explanations– Want to avoid one-time events

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Efficiency Measures Used by Wall Street