14e

Operations and
Supply Chain
Management
CHASE | SHANKAR | JACOBS
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 STRATEGY

Chapter Two
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Learning Objectives
• LO2–1: Know what a sustainable business strategy is and
how it relates to operations and supply chain management.
• LO2–2: Define operations and supply chain strategy.
• LO2–3: Explain how operations and supply chain
strategies are implemented.
• LO2–4: Understand why strategies have implications
relative to business risk.
• LO2–5: Evaluate productivity in operations and supply
chain management.

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 Cliff Bar

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Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
 Company Aspirations Beyond Making a

Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Profit
• Cliff Bar’s Aspirations (an example)
– Sustaining our Planet—Keep our positive impact on the planet.
– Sustaining our Community—Be good neighbors. Give back to
the community.
– Sustaining our People— Create an environment where people
can live life to the fullest, even from 9 to 5.
– Sustaining our Business—Grow slower, grow better, and stick
around longer.
– Sustaining our Brands—Make what people actually need.
Never compromise quality.

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 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Sustainable Strategy
• The firm’s strategy describes how it will create and sustain
value for its current shareholders
– Shareholders – individuals or companies that legally own one or
more shares of stock in the company
– Stakeholders – individuals or organizations who are directly or
indirectly influenced by the actions of the firm
• Adding a sustainability requirement means meeting value goals
without compromising the ability of future generations to meet
their own needs
• Triple bottom line – evaluating the firm against social,
economic, and environmental criteria
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 Triple Bottom Line

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 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Triple Bottom Line
• Social pertains to fair and beneficial business
practices toward labor, the community, and the
region in which a firm conducts its business. A
triple bottom line company seeks to benefit its
employees, the community, and other social
entities that are impacted by the firm’s
existence.

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Triple Bottom Line
• Economic .The firm is obligated to
compensate shareholders who provide capital
through stock purchases and other financial
instruments via a competitive return on
investment.

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Triple Bottom Line
• Environmental. This refers to the firm’s
impact on the environment. The company
should protect the environment as much as
possible—or at least cause no harm.

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Operations and Supply Chain Strategy

• Setting broad policies and plans for using the

resources of a firm – must be integrated with
corporate strategy
– Corporate strategy provides overall direction and
coordinates operational goals with those of the
larger organization
• Operations effectiveness – performing
activities in a manner that best implements
strategic priorities at a minimum cost
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 Chain Strategy
Formulating an Operations and Supply

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Competitive Dimensions
Price
●
● Make the product or deliver the service cheap

Quality
●
● Make a great product or delivery 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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Trade-Offs
• Management must decide which parameters of
performance are critical and concentrate resources on
those characteristics
• For example, a firm that is focused on low-cost
production may not be capable of quickly introducing
new products
• Straddling – seeking to match a successful competitor
by adding features, services, or technology to existing
activities
– Often a risky strategy

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Order Winners and Order Qualifiers
• Order qualifiers are those dimensions that are
necessary for a firm’s products to be considered
for purchase by customers
– Features customers will not forego

• Order winners are criteria used by customers to

differentiate the products and services of one firm
from those of other firms
– Features that customers use to determine which
product to ultimately purchase
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 SC Risk, a Picture

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SC Risk Examples
• Japanese Tsunami (March 2011).
• In 1996 General Motors experienced an 18-day
labor strike at a brake supplier factory.
• This strike idled workers at 26 assembly plants
and led to an estimated $900 million reduction in
earnings.
• 1n 2007 , bridge collapsed in Karachi.

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 Assessing Risk Associated with

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OSCM Strategy
• All strategies have an inherent level of risk
– Uncertainty in the environment causes supply chain
planners to evaluate the relative riskiness of their strategies

• Supply chain risk is the likelihood of a disruption that

would impact the ability of a company to continuously
supply products or services
– Supply chain coordination risks are associated with the day-
to-day management of the supply chain
– Disruption risks are caused by natural or manmade disasters
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Risk Mitigation Framework
• Risk Assessment and Analysis
Identify the sources of potential disruptions and assess a type of vulnerability.
– Focus on highly unlikely events that would cause a significant disruption to normal
operations.

• Risk Evaluation
Comparing estimated risk with risk criteria that organization has already established.
Risk criteria might include the cost , Brand image/reputation, potential human lives, and so
on.

• Risk treatment and response

Develop plans to mitigate the risk. A detailed strategy for minimizing the impact of
the risk could take many different forms, depending on the nature of the problem.

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Productivity
• Productivity is a measure of how well
resources are used.
• Productivity is a relative measure

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 IKEA’S STRATEGY

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• All the activities that make up a firm’s operation relate to one another. To make these
activities efficient, the firm must minimize its total cost without compromising
customers’ needs. To demonstrate how this works, consider how IKEA, the
Swedish retailer of home products, implements its strategy using a set of unique
activities. IKEA targets young furniture buyers who want style at a low cost. IKEA has
chosen to perform activities differently from its rivals. Consider the typical furniture
store, where showrooms display samples of the merchandise. One area may contain
many sofas, another area displays dining tables, and there are many other areas focused
on particular types of furniture. Dozens of books displaying fabric swatches or wood
samples or alternative styles offer customers thousands of product varieties from which
to choose. Salespeople escort customers through the store, answering questions and
helping them navigate through the maze of choices. Once a customer decides what he or
she wants, the order is relayed to a third-party manufacturer. With a lot of luck, the
furniture will be delivered to the customer’s home within six to eight weeks. This is a
supply chain that maximizes customization and service, but does so at a high cost. In
contrast, IKEA serves customers who are happy to trade service for cost. Instead of
using sales associates,
•

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• IKEA uses a self-service model with roomlike

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displays where furniture is shown in familiar settings.
Rather than relying on third party manufacturers,
IKEA designs its own low-cost, modular, ready-to-
assemble furniture. In the store there is a warehouse
section with the products in boxes ready for delivery.
Customers do their own picking from inventory and
delivery. Much of its low-cost operation comes from
having customers service themselves, yet IKEA
offers extra services, such as in-store child care and
extended hours. Those services align well with the
needs of its customers, who are young, not wealthy,
and likely to have children, and who need to shop at
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