1 A framework for developing an Operations and Supply Chain Management StrategyVinod R. Singhal Scheller College of Business Georgia Institute of Technology Atlanta, GA, 30332 May 1, 2013 Presented in the MOT Program at Sogang University Seoul, South Korea

2 Overview Value Business Strategy Operations Strategy

3 Value Level and improvement Customer Satisfaction Customer loyaltyEmployee Satisfaction Employee Loyalty Quality/Defect rate Uptime Cycle time/Lead Time Inventory turns Setups Product dev. time Supplier Performance Forecast accuracy Planning accuracy Order responsiveness On-time delivery Revenues Shareholder Value Cash flows Discount Rate EVA NPV ROA Costs Capital

4 - Political, social, and economic factorsBusiness Strategy Inputs - Political, social, and economic factors - Industry analyses - Market analyses - Organizational capabilities/competency analyses - Goals and mission Business Strategy Outputs - Markets, customer segments - Product and service - Basis of value creation/ competition competitive priorities

5 Competitive PrioritiesCost Low cost/low price Quality High Conformance Quality High Performance Quality Time Fast delivery time (responsive) On-time delivery (reliability) Development speed (innovativeness) Flexibility Customization Volume Flexibility Product-mix flexibility

6 Competitive PrioritiesDifferent 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 StrategyCapacity - 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 StrategyTechnology - 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 StrategyControl 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 StrategyWork 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 - AlignmentAmong the elements that make up the operations strategy Among operations strategy and competitive priorities Among operations strategy and other functional strategies

13 Competitive PrioritiesTime - 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 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

14 Evaluating Operating Strategy - FocusSame 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 1852-1926Antoni 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 – ImprovementPerform similar activities better Improve across various dimensions of competitive priorities Learn and develop new capabilities

17 Evaluating Operations Strategy – Future orientationWhat 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