Chapter 2

Strategy and Sustainability

McGraw-Hill/Irwin

Copyright 2011 The McGraw-Hill Companies, All

Learning Objectives
1. Compare how operations and supply chain
strategy relates to marketing and finance.
2. Understand the competitive dimensions of
operations and supply chain strategy.
3. Identify order winners and order qualifiers.
4. Understand the concept of strategic fit.
5. Describe how productivity is measured and
how it relates to operations and supply chain
processes.
6. Explain how the financial markets evaluate a
firms operations and supply chain
performance.
2-2

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

LO 1

2-3

Triple Bottom Line

Social: pertains to fair and beneficial

business practices toward labor, the
community, and the region in which a
firm conducts is business
Economic: the firms obligation to
compensate shareholders who provide
capital via competitive returns on
investment
Environmental: the firms impact on
the environment
LO 1

2-4

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
LO 2

2-5

Closed-Loop Strategy Process

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
LO 2

2-6

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
LO 2

2-7

Other Product-Specific Criteria

1.
2.
3.
4.
5.

LO 2

Technical liaison and support

Meeting a launch date
Supplier after-sale support
Environmental impact
Other dimensions

2-8

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 crosstraining personnel to deal with a widerrange of problems, they may become
less efficient at dealing with commonly
occurring problems
LO 2

2-9

Strategic Fit: Fitting Operational

Activities to Strategy

All the activities that make up a firms

operation relate to one another
To be efficient, must minimize total cost
without compromising on customer
needs
Activity-system maps show how a
companys strategy is delivered through
a set of tailored activities
LO 4

2-10

Productivity Measurement

Productivity is a common measure of

how well an organization is using its
resources
Fundamental to understanding operationsrelated performance

In its broadest sense productivity is

outputs divided by inputs
To increase productivity, we want to make
this ratio as large as practical
LO 5

2-11

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

LO 5

2-12

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

LO 6

2-13