CHAPTER 2

Strategy and Sustainability

Page 24
 eugenegurkov/Shutterstock

Learning Objectives
APPHARVEST
AppHarvest is an exciting start-up company based in the Appalachia
region in eastern Kentucky in the United States. This is not an area
known for agriculture, nor is the area known for high tech. Using
capital generated from a merger with the special-purpose acquisition
company (SPAC) Novis Capital Corp, AppHarvest is a large indoor farm
where tomatoes and other vegetables are grown in a controlled
environment. Plans are to build a dozen indoor farms in Kentucky by
2025.

The high-tech farm can efficiently grow crops year-round using Page 25
computer-controlled lighting, water, and nutrient application. This
allows the firm to grow up to 30 times more fruits and vegetables on a
single acre compared to normal open-field agriculture. No pesticides
are used, and approximately 500 beehives are used to pollinate the
more than 700,000 tomato plants in the prototype facility.
Plans call for AppHarvest to be able to ship 49,000 pounds of
tomatoes an hour. Automatic carts harvest continuously along
preprogrammed routes. Quality inspections track data including
weight, color, sugar content, and softness.

The Appalachia region is within a one-day drive of approximately 70

percent of the population of the United States. Fresh tomatoes with a
longer shelf life delivered continuously to grocery store and restaurant
customers holds great promise.
AppHarvest is an example of the new wave in start-up companies.
These innovative companies hope to change the way business is
done using radically different production and distribution process
strategies. The funding source for these SPAC companies is also
different, offering investors and innovators opportunities to quickly
benefit from their ideas.
A SUSTAINABLE OPERATIONS AND SUPPLY
CHAIN STRATEGY

LO2–1 Know what a sustainable business strategy is and how it

relates to operations and supply chain management.

Strategy should describe how a firm intends to create and sustain value for its
current shareholders. By adding sustainability to the concept, we add the
requirement to meet these current needs without compromising the ability of
future generations to meet their own needs. Shareholders are those individuals
or companies that legally own one or more shares of stock in the company.
Many companies today have expanded the scope of their strategy to include
stakeholders. Stakeholders are those individuals or organizations that are
influenced, either directly or indirectly, by the actions of the firm. This
expanded view means that the scope of the firm’s strategy must not only focus
on the economic viability of its shareholders, but should also consider the
environmental and social impact on key stakeholders.
Page 26

exhibit 2.1 The Triple Bottom Line

To capture this expanded view, the phrase triple bottom line has been coined.
The triple bottom line, Exhibit 2.1, considers evaluating the firm against
social, economic, and environmental criteria. Many companies have
developed this expanded view through goals that relate to sustainability along
each of these dimensions. Some alternative phrases for the same concept are
“People, Planet, and Profit” used by Shell Oil Company, and “Folk, Work,
and Place” that originated with the twentieth-century writer Patrick Geddes.
The following expands on the meaning of each dimension of the triple bottom
line framework.

Social responsibility 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. A company should not use child labor, and should pay fair
salaries to its workers, maintain a safe work environment with tolerable
working hours, and not otherwise exploit a community or its labor force. A
business can also give back by contributing to the strength and growth of
its community through health care, education, and other special programs.

Economic prosperity means the firm is obligated to compensate

shareholders who provide capital through stock purchases and other
financial instruments via a competitive return on investment. Company
strategies should promote growth and grow long-term value to this group in
the form of profit. Within a sustainability framework, this dimension goes
beyond just profit for the firm; it also provides lasting economic benefit to
society.
 The Gap corporate headquarters
building utilizes a green roof with
solar panels.
Steve Proehl/Getty Images

Page 27
Environmental stewardship 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. Managers should move to reduce a
company’s ecological footprint by carefully managing its consumption of
natural resources and by reducing waste. Many businesses now conduct
“cradle-to-grave” assessments of products to determine what the true
environmental costs are—from processing the raw material to manufacture
to distribution to eventual disposal by the final customer.

Conventional strategy focuses on the economic part of this framework.

Because many of the processes that fall under the domain of operations and
supply chain management have a social and environmental impact, it is
important these criteria be considered as well. Some proponents argue that in
many ways European Union countries are more advanced due to the
standardized reporting of ecological and social losses that came with the
adoption of the euro.
WHAT IS OPERATIONS AND SUPPLY CHAIN
STRATEGY?

LO2–2 Define operations and supply chain strategy.

Operations and supply chain strategy is concerned with setting broad policies
and plans for using the resources of a firm and must be integrated with
corporate strategy. So, for example, if the high-level corporate strategy
includes goals related to the environment and social responsibility, then the
operations and supply chain strategy must consider these goals. A major
focus to the operations and supply chain strategy is operations effectiveness.
Operations effectiveness relates to the core business processes needed to run
the business. The processes span all the business functions, from taking
customer orders, handling returns, manufacturing, and managing the
updating of the website, to shipping products. Operational effectiveness is
reflected directly in the costs associated with doing business. Strategies
associated with operational effectiveness, such as quality assurance and
control initiatives, process redesign, planning and control systems, and
technology investments, can show quick near-term (12 to 24 months) results.
Operations and supply chain strategy can be viewed as part of a planning
process that coordinates operational goals with those of the larger
organization. Since the goals of the larger organization change over time, the
operations strategy must be designed to anticipate future needs. A firm’s
operations and supply chain capabilities can be viewed as a portfolio best
suited to adapting to the changing product and/or service needs of the firm’s
customers.

Planning strategy is a process just like making a product or delivering Page 28

a service. The process involves a set of activities that are repeated at different
intervals over time. Just as products are made over and over, the strategy
planning activities are repeated. A big difference is that these activities are
done by executives in the boardroom!

Exhibit 2.2 shows the major activities of a typical strategic planning

process. Strategic analysis is performed at least yearly and is the process
through which the overall strategy is developed. This step involves looking out
and forecasting how business conditions that impact the firm’s strategy are
going to change in the future. Here, such things as changes in customer
preferences, the impact of new technologies, changes in population
demographics, and the anticipation of new competitors are considered. As
part of the overall strategy, the firm needs to define a clear set of priorities to
help guide the implementation of a plan. When possible, it is useful to define
specific measures that relate to the objectives of the firm. A successful
strategy will anticipate change and formulate new initiatives in response.

exhibit 2.2 Formulating an Operations and Supply Chain

Strategy

The corporate strategy is operationalized through a set of operations and

supply chain initiatives. Initiatives are the major steps that need to be taken to
drive success in the firm. Many of these initiatives are repeated from year to
year, such as the updating of existing product designs and the operation of
manufacturing plants in different regions of the world. New initiatives that
innovatively respond to market dynamics are extremely important to company
success. Initiatives that develop innovative products or open new markets, for
example, drive future revenue growth. Other initiatives that reduce costs
directly impact the profitability of the firm.
These activities are refined and updated as often as four times a year. Here,
each initiative is evaluated and appropriate budget estimates for the next year
or more are developed. Measures that relate to the performance of each
initiative are needed so that success or failure can be gauged in an unbiased
and objective way. Because of the quickly changing nature of global business,
many businesses must revise plans several times per year.
Carefully designed projects are used to implement change. The Page 29

planning of these projects requires the identification of the resources needed,

such as the expertise of the project members, special equipment, and other
resources. Specific timing of the activities of the project are analyzed as part
of each project implementation plan.

Competitive Dimensions
Given the choices customers face today, how do they decide which product or
service to buy? Different customers are attracted by different attributes. Some
customers are interested primarily in the cost of a product or service and,
correspondingly, some companies attempt to position themselves to offer the
lowest prices. The major competitive dimensions that form the competitive
position of a firm are discussed next.

Cost or Price: “Make the Product or Deliver the

Cost or Price: “Make the Product or Deliver the
Service Cheap”
Within every industry, there is usually a segment of the market that buys
solely on the basis of low cost. To successfully compete in this niche, a firm
must be the low-cost producer, but even this does not always guarantee
profitability and success. Products and services sold strictly on the basis of
cost are typically commodity-like; in other words, customers cannot
distinguish the product or service of one firm from that of another. This
segment of the market is frequently very large, and many companies are lured
by the potential for significant profits, which they associate with the large unit
volumes. As a consequence, however, competition in this segment is fierce—
and the failure rate high. After all, there can be only one low-cost producer,
who usually establishes the selling price in the market.

Price, however, is not the only basis on which a firm can compete (although
many economists appear to assume it is!). Other companies, such as BMW,
seek to attract people who want higher quality—in terms of performance,
appearance, or features—than what is available in competing products and
services, even though it means a higher price.
Quality: “Make a Great Product or Deliver a Great
Service”

AN AERODYNAMICS EXPERT LOGS RESULTS

FROM A WIND TUNNEL TEST FOR CYCLING
CLOTHING AND RACING BICYCLE DESIGN.
imageBROKER/REX/Shutterstock

There are two characteristics of a product or service that define quality:

design quality and process quality. Design quality relates to the set of features
the product or service contains. Obviously, a child’s first two-wheel bicycle is
of significantly different quality than the bicycle of a world-class cyclist. The
use of special aluminum alloys and special lightweight sprockets and chains is
important to the performance needs of the advanced cyclist. These two types
of bicycles are designed for different customers’ needs. The higher-quality
cyclist product commands a higher price in the marketplace due to its special
features. The goal in establishing the proper level of design quality is to focus
on the requirements of the customer. Overdesigned products and services
with too many or inappropriate features will be viewed as prohibitively
expensive. In comparison, underdesigned products and services will lose
customers to products that cost a little more but are perceived by customers
as offering greater value.
Process quality, the second characteristic of quality, is critical because Page 30
it relates directly to the reliability of the product or service. Regardless of
whether the product is a child’s first two-wheeler or a bicycle for an
international cyclist, customers want products without defects. Thus, the goal
of process quality is to produce defect-free products and services. Product and
service specifications, given in dimensional tolerances and/or service error
rates, define how the product or service is to be made. Adherence to these
specifications is critical to ensure the reliability of the product or service as
defined by its intended use.

Delivery Speed: “Make the Product or Deliver the

Delivery Speed: “Make the Product or Deliver the
Service Quickly”
In some markets, a firm’s ability to deliver more quickly than its competitors
is critical. A company that can offer an onsite repair service in only 1 or 2
hours has a significant advantage over a competing firm that guarantees
service only within 24 hours.

Delivery Reliability: “Deliver It When Promised”

This dimension relates to the firm’s ability to supply the product or service on
or before a promised delivery due date. For an automobile manufacturer, it is
very important that its supplier of tires provide the needed quantity and types
for each day’s car production. If the tires needed for a particular car are not
available when the car reaches the point on the assembly line where the tires
are installed, the whole assembly line may have to be shut down until they
arrive. For a service firm such as FedEx, delivery reliability is the cornerstone
of its strategy.
Coping with Changes in Demand: “Change Its
Volume”
In many markets, a company’s ability to respond to increases and decreases in
demand, referred to as agility, is important to its ability to compete. It is well
known that a company with increasing demand can do little wrong. When
demand is strong and increasing, costs are continuously reduced due to
economies of scale, and investments in new technologies can be easily
justified. But scaling back when demand decreases may require many difficult
decisions about laying off employees and determining reductions in assets.
The ability to effectively deal with dynamic market demand over the long
term is an essential element of operations strategy.

Flexibility and New-Product Introduction Speed:

Flexibility and New-Product Introduction Speed:
“Change It”
Flexibility, from a strategic perspective, refers to the ability of a company to
offer a wide variety of products to its customers. An important element of
this ability to offer different products is the time required for a company to
develop a new product and to convert its processes to offer the new product.

Other Product-Specific Criteria: “Support It”

Other Product-Specific Criteria: “Support It”
The competitive dimensions just described are certainly the most common.
However, other dimensions often relate to specific products or situations.
Notice that most of the dimensions listed next are primarily services in
nature. Often, special services are provided to augment the sales of
manufactured products.

1. Technical liaison and support. A supplier may be expected to provide

technical assistance for product development, particularly during the early
stages of design and manufacturing.
Page 31
2. Ability to meet a launch date. A firm may be required to
coordinate with other firms on a complex project. In such cases,
manufacturing may take place while development work is still being
completed. Coordinating work between firms and having them work
simultaneously on a project will reduce the total time required to complete
the project.

3. Supplier after-sales support. An important competitive dimension may be

the ability of a firm to support its product after the sale. This involves the
availability of replacement parts and, possibly, the modification of older,
existing products, bringing them up to new performance levels. The speed
of response to these after-sale needs is often important as well.

4. Environmental impact. A dimension related to criteria such as carbon

dioxide emissions, the use of nonrenewable resources, and other factors
that relate to sustainability.

5. Other dimensions. These typically include such factors as the colors

available, size, weight, location of the fabrication site, the customization
available, and product mix options.
The Notion of Trade-Offs
Central to the concept of operations and supply chain strategy is the notion
of operations focus and trade-offs. The underlying logic is that an operation
cannot excel simultaneously on all competitive dimensions. Consequently,
management has to decide which parameters of performance are critical to
the firm’s success and then concentrate the resources of the firm on these
particular characteristics.

For example, if a company wants to focus on the speed of delivery, it cannot

be very flexible in its ability to offer a wide range of products. Similarly, a low-
cost strategy is not compatible with either speed of delivery or flexibility. High
quality also is viewed as a trade-off to low cost.
A strategic position is not sustainable unless there are compromises with
other positions. Trade-offs occur when activities are incompatible so that
more of one thing necessitates less of another. An airline can choose to serve
meals—adding cost and slowing turnaround time at the gate—or it can choose
not to, but it cannot do both without bearing major inefficiencies.

Straddling occurs when a company seeks to match the benefits of a successful

position while maintaining its existing position. It adds new features, services,
or technologies onto the activities it already performs. The risky nature of this
strategy is shown by Continental Airlines’ ill-fated attempt to compete with
Southwest Airlines. While maintaining its position as a full-service airline,
Continental set out to match Southwest on a number of point-to-point routes.
The airline dubbed the new service Continental Lite. It eliminated meals and
first-class service, increased departure frequency, lowered fares, and shortened
gate turnaround time. Because Continental remained a full-service airline on
other routes, it continued to use travel agents and its mixed fleet of planes and
to provide baggage checking and seat assignments.
STRATEGIES ARE IMPLEMENTED USING
OPERATIONS AND SUPPLY CHAIN
ACTIVITIES—IKEA’S STRATEGY

LO2–3 Explain how operations and supply chain strategies are

implemented.

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 than 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 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.
Page 33
In contrast, IKEA serves customers who are happy to trade service
for cost. Instead of using sales associates, IKEA uses a self-service model with
roomlike 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 odd hours.
 Michael Gordon/Shutterstock

Exhibit 2.3 shows how IKEA’s strategy is implemented through a set of

activities designed to deliver it. Activity-system maps such as the one for IKEA
show how a company’s strategy is delivered through a set of tailored activities.
In companies with a clear strategy, a number of higher-order strategic themes
(shown on the left) can be identified and implemented through clusters of
tightly linked activities. This type of map can be useful in understanding how
good the fit is between the system of activities and the company’s strategy.
Competitive advantage comes from the way a firm’s activities fit with and
reinforce one another.
 Page 34

ASSESSING THE RISK ASSOCIATED WITH

OPERATIONS AND SUPPLY CHAIN
STRATEGIES

LO2–4 Understand why strategies have implications relative to

business risk.

The recent Covid-19 pandemic has changed the global business environment
and highlighted the importance of adaptability and crisis management to
endure radical changes. The acute restrictions and lockdowns created critical
situations that required immediate attention in the early days of the
pandemic. Radical changes in demand and losses in production and supply
chain capacity forced companies to take emergency measures. The need to
protect their employees and adapt to the new reality was crucial.
During the past few decades, the OSCM discussion has focused primarily on
cost efficiency. This focus has resulted in superoptimized supply chains,
specialized for their specific purpose. While these supply chains have given
steady financial advantage to their operators, adaptability and resilience may
need to be considered in the future. Some have argued the dilemma that
arises from the realization of years of cost savings that might be lost due to
the mitigation for a once-in-a-lifetime event. The importance of risk
management is more apparent and difficult than ever in our globally
connected business world.

The uncertainty in the global environment where most supply chains operate
requires strategic planners to evaluate the relative riskiness of their operations
and supply chain strategies. Supply chain risk is defined as the likelihood of a
disruption that would impact the ability of the company to continuously
supply products or services. Supply chain disruptions are unplanned and
unanticipated events that disrupt the normal flow of goods and materials
within a supply chain and expose firms within the supply chain to operational
and financial risks. Companies implementing operations and supply chain
strategies must consider the risk in their supply chains and develop initiatives
to cope with these disruptions and mitigate their impact on the business.
We can categorize risk by viewing the inherent uncertainties related to
operations and supply chain management along two dimensions: (1) supply
chain coordination risks that are associated with the day-to-day management
of the supply chain, which are normally dealt with using safety stock, safety
lead time, overtime, and so on; and (2) disruption risks, which are caused by
natural or human-made disasters, such as earthquakes, hurricanes, terrorism,
and even pandemics.
In this section, our focus is on the concepts and tools that are useful for
managing the problems related to disruption risks. The events related to these
risks are highly random and virtually impossible to predict with any precision.

Risk Management Framework

The nature of these types of risks lends them to a three-step risk management
process that can be applied to situations where disruptions are possible. The
three steps are as follows:

1. Identify the sources of potential disruptions. Assessing a type of vulnerability

is the first step in the risk management framework. These are highly
situation-dependent, but the focus should be on highly unlikely events that
would cause a significant disruption to normal operations. Such types of
events include: natural disasters, capacity failures, infrastructure failures
(e.g., air traffic system), terrorists, supplier failures, labor actions,
equipment failures, commodity price volatility, and military/civil conflict.
2. Assess the potential impact of the risk. Here the goal is to quantify the
probability and the potential impact of the risk. Depending on the specific
incident, this assessment could be based on financial impact,
environmental impact, ongoing business viability, brand image/reputation,
potential human lives, and so on.
Page 35
3. 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.

Risk mapping involves assessment of the probability or relative frequency of

an event against the aggregate severity of the loss. Depending on the
evaluation, some risks might be deemed acceptable and the related costs
considered a normal cost of doing business. In some cases, the firm may find
it is possible to insure against the loss. There may be other cases where the
potential loss is so great that the risk would need to be avoided altogether.

A matrix (see Exhibit 2.4) that maps risks against specific operations and
supply chain strategies is commonly used. The matrix helps us understand the
impact of different types of supply chain disruptions when using specific
operations and supply chain strategies. For example, the first column
evaluates the impact of natural hazards. Here, we see that sole sourcing, lean
practices, and the use of distribution hubs can have a major impact on the
firm.
exhibit 2.4 Risk Mitigation Strategies
RISKS RISK MITIGATION STRATEGY
Natural disasters (e.g., Contingency planning (alternate sites, etc.),
climate change, weather) insurance
Country risks Currency hedging, locally
producing/sourcing
Supplier failures Multiple suppliers
Network provider failures Support of redundant digital networks
Regulatory risks (e.g., Up-front and continuing research; good
licensing and regulation legal advice, compliance
issues)
Commodity price risks Multisourcing, commodity hedging
Logistics failures Safety stock, detailed tracking, and alternate
suppliers
Inventory risks Pool inventory, safety stock
Major quality failures Careful selection and monitoring of
suppliers
Loss of customers Service/product innovation
Theft and vandalism Insurance, security precautions, knowledge
of likely risks, patent protection, etc.
PRODUCTIVITY MEASUREMENT

LO2–5 Evaluate productivity in operations and supply chain

management.

Productivity is a common measure of how well a country, industry, or

business unit is using its resources (or factors of production). Since
operations and supply chain management focuses on making the best use of
the resources available to a firm, productivity measurement is fundamental to
understanding operations-related performance. In this section, we define
various measures of productivity. Throughout the rest of the book, many
other performance measures will be defined as they relate to the material.
In its broadest sense, productivity is defined as
 [2.1]

To increase productivity, we want to make this ratio of outputs to inputs as

large as practical. Productivity is what we call a relative measure. In other
words, to be meaningful, it needs to be compared with something else. For
example, what can we learn from the fact that we operate a restaurant and
that its productivity last week was 8.4 customers per labor hour? Nothing!

Productivity comparisons can be made in two ways. First, a company can

compare itself with similar operations within its industry, or it can use
industry data when such data are available (e.g., comparing productivity
among the different stores in a franchise). Another approach is to measure
productivity over time within the same operation. Here we would compare
our productivity in one time period with that in the next.

As Exhibit 2.5 shows, productivity may be expressed as partial measures,

multifactor measures, or total measures. If we are concerned with the ratio of
some output to a single input, we have a partial productivity measure. If we
want to look at the ratio of some output to a group of inputs (but not all
inputs), we have a multifactor productivity measure. If we want to express the
ratio of all outputs to all inputs, we can use a total factor measure of
productivity to describe the productivity of an entire organization or even a
nation.

A numerical example of productivity appears in Exhibit 2.5. The data

reflect quantitative measures of input and output associated with the
production of a certain product. Notice that for the multifactor and partial
measures, it is not necessary to use total output as the numerator. Often, it is
desirable to create measures that represent productivity as it relates to some
particular output of interest. Using Exhibit 2.5 as an example, total units
might be the output of interest to a production control manager, whereas total
output may be of key interest to the plant manager. This process of
aggregation and disaggregation of productivity measures provides a means of
shifting the level of the analysis to suit a variety of productivity measurement
and improvement needs.

Exhibit 2.5 shows all units in dollars. Often, however, management Page 37
can better understand how the company is performing when units other than
dollars are used. In these cases, only partial measures of productivity can be
used, because we cannot combine dissimilar units such as labor hours and
pounds of material. Examples of some commonly used partial measures of
productivity are presented in Exhibit 2.5. Such partial measures of
productivity give managers information in familiar units, allowing them to
easily relate these measures to the actual operations.

Excel: Productivity Measures

exhibit 2.5 Examples of Productivity Measures
Partial measure

Multifactor
measure
Total measure

INPUT AND OUTPUT

PRODUCTION DATA ($1,000) PRODUCTIVITY MEASURE EXAMPLES
OUTPUT Total measure

1. Finished units $10,000

2. Work-in-process 2,500 Multifactor measures:

3. Dividends 1,000
4. Total output $13,500

INPUT
1. Labor $ 153 Partial measures:
2. Material 3,000
3. Capital 10,000

4. Energy 540

5. Other expenses 1,500

Total input $15,193
Partial Measures of Productivity
BUSINESS PRODUCTIVITY MEASURE
 Page 38

CONCEPT CONNECTIONS
LO2–1 Know what a sustainable business strategy is and how it
relates to operations and supply chain management.

A strategy that is sustainable needs to create value for the firm’s

shareholders and stakeholders.

The shareholders are equity owners in the company.

The stakeholders are those individuals and organizations that are

influenced by the actions of the firm.

This view means that a firm’s strategy must focus not only on economic
viability, but also on the environmental and social impact of its actions.
Sustainability The ability to meet current resource needs without
compromising the ability of future generations to meet their needs.

Triple bottom line Evaluating the firm against social, economic, and
environmental criteria.

LO2–2 Define operations and supply chain strategy.

This involves setting the broad policies of a firm and creating a plan for
using that firm’s resources.

The operations and supply chain strategy coordinates operational goals

with those of the larger organization.

A firm’s operational capabilities should match the changing product or

service needs of the firm’s customers.

Major competitive dimensions that form the competitive position of a firm

include:

Cost

Quality

Delivery speed and reliability

Changes in volume

Flexibility and new-product introduction speed

Other product-specific criteria

Usually there are trade-offs that occur relative to these competitive

dimensions.

Operations and supply chain strategy The setting of broad policies

and plans that will guide the use of the resources needed by the firm to
implement its corporate strategy.

Operations effectiveness Performing activities in a manner that best

implements strategic priorities at minimum cost.

Straddling When a firm seeks to match what a competitor is doing by

adding new features, services, or technologies to existing activities. This often
creates problems if certain trade-offs need to be made.

Order winners One or more specific marketing-oriented dimensions that

clearly differentiate a product from competing products.

Order qualifiers Dimensions used to screen a product or service as a

candidate for purchase.
Page 39
LO2–3 Explain how operations and supply chain
strategies are implemented.

Strategies are implemented through a set of activities designed to deliver

products and services in a manner consistent with the firm’s overall
business strategy.

Activity-system maps Diagrams that show how a company’s strategy is

delivered through a set of supporting activities.

LO2–4 Understand why strategies have implications relative to

business risk.

Operations and supply chain strategies need to be evaluated relative to

their riskiness.

Supply chain disruptions are unplanned and unanticipated events that

disrupt the normal flow of goods and materials.
 Risks can be categorized along two dimensions: supply chain coordination
risks and disruption risks.

A three-step risk management framework involves identifying the potential

disruptions, assessing the potential impact of the risk, and developing plans
to mitigate the risk.

Supply chain risk The likelihood of a disruption that would impact the
ability of a company to continuously supply products or services.

LO2–5 Evaluate productivity in operations and supply chain

management.

Productivity measures are used to ensure that the firm makes the best use
of its resources.

Since these are relative measures, they are meaningful only if they are
compared to something else. Often, the comparison is to another company.

Productivity A measure of how well resources are used.