Chapter 2:
Operations and Supply Chain
Strategy
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Chapter 2 Learning
Objectives
LO 2.1 Define operations strategy.
LO 2.2 Describe the elements of operations strategy and alignment with business
and other functional strategies.
LO 2.3 Differentiate the ways to compete with operations objectives.
LO 2.4 Compare product imitator and innovator strategies.
LO 2.5 Explain the nature of global operations and supply chains.
LO 2.6 Analyze two types of supply chain strategies.
LO 2.7 Illustrate how operations and supply chain can become more sustainable.
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Operations Strategy
“A consistent pattern of business decisions for operations and the
associated supply chain …
… that are linked to the business strategy and other functional
strategies, leading to a competitive advantage for the firm.”
The operations strategy at Southwest
Airlines includes using only one type of
airplane.
This lowers staff training and
maintenance costs, and reduces on
hand spare parts.
These decisions support the business
strategy of being a low cost carrier.
Markus Mainka/123RF
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Operations Corporate strategy
Strategy
Process (Figure 2.1)
Operations Strategy
Functional strategies in
Mission marketing,
finance,
Objectives: (cost, quality, engineering,
delivery, flexibility, sustainability)
human resources,
and
Strategic Decisions: (process, information systems
quality, capacity, inventory, supply chain)
Distinctive
Competence
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Operations Strategic
Objectives
Cost – resources used
Quality – conformance to customer expectations
Delivery – quickly and on time
Flexibility – ability to rapidly change operations
Sustainability – environmental, social, economic
How do firms What trade-
use these offs exist
objectives to among the
gain objectives?
competitive
advantage? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC.
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Examples of Important
Strategic Decisions in
Operations (Table 2.2)
Strategic Decision Decision Type Strategic Choice
Process Span of process Make or buy
Automation Hand/machine–made
Process flow Project, batch, line or continuous
Job specialization High or low specialization
Quality Approach Prevention or inspection
Training Technical or managerial training
Suppliers Selected on quality or cost
Capacity Facility size One large or several small facilities
Location Near markets, low cost or foreign
Investment Permanent or temporary
Inventory Amount High or low levels of inventory
Distribution Centralized or decentralized warehouse
Control Systems Control in greater or less detail
Supply Chain Sourcing Insource or outsource products
Logistics National or global distribution
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Distinctive Competence
This operations capability is something an
organization does better than any
competing organization that adds value for
the customer.
Examples:
• patents, proprietary technology,
operations innovations
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Linking Operations to Business
Strategy
Business strategy alternatives
◦ Product Imitator
◦ Operations must focus on keeping costs low.
◦ Product Innovator
◦ Operations must maintain flexibility in processes, labor, and suppliers.
Customer perspective
◦ Order Qualifier
◦ Objective that must be delivered at an acceptable level for customer to consider
product/service. Can be an order loser if not met.
◦ Order Winner
◦ Objective that causes customer to choose a particular product/service.
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Linking Operations to Business
Strategy
◦ Product Imitator
◦ Order Winner = price (low cost)
◦ Order Qualifiers = flexibility, quality, delivery
◦ Product Innovator
◦ Order Winner = flexibility (rapid introduction of new products)
◦ Order Qualifiers = cost, delivery, quality
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Example:
McDonald’s Operations
Strategy
Mission
fast product/service, consistent quality, low cost, clean/friendly environment
Operations Objectives
cost, quality, service
Strategic Decisions
process, quality, capacity, inventory, supply chain
Distinctive Competence
today: continuous improvement of the transformation system, and brand
(originally: unique service/supply chain)
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Characteristics of “Global
Corporations”
Facilities located worldwide, not country by country.
Products & services can be shifted among countries.
Sourcing on a global basis.
Supply chain is global in nature.
Product design & process technology are global.
Products/service fit global tastes.
Demand is considered on worldwide basis.
Logistics & inventory control is on worldwide basis.
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Supply Chain Strategy
To achieve competitive advantage for entire supply
chain, rather than individual entities.
Two supply chain strategies:
◦ Imitative Products (e.g. commodities)
◦ Predictable demand
◦ Efficient, low-cost supply chain
◦ Innovative Products (e.g. new technologies)
◦ Unpredictable demand
◦ Flexible, fast supply chain
Firms design supply chain for each product/service or
group of products/services
◦ Avoid “one size fits all” strategy
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Supply Chain Strategy
(Table 2.4)
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Sustainability is in Operations
Operations Sustainability:
* minimizing or eliminating environmental impact of operations
* social and financial viability of the firm for future generations
Operations ‘greening’ may include:
◦ Curtailing air, water, landfill pollution
◦ Reducing energy consumption
◦ Minimizing transportation and total carbon footprint
◦ Working with suppliers to use recyclable and biodegradable packaging
◦ Incorporating product reuse, end-of-life return, recycling
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TEA/123RF
British retailer Marks & Spencer has met goals to
send zero waste to landfills and is the first major
retailer to be carbon neutral.
Supply chain partners have been an important
source of support for this effort.
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Chapter 2 Summary
LO 2.1 Define operations strategy.
LO 2.2 Describe the elements of operations strategy and alignment with business
and other functional strategies.
LO 2.3 Differentiate the ways to compete with operations objectives.
LO 2.4 Compare product imitator and innovator strategies.
LO 2.5 Explain the nature of global operations and supply chains.
LO 2.6 Analyze two types of supply chain strategies.
LO 2.7 Illustrate how operations and supply chain can become more sustainable.
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Questions for Discussion
•Describe operations strategy in your own words.
•What is the relationship between a firm’s business strategy and its
operations strategy?
•Think of examples of manufacturing and service firms that pursue the
operations objectives of cost, quality, delivery, flexibility, sustainability.
•How do Apple’s operations and supply chain characteristics support their
product innovator strategy?
•What are some operations or supply chain challenges facing global
corporations?
•Describe recent examples you have seen in person or in the media that
illustrate how operations is closely tied to environmental, social, and
financial sustainability.
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