Corporate Strategy and its Connection to Operations

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Corporate Strategy and its Connection to
Operations
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Corporate Mission

• The mission of the organization
• defines its purpose, i.e., what it contributes to
  society
• states the rationale for its existence
• provides boundaries and focus
• defines the concept(s) around which the company
  can rally
• Functional areas and business processes define
  their missions such that they support the overall
  corporate mission in a cooperative and
  synergistic manner.

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Corporate Mission Examples

• Merck The mission of Merck is to provide society
  with superior products and services-innovations
  and solutions that improve the quality of life
  and satisfy customer needs-to provide employees
  with meaningful work and advancement
  opportunities and investors with a superior rate
  of return.
• FedEx FedEx is committed to our
  People-Service-Profit philosophy. We will produce
  outstanding financial returns by providing
  totally reliable, competitively superior, global
  air-ground transportation of high-priority goods
  and documents that require rapid, time-certain
  delivery. Equally important, positive control of
  each package will be maintained utilizing real
  time electronic tracking and tracing systems. A
  complete record of each shipment and delivery
  will be presented with our request for payment.
  We will be helpful, courteous, and professional
  for each other, and the public. We will strive to
  have a completely satisfied customer at the end
  of each transaction.

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Defining the Corporate Strategy
Responsiveness (Reliability Quickness
Flexibility e.g., Dell, Overnight Delivery
Services)
Competitive Advantage through which the company
market share is attracted
Cost Leadership (Price e.g., Wal-Mart,
Southwest Airlines, Generic Drugs)
Differentiation (Quality Uniqueness e.g.,
Luxury cars, Fashion Industry, Brand Name Drugs)
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Defining the Corporate Strategy

• Corporate Strategy The organizations
  positioning in terms of
• responsiveness,
• cost leadership and
• product differentiation
• requirements, i.e., the sought competitive
  advantage(s).
• The corporate strategy dictates the detailed
  strategies for each functional area (i.e.,
  Operations, Finance, Marketing) but it is also
  affected by those areas.
• Collectively, all these strategies seek to
  exploit (external) opportunities and (internal)
  strengths, neutralize (external) threats, and
  address (internal) weaknesses

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Fit Between Corporate and Functional Strategies
(Chopra Meindl)
Corporate Competitive Strategy
Supply Chain or Operations Strategy
Product Development Strategy
Marketing and Sales Strategy
Information Technology Strategy
Finance Strategy
Human Resources Strategy
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Factors affecting Corporate Strategy

• External
• Emerging strengths and weaknesses of competitors
  gt new threats and opportunities, respectively
• New industry entrants
• Development of substitute products
• Development of new technologies
• Legal developments (e.g., environmental concerns
  and regulations)
• Economic and political developments (e.g., new
  international agreements, political crises)
• Internal
• Company politics and restructuring
• Modified relationships with customers and
  suppliers
• Product Life Cycle

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Strategy and Issues during a Products Life(J.
Heizer B. Render, Operations Management,
Prentice Hall)
Growth
Maturity
Decline
Introduction

• Poor time to change image, price or quality
• Competitive costs become critical
• Defend market position

• Cost control critical

• Practical to change price or quality image
• Strengthen niche

• Best period to increase market share
• RD engineering critical

Sales
Time

• Frequent product and process changes
• Short production runs
• High production costs
• Limited models
• Attention to quality

• Forecasting critical
• Products and process reliability
• Increase capacity
• Shift towards product focus
• Enhance distribution

• Little product differentiation
• Overcapacity in the industry
• Reduce capacity and eventually prune line to
  eliminate items not returning good margin

• Standardization - minor product changes
• Optimum capacity
• Process stability
• Long production runs

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The operations frontier, trade-offs, and the
operational effectiveness
Responsiveness
Cost Leadership
Differentiation
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Expanding the operations frontierDells
revolution in the PC market

• Dells competitive advantage Provide customized
  PC configurations, with short delivery times and
  affordable prices.
• Dells success in PC market

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PC SUPPLY CHAINS
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The Critical Success Factors underlying Dells
competitive advantage

• Very high product (configurable) variety mass
  customization!
• Direct fulfillment - no intermediaries
• No production launch until customer order booked
  (pure pull!)
• Very low finished goods inventory (costs) high
  inventory turns (raw material inventory
  influenced by recommended configurations)
• High velocity material flows fulfillment

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Supporting Dells competitive advantage through a
new operational model

• Focused on strategic partnerships suppliers down
  from 200 to 47
• Suppliers maintain nearby ship points delivery
  time 15 minutes to 1 hour
• Suppliers own inventory until used in production
• Demand pull throughout value chain information
  for inventory substitution
• Demand forecasting is critical changes are
  shared immediately within Dell and with supply
  base
• Customers frequently steered to recommended
  configurations with high availability to balance
  supply and demand
• External logistics supplier used to manage
  inbound supply chain

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Emerging factors and trends enabling Dells
strategy

• The commoditization of the PC industry
• Standardized and interchangeable components
• Emergence of reliable manufacturing service
  providers
• Recent advances in Supply Chain Management
• Information Technology (IT) platforms that allow
  the effective and efficient information exchange
  and coordination across the entire supply chain
• 3rd party logistics service providers
• Emerging emphasis on virtual rather than vertical
  company integration

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The primary drivers for achieving strategic fit
in Operations Strategy(adapted from Chopra
Meindl)
Corporate Strategy
Operations Strategy
Efficiency
Responsiveness
Market Segmentation
Facilities
Inventory
Transportation
Information
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The role of Facilities

• Facilities The locations where inventory is
• processed and transformed into another state
  (manufacturing) or
• staged before being shipped to the next stage
  (warehousing)
• In general, centralization boosts efficiency,
  while decentralization boosts responsiveness (but
  not always)
• Primary decisions
• Location
• Proximity to the customer
• Proximity to resources
• Access to markets (ability to circumvent quotas
  and tariffs)
• Infrastructure
• Operational costs and tax incentives
• Capacity
• Capital cost vs. responsiveness
• Operations Methodology for Manufacturing
  Facilities
• Product vs. functional focus
• Flexible vs. dedicated capacity
• Warehousing methodology
• Storage modes and material flow organization
• Cross-docking

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The role of Inventory

• Primary inventory components
• Raw Material
• Work In Process (WIP)
• Finished Goods
• It exists because of the finiteness of the
  production and transportation rates (Littles
  Law ITHT)
• Types of Inventory
• Cycle Inventory It is incurred in an effort to
  control the impact of fixed ordering and set-up
  costs.
• Safety Inventory It is used to deal with the
  randomness in the experienced demand it is set
  so that it helps the supply chain meet some
  service level (i.e., control the probability
  that no stock-out will be experienced at any
  replenishment cycle).
• Seasonal Inventory It is used to help the supply
  chain deal with predictable variability in
  demand.
• Opportunistic Inventory Takes advantage of
  bargains.
• Sourcing Determine the set of suppliers /
  subcontractors to be used, and develop the
  contracts that will govern the relationship.

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The role of Transportation

• Transportation The SC element that moves product
  between its different stages.
• Primary decisions
• Mode(s) of Transportation
• Air fastest but most expensive
• Truck Relatively quick, inexpensive and very
  flexible mode
• Rail Inexpensive mode to be used for large
  quantities
• Ship Slowest but often the most economical
  choice for large overseas shipments
• Pipeline Used (primarily) for oil and gas
• Electronic transportation for goods as music and
  movies
• Route and Network Selection
• In-house or Outsource to some 3PL provider

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The role of Information

• Information exchange is necessary for the most
  extensive modes of coordination sought in
  contemporary supply chains. It allows the supply
  chain to improve simultaneously its efficiency
  and responsiveness.
• Information-related decisions
• Push vs. pull
• Extent and modes of information sharing and
  coordination
• Forecasting and Aggregate Planning schemes
• Pricing and revenue management policies
• Enabling Technologies
• Electronic Data Interchange (EDI) Enables
  paperless transactions, primarily for backend
  operations of the SC.
• The Internet and the WWW.
• Enterprise Resource Planning (ERP) enables
  transactional tracking and global visibility of
  information in the SC.
• Supply Chain Management (SCM) software decision
  support tools.

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The opportunities and challenges of globalization
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Some basic definitions

• International business A firm that engages in
  cross-border transactions.
• Multinational corporation (MNC) A firm that has
  extensive involvement in international business,
  owing or controlling facilities in more than one
  country.

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Building competitive advantage through
globalization

• Cost reductions labor, transportation, taxation
  (free trade zones), tarrifs, etc.
• Easier access to local markets ability to
  understand and adjust better to the local markets
  and cultures
• Ability to create new markets and expand the life
  cycle of existing products
• Ability to tap to the local expertise or unique
  resources
• Ability to interact with and learn from the local
  industry

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The challenges underlying the deployment and
support of global operations

• The provided products and services need to appeal
  to the local markets gt need for broader product
  lines and (mass-)customization
• Need to coordinate the production activity across
  a geographically dispersed network
• Need to understand and systematically assess the
  pros and cons offered by the various geographical
  locations
• Technological infrastructure
• Labor skills and education
• Political stability and legal issues (prod.
  Liability laws, export restrictions)
• Economic factors (tax and interest rates,
  availability of raw materials, etc.)
• Social and cultural aspects (language, work
  ethic, etc.)
• Need to align the provided products and services,
  as well as the deployed production and business
  functions to the local culture and ethics

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Reading Assignment

• Chapter 1 Sections 1.4-1.9