UGBA 10, Module 4

Skinner '69

"A company's operations function is either a competitive weapon or a corporate milestone. It is seldom neutral."

The Supply Chain

(also known as value chain) - Core Processes (primary activity) -- a set of activities that delivers value to external customers ex: 1. Supplier relationship process (selecting suppliers), 2. New service/product development (develop/design of new products given customer input), 3. Order fulfillment process (delivery of goods/services to customer), 4. Customer relationship process (builds relationships with external customers) - Support processes (secondary activity) -- provides vital resources and inputs to the Core Processes and is essential to the management of the business. ex: Processes like Accounting, Human Resources, Engineering, and Information Systems that provides vital resources and inputs to the core processes, present for every stage - Supply chain view = expands boundaries, synchronization of a firm's processes with those of its suppliers and customers - There are many different ways to fulfill consumers orders and expectations. The best ones are those who align corporate strategy and execution. - Service supply chain = driven by the need to provide support for the essential elements of the service - Manufacturing supply chain = purpose is to control inventory

Market Analysis

(part of corporate strategy) - Market segmentation: go and find a group of customers with enough in common to warrant the design and provision of products and services - Needs assessment: identify customers needs and understand how well competitors are addressing those needs.

Inventory placement

(where to locate the inventory of finished goods): - Centralized placement: keeping the inventory of finished goods at a single location (such as a firms' manufacturing plant or at a large warehouse) and shipping directly to all of its customers, Online store w/ distribution center ex: Zappos center in Louisville --> 75% of US cities are max 2 hour flight away (~800 miles) -- Advantage: Inventory pooling, reduced total inventory cost -- Disadvantage: Shipping many small and economical packages increases costs - Forward placement: Locating stock closer to the customer, at a warehouse, distribution center, wholesaler or retailer. This implies more storage facilities than the centralized placement model ex: game stop, Macys -- Advantage: faster delivery time and less costly shipments -- Disadvantage: Larger inventory needed --- Decide whether to invest online inventory or expanding stores (ex: value of in-store/person experience), every year the number of forward placement retailers decreases (automation, high fixed cost for rent)

Corporate Social Responsibility (CSR)

- An obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society. - The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large. - Goes beyond shareholders, takes a stakeholder approach (anyone who effects or is effected by the organization's objectives)

Companies adopting CSR and Sustainability Initiatives

- Consumers Don't Know What You Don't Tell Them, companies need to communicate - CSR and Sustainability can transform a brand - Brands serve as a focal point of corporate success, protected by CSR strategy - Established brands in consumers minds help build competitive advantage ex: 1. Dove -- repositioned for socially responsible cause, focused on all body types and making women feel beautiful 2. Whirlpool -- Does not market all of their CSR achievement 3. KFC -- does not understand full potential of CSR

Strategy and Society (HBR, Porter and Kramer)

- Corporate Social Responsibility (CSR) can/should generate unique value for company and society: must identify intersection points, select social focus, and focus specific initiatives - 4 justification for CSR = moral obligation, sustainability, license to operate and reputation - Ratings reflect / measure CSR and its impact 1. Generic Social Issues --> no significant impact on business, should not be focused on 2. Value Chain Social Impact (inside out) --> big impact on business practices 3. Social dimensions of competitive context (outside in) --> underlying issues that impact company operations Strategic CSR (not responsive) = Value chain social impact (transform internal activities to benefit society while reinforcing strategy) and Social dimensions of competitive context (strategic philanthropy that leverages capabilities to improve salient areas of competitive context) Instead of mitigating harm, companies should strive to reinforce corporate strategy via social progress

Patagonia Example

- Customers are worried about their sustainability -- post all answers on their website, transparency

Mass Customization

- Customers want a personalized product or service and they want it fast. - Redesign your products. Have a set of different parts (instead of finished products) ready to be assembled. Few different parts, if combined in different ways, can lead to thousand of different products. - firm's highly divergent processes generate a wide variety of customized services or products at reasonably low costs. - capability, realized by a few companies, to offer individually tailored products or services on a large scale. Typically, it is based on: Modular designs (parts can easily be separated and recombines) and Postponement of the differentiating task until the last possible moment -- Assemble to order: customer order triggers production

Three Process Steps to Sustainable Brand Innovation

- Embed sustainability: Deliver solutions with practical, social/environmental, and tribal benefits wired in so ideas are more meaningful for more stakeholders in more ways. - Inspire co-creativity: Integrate the ideas, experiences, and aspirations of consumers and expert practitioners to drive insights, idea generation, and concept validation - Unleash shared value: Create ideas designed to deliver value, from scalable brand strategies to breakthrough campaigns and movements

Disrupt and Delight (BBMG)

- Fundamental and historical shift towards more sustainable and innovative brands - Sustainability = biggest economic opportunity of our time, needed to WIN - Design product for systems thinking - Disrupt & Delight = intersection of brand, innovation, performance and sustainability 5 Principles of Sustainable Brand innovation: 1. Start with what's sacred (shared values/hopes/aspirations of humanity, brands embody our values) 2. Design holistically (interconnectedness of business and society, consider all relationships and entire ecosystem) 3. Create collaboratively (use all peoples creativity, provides real-world perspective, wisdom comes from all around. 4. Be playful (play fosters innovation, sparks curiosity and helps to break boundaries) 5. Disrupt and Delight (Leverage sustainability and create a better world) 3 steps to sustainable brand innovation: 1. Embed sustainability (practical, social, tribal) 2. Inspire co-creativity (generate diverse ideas) 3. Unleash shared value (multi-dimensional) Sustainable brand innovation is designed to transcend the inherent conflict between a growing economy and the limits on out planets natural resources.

Strategy for Supply Chain Disclosure

- Increasing pressure to disclose supply chain strategies, more than many companies are legally able to (pressure from government, peer practices, stakeholders etc.) - Once one player in an industry releases information, it's hard to resist without a good commercialized reason - "critical event" = tipping point for public opinion - Many employees don't understand/know about their own supply chains - Transparent supply chains can be costly - Disclosed aspects: Supply chain membership (who is involved), Provenance (materials), environmental information, social information - SC Transparency Matrix (Degree of disclosure vs. degree of assessment): Transparent = maximum disclosure Secret = knows info, but won't tell public Distract = unwitting disclosure Withheld = Do not know and do not tell -- companies should strive to be transparent Successful disclosure: 1. Analyze pressure for supply chain disclosure 2. Assess capabilities/resources 3. Identify current information about Supply Chain 4. Make a strategy for disclosure 5. Decide type / level of information 6. Ensure alignment between supply chain information and company strategy 7. Build collaborative relationships 8. Anticipate future demands 4 main categories of SC Disclosure: - supply chain membership - provenance (place of origin) - social information - environmental information

Inputs vs. Outputs

- Inputs: can include a combination of human resources, capital, purchased materials and services, land and energy - Outputs: can be services (that can take the form of information or tangible products

Harry Potter Example

- Millions of books delivered within one week - Thousands of people involved yet no leakage of information - Efficient and responsive coordination of millions of items and resources - Certified paper adopted - No toxic substances included in (producing) these books - Warehouses were bypassed - thousands of trucks and pallets of the same size were used - GPS transponders were used to deliver millions of individual orders simultaneously - Months of planning lead to big profits.

Identify Competitive Priorities

- Must choose want you want to focus on, what you CAN and WANT to do better than others ex: Cost co, focuses on low cost Examples of competitive priorities: Cost 1. low-cost operations (Delivering a service or a product at the lowest possible cost) -- processes must be designed for efficiency Quality 2. Top quality (outstanding product/service) -- high customer contact level, superior product features 3. Consistent quality (meet guidelines every time) -- processes designed to reduce errors and prevent defects TIME 4. Delivery speed (quickly filling customer's order) -- process designed to reduce lead time 5. ON-time delivery (meet delivery time promise) -- processes focuses on shipping orders when promised 6. Development speed (quick introduction of new products/services) -- involve critical external suppliers Flexibility 7. Customization (satisfies unique needs of customers by altering product) -- low volume, close contact with customer 8. Variety (handling wide variety of products efficiently) -- processes greater quantity than customization 9. Volume flexibility (support fluctuations in demand) -- processes designed for excess capacity ex: Southwest vs. Ryanair

What is strategy? (HBR, Porter)

- Operational Effectiveness = performing better (faster, fewer inputs) than rivals --> not sufficient, must also establish a difference (greater value), focus on effectiveness vs. - Strategic positioning = performing different activities from rivals (or differently), unique activities - Productivity frontier = maximum value a company can deliver at a given cost (with the best resources aka state of best practice) --> always shifting outward with innovation Strategic positioning: 1. Strategy = creating unique/valuable position involving different set of activities 2. Requires trade-offs in competing, chose what not to do 3. Involves creating "fit" among company activities - Many companies fail because they fail to make choices about what they want to specialize in - Sustainable positions require trade-offs - Strategic positioning is supported by other tightly linked supporting activities Strategic positions can emerge from variety-based, need-based, access-based Alternative for sustainable competitive advantage: - Unique competitive position for the company - Sustainability comes from the activity systems, not the parts - Competitive Advantage arises from fits across activities

Corporate Strategy

- Provides an overall direction that serves as the framework for carrying out organizations functions (such as finance, marketing and operations). It includes the firms overall goals with its core competences (what are employees well trained at). - Free flow of information between corporate strategy and marketing/operations/finance strategy - determines the markets the firm will serve and the response the firm will make to changes in market conditions or the competitive environment. - It provides the resources to develop the core competences and the core processes of the organization. It identifies the strategy the firm will employ in international markets - developed by the higher level committee. Corporate strategy informs: operations, marketing and finance so that they can concurrently design their strategies.

Apple Example

- Sold 1 Billion devices - Double production capacity every year - World leader in operations - Largest footprints contributors are manufacturing and product use

Capital Intensity

- The mix of equipment and human skills in a process. - The greater the cost of equipment relative to the cost of labor, the greater the capital intensity. Automation is a big decision = replacing human operations and control of machinery and equipment with some form of programmed control: - Automation in manufacturing: flexible Automation, Fixed (used for line processes with high volumes and very low customization) - Automation in Services: (such as online courses, banking, etc) Robot - a programmable machine that is capable of manipulating materials in order to perform tasks. - Robots are well suited for dangerous, tedious, dirty and physically demanding tasks. - Robots don't get tired - Robots are flexible - Machines could take 50% of jobs in the next 30 years --> must balance efficiency with ethics, repetitive jobs will likely be taken over by robots at some point - Production level increase, labor level decreases = because of automation (partially outsourcing)

Microsoft and Sustainability

- Use technology to solve environmental issues - Work to reduce the impact of their own operations

Volkswagen Example

- World's largest automaker (aggressive growth strategy) - Falsely portrayed themselves as "green" through unethical decisions -- lied to the public, resulted in significant decrease in market value

bullwhip effect

- bad communication or a poor coordination along the supply chain can create problems and lead to big inefficiencies - a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as you move further up the supply chain -Customer demand for products is fairly stable. - When each member of the supply chain (Retailer and Manufacturer) make orders based on something more than just the real consumer demand (ex: their own opinion on how other factors affect demand or how the other member of the supply chain may react) - Distortions and adjustments will amplify the perceived variability of demand and this elevates costs (because you may need more inventory). - solved if: entire supply chain share exactly the same information on Customer demand and coordinate their operations with each other - More players in the supply chain = higher complexity = more conflicts of interest

Outsourcing

- deciding on the type of products or services that a firm will perform or let other's perform on its behalf. - WHAT processes on the supply chain should the organization perform itself and WHERE to perform these processes. - Offshoring: moving processes to another country. In this case, firms keep ownership of the processes - Vertical Integration: when a company acquires companies from their suppliers (the more processes in the supply chain that the firm performs itself, the more vertically integrated it is) -- Backward integration: you buy one supplier of raw materials -- Forward integration: acquire a retail store - Product should be outsourced when: quantitative requirements are high and demand volatility is low - Factors that impact: Comparative Labor Costs, Rework and Product Returns, Logistics costs, Tariffs and taxes, Market Effects, Labor Laws and Unions, Energy cost -- TAXES is the most important

Service and Manufacturing Processes

-A process transforms Inputs into Outputs. Outputs are products or services Manufacturing process: •Physical, durable output •Output can be inventoried •Low customer contact •Long response time •Capital intensive •Quality easily measured Service process: •Intangible, perishable output •Output cannot be inventoried •High customer contact •Short response time •Labor intensive •Quality not easily measured

Sustainability is a Journey

-Nike started with its focus on quality and variety of the good - Took years to re-brand, with sustainability at the epicenter of their core image Nike has a bad history, on human rights and very low wages specially in the 1990s. Nike adopted a Code of Conduct in the 1990s Nike adopts programs to improve social and environmental conditions in 2000s, 2010s In 2005, Nike demonstrated transparency, when it published a complete list of its contract factories. Since about 2010, Sustainability is part of Nike's VP of Product Innovations. Sustainability is at the core of its designs and operations. The journey never ends....

Principles for conveying your message

1. Authenticity 2. Fit 3. Consistency 4. Simplicity 5. Fun & Positive

The Five Stages of CSR Learning

1. Defensive (to deny responsibility) -- phasing out, normally in oil/gas companies 2. Compliance (to do the minimum required) -- comply at the lowest cost (focus on the other "more important" aspects of the company) 3. Managerial (to begin integrating CSR into management practices) -- satellite efforts, not widespread/connected to company 4. Strategic (to embed CSR within the strategy planning process) -- sustainability can add value to the company (quality is no longer a key differentiator, must embed sustainability / quality into every aspect) 5. Civil (to promote CSR practices industry-wide) -- all companies in industry (strive for civil!!!) - Pushed companies to start thinking about new generations of products and services, which are greener, safer and more socially responsible. - It is all about embedding sustainability in every strategy, inspiring co-creativity in every process and unleashing shared value that works for all.

Amazon's Competitive Priorities

1. Delivery speed: strategic location of distribution centers, 1300 robots to help, more items held in stock, and direct shipments from manufacturers site. 2. Variety: access to tens of millions of products 3. Customization: ability to provide specific, unique orders for each customer. Amazon web page allows you to bundle many different items on a single order. 4. Low Cost operations: price is an order - winner for Amazon. Low prices are supported by low cost operations: -- High selling volumes help Amazon to get discount prices from their suppliers -- A carefully designed supply chain with logistics in mind, which includes the use of its own fleet in some of its major markets. -- design a supply chain that is agile and able to produce unique customer orders on a timely basis -- Outsource order-preparation, not after-sales service

5 Major Supply Chain Drivers

1. Facilities (Having more facilities generally makes a chain more responsive, while having fewer, central facilities creates higher efficiency.) 2. Inventory (mow much/where) -- Holding higher levels of inventory increases the responsiveness of a supply chain, while keeping inventory low increases the chain efficiency. 3. Transportation (minimize cost or delivery time) -- faster modes of transportation increases a chain's responsiveness, while using slower modes generally increases efficiency 4. Information ** most important (The key to successful supply chains. It can improve the supply chain performance on both dimensions. This investment, however, must be made based on the strategic posit ion supported by the other drivers.) 5. Sourcing (company is as strong as the weakest supplier) --Assign supply chain functions to the right party only if it increases profits and you realize that y our supplier can achieve better results than you. Otherwise, keep functions in house. -- A company achieving strategic fit has found the right balance between responsiveness and efficiency

Drivers of CSR

1. Growing Affluence: - sustainability becomes a greater focus as communities become more affluent - Richer people have the luxury to chose what they buy, use more resources - Shift from low to middle class = 60x increase in electricity use (other natural resources) - Electricity demand will increase 33% in the next 15 years - Scarcity of water and land, agriculture, climate change (natural disasters) -- as a result of massive population growth 2. Ecological Sustainability: As a result of the growing realization of the ecological changes that are occurring, firms that are seen as indifferent to their environmental responsibilities are likely to be criticized and penalized by their stakeholders. 3. Globalization: Increasingly, corporations operate in a global business environment. They have prospered as a result of expanding their operations. ex: the internet enables communication, education, transport, trade, etc. 4. Media: Access to media is no longer a barrier to massive communication channels. Companies realize that everyday, it gets harder to hide things from consumers. 5. Brands: focal point of corporate success and should be protected. CSR can be used for: positive brand building and crisis management. - people go after brands, not suppliers - Corporate actions that violate societal expectations may also damage, brand image among networked stakeholders --> high impact because consumer can campaign against brand --- These drivers are causing companies to move away from traditional operations concerns, and become more sustainable (drive more value for the company) --> customers are willing to pay for sustainable brands

Trends in Operations Management

1. Productivity (improvement) = The value of outputs (services and products) produced divided by the values of input resources (wages, costs of equipment, etc.) = output/input -- labor productivity = policies processed/employee hours --> X policies/hour 2. Global competition = Globalization is at the forefront of business planning and strategies. New economic powers are emerging (fast developing markets in Asia) - Advantages: Increased market penetration, Comparative cost advantages - Disadvantages: Political risks, Lower skilled workers, Vulnerability to supply chain disruptions 3. Ethical, Workforce Diversity, and Environmental Issues -Ethical decision-making and work force diversity in different countries - Environmental concerns and Sustainability initiatives - The challenge is clear: Issues of ethics, workforce diversity, and the environment are becoming part of every manager's job.

Five Principles for Sustainable Innovation

1. Start With What's Sacred (encourage people to solve the problem) ex: Patagonia AD says "don't buy this jacket" -- such good quality that you only need to buy one and it lasts for years, save the materials 2. Design Holistically (consider every part of the supply chain and the entire life cycle of products) -- incorporate strategy into every aspect of the business: must communicate message clearly and positively, share actions they are taking 3. Create Collaboratively (the best thinking and ideas often will come from beyond our own walls.) -- can't solve problems alone ex: Unilever has an online platform to ask to public to give insight on problems 4. Be Playful (Integrate play, sustainability and social impact. 5.Disrupt and Delight (design products and services that work better, cost less and deliver ways for all of us to create a better world): ex: shoes made out of biodegradable material Understand what drives consumers' purchase of sustainable products: Four key motivators drive interest in sustainability - Personal protection (for future generations) - Cost (cheaper) - Status (show others they care about the environment) - Altruism (because it's the right thing to do)

4 Common decision in process strategy

1. process structure (informs layout): Determines the process type relative to the kinds of resources needed, and their characteristics. It includes Layout decisions 2. customer involvement: Reflects ways in which customers become part of the process and the extend of their participation 3. resource flexibility: Is the ease with which employees and equipment can handle a wide variety of products, output levels, duties and functions 4. capital intensity (informs strategies for improvement ie process reengineering/improvement --> effective product design): Mix of equipment and human skills in a process All interact in both directions with each other

Successful communication of CSR

A significant challenge that companies face in communicating CSR is to be able to structure the message about the significance of CSR for the company. Externally, the other challenge is justifying, explaining and convincing different stakeholders and interest groups why certain CSR issues are logical and necessary to be undertaken by the company. One of the key aspects of good corporate responsibility practice involves transparent communication of programs, projects and achievements. Successful communication practices involve being: - genuine - authentic - honest - positive

Strategic CSR

About making good and making good business. It is more sustainable than philanthropy. - Social contributions that are directly aligned with a company's overall business strategy - Philanthropy (donations) will only last as long as your company can afford it Define Strategic CSR: 1. firms incorporate a CSR perspective within their strategic planning process 2. any actions they take are directly related to core operations 3. incorporate a stakeholder perspective 4. shift from a short term perspective to managing the firm's resources and relations with key stakeholders over the medium- to long term

Advantages / Disadvantages of Customer Involvement

Advantages: - Increased net value to the customer - Can mean better quality, faster delivery, greater flexibility, and lower cost - May reduce product, shipping, and inventory costs - May help coordinate across the supply chain - Processes may be revised to accommodate the customers' role Disadvantages: - Can be disruptive - Managing timing and volume can be challenging - Quality measurement can be difficult - Requires interpersonal skills - Layouts may have to be revised to accommodate for customer involvement and waiting lines (in line customers waiting for their turn) - Multiple locations may be necessary

Strategies for Change

All processes need to be constantly improved so that the organizations keeps a competitive advantage. Constant improvements can take place gradually in a given process (process improvement) or they may occur drastically as part of large changing initiative (process re-engineering) Process Improvement: Systematic study of the activities and flows of each process in order to improve it. Process improvement may not represent a dramatic new design but it involves continuous marginal improvements on a given process. Remember: there is always a way to improve all processes. Process Reengineering Applied when you need to come up with a radical new design of your business process to dramatically improve performance in terms of cost, quality, speed, service. Key elements: - Critical processes - Strong leadership - Cross-functional teams - Information technology - Clean-slate philosophy - Process analysis

Process

Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. - Products and services can both be viewed as a series or processes - Information on performance informs a process Processes tend to be clustered together into operations (groups of resources performing all or part of one or more processes; processes can be linked together to form a supply chain - must be managed with the customer in mind; external customers (may be end users or intermediaries) as well as internal customers (may be employees in the firm) must be considered - A nested process is the concept of a process within a process

Sustainable Business

Any organization that participates in environmentally and socially friendly activities to ensure that all processes, products, and manufacturing activities adequately address current environmental, social, concerns while maintaining a profit.

Supply Chain Design

Based on: 1. Inventory placement 2. Mass customization 3. Outsourcing

Customer-Contact Matrix

Brings together: 1. Customer Contact and Customization 2. Process Divergence and Flexible Flow Customer Contact: The level of contact may be high or low, depending on the type of service offered by an organization. The level of contact is evaluated at various dimensions: physical presence, what is processed (people vs. possessions/information), contact intensity, personal attention, method of delivery Level of contact dictates whether company needs to be physically in front of the client. - Front office: direct customer contact, face of the company, ex: hotel greets customer by name ex: luxury restaurant - Hybrid office: a mix of Front and Back Office elements ex: fast food restaurant - Back office: happens behind the scenes, low/no customer contact, same identical process is repeated ex: suppliers of food - Different types of people hired for each category - higher quality/customization (greater customer contact) = most divergent process in order to accommodate customer needs

What is (Corporate) Sustainability?

Business approach that creates long-term consumer and employee value by creating a "green" strategy aimed toward the natural environment and taking into consideration every dimension of how a business operates in the social, cultural, and economic environment. - financial returns for stakeholders is not enough. Must do what's best for all stakeholders (employees, customers, society and interested institutions) - 2000s: wider adoption of supply chain management systems, increase focus on sustainability and the natural environment - Manufacturing (61%) and product use (30%) are the largest contributors to environmental footprint

Business Challenges of Sustainability and Operations (Chipotle's)

Chipotle's mission includes understanding where their ingredients come from, how the animals were raised / crops were grown - Fast food is known to be cheaper/few options -- higher operations cost = more expensive food, but they were still successful because people are WTP to sustainable products - Products that go into your body make people consider sustainability more - must balance this mission with realistic fast food - trade-offs: storing cans is easier than fresh food, more expensive to buy organic food, less eggs produced from a free range farm - dedication to fresh ingredients requires more suppliers: located within 350 miles of each store Challenges: • Food supply shortages in specific regions • Increased supply chain costs • Food safety issues: --- Chipotle's contamination crisis (More than 50 poisoned clients, 11 states across US affected, 43 restaurants closed -- sales decreased by 15% and revenue by 6.8%) -- fault of one supplier who was not following health codes, impacted the entire supply chain (Chipotle brand) because people blamed the brand not the supplier -- Fresh comes at a price Response: closed restaurants (show they took the problem seriously because they lost a lot of $), change food handling and prep process to ensure property, more employee training, invest in local farms Conclusions: - The idea of offering fresh food and partner with local farmers is valuable -- market responding well to this type of sustainable company. - Focused on better operations practices to solve the problems that they faced - Sustainability is a journey

Competitive Advantage and CSR

Companies adopt CSR and sustainability in order to protect their brand -- consumers are willing to pay more for sustainable brands because they think they value it - look inside out: understand the effect of business operations to society and the environment ex: ethical research practices, product safety, transparency, safe working conditions, use of natural resources - look outside in: Understand the effect of external social and environmental issues to the business. ex: local demand conditions, input conditions, firm strategy and rivalry, related/supporting industries

Southwest Airlines Example

Competitive priorities: - Deliver connection services at low cost, timely and frequent. Product planning: - Minimize costs - Minimize idle land-time - Simplify operations - Pleasant travel experience - Time performance Process planning: - No ticket reservations, no seat reservations, no meals, no baggage transfers - Lean and quick processes - Friendly and flexible employees - Secondary airports ---- All inform each other

Process Strategy Across the Organization (Walmart)

Corporate strategy: (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices Operations strategy: short flow times, low inventory levels Operations structure: -Cross docking (it is like a warehouse but no storage is allowed for more than 24 hr.) -Electronic Data Interchange (EDI) -Logistics: Fast transportation system -Focused locations (stores and warehouses) -Communication between retail stores and suppliers -Unsold inventory is unearned money to the company, pay for it without getting a return. better to get more frequent deliveries with smaller amounts? have to account for transportation costs. solution = cross-docking: distribution center for multiple customers and suppliers (private transportation from Walmart picks up products) -- specific rules about usage to increase efficiency - less room needed for warehouse and storage --> more shelf space for new . products - now they are focused on improving sustainability: 1. Sell products that sustain people and the environment 2. Create zero waste 3. Be supplied by 100% renewable energy

What is Supply Chain Design?

Designing a firm's supply chain seeks to meet the competitive priorities of the firm's operations strategy. ex: Lost cost = most efficient operations design, top quality = high customer contact and superior product features Intersection of Service/Product,(internal process) Processes,(external supply chain) and Supply Chain Intersection = Link Services/Products with Customers, Suppliers, and Supply Chain Processes

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Strategic Fit

Expresses the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment. - The operations manager should understand how the four major process decisions can best tie together, so as to spot ways to improve processes. When the fit is more strategic, the process will be more effective. - Customer contact and customization is part of strategic fit (service) - Competitive priorities are linked to process choices (ex: top quality and flexibility = small batch process) -- Link of Competitive Priorities to Manufacturing Strategies (and process choice, inventory strategy) - Matches resources to external environment is when strategic fit is the most efficient

Product-Process Matrix

Focuses on production volumes and process divergence (depends on how much flexibility/repetition is needed. - process moves as fast as the slowest resource (bottleneck) ex: humans are the bottleneck in the chocolate wrapping process - custom products are made at low volumes with a flexible/unique process - linear relationship between customization/ volume and process divergence -- deviating from the line is inefficient

What is driving interest for Supply Chains?

Global competition, Shorter product life cycle, New, low-cost distribution channels, More powerful well-informed customers, Use of Internet and E-Business strategies. Global Competition: Manufacturing Cost Are More Dynamic Than Ever. Shorter Product Lifecycles: - Increased competition and changes in consumer behavior are forcing companies to develop new products at a faster pace than ever before. - The need to replace products every few years to keep up with demand forces companies to streamline their supply networks - Sharp changes in demand make it even more necessary to efficiently clear inventory of unwanted goods or (even better) to avoid producing excessive amounts of products, above demand. - Regular need to refresh products and prices Ex: Apple Computers

Process Structure in Services

It is about choosing a process type that best achieves the competitive priorities for that process. Process types can be related to customer contact, level of customization.

What is Operations Management, OM?

OM is in charge of supplying products and services in the right amount, at the right place, at the right time and at the right quality. - Heart of the creation of wealth for businesses and the improvement in the living standards of citizens of all countries - 1980s-1990s: evolution of operations, including advancing technology (aids manufacturing and design) and new planning systems, outsourcing supply chain Operation managers are responsible for the production of services and products in an ethical and environmentally responsible way while being responsive to the market. --> operations & sustainability, we strive to do the right on three dimensions: economic, environmental and social. The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers. A series of interconnected processes.

Inventory strategies

Only applies to the manufacturing process (can't keep stock of services) -Make-to-Order: design and build one product (ex: one residence) -- top quality, on-time delivery, flexibility - Make-to-Stock: Mass Production (ex: soft drinks) -- low cost, delivery speed - Assemble-to-Order: (Postponement, Mass Customization, keep inventory of parts not finished products (ex: custom nike shoes) -- delivery speed and low cost operations

The Role of Operations in an Organization

Operations translates materials and services into outputs. Works as a cycle with MAIN functions: marketing (generates sales of outputs) and finance (acquiring financial resources and capital for input). Supporting functions = accounting, information systems, human resources, engineering

Order Qualifiers vs Order Winners

Order qualifier -- The minimum level required from a set of criteria for a firm to do business in a particular market segment (you product may be considered but not selected for final purchase). ex: good grades -- Fulfilling the order qualifier may not achieve success. It will only position the firm to compete in the market. -- High achievement of competitive priority = higher sales (steady out after threshold is hit) Order winner -- the criterion customers use to differentiate the services or products of one firm from those of another (and make a final decision) ex: extracurriculars -- Order winners can include low price (which is driven by low cost operations), quality, time, flexibility. They can also include after sale support, tech support, reputation -- linear relationship between achievement of competitive priorities and increasing sales

Economies of Scope

Process strategy decision: Economies that reflect the ability to produce multiple products more cheaply in combination than separately. - Companies make profit not from one product alone but probably because of the economies of scope resulting from a wide arrange of products. - Save money by sharing resources (ex: they may use only one truck to distribute multiple products) - House of brands ex: McDonalds makes fries/burgers using the same production facilities

Resource Flexibility (Equipment)

Relationship between Process Cost and Product Volume: General-purpose equipment: - Low volume - Low installment and lower fixed cost - High variable unit cost - Not peak efficiency (Job, small batch, large batch, line, continuous flow) Special purpose equipment: - High volume, low customization - High investment and high fixed cost - Lower variable unit cost Calculate break even quantity to determine which type of equipment to buy: Q = (Fm-Fb)/(Cb-Cm) = volume where the company would be indifferent F = fixed cost, C = variable cost M = manual (general purpose), R = robot (special purpose)

Layout

Revised to accommodate for customer involvement and waiting lines (the line of customers waiting for their turn to be served) ex: Starbuck lines: no cashier by door (creates line out of the door and customers don't want to wait), line goes by food displays (encourages extra purchases), present most common drinks - An efficient layout can reduce unnecessary material handling, help to keep costs low, and maintain product flow through the facility.

What is Supply Chain Management?

Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements. Designing the right supply chain is key for competitive advantage.

Resource Flexibility (workforce)

The ease with which employees and equipment can handle a wide variety of products, output levels, duties and functions. - If one employee can perform multiple tasks for multiple products, they will be occupied most of their time. - Requires more educated / better skilled workers, which means higher salaries (worth it!) --> better able to adapt to new market needs

Process Strategy

The pattern of decisions made in managing processes, in order to strength their competitive priorities. Ex: cost, quality, flexibility, time - branch of operations strategy - decisions are made so companies can achieve their strategic goals

Customer Involvment

The way in which customers become part of the process and the extend of participation. -- important for service processes - When the customer is responsible for much of the work, the right labor is provided at - Make sure that equipment is friendly and easy to use the right moment (ex: self-check out for airlines has been made easy whereas grocery stores this is not the case: must design services to foster the customer behavior) ex: Starbucks --> assembly line starts with customer order. Thousands of combinations are available, but the cups are designed so the order can easily be understood, making the customer feel special.

Supply Chain Efficiency Curve

This curve helps to understand trade-offs between cost and performance of supply chain designs. - Red dotted line = re-design or re-engineer - Red bubble = inefficient supply chain operations

Strategic Implications (types of supply chains)

Understand the nature of demand for the product There are two types of configurations. These configurations are not mutually exclusive. 1. Efficient Supply Chains: - applied in environments where demand is highly predictable - produce and deliver products / services, the most efficient way and saving as much money as possible(lowest cost) - low margin (price is prime customer driver) - Make-to-stock - Minimize inventory to lower cost - Low capacity cushion - Low inventory investment - Emphasize low prices, consistent quality, on-time delivery - High Volume and High Standardized product, Continuous flow ex: coke, toothpaste 2. Responsive Supply Chains: - applied in environments where demand is highly unpredictable, quickly respond to demand - produce and deliver products / services, the quickest way in order to hedge against uncertainties in demand. - high margin - Assemble-to-order - Make-to-order - Shorten aggressively lead time - Emphasize fast delivery time, customization, variety, volume flexibility, top quality - Create modularity to allow postponement of product differentiation (alter final product) - Reduce lead-time aggressively, even if the costs are significant (quick production process) - More inventory to deal with fluctuations in demand - Low volume and customized, JOB ex: apple, zara -- Most supply chains are a hybrid -- Companies want to align corporate strategy with their supply chain design and product/service

Netflix Example

Vision: • Becoming the best global entertainment distribution service • Licensing entertainment content around the world • Creating markets that are accessible to filmmakers • Helping content creators around the world to find a global audience - Match global demand and supply

Competitive Capabilities

What you CAN deliver ... (This is about your current capabilities) - informed by competitive priorities - current, needed, planned - performance gap between competitive priorities and capabilities The cost, quality, time, and flexibility dimensions that a process or supply chain actually possesses and is able to deliver. There are (i) Current, (ii) Needed and (iii) Planned capabilities. A company wants to improve constantly and that means improving their Current capabilities.

Competitive Priorities

What you WANT to deliver ... (This is about your desired capabilities, whether you have them or not.) - informed by market analysis - cost, quality, time, flexibility Based on corporate strategy, a Market Analysis categorizes the firm's customers, identifies their needs, and assess competitors strengths. This information is used to develop competitive priorities. The priorities help managers develop the services or products and the process needed to be competitive.

Measures of Supply Chain Performance

Whether our supply chain supports services or manufacturing, managers need measures to assess the Supply Chain Performance and determine future goals. Two common measures: 1. Inventory measures Average aggregate inventory value = (# of units of product A)(value of each unit of A)* (# of units of product B)(value of each unit of B)... Weeks of supply = (Average aggregate inventory value)* (Weekly sales (at cost)) Inventory turnover = (Annual sales (at cost))* (Average aggregate inventory value): measures how quickly the merchandise of a retailer is sold and replaced over a given time: a higher turnover generally implies a lower holding cost for the retailer. - How value evolves in a company over time - Should increase every year - Compare to entire industry 2. Financial measures: - Total revenue - Cost of goods sold - Operating expenses - Cash flow - Working capital - Return on assets (ROA): is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is commonly displayed as a percentage. Total revenue, cost of goods sold, operating expenses all impact net income which impact ROA. Ex: of how to improve = reduce cost of transportation and materials Also can increase total assets: net cash flow, inventory, working capital, fixed assets

Green Wash

the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service ex: KFC?

sustainable supply chains

the management of environmental, social, and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. win-wins for companies and the environment: 1. Better forecast of demand: produce only what you need and avoid waste and unnecessary resource consumption 2.Better transportation systems: consume less gasoline, which saves money and lowers emission of pollutants to air. Other factors: legal demands/regulations, customer demands, response to stakeholders, competitive advantage, environmental and social pressure groups, reputation loss Managing: • Develop a sustainable supply chain framework. • Gather data on current supplier performance and use that information to screen new suppliers. • Require compliance across all business units. • Engage in active supplier management utilizing ethical means. • Provide periodic reports on the impact of supply chains on sustainability. Potential challenges: - Lack of information and transparency - Lack of metrics - Opposing conflict among metrics About ~50% of executives do not have supply chain visibility beyond the first tier -- Focus on brand