Supply Chain and Operations

Management

Unit 1
Operations and Strategy

David A Menachof, PhD

Professor of Port Logistics, Hull University Business School
Unit 1 – Operations and Strategy

• Module administration
• Introduction to operations and processes
• Corporate and operations strategy
• In-class case: McDonald’s drive-thru

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Module administration
• Module handbook
• Materials on Canvas with some handouts
• Assignment – to be uploaded on Canvas on
• 18 January 2017 by 16:00 GMT
• Class times:
– Tues/Wed/Thurs/Fri: 09:00-18:00
• Need to determine breaks
– Who are class reps?

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Decision logic chain for operations and processes

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What are processes?

All processes are input–transformation–output systems that use ‘transforming’ resources to

work on ‘transformed’ resources in order to produce products and services
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This module’s foci…
• Design
– The design (or redesign) of processes, how to position new
processes (Unit 2), and how to analyse them (Unit 3).
• Deliver
– This is to do with understanding and evaluating existing
processes. We shall look at project management (Unit 4) and
supply chain management (Unit 5, Unit 6) as polar opposites
on a spectrum of different types of processes.
• Develop
– Finally, we shall consider how to develop processes further, i.e.,
how to improve them (Unit 7) including topics such as business
product redesign, Six Sigma, and lean manufacturing. Further,
we shall consider processes in light of increasing pressures for
sustainable or cleaner production and supply chain
management (Unit 8).

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Levels for understanding processes

1. At the inter-company level (or likewise, inter-region or

inter-division level),
2. At the inter-function level within the company (e.g., the
Sales function interacting with the Operations function for
planning), and
3. At the within function level, which is the level where
process management is usually taken to be.

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The three levels of analysis

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Example of the three levels of analysis

Operations and process management analysis for the Programme and Video Division (PVD)
of a national broadcasting company at three levels: the supply network, the operation, and
individual processes
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Plenary discussion
Consider Caterpillar earth moving equipment.
What services would a company like this require
to properly supply its customers?
Think about maintenance, training, consultancy of
how best to use the equipment, updating,
installation of planning and control systems and
other software, providing finance for purchase,
and so on.
Is the customer buying a product or a
“capability” to do something using the products-
and-services from the company?
http://bit.ly/DrivingRange1
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Products versus services

Relatively few operations produce either purely products or purely services. Most types of
operations produce a mixture of goods and services
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The Operations Management discipline

Operations management has expanded from treating only the core production processes in
manufacturing organizations to include service organizations, non-core operations processes,
and processes in other functions such as marketing, finance and HRM
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 An example of how processes in the Programme and Video Division (PVD) could be
reorganized around end-to-end business processes that fulfil defined customer needs
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A typology of operations

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Four “Vs” analysis for retail banking processes

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Decision logic chain for operations strategy

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A firm’s “purpose”…?

“So the question is, do corporate

executives, provided they stay within
the law, have responsibilities in their
business activities other than to make
as much money for their stockholders
as possible? And my answer to that is,
no they do not.”
...Milton Friedman, American Economist
A macro-model of the firm
Other
Stakeholders

Purpose and Competitors

Suppliers objectives

Conversion Products/ Customers

Resources
activities Services
Reasons for strategic planning
• Forces firm to critically evaluate its current situation in light of current and
future environmental trends

• Prompts firm to determine strengths and weaknesses

• Brings about an evaluation of opportunities and threats

• Encourages firm to adapt

• Stimulates achievement and innovation

• Promotes search for competitive advantage

• Problems include political and opportunity cost of planning

Thus, it considers both micro (firm) and macro (environment) perspectives

Using MichaelPorter’s value chain (a micro-model)

Support Activities
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Marketing
Inbound Outbound
Operations and Service
Logistics Logistics
Sales

Primary Activities
The ‘vocabulary’ of strategy

• Mission: overriding purpose in line with values or

expectations of stakeholders
the same…?
• Goal: general statement of aim or purpose
• Objective: quantification or more precise statement of
the goal
• Strategies: long-term direction
• Core competencies: resources, processes or skills
which provide ‘competitive advantage’
For example...
• Mission or Goal:
“Christian Salvesen is a major European supply chain management group
providing innovative solutions for clients.”
• Objective:
“We are a UK-based company but generate around 45% of our turnover in
mainland Europe and our strategy is to expand our operations there in
response to a growing demand for Europe-wide services.”
• Strategies:
“Our strategy is to expand our operations in mainland Europe through
organic growth, alliances and partnerships, joint ventures and, in the
medium term, acquisitions.”
• Core competencies:
“Our core market sectors are: Industrial (automotive, chemical, DIY,
paper and packaging); Food (fresh produce, chilled, frozen, ambient and
foodservice); Consumer (textiles and home furnishings).”
Hierarchies of strategy

• Corporate level: overall purpose and scope of the firm to

meet expectations of stakeholders (i.e. the firm’s mission)
• Strategic business unit (SBU) level: how to compete
successfully in a particular market
• Operational or product level: concerned with
component parts of the firm in terms of resources, processes
and skills (i.e. core competencies)
For example...
• Corporate level:
“Creation of a single Christian Salvesen brand across
Europe.”
• Strategic business unit (SBU) level:
“The acquisition of Industrial businesses in Spain and
France has delivered the building blocks for linked
Industrial in-market networks.”
• Operational or product level:
“All our operations are backed by sophisticated ICT
systems and we will continue to push back technological
boundaries to achieve efficiencies and improve customer
service.”
Components of the strategic management process

David B. Grant (2012), Logistics Management, Pearson

Components of the strategic management process
• Strategic Analysis:

– understanding the firm’s strategic position in terms of its

external environment, internal resources and competencies,
and stakeholders: the situational analysis
• Strategic Choices :

– understanding the underlying bases guiding future strategy,

generating strategic options for evaluation and selecting
from among them: the various alternatives
• Strategy Implementation:

– translation of strategy into action through firm structure

and design, resource planning and strategic change
management: the feasible solution
Strategic planning process, an iterative process

Grant (2012)
External analysis is the first part of a SWOT analysis

Analysis of the general Analysis of the industry

environment environment
(PEST analysis) (Five forces / Competitors /
Markets)

Strategic factors:
- Opportunities
- Threats
 The ‘PEST’ analysis
• The firm’s macro- or external environment consists of:

– Political, environment and legal factors

– Economic and market factors There will be some
– Social and demographic factors
overlap here!
– Technological and change factors

• ‘PEST’ analysis is used to:

– summarize important influences of the macro- or external environment

on the firm
– evaluate the impact of these influences on the firm as opportunities and
threats in the ‘SWOT’ analysis
The role of environmental scanning

• A firm’s inability to detect and respond appropriately to

changing conditions in its environment can have a dramatic
impact on its long-term health

• The increasingly complex and dynamic nature of today’s

marketplace has made the need for firms to be
environmentally-aware critical

• Processes used by organisations to gather information on

their environment and produce forecasts: scanning,
monitoring, competitive intelligence
Internal analysis

• The purpose of analysing the internal activities of the firm is

to identify critical strengths and weaknesses, that are likely
to determine whether the firm will be able to take advantage
of the opportunities that the external environment offers
whilst avoiding threats.

• Internal analysis is the second part of a SWOT analysis.

Internal analysis

Resource-based view of the firm: A firm’s ability to outperform

its competitors is in large part due to its resources and its
ability to combine them (from Edith Penrose, 1959).

– What is a resource? Asset, skill, process, competency or knowledge

controlled by the corporation.

– If a firm has an internal strength, i.e. something it does exceedingly

well, it is said to have a core competence.

– If a firm’s core competence is superior to its competitors, it is said to

be distinctive.
Internal analysis

Resource-based view of the firm:

• A firm’s core competencies will be source of enhanced and
sustained performance when they are:
– rare
– valuable
– difficult to imitate

– In selecting a strategy, the firm should seek to exploit its

core competencies to respond to environmental demands
The ‘SWOT’ analysis…
• This phase consists of analysing the firm’s current
position in the marketplace so as to identify its:
– Strengths and Weaknesses
– Opportunities and Threats
• ‘SWOT’ is a common technique used by organisations
for analysing their positioning
• The firm’s current position is analysed by assessing:
– The impact of the external environment
• Factors which are not under the control of the organisation and thus
constitute threats and opportunities
– The firm’s internal capabilities
• Factors which are under the control of managers, and thus
constitute strengths and weaknesses
– The firm’s purposes and stakeholder’s expectations
The ‘SWOT’ analysis…

• Absolute and relative measures

• Importance to customer satisfaction
• Compared to competition
Grant (2012)
• Present and anticipated situations
Industry analysis
• Industry:
– A group of firms producing a similar product or service,
such as air travel or soft drinks.
Porter’s approach:
Price and thus level
Industry Degree of
of industry
structure competition
profitability

• The firm needs to understand its industry structure in order

to decide:
– whether an industry is worth competing in;
– which strategy will counter the industry’s competitive forces, and thus
maximise the firm’s level of profits
Porter’s ‘Five Forces’ model

• The Five forces that determine the industry

structure:
– Potential entrants
– Rivalry among industry competitors
– Suppliers
– Buyers / Distributors
– Substitutes

• A force negatively affecting the industry’s

profitability is a threat to the organisation. A force
leading to higher profit is an opportunity.
Forces governing competition
Threat of new entrants

Bargaining Industry Bargaining

power of Competition power of
suppliers customers
Jockeying for position
among current
competitors

Threat of substitutes ...Porter’s ‘Five Forces’ (1980)

The threat of entry

• The easier it is for companies to enter an industry,

the more likely it is for industry prices to be low
(and thus the firm’s profits to be low).
• E.g. airline industry: Threat of new entrants is
high. Almost anyone can buy used planes and
privatisation enables new lost-cost entrants to
emerge.
The rivalry among firms

• The more companies compete against one

another, the lower the level of industry prices.
• E.g. the airline industry: Rivalry among firms
is high. More airlines leave their domestic
borders to enter areas previously controlled
by other airlines. Price is the main element
companies can compete on, resulting in
intensive price war.
The threat of substitute products/services

• A substitute product is a products that appears to

be different but can satisfy the same need as
another product. To the extent that switching
costs are low, companies are constrained in their
ability to demand high prices for their products.
• E.g. airline industry: Threat of substitute
products is medium: Increasing awareness of rail
and cars, though not always possible.
Bargaining power of suppliers

• If there are only a few suppliers of an important

input, then suppliers can drive up the price of that
input and thus lower industry profitability
• E.g. airline industry: The bargaining power of
suppliers is high: only two major airplane
manufacturers (Boeing and Airbus)
Bargaining power of distributors/customers

• If only a few large customers are available to buy

an industry’s output, they can bargain to drive
down the price of that output, and thus lower the
producers’ profits.
• E.g. airline industry: The bargaining power of
buyers / distributors is medium to low. Airlines
are increasingly selling directly to customers via
e.g. the internet, hence decreasing the power of
travel agents.
Strategic choices

• This phase involves the consideration and choice

of strategies, in light of the analysis of the firm’s
existing position. There are two levels of
strategies:
– Corporate strategy: decisions regarding the company’s
overall direction in terms of its general attitude
towards growth and the management of its various
businesses.
– Business strategy: how an individual business within
the organisation will compete against its rivals in an
industry.
A firm’s strategic options

• Growth - expand the firm’s activities, such as increasing sales or

international expansion

• Stability - make no change to the firm’s level of activities, the

‘status quo’ option

• Retrenchment/Diversification - reduce the firm’s level of

activities

What models/techniques are there to assist evaluating these options…?

Boston Consulting Group (BCG) portfolio matrix

Grant (2012)
Strategic Options in the BCG Matrix
Market
growth rate
Stars Problem Children or ???
Build selectively
Build sales and /or market share Focus on definable niche to achieve
Invest to maintain/increase leadership position dominance
Repel competitive challenges Harvest or Divest the rest

Cash Cows Dogs

Hold sales and/or market share Harvest or

Defend position Divest or
Excess cash to Stars, selected ??? and NPD Focus on defendable niche

Relative market share

Criticisms of the BCG matrix

• Does market growth = market attractiveness?

• Market share versus competitive advantage

• Cost of building market share

• Cash flow assumptions

• Simplistic idea of interdependence

The Taylor method for solving case studies…

Step 1 – Situation analysis

Step 2 – Identification of main issues and
problems
Step 3 – Generation and evaluation of
alternative solutions
Step 4 – Recommended solution and
justification
Step 5 – Implementation
...from Figure 1 on page 5 of Handout
Hayes and Wheelwright’s four-stage model
Redefining STAGE 4
industry Give an
operations
expectations advantage

Clearly the STAGE 3

Increasing strategic impact

Driving
best in the Link strategy
with operations strategy
industry
STAGE 2
As good as Supporting
Adopt best
competitors practice strategy

Holding the STAGE 1

Correct the Implementing
organization worst problems strategy
back
Internally Externally Internally Externally
neutral neutral supportive supportive
Increasing operations capabilities
The operations strategy matrix

The operations strategy matrix defines operations strategy by the intersections of

performance objectives and operations decisions
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Top-down and bottom-up perspectives of
operations strategy

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Top–down and bottom–up strategy influences for
the metrology systems company

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The product/service life cycle

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The efficient frontier

If the performance of a group of operations is compared, some will lie on the efficient frontier

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Operations ‘focus’ & the ‘plant-within-a-plant’

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In-class case: McDonald’s drive-thru

• In assigned small groups, discuss the McDonald’s drive-thru

case based on the strategic issues discussed so far and
consider the advantages and disadvantages of this change to
the drive-thru process.
• Select the three most important advantages and
disadvantages and list them on the flip chart provided.
• We will then discuss in plenary.

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