SUPPLY STRATEGY RESEARCH UNIT

Developing an Operations
Strategy:
Deploying Resources, Processes
and Operations

Dr Simon Croom.
Smartlink Fellow, University of South
Australia
SUPPLY STRATEGY RESEARCH UNIT

Overview

• We tend to see strategic success as all about markets, products

and services.
• We forget that we rely on our processes, as well as those of our
suppliers, collaborators and distributors.
• Many businesses now recognise that strategic capabilities are
determined by HOW they develop, produce and deliver goods
and services to their customers.

• This session focuses on strategic development

• It will provide some basic Principles to help you improve
strategic performance
SUPPLY STRATEGY RESEARCH UNIT

What is ‘OPERATIONS’ Strategy?

“The strategic direction and development of

the resources and processes which produce
and deliver products and services to
customers”.

Operations Strategy,
By Nigel Slack & Michael Lewis
Pearson Publishing
http://www.booksites.net/download/slack/download.htm
 ip le
ir nc The clash between the nature of external
SUPPLY STRATEGY RESEARCH UNIT

P
markets and the nature of internal
resources

Market Requirements Operations Resources

are…. are….
Dynamic Difficult to change
Heterogeneous Technically
Ambiguous constrained
Complex

BT3
 The strategic role of operations can be defined
ip le by its aspirations (after Hayes and Wheelwright)
ir nc
SUPPLY STRATEGY RESEARCH UNIT

P Give an Redefine the

industry’s Externally
Operations
ons supportive
i
Advantage r at expectations
o pe
Link Strategy of Be clearly
n
With tio the best in Internally
Operations r i bu the supportive
o nt
c industry
g
sin
rea Be as good
Adopt best c Externally
In as
Practice competitors neutral

Stop holding
Correct the the Internally
Worst organisation neutral
Problems back
STAGE 1 STAGE 2 STAGE 3 STAGE 4
The The The
ability ability ability
to to to
Implement support Drive
Strategy strategy
 The Strategic Role of the Operations Functions
SUPPLY STRATEGY RESEARCH UNIT

The 3 key attributes Operations Contribution

of operations

Implementing be Dependable
Operationalise strategy
explain Practicalities

Supporting be Appropriate
Understand strategy
Contribute to decisions

Driving be Innovative
provide Foundation of strategy
Develop long-term Capabilities
 ip le
ir nc
Operations can kick-start two virtuous cycles
SUPPLY STRATEGY RESEARCH UNIT

P Internal and External

Understanding of
the processes

Competitiveness Strong
marketing

Competencies World Class

embedded in the Operations
operation
High
margin
Capabilities enhance
innovation and
Investment
improvement

Developing the resources which Developing customers’

let the operation’s performance competitors’ and stockholders;
stay ahead of the competition perceptions and expectations
 The operations function can provide a competitive advantage
through its performance at the five competitive objectives
SUPPLY STRATEGY RESEARCH UNIT

Quality Being RIGHT

Speed Being FAST

Competitiveness
Dependability Being ON TIME

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

 How is each performance objective being viewed?
SUPPLY STRATEGY RESEARCH UNIT

The onset of “Total Quality

Quality Disillusionment” ISO 9000 sweeps
the world (except Japan!)

Value added methodology increasingly

powerful
Speed Major benefit of BPR
Return of the JEDI

Competitiveness
Dependability Being monitored by customers

Long term technology flexibility proving

Flexibility difficult to achieve
More closely defined - “rigid flexibility”

Increasing cost pressures

Overcoming the volume and variety
Cost effects
New ways of looking at costs
 The first task of an Operations Strategy is to clarify the relative
priorities of the competitive objectives
SUPPLY STRATEGY RESEARCH UNIT

Quality
CUSTOMERS and COMPETITORS
Competitive Objectives are

Speed

Competitiveness
prioritized by

Dependability

Flexibility

Cost
 Operations Strategy Decision Areas Determine Resource
Deployment
SUPPLY STRATEGY RESEARCH UNIT

Resource Deployment

Capacity Process Supply Development and

Structure Technology Network Organisation

ISSUES -
ISSUES - • VERTICAL
INTEGRATION
• DEVELOPMENT
• SUPPLIER ISSUES -
ISSUES - RATE
• CAPACITY • AUTOMATION
DEVELOPMENT • RESPONSIBILITY
RELATIONSHIPS
• DEVELOPMENT
• LOCATION • SIZE CHAINS • IMPROVEMENT
• FOCUS & • INTEGRATION • STRATEGIC STRATEGIES
SEGMENTATION • IN OR OUT-HOUSE VALUE • PERFORMANCE &
• L/T FORECASTS DEVELOPMENT FACILITATION CONTROL

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS
 Operations strategy is defined by the intersections of
ip le performance objectives and substrategies
ir nc
SUPPLY STRATEGY RESEARCH UNIT

P Resource Deployment

Quality
Competitive Objectives

Market Competitiveness
are prioritized by
CUSTOMERS and

Speed
COMPETITORS

Operations
Strategy
Dependability

Flexibility

Cost

Capacity Process Supply Development

and
Structure Technology Network
Organization

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS
 Operations strategy is defined by the intersections of
performance objectives and substrategies
SUPPLY STRATEGY RESEARCH UNIT

Resource Deployment

Quality key
Competitive Objectives

Market Competitiveness
are prioritized by
CUSTOMERS and

Speed key
COMPETITORS

Dependability key

Flexibility key

Cost key key

Development
Capacity Process Supply and
Structure Technology Network Organization

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS
SUPPLY STRATEGY RESEARCH UNIT

How to ensure a strategic Fit

 Prioritizing Objectives
SUPPLY STRATEGY RESEARCH UNIT

Priorities should be determined by ......

Your The
PERFORMANCE IMPORTANCE

in each of the of each

competitive competitive
objectives objective

IMPROVEMENT PRIORITIES
 ip le
ir nc
SUPPLY STRATEGY RESEARCH UNIT

P
ORDER-WINNING QUALIFYING LESS IMPORTANT
OBJECTIVES OBJECTIVES OBJECTIVES

+ve +ve +ve

Benefit
Benefit

Benefit
neutral neutral
Competitive
neutral
Competitive

Competitive
qualifying
-ve -ve level -ve

Low High Low High Low High

Achieved performance Achieved performance Achieved performance

 ip le
ir nc
SUPPLY STRATEGY RESEARCH UNIT

P Qualifiers are the “givens” of doing business

Order Winners gain more business the better you are
Adding Delights
Delights become Order winners and Order winners become Qualifiers
Positive
Delights
Competitive Benefit

Order Winners

Neutral
Qualifiers
Tim
e

Negative
Low High
Achieved Performance
SUPPLY STRATEGY RESEARCH UNIT

A method for identifying our ‘strategic’ operations

priorities

• Identify what is important to customers

• Assess how well we perform

• Relate our performance to customer’s or market

requirements
 9 Point Importance Scale
SUPPLY STRATEGY RESEARCH UNIT

For this product group does this performance objective ......

1 - Provide a crucial advantage with customers

ORDER
WINNING 2 - Provide an important advantage with most customers
OBJECTIVES
3 - Provide a useful advantage with most customers

4 - Need to be up to good industry standard

QUALIFYING
OBJECTIVES 5 - Need to be around median industry standard

6 - Need to be within close range of the rest of the industry

7 - Not usually important but could become more so in future

LESS
IMPORTANT 8 - Very rarely rate as being important
OBJECTIVES
9 - Never come into consideration
 p le
Temperature controlled - Overnight service
SUPPLY STRATEGY RESEARCH UNIT

a m
Ex
IMPORTANCE to Customers
1 2 3 4 5 6 7 8 9
PRICE X
SERVQUAL (DISN.) X
SERVQUAL (ORDER TAKE) X
ENQUIRY LEAD-TIME X
DROP QUOTE X
WINDOW QUOTE X
DELIVERY PERFORMANCE X
DELIVERY FLEXIBILITY X
VOLUME FLEXIBILITY X
DOC. SERVICE X

1 2 3 4 5 6 7 8 9
 9 Point Performance Scale
SUPPLY STRATEGY RESEARCH UNIT

For this product group is achieved performance ........

1 - Consistently considerably better than our nearest

BETTER competitor
THAN 2 - Consistently clearly better than our nearest competitor
COMPETITORS
3 - Consistently marginally better than our nearest competitor

4 - Often marginally better than most competitors

SAME
AS 5 - About the same as most competitors
COMPETITORS
6 - Often close to main competitors

7 - Usually marginally worse than main competitors

WORSE
THAN 8 - Usually worse than most competitors
COMPETITORS
9 - Consistently worse than most competitors
 p le
Temperature controlled - Overnight service
SUPPLY STRATEGY RESEARCH UNIT

a m
Ex
PERFORMANCE against Competitors
1 2 3 4 5 6 7 8 9
*
COST X
SERVQUAL (DISN.) X
SERVQUAL (ORDER TAKE) X
ENQUIRY LEAD-TIME X
DROP QUOTE X
WINDOW QUOTE X
DELIVERY PERFORMANCE X
DELIVERY FLEXIBILITY X
VOLUME FLEXIBILITY X
DOC. SERVICE X

* Estimated 1 2 3 4 5 6 7 8 9
 p le
GOOD
am
1
SUPPLY STRATEGY RESEARCH UNIT
Delivery X
Ex better 2 Volume
than Flex X Window
Drop Quote Quote
3
X X
PERFORMANCE

X Servqual
4
COMPETITORS

(DISN)
same 5
AGAINST

as Doc Service X
6
Price/Cost X X Delivery
Flex
7
Servqual X
8
(Order Take)
worse Enquiry X
than Lead-Time
9
BAD

9 8 7 6 5 4 3 2 1

less order
important qualifying winning
IMPORTANCE
LOW FOR HIGH
CUSTOMERS
SUPPLY STRATEGY RESEARCH UNIT

GOOD
1

better 2 EXCESS ?
than
3 APPROPRIATE
PERFORMANCE
4
COMPETITORS
same 5
AGAINST

as
6 IMPROVE
7

worse
8 URGENT
than ACTION
9
BAD

9 8 7 6 5 4 3 2 1

less order
important qualifying winning
IMPORTANCE
LOW CUSTOMERS FOR HIGH
CUSTOMERS
 p le
SUPPLY STRATEGY RESEARCH UNIT

a m
Ex Budget Hotel Chain

Today Tomorrow

Delights Central reservation

Order Winners Central reservation

Location (autoroutes) Location (autoroutes)
Location (restaurants)
Price
Loyalty cards
Qualifiers Location (restaurants)
Price
Loyalty cards
Cleanliness Cleanliness
Decor Decor
Service
?
 p le
SUPPLY STRATEGY RESEARCH UNIT

a m
Ex Budget Hotel Chain

Today Tomorrow

Delights Central reservation

Price

Order Winners Central reservation

Location (autoroutes) Location (autoroutes)
Location (restaurants)
Price Location (restaurants)
Loyalty cards
Qualifiers Location (restaurants)
Price
Loyalty cards
Cleanliness Cleanliness
Decor Decor
Service
?
 p le
SUPPLY STRATEGY RESEARCH UNIT

a m Budget Hotel Chain

Ex
What aspects of service will What new capabilities will
form tomorrows delights, operations need to
order winners and qualifiers? develop to deliver these?

Delights Price Cheap land Search processes

costs Flexible design

Build at low Low fixed costs

cost Standardisation

Operate at low Low overheads

cost Low labour costs
New technology

Order Winners Central reservation)

More, smaller sites
Location (autoroutes)
Partnership deals with
Location (restaurants) restaurants

Location (restaurants)
Qualifiers Price
Loyalty cards
Cleanliness
Decor
SUPPLY STRATEGY RESEARCH UNIT

What performance objectives are Qualifiers, Order Winners and

Delights ?
… and in the future ?
What is the operation doing today to develop the capabilities
which will provide the “Delights” of the future ?

Today Tomorrow
Delights

???
Order Winners

Qualifiers
 Where will you be in the Future?
SUPPLY STRATEGY RESEARCH UNIT

Today Tomorrow

Delights

Order Winners

Qualifiers
SUPPLY STRATEGY RESEARCH UNIT

Trade-offs
“Do you want it good, or do you want it Tuesday?”

“No such thing as a free lunch.”

“You can’t have an aircraft which flies at the speed

of sound, carries 400 passengers and lands on an
aircraft carrier. Operations are just the same.”
(Skinner)

“Trade-offs in operations are the way we are willing

to sacrifice one performance objective to achieve
excellence in another.”
SUPPLY STRATEGY RESEARCH UNIT

Driving Learning & Improvement whilst

avoiding Strategic Vulnerability

• Be Clear about your current performance in terms of:

– Process Capability
– Alignment of resources to customers & markets
– Responsiveness of your resources to external
variations
– Performance measurement and objectives
– Service level agreements, specifications and
targets
– Consistency of purpose
– Appropriate relationships across your supply chain
and operations network
SUPPLY STRATEGY RESEARCH UNIT

How can we carry out such a ‘Health

Check’?

• Benchmarking against others

• Validation against best practice
• Evaluation of Strategic Criteria
• Audit of the pressures and stresses faced by your
organisation
SUPPLY STRATEGY RESEARCH UNIT

What is Stress Point Analysis?

A research tool developed to accommodate the

individual context and conditions facing an
organisation
• A methodology for highlighting key areas of strategic
weakness
• A comparative analysis – benchmarking against
others and against best practice
• A customised methodology for an individual audit
 Strategic Performance
SUPPLY STRATEGY RESEARCH UNIT

- Responsiveness of Your Operation

Response curve

Performance
Stress Point

Failure
Point

KEY To ZONES

Desired Capability
‘Force’
Operating Capability

STRESS
 The Causes of Supply Chain and Operations
Stress
SUPPLY STRATEGY RESEARCH UNIT

• Congruence
– Alignment to customer needs, potential degradation of delights
– Mismatched relationships with customers and suppliers
– Confusion over needs
• Capabilities
– Processes are not able to meet the performance targets
– Service levels are inappropriate
– Capability Not Measured
– No laid down process maps or procedures
• Capacity
– Poor utilisation, slow response to demand, too many set ups, high
or increasing variety
– Low Value Adding content
– Low T/E (throughput efficiency)
• Control
– High Forecasting Errors
– ‘Bullwhip’ across the chain (Forrester Effect)
– Resource Scheduling and Inventory inaccuracies
SUPPLY STRATEGY RESEARCH UNIT

To AUDIT your Business

• Logon to http://www.supply-chain.org.uk
• Click on the SPA Methodology link
• Login to the ht2 site using:
– Username SPA**
– Password SPA** (Same as your username)
• I will allocate your number
• Complete the survey
• Your results will be emailed to you in early April as a
benchmark report
SUPPLY STRATEGY RESEARCH UNIT