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An Introduction toOperations Strategy
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What is Operations Strategy
Operations +
Strategy
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What is Strategy?
Strategy is a plan or a path that shapes long-term
capabilities. In businesses, the use of strategy is generally
described as strategic management. Strategic management
can be defined as follows:
.it is a set of processes to manage and control an
enterprise so that over the long-term through reconfiguring
of scope, resources and competencies of the organization, an
advantage over rivals is achieved that fulfils stakeholder
expectations and meets the needs of the changing
environment.
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DIMENSIONS OF OPERATIONS STRATEGY
Value Delivery System(Process Intent and Process Model)
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How is operations strategy different frommanagement of operations?
Timescalee.g. capacity
decisions
Short-term
Management of Operations
Long-term
Operations strategy
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How is operations strategy different frommanagement of operations?
Level of analysis
Concerned with themacro operation(level of the firm)
Micro
Management of Operations
Macro
Operations strategy
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How is operations strategy different frommanagement of operations?
Level of
aggregation(Concerned withresources at anaggregated level)
Detailed
Management of Operations
Aggregated
Operations strategy
Can we give taxservices to the smallbusiness market in
Panjim?
What is overallbusiness advice
capability compared
with other capabilities?
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How is operations strategy different frommanagement of operations ?
Level of abstraction(Concerned withthe conceptual)
Concrete
Management of Operations
Philosophical
Operations strategy
How do we improveour purchasingprocedures?
Should we developstrategic alliances with
suppliers?
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Strategy and Operations is a Paradox
Strategic Management Operational Management
Ambiguous
Complex
Routinized
Organization wide
Fundamental
Operationally Specific
Long-term Implications Short-term Implications
There are basic differences in the nature of strategic management andoperations management. The fact that the qualities required for involving one instrategic change are different from those required for operational control, has tobe recognized.
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Operations strategy is ..
the decisions which shape the long-term
capabilities ofthe companys operations and
their contribution to overall strategy throughthe on-going reconciliation of market
requirements and operations resources
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There are four perspectives on operations strategy.
The top-down perspectiveoperations strategy should interpret
higher-level strategy
The bottom-up perspectiveoperations strategy should learn from
day-to-day experience
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Different Levels of Strategy
Regardless of the type of organization, there exist three highlydifferentiated strategic concerns.
The first addresses the organization as a whole, and concerns issues
relating to corporate strategy: relating to the choice of markets i.e.
scope and to ownership.
The second relates to Competitive strategy. It tries to answer thequestion: how to build unassailable value propositions that create new
customers for specific product groups or services.
The third entails the development of functional capabilities that support
the firm as a whole as well as the different markets in which the firm
operates. This is calledfunctional strategy and it makes decisions about
issues relating to the different functions within the firm.
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Different Levels of Strategy
The three different levels forms a hierarchy of decision-making and
defines the structure of strategic management.
Research &
Development
Information
Systems
Marketing
Operations
Human ResourcesFinance
Competitive Strategy
Business goals
CompetitiveAdvantage
Corporate or Grand Strategy
Vision & Mission
Philosophy and culture
Corporate Advantage
Functional Strategies
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Functional StrategiesThe process of evolving Functional Strategy boils down to the ability
of the functional area to carry out a number of tasks effectively andefficiently:
Evolve goals that reflect the mission and vision and in keeping with theCorporate and Competitive Strategy of the firm;
Set objectives that are achievable in light of the corporate strategy; changingexternal factors that include regulation, competition, technology, and
customers; Set objectives that are achievable in light of the competitive strategy of the
firm;
Create an effective organizational structure and arrange the resources tosuccessfully carry out the strategy, and
Finally evaluate the performance so that necessary corrective measures can betaken to keep it on track to achieve the goals.
O ti t t P ti ?
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There are four perspectives on operations strategy. Thefour perspectives on operations strategy:
Top-down
Operationsstrategy shouldinterpret higherlevel strategy
OperationsResources
Operationsstrategy should
learn from day-to-day experiences
Bottom-up
MarketRequirements
Operations strategy Perspectives?
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Advantage
Organizations achieve advantage(corporate andcompetitive) by providing
their customers with what they want, or
need, better or more effectively thancompetitors and in ways the competitors
find difficult to imitate.
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Relating it to Corporate Strategies
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Relating it to Corporate Strategies
There are two types of inputs that go into the transformationprocess. The first of these is classified as:
Transforming ResourcesIt is those resources that are used toperform the transformation process. They are generally in theform of labor or capital.
Transforming resources reflect the ownership andscope aspect of Operations Management. OperationsStrategy must provide for corporate advantage
through these.
Operations Strategy
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Profit
Total assets
Output
Total assets
Profit
Output
=
Operations Strategy
Output
Total assets
Output
Capacity
Fixed assets
Total assets
Capacity
Fixed assets
Utilisation Working capitalProductivity of fixedassets
=
Profit
OutputRevenue
Output
Cost
Output
Averagerevenue
Averagecost
=
Operations strategydecision areas
Capacity & SupplyNetwork
Flow andLayout
Processtechnology
Improvement &Planning
Corporate
Strategy
Decomposing the ratio profit/total assets to derive the four strategic decisionareas of operations strategy
CompetitiveStrategy
Return on Assets =
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Transforming Resources - Value
Delivery Capability
Structural Issues primarily influence thephysical characteristic, configuration andarrangement of operational resources.
Infrastructural issues influence theactivities that take place within theoperations structure.
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Structural Issues
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Infrastructural Issues
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First/Business-class cabin,airport lounges, pick-up service
Economy cabin
Wealthy people, businesspeople, VIPs Travellers (friends and family), vacationtakers, cost-sensitive business travel
Wide range, may need to be
customisedStandardised cabin
Relatively high Relatively low
Relatively low volume Relatively high volume
Medium to high Low to medium
First/Business class Economy class
Customisation, extra service, comfortfeatures, convenience
Quality (specification and
conformance), Flexibility, Speed
Price, acceptable service
Cost, Quality (conformance)
Services
Customers
Service range
Rate of serviceinnovation
Volume of activity
Profit margins
Main competitive factors
Performance objectives
Different product groups require different performance objectives
S
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Second-tiersuppliers
First-tiersuppliers
Company A
Company B
Company C
x
Second-tiercustomers
First-tiercustomers
x
xx
x
Focal
level
Upstream Downstream
Supply side of the network Demand side of the network
Flow of Products/ServicesFlow of Information
Supply networks are the interconnections of relationshipsbetween operations
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Operations management and strategyrequires analysis at three levels
Flow between operationsAnalysis at thelevel of thecapacity creation orsupply network
Analysis at thelevel of theoperation
Flow between processes
Analysis at the
level of theprocessFlow between resources
CorporateDecisions
OperationalDecisions
S f t i fl i th ll
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Some factors influencing the overalllevel of capacity
Forecastlevel ofdemand
Consequencesof over/under-
supply
Availability ofcapital
Flexibility ofcapacity
provisions
Changes infuture
demand
Uncertaintyof futuredemand
Cost structure ofcapacity
increment
Economiesof scale
OPERATIONS
RESOURCES
MARKET
REQUIREMENTS
Overall level of
capacity
Th th di i f t h l
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The three dimensions of process technology areoften closely linked
Few, large units ofprocess
technology
Many, small unitsof processtechnology
Process (technology
plus humans) haslow acuity and
judgement
Process(technology plus
humans) has highacuity and
judgement
Technology isintegrated
Technology isseparated
High LowSCALE
High Low
AUTOMATION
High Low
COUPLING
Cost performance
Flexibility performance
O ti t t d i i tl
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Operations strategy decision areas are partlystructural and partly infrastructural
CapacityDevelopment and
organisationSupply networkProcess
technology
Structural issues
Infrastructural issues
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Relating it to Competitive Strategies
R l i i C i i S i
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Operations strategy looks at the competitive strategy todetermine the transformation for this resource.
Transformed Resources It is those resources that aretransformed in some way by the operation to produce
the goods or services that are its outputs
Relating it to Competitive Strategies
What is operations strategy about?
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What youHAVE
in terms ofoperationscapabilities
What youNEED
to compete inthe market
Operationsresources
Marketrequirements
What youWANT
from youroperations to
help youcompete
What youDO
to maintainyour
capabilitiesand satisfy
markets
Strategicreconciliation
What is operations strategy about?
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Operations management and strategyrequires analysis at three levels
Flow between operationsAnalysis at thelevel of the supplynetwork
Analysis at thelevel of theoperation
Flow between processes
Analysis at the
level of theprocessFlow between resources
P l & O i ti
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People & Organization
Li ki t C titi St t
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Linking to Competitive Strategy
This provides the other two perspectives, which areas follows:
The market requirements perspectiveoperations
strategy should satisfy the organization's markets
The operations resource perspectivesoperations
strategy should build operations capabilities
Competitive Strategy in Operations reflect two perspectives
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Competitive Strategy in Operations reflect two perspectivesmarket requirements, and operations resources
Top-down
Bottom-up
Corporate strategy
Business strategy
Emergent sense ofwhat the strategy
should be
Operationalexperience
Operations
resources
Capacity
Supply networks
Process technology
Development andorganisation
Marketrequirements
Quality
Speed
Dependability
FlexibilityCost
Operations strategy reconciles the requirements of the
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Operations strategy reconciles the requirements of themarket with the capabilities of operations resources
Operationsresources
Market requirements
Strategicreconciliation
OPERATIONSSTRATEGY
Market requirements and Operations Resources
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Operations Strategy Relating to Competitive Strategy
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DeliveredPerformance
Short & longTerm costs
OrderLoser
value
The value seesawValue = Performance / Cost
Where:Performance = f (functionality, quality, speed, timeliness, flexibility)
p gy g p gy
Operations strategy is the strategicreconciliation of market requirements withoperations resources
DIRECT getting the fit right
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g g g
Fit means that the operations resources and processes are
aligned with the requirements of its markets.
Marketrequirements
Operations resource capability
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X
Cost efficiency
Variety
A
C
D
B
The efficient
frontier
The efficient frontier view
DELIVERY SYSTEM DESIGN
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A
X C
D
Cost efficiency
Variety
B
The new efficientfrontier
B1
DELIVERY SYSTEM DESIGN
GREAT WEAPONS OF THE STRATEGIST
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1. Increase the contributions of the entire workforce
2. Satisfy customers3. Use advanced technology
4. Use advanced methods
5. Align Process Intent with strategy
6. Design Process Models that optimally achieve Process Intent
7. Provide variety w/o incurring added costs usually associated with it
8. Produce variety with economies of scale
9. Fast response
T d ff
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Trade-offs
No such thing as a free lunch.
You cant 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.
Some factors influencing Process
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gDecisions
Operations strategy is the strategic reconciliation of
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market requirements with operations resources
Tangible and
intangibleresources
Operationscapabilities
Operationsprocesses
Operationsstrategy
decision areas
Customerneeds
Marketpositioning
Competitorsactions
Performanceobjectives
Understandingresources
and processes
Strategic decisionsCapacitySupply networksProcess technologyDevelopment and
organisation
Required performanceQualitySpeedDependabilityFlexibility
Cost
Understandingmarkets
The operations strategy matrix
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The operations strategy matrix
The operations strategy matrix
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Operations strategy
Performanceobjectives Quality
Speed
Dependability
Flexibility
Cost
Developmentand
organisationCapacity
Supplynetwork
Processtechnology
Decision areas
Marketco
mpetitiveness
The operations strategy matrixResource usage
7-Eleven Japan
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7-Eleven Japan
Sells 15.X as much per store as nearest rival
History of cautious expansion and technical and service innovation
Field Counsellors spread operations knowledge (also distance training)
Expansion by territory to reduce distribution costs
Early use of TIS (Total Information System)
TIS controls stock replenishment by twice a day delivery (sales analysed twice
a day)New systems not Internet-based
New service includes:
Bank terminals
Downloading games
Downloading music to MD
Internet ordering and collection
Largest retailer in Japan
QUALITY of productsDistribution centregrouping by
Information sharingand parenting system
RESOURCE DEPLOYMENT
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COST in terms of
minimising
operating costcapital cost
working capital
QUALITY of products
and services
Speed and
dependability combinedto indicate AVAILABILITY
FLEXIBILITY of
response to sales andcustomer trends
Area dominancereduces distribution
and advertising costs
Location of storesSize of stores
grouping bytemperature
Distribution centresand inventorymanagement systemsgive fast stock
replenishment
TIS allows trends tobe forecast andsupply adjustmentsmade
Common distributioncenters give small
frequent deliveriesfrom fewer sources
Number and type ofdistribution centres
Order and stockreplenishment
TIS givescomprehensive andsophisticated analysisof sales & supplypatterns daily
The TotalInformation System(TIS)
and parenting systemspreads serviceideas
Field counsellors withsales data help
stores to minimisewaste and increasesales
Franchiseerelationships
Newproduct/servicedevelopment
Approach tooperationsimprovement
DEVELOPMENT ANDORGANISATION
PROCESSTECHNOLOGY
SUPPLYNETWORKSCAPACITY
MarketCompetitiveness
Pivotal
Critical
Secondary
7-11 JAPAN
Polar diagram representing Process Decisions
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Quality
TimelinessFlexibility
CostSpeed
Mass
Production
Batch
Production
Polar diagram representing Process Decisions
Polar diagram for Newspaper Collection (NC) and
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Cost General recyclingservice
Polar diagram for Newspaper Collection (NC) andGeneral Recycling (GR) services
Dependability
FlexibilityQuality
Newspaper collectionservice
Speed
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C l i c k t o e d i t c o m p a n y s l o g a n .
Operations strategy is
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Operations strategy is
the total patternof decisions
whilst managing the risksof misalignment.
through the on-going reconciliation ofmarketrequirementsandoperations resources
and their contribution to overall strategy
ofany typeof operation ...
that shape the long-term capabilities
so as to achieve a sustainable fitbetween the two
What is strategy?
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gyStrategy is manythings: plan, pattern, position, ployand perspective.
Strategy is ubiquitous. It can be found at the highest levels of corporate,
governmental, military and organizational endeavor and in small, medium and largeunits. It is everywhere.
Strategy is anabstraction, a construct. It has no concrete form or substance.
Strategy is the art of the general. In part, it is about the preparations made beforebattle, before the enemy is engaged. But it is also about avoiding battle and makingcombat unnecessary.
Strategy is a general plan of attack, an approach to a problem, the first step in linkingthe means or resources at our disposal with the ends or results we hold in view.
Strategy is direction and destination. At one and the same time strategy says, "Weare headed thereby this path."
Strategy is a set of decisions made. What business are we in? What products andservices will we offer? To whom? At what prices? On what terms? Against which
competitors? On what basis will we compete?
Wh t i t t i t?
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What is strategic management?
Strategic management is a set ofprocesses to manage and control anenterprise so that over the long-termthrough reconfiguring of scope,resources and competencies of the
organization, an advantage over rivals isachieved that fulfils stakeholderexpectations and meets the needs of thechanging environment.
Market and Resource perspective
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p p
WHAT CUSTOMERS EXPECT FROM A HIGHLYRESPONSIVEBUSINESS
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The service or product is there when needed, e.g. deliveryis convenient, on time, and exact in quantity.
Short time to develop new products or services, delivercustomized or standard products and service, or change adesign to better satisfy customers.
Short time to respond to inquiries, change orderquantities, order mix, or delivery time.
Short time to correct customer complaints, servicefailures, defects, or dissatisfaction, so that they neverrecur.
Short time to provide support materials and services
The product-process matrix and the technology dimensions
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Market requirements
Low volumeHigh variety
High volumeLow variety
High Cost Low
Low
Flexibility
High
A
B
C
Off the diagonal
High flexibilityRedundant capability
High costs
Off the diagonalLow flexibility
Insufficient capabilityHigh costs
Coup
ling
Autom
ation
Sca
le
Loose
Separated
High acuityand
judgement
Many,smallunits
IntegratedRigid Low acuityandjudgement
Few,large,units
Scale versus Scaleability
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Few, large units ofprocess
technology
Many, small unitsof process
technology
Scale/ScaleabilityHigh Low
Scale issuesHigher capital costs
Economies of scale
Vulnerable to failure
All or nothing change
Scaleability issuesCustomised, legacy systems
Specific expertise required
Idiosyncratic processes
In-house development
Scale issuesLower capital costs
Demand matching
Failure redundancy
Upgrading easier
Scaleability issuesReliable architecture
Dispersed system skills
Standard processes
Outsourced?
Automation versus Analytical content
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Process (technology
plus humans) haslow acuity and
judgement
Process
(technology plushumans) has high
acuity and
judgement
Automation issuesWhat degree of support is
required?
How flexible is the process?
How dependable is the process?
Analytical content issuesHigher capital cost
Parallel processing
Complex connectivity
Automation issuesHigher direct costs
Human control andjudgement
Human creativity
Analytical content issuesLower capital cost
Simple sequential rules
Often single point of
connection
Automation/Analytical contentHigh Low
Coupling and Connectivity
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Technology is
integrated
Technology is
separated
Coupling issuesHigh capital costs
Better synchronisation
System efficiency
Connectivity issuesPlatform independence
Bandwidth available
Reliable middleware
Coupling issuesLower capital costs
Fragmentation or flexibility?
System robustness
Connectivity issuesCustomised, legacy
systems
Hard-wired
Restricted access
Coupling/ConnectivityHigh Low
Speed or rigidity?
Security concerns
Control flexibility
Process Decisions Make or Buy
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Process Decisions - Make or BuyThere are different categories of components, sub-assemblies and other inputs that go
into an organizations products. These categorizes are as follows: Proprietary items: Proprietary items are based on the design of the supplier and used
in the end product without change in its basic form or characteristics, for e.g.,
headlights, and dashboard instruments.
Standard components: These components are universally designed for general use.
For e.g.,, standard or customized fasteners are used in most manufactured products.
Specialty components: These components are specialized in nature like the tyreswhich though used in all vehicles are a speciality product supplied by manufacturers of
rubber products.
Commodity type items: These items are supplied either to standard specifications, or
customized to the requirements of the user by the supplier. In the case of an
automobile manufacturer, steel, would constitute such an item.
Supply Chain Options
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Supply Chain Options
The components, sub-assemblies, etc. those that are designed for
the product can either be manufactured or outsourced. These can
be related to what the management considers as:
Core, and
Non-core activities.
The designation is relative. Core and non-core activities can
change depending on the perception of management.
Supply Chain Expansion
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Product components, andInfrastructure components
To protect markets and the uniqueness of products
Framework for Outsourcing
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Operations performance should be seen as awhole supply chain issue
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Benefits of looking at the whole supply chain
Puts the operation into its competitive context
Helps identify the key players
Shifts emphasis to the long term
Sensitises the operation to macro changesChanges the nature of the supplierbuyer relationship
Types of supply relationship
w er
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Partnership
supplyrelationships
Do nothing Do everything
The character of internal operations activity
Virtualspot
tradingResource scope
Long-termvirtual
operation
Vertical
integration
Traditionalmarketsupply
Typ
eofinter-firm
contact
Transaction
al
many
suppliers
Close
few
supplie
s
DRIVING CHANGE
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Delivery SystemsRedesign
New Process IntentNew Process Model
New Learning andImprovement System
New Value-AddingTechnology
ContinuousImprovement
Reduction of Valueless time
Valueless activity Valueless variance
Often
non-linear
Usually
linear
The sectoral scope of operations strategy
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Products or services?
Manufacturing or non-manufacturing?
For profit or not-for-profit?
Broad strategic objectives for a parcel delivery operationapplied to stakeholder groups
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SocietyIncrease employment
Enhance community well-beingProduce sustainable productsEnsure clean environment Customers
Appropriate product orservice specificationConsistent quality
Fast deliveryDependable delivery
Acceptable price
SuppliersContinue businessDevelop supplier
capabilityProvide transparent
information
ShareholdersEconomic value from
investmentEthical value from
investment
EmployeesContinuous employment
Fair payGood working conditionsPersonal development
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