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Resource

Management—

Strategies and Tools for

Success

Rick Donahoue

CPIM, CSCP

Master IDP Instructor

Today’s Challenges

� Understanding competitive strategy and the four most common competitive strategies

� SWOT analysis

� Demonstrating a high level overview of the four competitive strategies

� Review of the five classic performance objectives, and other tactical planning considerations and how they support the competitive strategy

� Explanation of how a company’s supply chain needs to be aligned with the competitive strategies as well as the five performance objectives

� Exercise demonstrating a high level overview of a distribution network optimization that incorporates strategy, operations initiatives and tactical planning/execution

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Why Plan

• Alice: Which way should I go

• Cheshire Cat: That depends on where you are going

• Alice: I don’t know where I am going

• Cheshire Cat: Then it doesn’t matter which way you go!

• Lewis Carroll – Alice in Wonderland

What is Your Role

• Strategic

• Tactical

• Operational

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Helium Stick

Demonstration of strategy

What is Strategy?

“Strategy is what makes you different”

Michael Porter

• Harvard Business Review, 1996

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Effective Communications

• “The single biggest problem with

communication is the illusion that it has been

accomplished.”

• - George Bernard Shaw

Purpose of Setting Strategy

• Sets the company’s game plan for winning in the marketplace

• Requires being disciplined about trade-offs of what you will and will not do

• Is a shared statement of the specific business you want to be in, how you will differentiate your customers’ experience and what is the path to success

• Informs, aligns and inspires the employees to give their best for something they feel is worthwhile

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Competitive Advantage

• The unique value that a company can deliver to a chosen market that is better than any of its industry rivals.

• There are external and internal sources of competitive advantage.

• An internal view, or resource view, of sources of competitive advantages states that a company can create a sustainable advantage in their market if they can build and maintain a unique set of strategic capabilities that are difficult for other firms to replicate.

Strategic Capabilities

• One possible definition for Strategic

capabilities….

– a unique set of capacities, resources, and workforce

skills that create a long-term competitive advantage for

an organization.

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Strategic Planning Process

Evaluate results and

refine

What Strategic Planning is Not

• It is not forecasting, although this plays a key role into the future of any plan

• It is not a simple application of quantitative or qualitative techniques to be used in planning your business

• Strategic planning is concerned with making decisions today, based on today’s knowledge, that will impact the future of the organization, so it is not a wish list but something executable

• Strategic planning does not eliminate risks but it does help reduce them. Identifying and developing a plan to minimize risks, both today and in the future, is a key element of strategic planning.

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Generic Strategies

• Cost leadership

Lower overall costs with products/services aimed at either a narrow or wide market segment

• Differentiation

Creating a product/service with diverse attributes valued by customers

• Focus

Focuses on a narrow market segment with either cost considerations or customers willing to pay a premium for the product or service

Cost Leadership

• Competes on price

• Cost reduction is a key element of this strategy, driving down

costs is instrumental to this competitive advantage

• Targets a broad market segment

• This strategy requires the organization to be well-known as a

cost leader and very difficult to challenge in it’s targeted

market

• This strategy is very effective where customers focus on price

over any of the other generic operational objectives, speed,

quality, dependability and flexibility

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Cost Leadership

Success Risks

Can make significant capital investment

when needed

Who is the competition

Design for efficient manufacturing and

distribution

Technology improvements can level the

playing field or even allow the

competition to surpass the organization

Extremely efficient supply chain What could be the aftermath of a price

war

Is the model sustainable

Differentiation Strategy

• This strategy requires the development of a product or service

that provides a set of unique attributes the customer desires

• Customers believe the product to be different/better than

what the competitors can provide

• Customers often are willing to pay a higher price for the

product or service

• Differentiation can be based on image, quality, special

features as well as other attributes

• Strong marketing is usually key to the success of this strategy

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Differentiation Strategy

Success Risks

Access to leading technology/research Cost are often higher in this strategy than

other competitive strategies

Strong sales/marketing team, who can

communicate/emphasize the strengths of

the product or service

Price can become an issue/concern over

the uniqueness to the product or service

Known as a leader in quality and

innovation

Is the uniqueness still needed, order

winner

Competitors, what is their strategy, might

it be more focus strategy which could lead

to a greater differentiation in the market

Focus Strategy

• Focuses on a narrow market segment, one that is geared

towards achieving either a cost advantage or differentiation

• Customer needs can be clearly identified and address within a

more focus approach

• Customer loyalty is one of the key factors here which also

becomes a deterrent to others competing directly with or for

your customer base.

• Typically the volume is lower n this strategy thus reducing the

organizations ability to effective negotiate with their

suppliers. However, if you are pursuing a differentiation-focus

strategy you might be able to pass on the higher cost

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Focus Strategy

Success Risks

Lower investment in resources due to the

benefit from specialization

Due to the narrow market growth

opportunities can be limited

Better understanding of the market

segment and allows entry into a new

market easier and less costly

Sudden change in customer needs or

decline in the market

Customer loyalty Knock off products

Pigeon hole into a particular market may

inhibit moving or expanding into other

market sectors

Generic Strategies

Attribute Advantage

(low cost)

Advantage

(product

uniqueness)

Broad

(industry wide)Cost

leadershipDifferentiation

Narrow

(market wide)

Focus strategy

(low cost)

Focus strategy

(differentiation)

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Strategy

•Increase Gross

Profit.

•Decrease

Operating Cost

Strategy

•Capital

Deployment

•Cost of Capital

Tasks

•Increase revenues

•Decrease

Manufacturing

costs

•Reduce

Distributionst Cost

Tasks

•Reduce Inventories

•Improve capital

Planning

•Reduce cost of debt

BUSINESS STRATEGY examples

SWOT Analysis is…

• SWOT is a structured planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit.

- Define realistic goals

- Improve capability

- Overcome weaknesses with strengths

- Identify threats than can be turned into opportunities

As defined by Wikipedia

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� Characteristics of the business

or team that give it an

advantage over others in the

industry

•Superior product quality

•Lowest price

•Location

SSSS � Characteristics that

place the firm at a

disadvantage

relative to others•Inferior location

•High overheads

•A lack of R&D

W

� External chances to make

greater sales or profits in the

environment

•A regulatory or tax change

•A high-profile event

(marketing opportunity)

•An untapped market

•A gap left by a failed

competitor

OOOO� External elements in the

environment that could cause

trouble for the business

•Unfavourable regulation

changes

•A new entrant into the

market

•Problems with the economy

•Market shrinkage

TTTT

SWOT AnalysisSWOT AnalysisSWOT AnalysisSWOT Analysis

Strengths and Opportunities

• A key question is how can I utilize a strength to maximize any given opportunity, as an example:

• Strength’s were listed as superior product quality, lowest price and location. Whereas the opportunities this could maximize might be untapped market or a gap left by a failed competitor.

• Similarly how can we strengthen a weakness to capitalize on an opportunity:

• By focusing on our lack of R&D could that maximize the opportunity for untapped market , failed competitor or any other marketing opportunity

• Finally how can we optimize our strengths to address any potential threats:

• Superior quality versus a new market entrant

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Interaction of SWOT

Strengths

•Superior product

quality

•Lowest price

•Location

Weakness

•Inferior location

•High overheads

•A lack of R&D

Opportunities

•Tax change

•High-profile event

•Untapped market

•Gap left by

competitor

Threat

•Unfavorable

regulation

•New market entrant

•Economy

•Market shrinkage

Leverage

Problems

Price is Right

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Competitive Advantage

• Hand power mower is geared towards those individuals with a small area to cut and price (low cost strategy) is important to the customer

• Push mower could be for a variety of applications from small areas to those more energetic with larger areas to mow (either broad differentiation or focus low-cost strategies)

• Riding mower often would be considered a broad differentiation strategy, although price is important it may not be the order winner. A particular attribute might be more important to the customer .

• Specialized tractor, in this case is utilized for a golf course, thus lending itself strategy to a Focused Differentiation

Question

• What might be some of the considerations for

each of the products when considering a

SWOT analysis?

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Porters Five Forces

Competitive

Rivalry

Within an

Industry

Threats of New Entrants

Bargaining

Power of

Customers

Threats of

Substitute Products

Bargaining

Power of

Suppliers

Threat of New Entrants

• Is influenced by some of the following

attributes:

– Market profitability

– High fixed Cost

– Economies of scale

– Brand identity

– Capital requirements

– Industry growth

– Ease of switching customers

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Bargaining Power of Customers (buyers)

• The bargaining power of customers is the ability of

customers to put pressure or influence the buyers

ability to purchase product or services.

– Number of buyers is small

– Volume

– Cost of switching

– Substitute products

– Pricing and the sensitivity of the market

– Presence or absence of customer loyalty programs

Threat of Substitute Products or Services

• The existence of alternative products, pricing,

quality, availability as well as other factors

increases the likelihood of customers to switch

to alternatives. Some examples might be:

– Coke versus Pepsi

– Online news versus hard copy print

– Sugar versus sugar substitutes

– Movie theater versus Red Box, Netflix or on

demand channels

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Bargaining Power of Suppliers

• Suppliers of materials and/or services to an

organization can be a source of power over the firm.

This can occur when:

– Number of suppliers is limited

– There are few substitutes

– Switching cost of suppliers is high

– Supplier availability

– Strength of distribution channel

– Uniqueness of the product/service

– Availability of the product or service

Competitive Rivalry

• Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:

– Sustainable competitive advantage through innovation

– Competition between online and offline companies

– Level of marketing expense

– Powerful competitive strategy

– Many Players with no dominant player

– Mature industry with little growth

– Growth can only occur through eliminating competition, acquiring your competition or stealing from your competition

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Changing the Forces

• Change in buyer demand

• Change in long-term market growth

• Product and marketing innovation

• Technology change

• Regulatory influences

• Change in uncertainty

• Economy

• Globalization

• Understanding and leveraging these forces will assist in

planning action plans identified in your SWOT

Tactical Planning

• Tactical planning is the specific actions you take in implementing your strategy. These actions comprise what is to be done, in what order, using which tools and personnel. It is the basis for determining facility size, layout, process types, process technology, infrastructure choices to name only a few of the key decisions made during this phase.

• Another key element and decision made during this phase is tied directly to the five performance objectives.

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Five Performance Objectives

• Speed: for companies competing in markets with rapid innovation, new product and service introduction are key

• Dependability: product or service results are repeatable in performance such as on-time delivery and meeting of objectives

• Flexibility: how responsive to both internal and external demands or events

• Quality: although a given, often can be considered an order winner, but at a minimum the product/service must meet both conformance and specification quality.

• Cost: is internally focused on a companies ability to control cost in the transformation process.

Adapted from APICS SMR

Integrated Measurement Model

• Defects per unit

• Level of complaints

• Mean time between failures

• Lateness complaints

• Customer query time

• Throughput time

• Time to market

• Product range

• Transaction costs

• Labor productivity

Quality Dependability Speed Flexibility Cost

Customer satisfaction

Agility Resilience

Market strategic

objectives

Operations strategic

objectives

Financial strategic

objectives

Overall strategic

objectives

Broad strategic measures

Functional strategic measures

Composite performance measures

Generic operations performance measures

Examples of detailed performance measures

High strategic relevance and aggregation

High diagnostic power and

frequency of measurement

Source: Operations and Process Management, Slack et al., 2nd ed., 2009; reprinted by permission of Pearson Education

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Competitive Strategy Performance

ObjectivesPerformance

objectivesPerformance characteristics relating to competitive

strategy

Quality • Level of design (specification) quality• Percent of products and services conforming to specs

Speed • Lead time from inquiry to quotation• Lead time from order to delivery• Lead time for technical advice

Dependability • Percent on-time delivery of complete orders• Percent of new product introduction on schedule• Consistency of service and quality

Flexibility • Range of features, sizes, coatings, and so on• Rate of new product introduction• Ability to change order quantity, composition, and time

Cost • Product and service price• Price of technical advice• Discounts available• Payment terms

Source: Adapted from Operations and Process Management, Slack et al., 2nd ed., 2009; reprinted by permission of Pearson Education

Tactical Planning Considerations

• In addition to the 5 generic objectives companies need to align other structural and infrastructure choices with their competitive strategy:

• Process types: Project, job shop, batch, mass or continuous

• Layouts: Fixed position, functional, cell or product

• Technology utilized in the process, automation, type of equipment and information

• Volume and variety considerations

• Capacity: lead or lag strategy

• Infrastructure choices such as centralized versus decentralized or hierarchical versus horizontal

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Supply Chain Alignment

• The supply chain must be set to support the desired flow of the product and services as dictated by the performance objectives. For example:

• Quality: Having the right quality at the right time and place with the right price

• Speed: Cycle time from order process to material availability for the transformation process

• Dependability: the five rights, place, time, quality, quantity and cost

• Flexibility: ability to adapt to market changes either up or down

• Cost: managing inventories, transaction cost, and direct material cost

Supply Chain Relationships

• Relationships are key in supporting the performance and strategic objectives. A strong relationship can augment the organizations competitive strategy in a number of ways, here are just a few:

• Capacity

• Design innovation and speed

• Volume flexibility

• Inventory/distribution concerns

• Technology advances

• Price protection

• Lower transaction cost

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Supply Chain Relationships cont

• Although not always a favorite topic, a key supply

chain relationship could be through outsourcing.

Outsourcing could augment the organizations

capacity strategy, focus on core competencies, design

integration, capital plan as well as numerous other

key elements of the organization.

• One may determine from an operational perspective

to outsource or better said utilize a 3PL or 4PL to

manage their distribution, traffic and inventories of

product throughout the downstream supply chain.

Supplier Support

• Supplier considerations need to be able to support the five

generic performance objectives, in particular the one key

objective that drives your business. Some examples for

consideration might be:

• Number of suppliers, this could impact cost

(transaction/economies of scale and so on), flexibility and

speed for increase or decrease in market demand,

dependability, and clearly quality considerations.

• Better communication and collaboration can lead to a

reduction of the Bullwhip effect

• Lead-time reduction considerations

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Operational Planning

• Operational planning is where the rubber meets the road, here we get into the level of detail for key business processes such as: focuses on the production, equipment, personnel, inventory and processes of a business. An operational plan uses an organization's financial results to analyze profitability. The plan needs to include:

• clear objectives

• quality standards

• efficiencies and utilization objectives

• personnel and equipment needs

• implementation timetables along with continuous improvement initiatives

• a process for monitoring progress.

Operational Planning

• Although at the tactical level we address business needs such

as layout, capacity, personal, location, at the operational level

we now need to address the execution.

• Layouts: Project, process (functional), cellular or product or

some combination will be open for execution. Pending the

competitive strategy coupled with the performance objective,

will dictate the layout. For example, a company has a low cost

competitive strategy, more than likely they would utilize a

product or cellular layout. However if they have a broad

product offering this layout does not necessarily support

flexibility.

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Operational Planning cont.

• A low cost competitive strategy one would consider rate base scheduling, Kan-Ban with finite loading/scheduling.

• Using a differentiation strategy one would consider shop or work order packets/scheduling and infinite loading/scheduling

• The question becomes when to add capacity, again in a low cost I might take the approach of a lag whereas in a differentiation I would take a lead strategy

• Another consideration is producing at a level or chase, which one do you think best supports low cost?

Operational Planning

• We only touched on a few of the key execution

decisions that come about as a result of the

competitive strategy.

• The question you need to take away from this is

what is your companies competitive strategy and

how can you support or influence the outcome to

better support the needs of your organization and

ultimately your customer!

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Strategy and Execution

• Strategy

– Adapt

• Execution

Strategic

Capabilities

Business

Model

Execution Culture

Align

Systems

Engage

People

Execute

Market

Segmentation

Strategic

Intent

Continuous feedback loop between strategy and execution

Key OutputsFinancialCustomerWorkforce

Adapted from IBM’s Business Leadership Model

Around the World

Distribution network exercise

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Questions, commentsor any closing thoughts

RICK DONAHOUE CPIM, CSCP

Thank you

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Survey

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