Strategy 1

1
StrategyWhat is a strategy in general
?Why do we need a strategy?What does a strategy
tell us?Decisions that must support the strategy

• Infrastructure (management)
• service encounter
• quality
• information
• capacity ?

• Structure
• delivery system
• facility design
• location
• capacity planning

2
Strategy concepts

• Almost every decision we make must support our
  companys (supply chains) strategy
• Decisions that do not support the strategy tend
  to lower the value received by our customers.
• This happens far to frequently because most
  managers are pushed in other directions by
  company policies and procedures
• Go back to research discussed in previous class
• Measurement systems are often designed to foil
  strategy.
• Hall Mark DC / Harlan / Armor
• Managers do not understand the concept of total
  cost

3
Total cost

• Total cost is one of the most important ideas I
  can disseminate to you.
• Price - is the dollar expenditure to purchase an
  input
• Total cost is all of the costs associated with
  the input
• The two often differ significantly both within an
  organization and in different organizations.
• The total cost of an item will be determined by
  our strategy and can include price, costs of
  poor quality, costs of late shipments, and many
  other costs. The total cost equation should also
  quantify the benefits of things like faster
  delivery (which may have a higher price)

4
Total cost example

• You are in charge of buying food for an important
  client meeting. Your boss instructs you to spend
  as much as you have too, but no more. So you have
  the supermarket cater the affair by preparing a
  20 dollar cold cut tray. In addition, you buy a
  few bottles of soda. To lend an air of class to
  the event you also purchase some quality
  disposable implements and plates. What is the
  total costs of this event if the client is
• Buying your service because of your quality
  reputation?
• Is a customer who wants you to help them market
  their environmentally (and animal) friendly
  products ?
• A customer known to make purchase decisions based
  entirely on getting the lowest price ?

5
Some real world examples of managers not
understanding total costs

• Caterpillar running low volume engines in large
  batches to save on set-up costs
• Bridge in Kansas
• Saving 10 cents a pound on ground beef
• Getting paid when the street is re-paved in
  Philly
• Or the sinking expressway
• Our strategy determines the total cost of a
  decision (note that in general price does not
  vary)

6
Our supply chains total costs equation is
determined by our strategy

• Cost leadership (need not be low price) strategy
• South West Airlines
• General Motors
• McDonalds
• what has the market told McDonalds about low
  prices ?
• Post office
• Wal-Mart
• OSU ?
• We say value but

7
Some generic cost leadership activities

• Low cost customers (segmentation)
• banks who only deal with people with good credit
• TIAA CREF
• Standardization
• McDonalds
• Southwest
• Reduce unnecessary interactions
• ATM
• Dell
• Taking a service off line - separate the customer
  from delivery of the service (can you say
  inventory buffer)
• Economies of scale
• Film processing

8
Differentiation strategy

• Creating something that is unique (often higher
  quality, faster delivery, or a level of
  innovation not available elsewhere)
• Ritz Carlton Hotels
• Federal Express
• Herman Miller office furniture
• Harvard University
• Dell Computer
• Subway Sandwiches
• One hour photo shops

9
Some generic differentiation activities

• Tangibility important for services
• many car dealers wash your car when it comes in
  for service - why?
• Customization of a standard product
• people pay a bit more and wait a bit longer at
  Burger King to have it their way
• an insurance agent who comes to your house on
  your time
• Quality
• Lexus
• Speed / reliability Federal Express

10
Focus

• We deal with only a specific segments of
  customers - this is often a version of
  differentiation.
• Basically the key distinction between focus and
  differentiation is attempted market penetration.
• Many regional operations have a focus strategy
• Fox sports has different regional broadcasts
  (focus)
• ESPN is the all sports for the entire country
  network (differentiation)

11
A different and potentially more useful way to
view strategy

• Our strategy is our stated way of satisfying (we
  hope) customers. But it ignores one key element
  customer expectations. So we have another way of
  looking at the way we meet customer expectations
  for
• Availability Convenience
• Dependability Price
• Quality Reputation
• Safety Speed
• Selection Customization
• Often put into 4 generic categories of price,
  quality, delivery, and flexibility

12
Order winners verses qualifiers

• On any of the previously listed (not an
  exhaustive list) criteria our customers will have
  a minimally acceptable level which our company /
  supply chain must achieve to be considered as a
  potential provider.
• The minimal accepted level is an order qualifier
• On some criteria our company / supply chain will
  exceed minimal expectations. If customers value
  this additional performance we will have a way of
  winning orders.
• Order winners are what customers use to chose
  between qualified (meet order qualifiers)
  suppliers of a process

13
When flawless isnt good enough

• Recent JD powers data.
• Traditional measure of auto quality defects per
  car
• This is a conformance based measure of quality
• Today the American firms do pretty well on these
  measures certainly better than ever before
• Customers now expect a car to be defect free in
  other words doing this is not enough it is an
  order qualifier
• Now quality encompasses other elements of quality
  such as functionality, aesthetics, fit and
  finish, and so on.

14
Order winners and qualifiers a way to view
competitive priorities

• Order qualifier those attributes our product or
  service must have to compete
• Airline
• safety
• access (to destinations)
• Fast food
• safety
• quick (drive in?)
• low price
• easy access

• Order winner those attributes that differentiate
  our product or service
• Airline
• price (Southwest)
• speed (British air)
• access (American)
• Fast food
• speed (McDonalds)
• customization (Burger King)
• healthy (Sub-way)

15
Conclusions

• Our strategy should guide all other decisions.
• We should purchase goods and services on a total
  cost basis not a price basis.
• Our total cost equation is partially determined
  by our strategy
• Classical definitions of strategy (cost
  leadership, differentiation, focus) may tell us
  how we win orders but they do not include order
  qualifiers.