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Strategy 1

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... Our supply chain s total costs equation is determined by our strategy Cost leadership (need not be low ... (need not be low price) strategy South West Airlines ... – PowerPoint PPT presentation

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Title: 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.
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