Operations and Supply Chain Strategy

Chapter 02 – Operations and Supply Chain Strategy

2-1

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

From Chapter 2

Operations and Supply Chain Strategy

Suggested Answers to Discussion Questions

1. Why should the firm never outsource its core capabilities? What happens if the firm is

approached by a supplier who is willing to supply goods and services based on these core

capabilities at a significantly lower price? What should the firm do?

Its core capabilities are the source of the ability of the firm to compete. If you outsource them,

then you run the risk of “teaching” someone (i.e., your supplier) about what you do and what

makes you successful. If they can learn from you, then they can become a strong competitor of

yours.

If you are approached by a firm that is willing to supply goods and services based on your core

capabilities, then you really have two options before you. The first is to see if they are really

able to do a better job of executing these core capabilities than you are. If that is the case, then

you have two options before you: (1) learn from them or (2) get out of the market – they are

better than you. The second, assuming that they are not able to do a better job of competing on

your core capabilities, is to turn down their offer. They are obviously willing to take a short term

loss in exchange for a long term win (gained when they learn about your core capabilities).

2. Apply the corporate/SBU/functional planning hierarchy introduced in this chapter to

your university/college or business. What would be the equivalent to corporate planning?

SBU planning? Functional Planning?

Chapter 02 – Operations and Supply Chain Strategy

2-2

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

In a university, you would find the following relationship

Strategic Planning Hierarchy

University Equivalent

Corporate

University

SBU

College

Functional

Department

3. How would you define capabilities within a school or business?

Again, the capabilities are those specific skills or processes that an organization develops to

solve or address specific types of problems. Consequently, using this approach, the capabilities

of an organization such a school or business can be found in its faculty (their strengths, and

research focus), the pedagogy by which material is taught, and the focus of the school (finance,

supply chain, operations management).

4. When can a consumer be a critical consumer? In other words, when does it make sense

to focus on consumers such as retail stores, distributors, or buyers, rather than on the end

consumer?

A consumer such as a retail store, distributor or buyer becomes a critical customer when the

consumer busy based on factors such as ability. For example, consider snack foods. Few

consumers really have strong brand preferences; they tend to buy what is available.

Consequently, the firm has to target the person or function that has the greatest impact on

availability. In this case, it would tend to be the retail store, distributor or buyer. By the way,

this is the strategy that Frito-Lay has pursued and it has been highly successful.

5. A critical concept introduced in this chapter was that of the value proposition. Explore

two competing products (e.g., RIM’s Blackberry and Apple’s Iphone). Identify the

underlying value propositions present in these products and how this proposition is evident

in the resulting products.

Chapter 02 – Operations and Supply Chain Strategy

2-3

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

To understand the differences between the Blackberry and the IPhone, consider the following

table:

Trait

Blackberry

IPhone

Value Proposition

To offer a product that is an

extensive of MS Outlook and

Entourage so that the user can

work on business wherever

they are

To offer a product that

essentially becomes an

information and

communication system for the

user.

How is Value Proposition

implemented

Presence of a real keyboard

Security in the applications

Very good business

applications

Extreme durable so that the

user never has to worry about

its inability to fulfill its value

proposition

Extensive collection of

applications

Ability to host itunes and to

play music recorded or stored

using itunes

Large number of applications

that are communication

oriented (e.g., youtube, safari,

photos).

6. Core competencies are critical issues in operations management. Are there any instances

in which a firm’s core capabilities can be a liability rather than an asset?

This situation occurs when the market has changed and it no longer values the core capabilities

offered by the firm. In this case, the problem is that since core capabilities are so central to the

firm and so embedded in the firm’s character (i.e., culture), the challenge facing the manager

who wants to change the core capabilities to something that the market values is that the

organization and its culture will “fight” that person. People know that the existing approaches

worked in the past; there is uncertainty regarding the new capabilities; why change

Chapter 02 – Operations and Supply Chain Strategy

2-4

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

7. Fit is critical to the development and maintenance of a successful operations strategy.

Suppose that we are faced with a firm in which there is a lack of fit between the outcomes

desired by the critical customer, the value proposition, and the firm’s capabilities. What

options are available to the firm in the short term when dealing with this lack of fit? What

is the impact of the lack of fit? What are the implications of the firm trying to improve the

fit?

Lets begin with the second question – the impact of lack of fit. When there is a lack of fit, we

can expect the following outcomes to occur:

• Customer dissatisfaction to grow.

• Internal dissatisfaction grows (because our people feel that they are trying to do a good

job but the customers don’t seem to appreciate).

• Profits fall (as cost increase because we are making the system do something that it is

designed to do).

• We create opportunities for our competitors. We have a gap between what the customer

wants and what the system can do – such gaps are attractive for competitors (either

existing or new).

When faced by a lack of fit, the firm can do the following:

• Change the critical customer being pursued (to one more consistent with the capabilities

that we offer)

• Change the capabilities offered

• Change the value proposition

• Live with the mismatch (not a long-term solution),

Chapter 02 – Operations and Supply Chain Strategy

2-5

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

Irrespective of the option, the firm must be prepared to invest time and resources in

implementing the options.

8. Suppose that you are the owner of pizzeria that is located near to a university or college.

How could you use the concepts of Order Winners, Order Qualifiers, and Order Losers to

help develop and implement an attractive business model?

These concepts could be used to identify what the competitors are doing in terms of pizza and to

identify the opportunities for a new pizzeria. For example, we know that Lil’ Caesar’s competes

by focusing on availability and cost; Domino’s focuses on delivery and price (and now on

quality, if we are to believe the recent advertising campaign). We could choose to compete by

focusing on variety (different special pizzas every week), or quality at a reasonable prize.

9. Why should metrics be regarded as primarily methods of communication? Think about

the relationship between a metric, the strategy, and the task being carried out by an

operations person.

What a metric does is to restate the strategy into terms that make sense to the person. For

example, what a metrics does is to essentially say to a user, “for our firm to compete on customer

service, you must ensure that when managing inventories, you maintain a certain minimum level

of inventory accuracy (e.g., 98%), that all orders are filled with 20 minutes, and that we strive to

fill the orders as completely as possible (we strive for a 99% line fill rate – i.e., on average, the

customer should expect that we will fill at least 99% of the orders by line).

10. A metric consists of three elements: the measure, the standard (what is expected), and

the reward. Why are all three elements critical? What happens to the effectiveness of a

metric when one of these three elements is missing?

Chapter 02 – Operations and Supply Chain Strategy

2-6

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

whole or part.

To answer this question, consider what happens if you remove any one of the three elements:

• Without a measure, the person has no way of assessing themselves or their performance.

• Without a standard, they do not know what is an acceptable level of performance.

• Without a reward (punishment), then their ability to do well or poorly does not matter

since they are not rewarded for good performance nor are they punished for inadequate

performance.

11. What is the impact of sustainability on the business model? How does it affect issues

such as the Order Winners, Order Losers, and Order Qualifiers? How does it affect the

identification of the critical customer? When addressing this question, look up such

products as Chrome or Timbuk2 for bags or Teva or Mio or Timberlane for shoes.

Sustainability means that we focus not only on the long-term survivability of the firm but also on

the ability of the firm to reduce its level of pollution (this concept is discussed in greater detail in

Chapter 17). With a greater emphasis on sustainability, we can expect to see sustainability move

to being an Order Qualifier (for many), an Order Loser (if you fail to provide the appropriate

levels of sustainability, we will not buy from you again), or even an Order Winner (we

emphasize sustainability in our decision). This issue may cause us to target new critical

customers – customers for whom sustainability is a critical consideration and for which they are

willing to pay a premium. The reason for the companies is that they are firms that have chosen

to compete on the basis of sustainability.

12. Why is there a need for the four dimensions of the balanced scorecard?

Without balance, the firm will tend to focus on only one or two of the major dimensions – thus

causing long term problems. All four dimensions are important because they deal with issues

critical to the firm and its long-term success:

Chapter 02 – Operations and Supply Chain Strategy

• Financials – we need to emphasize the need to make money

• Customer support/service – we succeed only to the extent that the customer is happy with

what we are doing

• Processes – we need to achieve financial performance and customer service through

processes rather than a lot of hard, uncoordinated work.

• Building for the future – we must recognize that ultimately everything that works in the

short term will not work in the long-term.

13. As North American firms increasingly turn to product innovation, the management

and protection of Intellectual Property becomes an important issue. Discuss how

intellectual property considerations can affect such areas in supply chain strategy as:

a. Supplier relationship

b. Supplier contracts

It can affect whether we have a close relationship (close because we need to work with suppliers