Supply Chain Chapter 3
Firms compete for:
Market Share (Customers)
Revenue and profits
Competitive Advantage
Low-cost leadership: Selling products/services for lower $ than comp
Only do this if your costs are lower than your competitor's costs
More efficient operations allow a lower production cost
Differentiation: Charging a premium price for your products/services
Products/Services need to be high-quality to warrant a higher price
The Five Competitive Forces: Competition is often looked at too narrowly by managers
The Five Forces:
Rivalry among existing competitors
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of substitute products/services
Five forces help you understand what is causing profitability and where constraints are in any industry.
Rivalry: can be positive-sum or zero-sum.
Zero-sum game: Your opponent has to lose for you to win
Positive sum game: Your opponent doesn’t have to lose for you to win
Strategy formulation: should start with industry analysis.
The fundamental purpose of strategy is alignment.
Mission Statement: States a firms purpose
Clear, concise, and comprehensive
Unique Value Proposition: A set of promises you make to a target audience that are different from other alternatives.
Value proposition is a promise of value
Benefits can be of three types:
Functional
Economic
Emotional
3 reference points for differentiation (uniqueness) of your value proposition are:
Customers buying from competitors
People buying nothing
Yourself
Claims of differentiation: must be made to a specific target audience because value is contextual.
Evidence used to back up your claims:
1. Objective features
2. Customer Testimony
3. Third-party rating agencies
4. Your own evidence
SCOR Model (Supply Chain Operations Reference):
Identifies basic management practices at different operations levels, for benchmarking and strategy deployment
Process Capacity
Maximum capacity
Highest achievable level under ideal conditions (for a limited time)
Effective capacity
Achievable level under normal conditions(for an extended time)
Capacity utilization
How much available capacity is actually used
Idle capacity
Capacity not being used
Market Opportunity: Customer with needs and wants with a disposable income
Goal of investing in capacity is to capture market opportunity
Sales and marketing departments are important in forecasting demand to be captured
Too much capacity – wasted resources
Too little inventory – wasted opportunity
Productive assets: Builds infrastructure needed to produce product/service
Technology
Physical Space
Labor
Investment:
When to invest
How much to invest
What to invest in
Theory of Constraints
Every process has a constraint
Bottleneck:
Any activity that slows the flow down in a process.
Also, any activity where demand exceeds capacity.
You will have many constraints, but only one will be holding you back
Serial/Sequential Structure: Processes occur one after another
Parallel Structure: Two or more processes occur simultaneously
Every process has a variance that consumes capacity
Variability wastes capacity because variation increases costs
Variability increases changeovers, complicates production, generates rework, causes downtime, and more.
You can deal with variability by: Eliminating a root cause, adding a buffer or flexibility to the system.
Every process must be managed as a system
Changing one element of a process may impact other elements
Process elements are interdependent
Activities
Inputs/Outputs/Flows
Process structures
Management policies
Process measures
Metrics should address performance that are important to customers and the organization
Your measurements should have evidence to back it up
Continuous Improvement
Business Process Reengineering (BPR)
Everything that should be changed, will be changed all at once. From the ground up, redesign everything.
Kaizen
Small incremental improvements. These improvements are made constantly and the idea is that over time the process improves significantly. Complete opposite to the BPR process.
Process mapping and analysis
6 steps:
Decide your goal
Goals should be consistent with corporate and operational strategy, realistic
Identify the critical process
Critical processes:
Bottleneck
Visible to the customer
Consumes largest amount of resources
A shared process
Document the existing process
Collect information from relevant employees, customers, suppliers
Collect historical records
Observe the process in action
Analyze improvements
Value adding activities:
Moves an item closer to what the customer desires
Generates revenue
Necessary but not value adding
Waste generating
Recommend changes
Gather improvement opportunities
Combine those ideas in a coherent way
Prioritize identified process improvements
Implement changes
Happens in stages
Requires trial and error
Gradual
Firms compete for:
Market Share (Customers)
Revenue and profits
Competitive Advantage
Low-cost leadership: Selling products/services for lower $ than comp
Only do this if your costs are lower than your competitor's costs
More efficient operations allow a lower production cost
Differentiation: Charging a premium price for your products/services
Products/Services need to be high-quality to warrant a higher price
The Five Competitive Forces: Competition is often looked at too narrowly by managers
The Five Forces:
Rivalry among existing competitors
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of substitute products/services
Five forces help you understand what is causing profitability and where constraints are in any industry.
Rivalry: can be positive-sum or zero-sum.
Zero-sum game: Your opponent has to lose for you to win
Positive sum game: Your opponent doesn’t have to lose for you to win
Strategy formulation: should start with industry analysis.
The fundamental purpose of strategy is alignment.
Mission Statement: States a firms purpose
Clear, concise, and comprehensive
Unique Value Proposition: A set of promises you make to a target audience that are different from other alternatives.
Value proposition is a promise of value
Benefits can be of three types:
Functional
Economic
Emotional
3 reference points for differentiation (uniqueness) of your value proposition are:
Customers buying from competitors
People buying nothing
Yourself
Claims of differentiation: must be made to a specific target audience because value is contextual.
Evidence used to back up your claims:
1. Objective features
2. Customer Testimony
3. Third-party rating agencies
4. Your own evidence
SCOR Model (Supply Chain Operations Reference):
Identifies basic management practices at different operations levels, for benchmarking and strategy deployment
Process Capacity
Maximum capacity
Highest achievable level under ideal conditions (for a limited time)
Effective capacity
Achievable level under normal conditions(for an extended time)
Capacity utilization
How much available capacity is actually used
Idle capacity
Capacity not being used
Market Opportunity: Customer with needs and wants with a disposable income
Goal of investing in capacity is to capture market opportunity
Sales and marketing departments are important in forecasting demand to be captured
Too much capacity – wasted resources
Too little inventory – wasted opportunity
Productive assets: Builds infrastructure needed to produce product/service
Technology
Physical Space
Labor
Investment:
When to invest
How much to invest
What to invest in
Theory of Constraints
Every process has a constraint
Bottleneck:
Any activity that slows the flow down in a process.
Also, any activity where demand exceeds capacity.
You will have many constraints, but only one will be holding you back
Serial/Sequential Structure: Processes occur one after another
Parallel Structure: Two or more processes occur simultaneously
Every process has a variance that consumes capacity
Variability wastes capacity because variation increases costs
Variability increases changeovers, complicates production, generates rework, causes downtime, and more.
You can deal with variability by: Eliminating a root cause, adding a buffer or flexibility to the system.
Every process must be managed as a system
Changing one element of a process may impact other elements
Process elements are interdependent
Activities
Inputs/Outputs/Flows
Process structures
Management policies
Process measures
Metrics should address performance that are important to customers and the organization
Your measurements should have evidence to back it up
Continuous Improvement
Business Process Reengineering (BPR)
Everything that should be changed, will be changed all at once. From the ground up, redesign everything.
Kaizen
Small incremental improvements. These improvements are made constantly and the idea is that over time the process improves significantly. Complete opposite to the BPR process.
Process mapping and analysis
6 steps:
Decide your goal
Goals should be consistent with corporate and operational strategy, realistic
Identify the critical process
Critical processes:
Bottleneck
Visible to the customer
Consumes largest amount of resources
A shared process
Document the existing process
Collect information from relevant employees, customers, suppliers
Collect historical records
Observe the process in action
Analyze improvements
Value adding activities:
Moves an item closer to what the customer desires
Generates revenue
Necessary but not value adding
Waste generating
Recommend changes
Gather improvement opportunities
Combine those ideas in a coherent way
Prioritize identified process improvements
Implement changes
Happens in stages
Requires trial and error
Gradual