Operations and Supply Chain Strategies Study Material
Operations and Supply Chain Strategies Study Material
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4 Formulating Business-Level Strategy 117
c u r r i c u l u m
Designing an Operations Strategy: Approach to design, adjusting an existing strategy, Steps of the
designing process, Top-down or bottom-up design, designing the purpose of operations, designing
the operations mission, Designing the operations goals and objectives
Formulating Corporate & Business Level Strategy: Corporate level - Balanced Score Card; Stra-
tegic alternatives, Growth/expansion strategy, Diversification strategy, Stability strategy, Retrench-
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ment strategy, Turnaround strategies, Combination strategies; Business level - Porter’s compet-
itive strategies, Competitive advantage, Competitive advantage factors, How to build or acquire
competitive advantage? Acquiring core competence, Low cost strategies, Differentiation strategies,
Focus strategies
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Focussed Operations Strategy: Focus on cost, Focus on product differentiation, Focus on niche
or specialised products, Focus on material management, Focus on timing, Focus on productivity
improvement, Focus on human resource management, Focus on other factors, Benefits of focus
Process Planning and Improvement: Product and process, Types of process, Process technol-
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pacity flexibility, determining capacity requirements, planning service capacity, capacity utilisation
and service quality
Introduction to Supply Chain Strategies: The evolution of manufacturing and supply chain strat-
egies; Production and logistics strategy – Lean production, Agile supply chains and mass customi-
sation, Taxonomy of supply chain strategies; Critical factors considered in supply chain planning;
Operational and strategic issues in global logistics; Logistics outsourcing strategy (3 PL and 4 PL)
– Types of logistics companies.
Supply Chain Restructuring: Supply chain mapping; Supply chain process restructuring; Post-
poning the point of differentiation; Re-engineering improvement in SCM
Metrics and Drivers of Supply Chain: Framework for supply chain drivers; Facilities/inventory/
transportation/ information/ sourcing/ pricing; Managing performance with metrics; Supply Chain
Operations Reference model (SCOR)
Supply Chain Strategies & Performance Measures: Customer service & cost trade-off; Drivers of
supply chain: Internal & external performance measures; Linking supply chain & business perfor-
mance; Enhancing supply chain performance
CONTENTS
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1.1 Introduction
1.2 Concept of Strategy
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1.2.1 Levels of Strategy
1.2.2 Process of Formulating Strategies
Self Assessment Questions
Activity
1.3 Concept of Operations Strategy
1.3.1 Objectives of Operations Strategy
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Introductory Caselet
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Source: www.ktrk.com
INTRODUCTION
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Established in Wisconsin in 1903, Harley-Davidson, Inc. (H-D), or
Harley, is one of the world’s largest motorcycle manufacturers.
Harley-Davidson is an iconic motorcycle brand widely known
for its loyal customer following. It was one of the two motorcycle
manufacturers that survived in the Great Depression, the other
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THE DECLINE
Introductory Caselet
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absorb leakage of oil from the bikes. Even loyal Harley vendors
became disillusioned as they too started selling Japanese bikes.
At first, we found it hard to believe we could be that bad—but we
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were, said Vaughn Beals in 1982. Beals and his fellow associates
concluded that major steps would need to be taken to save the
company. We were trying to work within a production system that
was basically flawed, he said.
Introductory Caselet
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Scrap and rework on motorcycles reduced by 68 per cent
Productivity increased by 50 per cent
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Space requirements reduced by 25 per cent
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learning objectives
1.1 INTRODUCTION
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The major concern of every organisation is how it is going to survive
and prosper in the future. To survive the tough competition and to
prosper in the future, an organisation has to set its strategy, which is a
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long-term direction of actions to ensure success.
In this chapter, you will study the concept of strategy and operations
strategy in detail. You will also study different competitive dimensions
within an organisation. Next, the chapter will explain the process of
formulating an operations strategy. You will also study the concept of
strategic fit and learning curve in detail. Towards the end, the chapter
will explain the importance of revising and updating the operations
strategy.
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the nature of the economic and non-economic contribution it intends to
make to its shareholders, employees, customers, and communities.
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According to Johnson and Scholes, Strategy is the direction and scope
of an organisation over the long term, which achieves advantage for the
organisation through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfil stakeholder ex-
pectations.
the organisation
To help the organisation to prioritise targets based on organisa-
tional resources
To facilitate the planning and execution of long-term, medi-
um-term, short-term and day-to-day plans
To facilitate the decision-making process
To allocate resources to various departments of an organisation
To increase organisational effectiveness by making a judicious use
of organisational resources, such as funds, human resources, tech-
nology and infrastructure
To define the code of conduct that lays down various rules and
policies for an organisation
In the modern business world, the term “strategy” is widely used and
applied in industries. For instance, strategies are adopted to gain the
market share from competitors. Let us now study different levels of
strategy.
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1.2.1 LEVELS OF STRATEGY
Levels of
Strategies
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Figure1.1: Levels of Strategies in an Organisation
Exhibit
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gies help in:
establishing coordination among different business units, for
creating synergy and implementing the corporate-level strate-
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gies of an organisation
evaluating the needs of the market and delivering products
and services accordingly
creating a sustainable competitive advantage for each business
unit
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Let us discuss the stages of strategy formulation in detail.
1. Analysing the vision and mission of the organisation: Vision
and mission are the two elements that describe the nature,
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direction, future, goals, shape, hierarchy, products and services
and areas of operation of the business. The vision statement
provides the organisation’s long-term goal, whereas the mission
statement is the path to achieve the vision.
Analysing vision and mission statements helps the strategists
to develop strategies for achieving organisational goals. This
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competencies. These organisational variables are con-
trollable in nature. The organisation can either modify
its plans, policies and strategies based on these factors
or modify these factors based on their plans, policies and
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strategies.
99 External appraisal: It helps to know market threats
and opportunities affecting the business. Organisations
cannot modify external environment variables based on
their plans, policies and strategies; they simply need to
adapt changes for sustaining in the market.
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the same market. There is no scope of modification, expan-
sion and diversification in this strategy. However, in today’s
competitive environment, it is difficult to adopt this strategy.
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Therefore, improvisation in customer-base, product technol-
ogy and service quality are acceptable in this strategy.
Expansion strategy: It focuses on growing a business in
terms of customer-base, operations, market share and in-
creased product and services, with the sole objective of in-
creasing the revenue. The expansion strategy is also known
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pansion.
99 Expansion through integration: It involves integrating
with suppliers or distributors to expand.
99 Expansion through diversification: It involves expand-
ing into a new segment of a related or unrelated product.
Retrenchment strategy: It implies reducing or cutting off. In
this strategy, an organisation reduces products, employees,
investments or assets. Organisations use this strategy when
there is a decline in sales and profits. Using the retrenchment
strategy, the organisation re-organises itself to cope-up with
the challenges, such as reduced demand for organisation’s
product and recession in the economy. In this strategy, the
organisation looks for various options, such as complete busi-
ness liquidation or selling off some part of the business. Vari-
ous retrenchment strategies are given in Table 1.1:
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one department, employees can be paid according to the
work hours, whereas in another department, employees can
be paid according to the performance.
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5. Choosing the strategy: It refers to evaluating each strategy for
choosing the best optimal strategy. After evaluating all strategies,
a single strategy or combination of two or more strategies is
decided by the strategist. The choice of strategy depends on the
stage of business life cycle and pre-determined objectives.
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Activity
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tions’. According to him, strategy is realised through a combination of
deliberate and emergent actions, shown in Figure 1.3:
Intended strategy
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Deliberate
strategy
Realised
strategy
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Unrealised
strategy
Emergent
strategy
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Design and development of products and services
Selection of production technology
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Development of the production process
Effective allocation of available resources
Exhibit
Source: www.digitaltrends.com
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Network and location structure: Align capacities with future
demands for essential business continuation.
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Why IBM
operations innovation.
ing across all major sectors, IBM has business expertise across
more than a dozen industries. This includes communications, dis-
tribution, financial services and industrial and public sectors.
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Minimising complexity and confusion
Eliminating problem generators
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1.3.2 CONTENTS OF OPERATIONS STRATEGY
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Structure decisions deal with major capital investments that aim to set
operational direction for upcoming years. These decisions largely im-
pact resources and capabilities of an organisation and affect its potential
output. Structural decisions are not very easy to change as they involve
huge cost in their implementation. Thus, for an organisation, it is easier
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to change its marketing strategy rather than changing its operations
strategy due to its structural decision areas. Due to this reason, these
decisions are considered to be strategic decisions for any organisation.
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Let us now discuss the major infrastructure decision areas:
Planning and control: These infrastructural decisions relate with
systems used for planning and controlling of operations.
Quality:These decisions relate with quality management policies
and practices.
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uct, etc. For example, soft drinks are in high demand during hot
weather and in low demand during the cold weather. In such a
case, the organisations producing soft drinks have to make sure
that during the hot weather, they are able to manufacture drinks
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quickly and cover the extensive market.
Corporate-driven operations strategy: This strategy is drafted
by executive management. All other strategies are formulated and
implemented in accordance with this strategy.
Failure prevention and recovery strategy: This strategy pertains
to recovering damages (either partial or complete) arising because
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Exhibit
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Source: www.cnbc.com
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ONLINE
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Source: www.dzineclub.com
B2B
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NON-PROFIT
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Activity
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Identify the type of operations strategy from the following strate-
gies:
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a. Planning product mix
b. Identifying customer needs and desires
c. Rewarding customers
d. Offering discounts on frequent purchases
e. Innovating product
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OPERATIONS COMPETITIVE
1.4
DIMENSIONS
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ucts?
What processes need to be developed, implemented or en-
hanced for providing customers with the quality acceptable to
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them?
What needs to be done to improve the quality of the products?
An organisation can ensure the quality of its products with the
help of the following ways:
Improving the design and features of goods
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manufacturing
Having efficient human resource
Time: Organisations focus on the timely delivery of products to
get an edge over their competitors. Time acts as the most crucial
strategic tool adopted by an organisation to achieve a competitive
edge in the market. For example, Domino’s adopts a strategy of
delivering pizzas in 30 minutes. In case, the delivery of pizza is
late, the organisation provides pizzas free of cost. Nowadays, or-
ganisations are concerned about introducing their products in the
market before their competitors. Organisations need to consider
the following factors while considering a competitive advantage
related to time:
At what time should the product be introduced in the market
to gain advantage with respect to competitors?
How to reduce delays while delivering the product?
Flexibility: It refers to the capability of an organisation to respond
to changes in situations with respect to product improvement and
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at developing efficient business mission and corporate objectives with
respect to the current market environment. This helps in developing
an adequate relation between the market environment and organisa-
tional resource possibilities.
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The corporate strategy is designed as a pattern of decisions that de-
termines an organisation’s corporate objectives, principal policies and
plans to achieve those objectives and policies. A successful corporate
strategy gives an overall direction towards organisational growth by
managing businesses and product lines. It defines approaches that an
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prices that are at par with other organisations in the market and pro-
vide adequate returns on investment to the organisation in producing
them. Competitiveness cannot be achieved merely by developing cor-
porate strategies. These strategies can provide a direction, but achiev-
ing competitiveness is a process. It requires real-time implementation
of corporate strategies to produce and sell products/services that can
compete with competitor’s products/services based on lower cost,
higher quality, superior services or similar attributes.
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Activity
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Take an example of a Multi-national Company (MNC). Using the
Internet, identify how its corporate strategies create a competitive
advantage by developing competencies in areas, such as marketing
and design. Prepare a report on it.
OPERATIONS STRATEGY –
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1.5
FORMULATION AND SUPPORT
An operations strategy aims at linking various short-term and long-
term operations decisions to the corporate strategy and develops ca-
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Let us now discuss the steps involved in the operations strategy for-
mulation process in detail:
1. Understand the competitive dynamics at the marketplace: The
formulation of an operations strategy begins with scanning the
marketplace and understanding its dynamics. This helps the
organisation in understanding the issues that it must consider
while formulating its operations strategies. It involves detailed
analysis of current market structure, existing competitors
and their offerings and the competition intensity level. The
analysis helps an organisation to identify which aspects of its
products/services can provide it a competitive advantage over
its competitors. For example, Tata Motors analysed the market
and identified that there is a scope for the development of an
affordable car that would appeal to many Indians who ride
motorcycles. Market analysis led the company to launch the
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‘Tata Nano’ car with a price of `100,000.
While analysing the marketplace, the organisation must be aware
of the dynamic expectations of customers that keep changing with
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time. Technological improvement and infrastructural growth
may cause a shift in customer’s expectations about a product/
service. Thus, organisations should prioritise their alternatives
in a manner that could help it to deal with the dynamic nature of
the marketplace.
2. Identify order-qualifying and order-winning attributes:
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suitable one to achieve the competitive advantage. With the help
of these strategic options, the organisation may perform better
and provide high-quality products/services to its customers.
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4. Devise the overall corporate strategy: Organisations may
not use all strategic options available to them. This could be
due to the limited availability of resources and constraints.
Thus, it is required to match available strategic options (for
sustaining the competitive advantage) with available resources
and constraints. This leads the organisation to select the most
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tions strategy paves the way for achieving the corporate strategy. Ar-
riving at an appropriate operations strategy can help an organisation
to develop capabilities that an organisation needs to achieve its corpo-
rate strategies.
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The human resource function provides support processes by recruit-
ing skilled workforce to properly execute their assigned responsibil-
ities. The accounting function support process keeps track of the or-
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ganisation’s financial resources. The MIS support process helps in the
processing and movement of information and data to make business
decisions. The marketing support process performs market research,
devices a marketing plan and involves product development. Thus,
you can see that all of these support processes help in implementing
the operations strategy to create value for the organisation and its cus-
tomers.
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Activity
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Let us understand the concept of strategic fit with the help of an ex-
ample. Rate the market demand/environment demand for a product
and organisation’s actual performance on a scale of 0 to 100. Now, if
the market demand is 30 and the organisation’s actual performance is
also 30, then there is a perfect strategic fit. If the organisation’s actual
performance is lower than 30, it is not meeting the market demand
and in such a case, there would be a risk that competitors will move to
give better customer satisfaction. Now, if the organisation’s actual per-
formance is more than 30, it is exceeding the market demand and is
probably wasting resources. This situation denotes that internal oper-
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ations are not being used to capacity and resources are being wasted.
Figure 1.5 shows the strategic fit:
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Line of
100 perfect
strategic fit
A – inadequate
performance Y
Environmental demand
Likely movement
over time
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Increasingly
demanding
environment
X
30
Improving
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performance B – excessive
performance
0 30 100
Level of actual performance
Strategic fit operations aim at satisfying the market view (making prod-
ucts that customer want) by satisfying the resources view (efficient
utilisation of resources). Sometimes these two views can be balanced
and satisfied equally by same operations. For example, if products are
manufactured with no defects, customers may get high quality prod-
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ucts and operating costs can also be kept low. This will satisfy both,
the market view and the resource view. However, often, the two views
cannot be satisfied as they give different requirements. For example,
customers usually demand a distinctive range of products, tailored to
their specific needs. On the other hand, manufacturers may prefer
a long production run of a standard product. Thus, fulfilling the re-
quirements of both the views can be tricky for an organisation.
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To achieve this, an organisation must make sure that its operational
capabilities can support its corporate strategy.
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Cost/time per repetition
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Figure 1.6: Learning Curve Graph
Source: T. P. Wright, “Factors Affecting the Cost of Airplanes,” Journal of the Aeronautical
Sciences (February 1936).
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The graph (shown in Figure 1.6) displays the labour hour per unit ver-
sus the number of units produced. It states that time per repetition
decreases as the number of repetitions increases. In other words, it
can be said that the time required in completing each subsequent unit
decreases. This happens because people/organisations learn from
repetition and learning helps them to produce more efficiently.
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ARITHMETIC APPROACH
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2 80.0 = (.8 × 100)
4 64.0 = (.8 × 80)
8 51.2 = (.8 × 64)
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16 41.0 = (.8 × 51.2)
LOGARITHMIC APPROACH
The logarithmic approach allows you to determine labour for any unit,
TN, by the formula:
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TN = T1(Nb)
Where;
TN = Time for the Nth unit
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Now, if the learning rate for an operation is 80% and the first unit of
production took 100 hours, the time required to produce the third unit
would be:
TN = T1 (Nb)
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= (100) (3-0.322)
= 70.2 hours
TN = T1C
Where;
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T1 = number of labour-hours required to produce the first unit
(n) Time
1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
2 .700 1.700 .750 1.750 .800 1.800 .850 1.850 .900 1.900
3 .568 2.268 .634 2.384 .702 2.502 .773 2.623 .846 2.746
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4 .490 2.758 .562 2.946 .640 3.142 .723 3.345 .810 3.556
5 .437 3.195 .513 3.459 .596 3.738 .686 4.031 .783 4.339
6 .398 3.593 .475 3.934 .562 4.299 .657 4.688 .762 5.101
7 .367 3.960 .446 4.380 .534 4.834 .634 5.322 .744 5.845
8 .343 4.303 .422 4.802 .512 5.346 .614 5.936 .729 6.574
9 .323 4.626 .402 5.204 .493 5.839 .597 6.533 .716 7.290
10 .306 4.932 .385 5.589 .477 6.315 .583 7.116 .705 7.994
11 .291 5.223 .370 5.958 .462 6.777 .570 7.686 .695 8.689
12 .278 5.501 .357 6.315 .449 7.227 .558 8.244 .685 9.374
13 .267 5.769 .345 6.660 .438 7.665 .548 8.792 .677 10.052
14 .252 6.026 .334 6.994 .428 8.092 .539 9.331 .670 10.721
15 .248 6.274 .325 7.319 .418 8.511 .530 9.861 .663 11.384
16 .240 6.514 .316 7.635 .410 8.920 .522 10.383 .656 12.040
17 .233 6.747 .309 7.944 .402 9.322 .515 10.898 .650 12.690
18 .226 6.973 .301 8.245 .394 9.716 .508 11.405 .644 13.334
19 .220 7.192 .295 8.540 .388 10.104 .501 11.907 .639 13.974
20 .214 7.407 .288 8.828 .381 10.485 .495 12.402 .634 14.608
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Unit Unit Total Unit Total Unit Total Unit Total Unit Total
Number Time Time Time Time Time Time Time Time Time Time
(n) Time
25 .191 8.404 .263 10.191 .355 12.309 .470 14.801 .613 17.713
30 .174 9.305 .244 11.446 .335 14.020 .450 17.091 .596 20.727
35 .160 10.133 .229 12.618 .318 15.643 .434 19.294 .583 23.666
40 .150 10.902 .216 13.723 .305 17.193 .421 21.425 .571 26.543
45 .141 11.625 .206 14.773 .294 18.684 .410 23.500 .561 29.366
50 .134 12.307 .197 15.776 .284 20.122 .400 25.513 .552 32.141
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Illustration
Solution
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TN = T1C
T4 = (155,000 hours) (0.640)
= 99,200 hours
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Activity
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modating the required changes and staying ahead of the competition.
Changes in strategies are not sudden. They often result from com-
prehensive and well-thought revision and updating of strategic plans.
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Exhibit
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Activity
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Using the Internet, identify how increased automation in produc-
tion and operations system is compelling automobile companies
to revise and update their operations strategic plans. Take any au-
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tomobile company as an example to explain your answer. Write a
short note on it.
1.8 SUMMARY
A strategy is a plan of actions, which provides direction to achieve
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Time
Flexibility
An organisation selects a competitive dimension that is more fea-
sible for its goods/services and fits its core competencies. Based on
that competitive dimension, the corporate strategies are designed.
A corporate strategy provides an overall direction for carrying out
all the organisation’s functions to achieve competitiveness.
Competitiveness can be defined as the ability of an organisation to
offer products/services that meet the quality standards of the mar-
ket at prices that are competitive and provide adequate returns on
investment to the organisation in producing them.
An operations strategy aims at linking various short-term and
long-term operations decisions to corporate strategy and develops
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the capabilities that an organisation needs to be competitive.
The steps involved in the operations strategy formulation process
include:
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1. Understanding the competitive dynamics at the marketplace
2. Identifying order-qualifying and order-winning attributes
3. Identifying strategic options for sustaining competitive
advantage
4. Devising the overall corporate strategy
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key words
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Liquidation: A process where a business or organisation de-
clares itself bankrupt and its assets are sold out to pay the cred-
itors.
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Quality: A standard measure of how well a product or service
conforms to the specified standards to meet the requirements
of the customers.
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Strategic Fit – Fitting 12. Strategic fit
Operational Activities to
Strategy
13. False
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Revising and Updating the 14. d. All of the above
Operations Strategy
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SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.]; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
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Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
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E-REFERENCES
5 Core Operational Strategies. (2017). Smallbusiness.chron.
com. Retrieved 22 May 2017, from http://smallbusiness.chron.
com/5-core-operational-strategies-15488.html
Rao, S. (2017). Operations strategy is a key element in corporate
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CONTENTS
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2.1 Introduction
2.2 Approaches to Design Operations Strategy
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2.2.1 Adjust the Current Strategy
2.2.2 Top-down Approach
2.2.3 Bottom-up Approach
Self Assessment Questions
Activity
2.3 Steps in Strategy Design Process
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CONTENTS
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Introductory Caselet
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Source: www.bostinno.streetwise.co
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Headquartered in California, US, Google Inc. is a multinational
technology-based company specialised in Internet-related prod-
ucts and services. When it comes to the focus on human resource
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management, it can be stated without doubt that Google stands
out from the rest. The company is reckoned as the “Best Com-
pany to Work For” by Fortune Magazine and the Great Place to
Work Institute.
There are not many companies who have been able to succeed in
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Introductory Caselet
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Source: www.designboom.com
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Introductory Caselet
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people’s lives better through technology and to do great things.
This is what makes the employees highly ambitious and inspi-
rational. The company believes that doing significant work
alone is not sufficient to sustain employee commitment. What
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matters most is the ability to give people true influence on
how the organisation is run. According to May, “If you value
people and you care about them as whole people, one thing you
do is give them voice, and you really listen.”
Get feedback from employees: The employees provide feed-
back on all important aspects related to business and social
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learning objectives
2.1 INTRODUCTION
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In the previous chapter, you studied the concept of operations strate-
gy and how it is formulated. In this chapter, let us discuss how oper-
ations strategies are designed to provide a competitive advantage to
organisations.
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In today’s competitive environment, organisations require managing
their operations focusing on strategic considerations, such as design,
planning and control. Whether it is a manufacturing organisation or
a service organisation, the operations strategy works as a pattern of
operating decisions and is used to implement its corporate strategy
and create customer value. Thus, the major focus of any operations
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Conceptually, there is no specific right way to design a strategy. An
organisation, while designing a strategy, considers all the factors that
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may affect the actual design of an operations strategy. A manager
needs to identify several strategies that could give reasonable solu-
tions and select the best.
2.2.2 TOP-DOWN APPROACH
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mission and make strategic choices for the entire business. Senior
managers progressively develop corporate-, business- and function-
al-level strategies, which are passed down to the organisation in steps.
The top-down approach focuses on making large strategic decisions,
such as what type of business the organisation wants to be in, which
parts of the world the organisation wants to operate in, how fund and
resource allocation should be done for different businesses of the or-
ganisation and so on. These decisions form the corporate strategy of
the organisation.
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The functional-level strategies decide the role that each function must
play to contribute to the strategic objectives of the business. In other
words, different functional-level strategies, related to marketing, pro-
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duction, operations, human resource, etc. are designed in a manner so
that they could collectively help in achieving business-level strategies
of a business unit. Thus, as per the top-down approach of strategy de-
sign, senior managers design corporate-level strategies. This, in turn,
structures the business-level strategies for different business unit.
Business-level strategies are further drilled-down to create function-
al-level strategies for different functions within each business unit.
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ing, out-dated skills, credibility, etc. This affects the overall strategic
design process.
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strategy can be adjusted, the amount of analysis that is possible, the
balance between strategy design and emergence and the final con-
tents of the strategy, etc.
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self assessment Questions
Activity
Using the Internet, identify any five organisations that use bot-
tom-up approach for strategy design. Do you think the approach
helps organisations in getting connected with ground-level prob-
lems in a more efficient manner? Write a report based on your study.
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Evaluate the
Analyse the List alternative
alternatives and
internal new operations
choose the best
operations strategies
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Add details to the Implement the
chosen strategy strategy
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Figure 2.1: Steps in Strategy Design Process
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Assessment of the current strategy provides a fair idea to managers
about current problems, opportunities, market shifts or any other is-
sues that demand solution or decision. It leads managers to define
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the gap between where they stand and where they want to be. Thus,
the next step in the strategy design process is defining the purpose of
operations. In other words, managers now focus on what they want to
achieve from newly designed operations strategy. In this regard, they
may ask the following questions:
How can the organisation grow, stabilise or retrench in order to
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stay competitive?
How and where the organisation must focus to facilitate innova-
tion in products and services?
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as a whole gets affected by the economic conditions prevailing in a
country. For instance, in times of recession, most entertainment or-
ganisations witness a decline in sales. In addition, an organisation has
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to cope with interest rate fluctuations and inflation. The same is true
for social, cultural, technological and legal factors.
Usually, an organisation does not have any direct control over these
external environmental factors. However, proper analysis of such fac-
tors may help organisations to have an upper hand over competitors.
The long-term sustainability and success of an organisation depend
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n o t e s
Managers should list all possible alternatives and evaluate them based
on their contribution to the operations mission. However, it is not an
easy task as each strategy gives different levels of performance in dif-
ferent areas of concern. For example, a strategy that aims at achieving
high quality may result in low productivity or a high-capacity-based
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strategy may lead to high costs and so on. Thus, each alternative strat-
egy may give diverse results. However, these alternative strategies can
be used as guidelines for identifying the best strategy. Managers must
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make their choice based on experience, judgement, discussion, agree-
ment and intuition.
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top for achieving the business objective. At this stage, managers must
ask the following questions:
What do we need to adapt in our plan?
What emerging issues we need to identify and solve?
What tools and techniques we should select to execute our plan?
What should be the timeline to achieve strategic goals?
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goals. However, it is the implementation part that makes strategic
plans happen. Implementation or execution relates with the ‘who’,
‘where’, ‘when’ and ‘how’ parts of the strategic plan.
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It is believed that implementation is more important than the formu-
lation and selection of the strategy. If you come up with an excellent
strategy and fail in its implementation, the whole objective of strategy
design would fail. The fact is that, though both the formulation and
the implementation are critical to success, organisations can gain a
competitive advantage only if implementation is done effectively.
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n o t e s
Activity
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goals and objectives that depict the future road map of the organisa-
tion. Further, long-term goals and objectives should be divided into
short-term goals and objectives. The organisation should also define
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the means to achieve the goals and objectives.
Goals, objectives, future direction and the core principles of the or-
ganisation are defined and communicated to establish the purpose of
operations that are to be performed within the organisation. In simple
words, the purpose of operations defines what the organisation wants
to achieve in the long-term, and through which means. It includes
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n o t e s
The operations mission design process starts with defining the long-
term goals of the operations function within the organisation. The
next step focuses on identifying the scope and purpose of operations,
analysing products and services produced by the organisation, iden-
tifying the stakeholders of the organisation and determining the tech-
niques and methods to be employed in operations. The third and final
step involves preparing the mission statement based on the strategies
for future operations, key values of the business and code of conduct
for business operations.
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2.4.2 DESIGNING GOALS AND OBJECTIVES OF
OPERATIONS
The terms goal and objective are often used interchangeably. Howev-
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er, there is a difference between the two. Goal is the purpose toward
which an operation is directed. In other words, it can be defined as an
outcome towards which the operation strives. For example, ‘we will
reduce operational cost by 10%’, is an example of goal. Objective, on
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the other hand, is the exact step or action, taken for reaching goals.
It is the specific action that helps in the attainment of the associat-
ed goal. For example, ‘monitor operations cost and prepare operating
budget’, ‘develop work procedure, and identify and eliminate bottle-
neck’ are some objectives that may help in achieving the goal of ‘re-
duce operational cost by 10%’. Thus, objectives can be perceived as
sub-goals that help in accomplishing the overall goals.
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b. Operations mission
c. Operations goals
d. Operations objectives
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14. _____________ is an outcome towards which the operation
strives.
15. The exact step or action, taken for reaching the objective is
called goal. (True/False)
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Activity
Using the Internet, find the operations mission of the following re-
tail chain organisations:
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Walmart
McDonald’s
Starbucks
Tesco
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2.5.1 FOCUS ON COST
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The cost associated with materials may constitute 20–50% of the total
cost. Thus, efficient procurement and handling of materials is vital to
the successful completion of business operations. Material manage-
ment is concerned with the planning, procuring, storing and distribu-
tion of materials in an efficient manner. It has an impact on all busi-
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ness functions, particularly finance, marketing and operations. The
finance department tries to keep the level of inventories low for saving
the capital. Marketing department tries to maintain a high level of
inventories for ensuring good services to customers. The operations
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department requires an adequate inventory level for efficient produc-
tion and smooth employment levels. Now, above-mentioned conflict-
ing objectives can be met by proper management of materials.
sation. The major objective is the reduction of cost and efficient han-
dling of materials at all stages and in all sections of the organisation.
Focus on the material management strategy also has several other
important aspects connected with material, such as purchasing, stor-
age, inventory control, materials handling, standardisation, etc. The
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strategy also states that the planning, acquiring, storing, moving and
controlling of materials should be conducted in such a manner so that
the usage of facilities, personnel and capital funds can be optimised
and quality service can be provided to customers.
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organisation in the market but also helps the organisation in gaining
competitive advantage over others.
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that the productivity of an organisation can be improved. It is the pro-
ductivity of men and other resources that decides the substantiality of
an organisation and the growth of an economy further.
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It should be noted that different industries consider productivity dif-
ferently. For example, in the manufacturing sector, productivity is
measured on the basis of the number of hours taken by labour and
machines to produce the output. On the other hand, in the service
sector, productivity is measured on the basis of the total revenue gen-
erated by employees.
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Increasing reserve funds that can be used for expansion and mod-
ernisation
Reducing overheads and various other costs per unit of the output
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pions (1996), “Employee contribution becomes a critical business issue
because in trying to produce more output with less employee input, com-
panies have no choice but to try to engage not only the body but the mind
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and soul of every employee.”
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isation.
QUALITY MANAGEMENT
Now, the question arises that what quality standards are. Standards
refer to the specification of the manufactured product, according to
which, the product has to perform. This may include performance,
appearance, dimension, etc. The quality of a product or service is af-
fected by a number of factors such as availability of resources, man-
ufacturing conditions, total capital; management policy related to
quality level and production methods. To win in today’s competitive
business environment, it is important for every organisation to man-
age the quality of its products/services. Quality management helps an
organisation to increase its sales and market share and achieve a com-
petitive advantage. On the contrary, if the quality of products and ser-
vices is not satisfactory, it may incur huge costs for inspection, testing,
scrap, rework and handling of complaints.
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that are designed to provide services as per customer satisfaction.
Managing service processes is a complex and difficult task. This is due
to the fact that service-oriented business deals with intangibles and
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being intangible, it is subjected to individual preferences. In order to
deal with intangibles, separate strategies are required to be developed
and executed. Same strategy cannot be used for each and every cus-
tomer because each customer wants customisation in services. Man-
aging customisation in services as per the demands of customers may
require new and specialised resources. Therefore, there should be a
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n o t e s
BRAND MANAGEMENT
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1. Creating a promise: This step focuses on defining the brand and
making it memorable and desirable for customers.
2. Making the promise: This step assures the delivery of product/
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service with set quality standards to a customer.
3. Keeping the promise: This step aims at sustaining the promise
of delivering a quality product/service.
OPERATIONS RESEARCH
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n o t e s
JUST-IN-TIME (JIT)
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that they can be used as and when required in the production process.
It is a continuous process and seeks to eliminate raw material stocks
and finished stocks. This system of manufacturing ensures that the
product is delivered at the right time, is of perfect quality and is manu-
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factured in accordance with the right production plans. However, JIT
cannot be implemented if the quality components, such as accessibil-
ity, effectiveness, efficiency, customer satisfaction and involvement of
people, are not continuously made available.
The concept of JIT lays emphasis on the fact that whatever needs to
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are any uneconomical factors that affect these requirements and are
wasteful, they should be eliminated. For instance, factors such as
keeping unnecessary equipment and holding large inventories tend
to increase costs, hence and must be eliminated. JIT teaches us an
effective method of manufacturing.
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Distribution is another critical aspect in supply chain as it includes
the movement of services and products from a source to end custom-
ers. This helps in meeting delivery schedules within the definite time.
Therefore, organisations focus on building a distribution network that
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helps them in activities like reducing supply chain costs, delivering
products on time and enhancing responsiveness of a supply chain.
A distribution network includes different distribution channels that
serve as a route or path through which products move from supply
sources to their demand destinations. It includes manufacturers and
different members such as agents, wholesalers and retailers who act
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n o t e s
On the negative side, the focused operations strategy may lead an or-
ganisation to become vulnerable to changes. As the organisation and
the employees become too focused or specialised in one particular
area of operations, it becomes difficult to shift to another operations
flexibly with a change in the market environment.
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self assessment Questions
Activity
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2.6 SUMMARY
The design of an operations strategy focuses on developing a gen-
eral approach to design the strategic choice that an organisation
needs to make.
There is no specific right way to design a strategy. An organisation,
while designing a strategy, considers all factors that may affect the
actual design of an operations strategy.
Major approaches involved in designing the operations strategy
are:
Adjust the current strategy
Top-down approach
Bottom-up approach
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Usually, managers, responsible for designing an operations strat-
egy, start with an existing strategy and make revision, update or
adjust in it as per the current market situation or demand.
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The top-down approach of strategy design is a traditional manage-
ment approach, where senior managers at the corporate level de-
fine a mission and make strategic choices for the entire business.
The bottom-up approach assumes that strategies emerge over
time as a result of day-to-day functional-level activities and expe-
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n o t e s
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Implementation of the strategy is the final step in the strategy de-
sign process. It is a process that turns strategies and plans into
actions in order to achieve strategic objectives and goals.
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An operations mission gives a broad statement of the purpose and
aims of operations performed within an organisation.
Goal is the purpose toward which an operation is directed.
Objective is exact step or action, taken for reaching the goals.
An operations strategy usually has a particular focus area wherein
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competitive advantage.
Focus on niche or specialised products strategy is adopted by or-
ganisations that concentrate on selecting a specific customer seg-
ment with a view to cater to its specific needs by customising the
marketing mix and product mix.
Focus on material management strategy aims to achieve an inte-
grated approach towards the management of materials in an or-
ganisation.
Focus on timing strategy aims at moving materials quickly through
the supply chain.
Focus on productivity improvement strategies aim at organising
and implementing a series of activities, such as product design,
forecasting, organising physical facilities and materials manage-
ment in a manner that the productivity of an organisation can be
improved.
Focus on human resource management strategies aim at attract-
ing, appraising and retaining employees for utilising their knowl-
n o t e s
key words
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characteristics.
Market shift: A change in the quantity demanded or supplied
at a given price, often as a result of changes in the particular
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market.
Marketing mix: A set of marketing activities (including prod-
uct, price, place and promotion), used to promote and sell a
product into the market.
Procurement: The function of purchasing, transportation,
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n o t e s
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4. Bottom-up
5. True
Steps in Strategy Design 6. c. Assess the current strategy
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Process
7. Vision
8. False
9. Objectives
10. True
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11. Implementation
Defining the Purpose of 12. Purpose
Operations
13. b. Operations mission
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n o t e s
S
5. The purpose of operations defines what the organisation wants
to achieve in the long-term, and through which means. Refer to
Section 2.4 Defining the Purpose of Operations.
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6. An operations mission gives a broad statement of the purpose
and aims of operations performed within an organisation. Refer
to Section 2.4 Defining the Purpose of Operations.
7. An operations strategy usually has a particular focus area
wherein it concentrates on one aspect of operations. Refer to
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Operations Strategy.
9. Focus on niche or specialised products strategy is adopted by
organisations that concentrate on selecting a specific customer
segment with a view to cater to its specific needs by customising
the marketing mix and product mix. Refer to Section 2.5 Focused
Operations Strategy.
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.] ; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
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E-REFERENCES
Choosing Strategies for Change. (2017). Harvard Business Review.
Retrieved 30 May 2017, from https://hbr.org/2008/07/choosing-strat-
egies-for-change
Develop Your Strategy’s Mission, Vision & Values. (2017). OnStrate-
gy. Retrieved 30 May 2017, from https://onstrategyhq.com/resourc-
es/developing-your-strategy/
Do, W., & Strategy, A. (2017). Assess your Current Strategy – For-
micio. Formicio.com. Retrieved 30 May 2017, from http://formicio.
com/index.php/what-we-do/assess-your-current-strategy
Strategic Marketing Plan Strategy Evaluation. (2017). Smallbusi-
ness.chron.com. Retrieved 30 May 2017, from http://smallbusiness.
chron.com/strategic-marketing-plan-strategy-evaluation-72977.
S
html
What Is the Business Difference Between Objectives & Goals?
(2017). Smallbusiness.chron.com. Retrieved 30 May 2017, from
IMhttp://smallbusiness.chron.com/business-difference-between-ob-
jectives-goals-21972.html
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CONTENTS
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3.1 Introduction
3.2 Defining Corporate-level Strategies
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Self Assessment Questions
Activity
3.3 Expansion Strategies
3.3.1 Expansion through Concentration
3.3.2 Expansion through Integration
3.3.3 Expansion through Diversification
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Activity
3.4 Stability Strategies
3.4.1 Small Exploration Strategy
3.4.2 No Change Strategy
3.4.3 Profit Strategy
Self Assessment Questions
Activity
3.5 Retrenchment Strategies
3.5.1 Turnaround Strategies
3.5.2 Divestment Strategies
3.5.3 Liquidation Strategies
Self Assessment Questions
Activity
3.6 Combination Strategies
Self Assessment Questions
Activity
CONTENTS
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Introductory Caselet
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Source: www.stocks.org
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of coffee shops in the world. Starbucks deals in drip-brewed cof-
fee, espresso-based hot drinks, other hot and cold drinks, snacks
and products such as mugs and coffee beans. As of November
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2016, it operates 23,768 locations worldwide, including about
13,107 in the United States itself.
India was one of the big untapped markets for Starbucks till the
date. However, in January 2011, Howard Schultz, Chairman and
CEO of Starbucks, visited India to sign the 50:50 joint ventures
with Tata Global Beverages that owns 8,258 sq. feet roasting facil-
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er, Starbucks ensured that the coffee at the roasting facility match
the global espresso blend of Starbucks. On 19 October, 2012,
Starbucks opened its first store in India in Mumbai. Starbucks
expanded its branch to Delhi by opening two stores in Delhi at
Terminal III of the Indira Gandhi International Airport and in
Connaught Place. They currently (year 2016-17) operate 88 stores
in leading metro cities, such as Delhi, Mumbai, Banagalore, Pune,
Hyderabad and Chennai.
Source: www.oneworldnews.com
Introductory Caselet
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Place and passionate partners who deliver this to every customer
with every cup is a promise that we have consistently endeavoured
to deliver. We remain deeply excited about our journey in India, and
we will continue to deliver on our promise of offering an unparal-
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leled coffeehouse experience to every customer, every time they visit
our stores, as well as nurturing our biggest assets – our partners.
As Schultz said in a news conference, With Tata’s help and the size
and scale of this (Indian) market, we believe that this is a market
that we will grow significantly in over the near future.
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learning objectives
3.1 INTRODUCTION
In the previous chapters you studied the concept of operations strat-
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egies and how they are designed within an organisation. In this chap-
ter, let us discuss how corporate-level strategies are formulated by an
organisation.
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Corporate-level strategies are formulated to cover the overall corpo-
rate objectives of any organisation. They focus on every portfolio of all
business units simultaneously and try to address two basic questions:
a. In what business, the organisation should deal to maximise its
long run profitability?
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n o t e s
DEFINING CORPORATE-LEVEL
3.2
STRATEGIES
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A corporate-level strategy is often referred to as a corporate strategy
or a corporate business strategy. It encompasses the strategic scope
of the entire organisation. For most organisations, a corporate-level
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strategy is the only strategic plan required. Corporate strategy refers
to a set of decisions that determine an organisation’s objectives, goals
and purpose. It also comprises of the principal policies and plans to
achieve those objectives. In short, corporate-level strategies are for-
mulated to fulfil the corporate objectives of the organisation.
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n o t e s
S
boundaries should put impact on relationships among various
parts of the business and other interest groups
Determining on which basis the organisation should function.
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Should it be cooperative basis, mutually beneficial relationships
or business?
Expansion Strategies
Stability Strategies
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Corporate-level Strategy
Retrenchment Strategies
Combination Strategies
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Activity
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Expansion strategies aim at gaining control over the market and the
competitors. These strategies are formulated when an organisation
wants to increase its business horizon to tap opportunities available
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in the market. If an organisation exists in the business for a long time,
it can gain advantage from its experience and go for expansion strat-
egies. Similarly, if an organisation’s resources are lying idle, it may
utilise them for expansion purposes.
Expansion through
Concentration
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Expansion through
Integration
Expansion through
Diversification
Expansion Strategies
Expansion through
Cooperation
Expansion through
Internationalisation
Expansion through
Digitalisation
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Product development: It refers to selling new products in the ex-
isting markets.
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much of cash inflow. Now due to focus on one business, the or-
ganisation neither plans to expand further nor utilises the options
to invest its surplus cash. In this scenario, the problem of surplus
cash flow arises. The excess cash situation, with limited opportuni-
ties for profitable investment is probably one of the major reasons
that organisations in a mature market begin to diversify (as con-
centration strategy is no more profitable).
Other threats: They include factors, such as product obsolescence
and emergence of newer technologies, which can become a threat
to organisations following expansion through a concentration
strategy.
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or functions of the business with no change in customer groups. This
is done through a value chain, which consists of a number of inter-
linked activities (performed by an organisation) ranging from the pro-
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curement of raw materials to the marketing of finished goods. Thus,
an organisation may move up or down the value chain to integrate
activities so that the needs of the existing customers could be fulfilled
more efficiently. Thus, expansion through integration widens the
scope of an organisation’s growth.
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2. Conglomerate diversification: It implies a strategy that
requires taking up activities unrelated to the existing business
of an organisation. This is also called unrelated diversification.
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Conglomerate diversification is practiced in organisations
when they have excess surplus capital. For example, ITC is into
numerous unrelated businesses, such as agri-business, hotels,
paperboards and packaging.
business
Stabilise returns by avoiding economic fluctuations
Reap the benefits of synergies
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bilities are combined to form a new business entity. It is also referred
to as an agreement in which one organisation obtains the assets and
liabilities of the other in exchange for shares or cash. Thus, in merg-
ers, organisations pool their resources together to gain a competitive
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advantage.
The main reason behind mergers and acquisitions is the desire of or-
ganisations to increase their market power and gain synergy. Various
types of mergers that help in expanding the size of organisations are
as follows:
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n o t e s
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Reduce competition
Avail tax concessions and benefits
Acquire competence and capabilities
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Enter new markets for increasing market share
Exhibit
2. Hindalco- Novelis
Date Acquisition Value
February, Birla’s Hindalco, an aluminum and Valued at $6
2007 copper major, acquired Novelis, a billion
Canadian organisation in an all cash
deal. This is the second largest glob-
al acquisition after Tata- Corus.
3. Ranbaxy-Daiichi Sankyo
Date Acquisition Value
June, 2008 An Indian pharmaceutical organisa- Valued at $4.5
tion, Ranbaxy Laboratories Limit- billion
ed, was acquired by Daiichi Sankyo,
a Japanese pharmaceutical organi-
sation by acquiring 63.92% stake of
Ranbaxy.
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JOINT VENTURES
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that want to attain similar objectives for a specific period. A JV is usu-
ally a business agreement in which the concerned parties form (for a
specified time period) a new entity and new assets, by contributing
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equity.
Thus, JVs prove effective when an organisation seeks to share the risk
and minimise its costs. In addition, they provide a distinctive compe-
tence to the organisation.
Besides having several benefits, JVs also have few drawbacks, which
are:
Partners may have different objectives for the JV, which may ulti-
mately result in conflict generation
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Tata Tea has a joint venture with the Chinese state owned organi-
sation, Zhejiang Tea Import & Export Company, which is the larg-
est green tea exporter of China
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STRATEGIC ALLIANCES
n o t e s
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ances because of the following purposes:
Sharing the cost and risks associated with the new developments
of products or processes: For example, the alliance between Boe-
IMing and a number of Japanese organisations to build 767 aircraft
was the Boeing’s attempt to share the costs of manufacturing air-
crafts.
Combining skills that cannot be developed independently: For
example, in 1990, AT&T entered into an alliance with NEC Cor-
poration of Japan to trade technological skills. AT&T gave NEC
computer-aided design (CAD) chips, and NEC gave AT&T access
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Exhibit
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Source: www.businessinsider.com
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Source:www.cnbc.com
McDonald’s has set certain rules and regulations that ev-
ery franchisee is bound to follow to retain the outlet. This is
done to maintain the brand image and product/service qual-
ity across nations, irrespective of geographical constraints.
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3.3.5 EXPANSION THROUGH INTERNATIONALISATION
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Expansion through internationalisation refers to an expansion strat-
egy that helps organisations to perform their operations internation-
ally. Organisations need to devise their strategies to enter into foreign
markets. Today, many organisations are internationalising their op-
erations because of high competition in domestic markets. Organisa-
tions that plan to operate in international markets need to consider
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n o t e s
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products/services in each market. For example, Microsoft
offers same software programmes around the world but adjusts
them to match local languages. Similarly, consumer goods
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manufacturing company Proctor & Gamble and pharmaceutical
company Pfizer can also be categorised as global companies as
they aim at creating standardised global brands.
4. Transnational strategy: It involves both low-cost and high-level
of local responsiveness approaches. This type of strategy requires
a creative approach for managing production and marketing
goods and services.
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n o t e s
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ronment of foreign countries
Faces challenges of cultural diversity; for example, organisations
have to manage the employees of different cultural backgrounds
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Requires coordination between domestic and foreign operations,
which leads to high bureaucratic costs
Leads to higher costs because of differences in distribution chan-
nels
Involves trade barriers, such as tariffs, pricing restrictions or dif-
ferent standards for different countries
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n o t e s
Exhibit
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economic activity of the region. To enhance their growth and prof-
itability, organisations such as Toyota, GE, and Walmart have incor-
porated the regionalisation strategy successfully.
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According to Ghemawat, Regionally focused strategies, used in con-
junction with local and global initiatives, can significantly boost an
organisation’s performance. According to him, successful organisa-
tions adopt five types of regionalisation strategies, which are:
1. Home-based strategies: These are the strategies that involve
manufacturing goods in the home country and exporting
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n o t e s
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and outside organisations. In this way, it puts a significant impact on
the strategies of organisations. Digitalisation has guided the usage of
E-commerce, E-learning and E-banking. These developments have
created a new term for product category, called bitable or digitised
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products. For instance, books, magazines, newspapers and financial
services.
n o t e s
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had transformed their traditional operations to support the digital
business model. At the same time, there are several Internet-based
companies, like eBay and Amazon that are building a real-world
physical channel in addition to the virtual one. Thus, the C&B pat-
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tern is becoming a hybrid online/offline business model, incorpo-
rated by both brick-and-mortar and click-and-order companies.
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Source: www.theverge.com
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4. Which of the following type of strategic alliances involves
the relationship between inter-industry alliances, such as
manufacturers, suppliers, or distributors?
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a. Pro-competitive alliance
b. Non-competitive alliance
c. Competitive alliance
d. Pre-competitive alliance
5. ____________ strategy matches the products and services
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Activity
Sony Pictures Network India (SPN) has acquired Ten Sports Net-
work from Zee Entertainment Enterprises Limited (ZEE) and its
subsidiaries on 31 August 2016. Using the Internet, find details of
this business transaction. Write a short note on how this acquisition
would add South Asia’s leading sports network to SPN’s existing
portfolio of channels.
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ity strategy because of overcapacity in the steel sector. SAIL concen-
trated on increasing its operational efficiency, rather than going for
expansion.
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Stability strategies are of three types, shown in Figure 3.3:
Stability
Strategy
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Small
No Change Profit
Exploration
Strategy Strategy
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Strategy
Let us discuss all these types of stability strategy in the next sections.
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gies without doing anything new. In other words, a no change strategy
can be characterised by an absence of strategy, since the organisation
does not find it worthwhile to alter the present strategy. The reason
behind the no change strategy could be the absence of opportunities
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or threats in the external and internal environment. In addition, there
may be no major strengths or weakness of an organisation for which it
needs to form any strategy.
3.4.3 PROFIT STRATEGY
n o t e s
Activity
S
Using the Internet, identify why Steel Authority of India, NTPC
and ONGC focused on adopting stability strategies. List the possi-
ble reasons in your worksheet.
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3.5 RETRENCHMENT STRATEGIES
A retrenchment strategy is a corporate-level strategy that aims to re-
duce the size or diversity of organisational operations. At times, it also
becomes a means to ensure an organisation’s financial stability. This
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n o t e s
Apart from the external factors, there are several internal factors that
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may cause decline in industries and markets. Some of the major inter-
nal factors leading to decline are as follows:
Ineffective top management
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Inappropriate strategies
Excess liabilities
High costs
Ineffective sales and marketing
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Falling sales
Increasing debt
Diminishing profitability
Shrinking market share
Loosing goodwill and credibility
Declining cash flow
n o t e s
Retrenchment
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Strategies
3.5.1 TURNAROUND STRATEGIES
n o t e s
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non-surgical turnaround approach focuses on understanding
problems, eliciting opinions, adopting a conciliatory attitude and
coming to negotiated settlements. This approach focuses majorly
on behavioural change and improvement in the work culture and
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employee morale.
3.5.2 DIVESTMENT STRATEGIES
The reasons for the adoption of the divestment strategy are as follows:
Predicting that continuity of the business would be unviable
Increasing financial problems because of negative cash flows
Increasing competition and inability of the organisation to cope
with it
n o t e s
S
Exhibit
Source: www.thebrandingsource.com
Source: www.googleplus.com
n o t e s
3.5.3 LIQUIDATION STRATEGIES
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Compulsory winding up under the supervision of the Court
Voluntary winding up
Voluntary winding up under the supervision of the Court
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Exhibit
Source: www.retrowriteup.com
n o t e s
In March 2009, SIL was declared sick, and went to the Board for
Reconstruction of Public Sector Enterprises (BRPSE). As of 2009-
10, the organisation suffered a net loss of Rs. 22.03 crore. The or-
ganisation was facing several problems of inherent inefficiency, low
productivity, old plant technologies and an aging workforce. The
situation worsened when SIL was unable to pay even the employ-
ees’ salaries, and other statutory dues. Finally, the government de-
clared to sell its entire 95 per cent stake.
S
10. A divesting strategy includes a process of gradually letting
an organisation wither away in a carefully controlled and
standardised manner. (True/False)
11. Which of the following is the most unattractive and severe
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retrenchment strategy for closing down an organisation and
selling its assets?
a. Turnaround b. Divestment
c. Harvesting d. Liquidation
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Activity
vice. Try to find out the reasons behind it. Make a report on it.
n o t e s
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expansion, and retrenchment for a department as per
the business cycle, then it is following ________________
combination strategy.
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Activity
ITC Ltd. and Aditya Birla Group of Companies are known for using
a combination of different strategies in various forms. Using the
Internet, identify how the two corporate giants use different strat-
egies for their different business units. Prepare a report based on
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your findings.
n o t e s
There are very few organisations that are actually able to effectively
utilise their corporate-level strategies to operate at maximum efficien-
cy. With the help of the Balanced Scorecard, a business can under-
stand the cause-and-effect relationships among the key performance
drivers and identify their association with the strategic outcomes. Bal-
S
anced Scorecard works as a framework for measuring organisational
performance using a set of four performance measures or perspec-
tives, which are:
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1. Financial perspective: It is used to answer the question, “How
should we look to our stakeholder?” The perspective measures
the value that the selected strategy provides to its stakeholders.
It checks performance in terms of revenue growth, cash flows,
profitability, return on investment, stock price, shareholder
value, etc.
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n o t e s
S
financial health of the organisation is improved. In an organisation,
the Balanced Scorecard aims at linking different levels of strategies
together. It creates a linkage between a corporate and operations strat-
egy and related performance measures. Here, the top management’s
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job is to guide the organisation, make adjustments among these four
performance perspectives and set future direction. This further im-
proves the organisation’s ability to develop competencies in new areas
for sustaining competitive advantage.
Scorecard?
a. Financial b. Customer
c. Learning d. Distribution
Activity
3.8 SUMMARY
A corporate strategy refers to a set of decisions that determine an
organisation’s objectives, goals and purpose.
n o t e s
S
Expansion through integration
Expansion through diversification
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Expansion through cooperation
Expansion through internationalisation
Expansion through digitalisation
Expansion through concentration involves attaining expansion by
combining the resources in one or more area of the organisation’s
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business.
Expansion through integration is performed by combining activ-
ities or functions of the business with no change in the customer
groups.
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n o t e s
S
A profit strategy is usually followed when a few changes in the
current strategy become necessary.
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Retrenchment strategy is a corporate-level strategy that aims to
reduce the size or diversity of organisational operations.
There are three types of retrenchment strategies, which are:
Turnaround strategies
Divestment strategy
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Liquidation strategies
Turnaround strategies are defined as set of strategies that help in
managing, establishing, funding and fixing a distressed organisa-
tion.
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n o t e s
key words
S
ganisation merges with or acquires other organisation with
same customers and products by adopting the same marketing
strategies
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Joint venture: A cooperative business agreement between two
organisations to fulfil their mutual needs
Merger: A corporate action where two companies agree to go
forward as a single new entity instead of operating separately.
Pause /proceed with caution strategy: A kind of caution strat-
egy which is employed by an organisation that wishes to pause
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n o t e s
S
8. Small exploration
Retrenchment Strategies 9. Retrenchment
10. False
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11. d. Liquidation
Combination Strategies 12. Sequential
Balanced Scorecard 13. Balanced Scorecard
14. d. Distribution
n o t e s
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.]; Munich: Pearson.
S
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
IM
Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
E-REFERENCES
Advantages and Disadvantages of Retrenchment Strategy - Wise-
Step. (2017). WiseStep. Retrieved 5 June 2017, from https://content.
M
wisestep.com/advantages-disadvantages-retrenchment-strategy/
Business Expansion: Expansion Strategies. (2017). Cf-sn.ca. Re-
trieved 5 June 2017, from http://www.cf-sn.ca/business/business_
expansion/expansion.php
N
n o t e s
knowledge-hub/business-studies/what-are-the-different-types-of-
retrenchment-strategies-of-business/5535/
What is balanced scorecard ? - Definition from WhatIs.com.
(2017). SearchCIO. Retrieved 5 June 2017, from http://searchcio.
techtarget.com/definition/balanced-scorecard-methodology
What is Expansion Strategy? definition and meaning - Business Jar-
gons. (2017). Business Jargons. Retrieved 5 June 2017, from http://
businessjargons.com/expansion-strategy.html
What is the Balanced Scorecard?. (2017). Balancedscorecard.org.
Retrieved 5 June 2017, from http://www.balancedscorecard.org/
BSC-Basics/About-the-Balanced-Scorecard
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CONTENTS
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4.1 Introduction
4.2 Business-level Strategies
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4.2.1 Porter’s Competitive Strategies
4.2.2 Cooperative Strategies
Self Assessment Questions
Activity
4.3 Business-level Strategies and Industry Life Cycle
Self Assessment Questions
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Activity
4.4 Competitive Advantage
4.4.1 Competitive Advantage Factors
4.4.2 How to Build Competitive Advantage
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Introductory Caselet
n o t e s
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Source: http://about.van.fedex.com
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Frederick Smith established the Federal Express Corporation in
1971, in Little Rock, Arkansas. In 1973, Federal Express moved
its operations from Arkansas to Tennessee (Memphis). After com-
pleting its first night of continuous operation, the organisation
had delivered 189 packages across 25 US cities. This was possible
with the help of 389 employees and 14 aircraft. This was how the
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two years, the Congress eventually passed the Public Law 95-163.
This law permitted all cargo airlines to use larger aircrafts without
any geographic restrictions on their routes. In 1978, the organisa-
tion was listed on the New York Stock Exchange, with the FDX
symbol. In 1981, Federal Express started its delivery services to
Canada and opened its ‘SuperHub’ at the International Airport of
Memphis. In 1983, Federal Express became the first U.S. organi-
sation to earn annual revenue of $1 billion, without going through
any merger or acquisition.
Introductory Caselet
n o t e s
S
(LTL) freight carrier service serves the region of Western U.S.
and is regional
Caliber Logistics and Caliber Technology provides the inte-
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grated solutions for logistics and technology
Apart from this, the names of other companies were also changed
– RPS became FedEx Ground, Federal Express became FedEx
Express, Robert Express became FedEx Custom Critical, and
Caliber Logistics and Caliber Technology merged to form FedEx
Global Logistics. FedEx Corporation also formulated FedEx Cor-
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Source: http://archive.commercialappeal.com
Introductory Caselet
n o t e s
Apart from this, FedEx has also associated itself with the Univer-
sity of Memphis, Tennessee, to open the FedEx Technology Insti-
tute. This will help the organisation identify the latest technolo-
gies, thereby enabling it to serve its customers better.
S
To conclude, FedEx strives to build its distinctive competencies
by ensuring faster delivery times. It also provides its customers
automated package tracking, which is the first of its kind. These
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competencies of FedEx are based on its resources and capabili-
ties. One of the major resources is its enormous fleet of aircraft,
which amounts to more than 650 aircrafts in total. It is the largest
operator of the Airbus A300, Airbus A310, ATR 42, Cessna 208,
McDonnell Douglas DC-10/MD-10 and the McDonnell Douglas
MD-11. This is indeed very difficult to imitate by competitors such
as the United Parcel Service (UPS), as acquiring new aircrafts
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n o t e s
learning objectives
4.1 INTRODUCTION
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In the previous chapter, you studied the concept of corporate-level
strategy and how this strategy is formulated. Once a corporate-level
strategy has been formulated, the organisation must focus on business
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competition within the industry or sector it has entered. This requires
identifying major players of the industry and deciding how to com-
pete with them. The organisations also require undertaking a detailed
research and business planning before operationalising the business.
This necessitates developing a business-level strategy, which could
be further translated into functional and operational-level strategies.
In this chapter, let us discuss how business-level strategies are
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formulated.
n o t e s
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practiced by organisations for each of their business units separately.
Here, each of the business unit is termed as a Strategic Business Unit
(SBU). Every SBU has its own unique business-level strategy, which
provides guidelines to run the business unit.
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A business-level strategy focuses on three factors, which include:
Determining the target customers to be served by the SBU
Defining the type of customer need that requires being satisfied
Deciding the method for satisfying the customer need
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n o t e s
S
by any organisation to outperform the competitors in an industry, and
capture a larger market share. Competitors here refer to those organ-
isations in an industry, which offer similar products or services.
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Generic strategies are called generic because their applicability in all
organisations, regardless of their type or size. A generic strategy is a
basic way of positioning an organisation within the industry. It allows
an organisation to position itself within the industry by focusing on its
core business-level strategies.
n o t e s
Competitive Advantage
Broad
Cost Leadership Differentiation
Target
Competitive
Scope Narrow
Cost Focus Focused Differentiation
Target
COST LEADERSHIP
S
Cost leadership is the generic competitive strategy under which an or-
ganisation delivers its products or services at a cost lower than its com-
petitors, and targets a broad market segment. To become a cost leader,
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the organisation needs to have an efficient production system and a
greater control over overhead costs. Therefore, a continuous effort is
required to minimise the cost of production and distribution. Further,
the organisation needs to minimise costs in areas such as advertising,
promotion, sales force and Research and Development (R&D). A cost
leader in the industry can charge customers a lower price for its prod-
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ucts than its competitors’ charge, and still make a significant amount
of profit. Some organisations, which have successfully adopted the
cost leadership strategy, are Dell, Walmart and Southwest Airlines.
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DIFFERENTIATION
n o t e s
COST FOCUS
Organisations with cost focus aim at being the lowest cost producer in
the niche segment. In other words, cost focus is the strategy in which
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an organisation focuses on a small segment of the market. The cost
focus strategy helps the organisation in achieving cost advantage in
a small market segment. This strategy is mostly adopted by start-up
organisations, which can afford neither a wide scope cost leadership,
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nor a wide scope differentiation strategy.
FOCUSed DIFFERENTIATION
n o t e s
S
strategies in detail.
STRATEGY OF COLLUSION
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The strategy of collusion is a type of cooperative strategy in which
different organisations in an industry cooperate to raise the prices
of products or services by deliberately reducing the output. Prices of
commodities rise with a reduction in the output due to the interaction
between forces of demand and supply. Collusion may be an explicit or
an implicit one. In explicit collusion, organisations directly commu-
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nicate with one another and negotiate. Most countries disallow this
form of collusion and have declared it illegal. On the other hand, in
implicit collusion, there is no direct communication between organi-
sations. According to Barney, an implicit or tacit collusion can happen
successfully in the presence of the following factors in the industry:
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n o t e s
STRATEGIC ALLIANCE
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self assessment Questions
a. Cost leadership
b. Differentiation
c. Cost focus
d. Focused differentiation
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Activity
Using the Internet, identify and list at least five organisations that
adopted focus strategies either on the basis of low cost or differen-
tiation.
n o t e s
Market Size
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Embryonic Growth Maturity Decline
Time Size
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Figure 4.2: Stages of Industry Life Cycle
n o t e s
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uses established business models
enjoys stable market share
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characterises stable and satisfactory demand
Industries in the maturity stage use cost leadership, differentia-
tion and focus strategies. The demand in the industry first increas-
es and then falls when more organisations enter the industry.
Decline stage: It refers to the stage in which the industry’s perfor-
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n o t e s
Activity
S
Competitive advantage refers to a situation that puts an organisation
in a favourable or superior business position. In other words, compet-
itive advantage can be defined as the specific advantage possessed
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by the organisation over its competitors existing in the external envi-
ronment. It helps the organisation to increase sales or profit margins
and retain the maximum number of customers. It also helps in differ-
entiating the organisation from competitors and results in providing
value to the organisation as well as to stakeholders. The organisations
should focus on sustaining the competitive advantage to make it diffi-
cult for competitors to take the advantage of the market.
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or providing unique benefits that more than offset a higher price. There
are two basic types of competitive advantage: cost leadership and differ-
entiation.
n o t e s
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tential of an industry. The Porter’s Five Forces Model has been shown
in Figure 4.3:
Intensity
of Rivalry Determinants of Buyer Power
Determinants of Supplier Power
• Differentiation of inputs
• Switching costs of suppliers and firms in the industry Bargaining Leverage Price Sensitivity
• Presence of substitute inputs Threat of • Buyer concentration • Price total
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The five forces of this model represent the main idea of the Porter’s
theory of competitive advantage. These five competitive forces shape
every industry and market. As these forces regulate the level of com-
petition, they therefore, control the profitability and attractiveness of
the industry. The objective of any organisation should be to modify
these competitive forces to improve the position of the organisation
in the industry. Based on information derived from the Porter’s Five
Forces Model, an organisation can decide its direction to achieve a
long-term advantage.
n o t e s
S
be durable if it is built upon core capabilities that are difficult for oth-
ers to imitate. According to Barney (1991), A firm is said to have a
sustained competitive advantage when it is implementing a value cre-
ating strategy not simultaneously being implemented by any current or
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potential competitors and when these other firms are unable to duplicate
the benefits of this strategy.
Exhibit
n o t e s
S
determining the profitability of an industry. Substitute products
refer to products that satisfy the same need of customers as oth-
er products. For example, laptop is a substitute of the Personal
Computer (PC). The availability of substitutes limits the prof-
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it potential of an industry as the organisation cannot charge a
higher price for its product. For example, if the prices of Pepsi
increase, consumers would easily switch to Coke.
Competitive rivalry among existing competitors: It refers to
the intensity of competition among different organisations in
an industry. According to Porter, the intensity of competition
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n o t e s
S
Focusing on target customers: An organisation in order to achieve
a competitive advantage requires focusing on its target customers
who buy its products/ services. This will help in developing a more
focused operations strategy for the target customers, and thereby
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keeping them happier and more satisfied.
Analysing competition: Organisations need to understand market
competition. This is necessary because, in order to gain an advan-
tage, organisations first require knowing where their competitors
stand, and what their strengths and weaknesses are.
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Exhibit
Source: www.khaleejtimes.com
n o t e s
S
Source: The Telegraph; www.elfagr.org
supply of jet fuel at a specific fixed price. It not only helps Emir-
ates maintain profitability in a dynamic oil market, but also
gives it a clear advantage over its competitors.
Emirates made a huge investment in long haul flight services,
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n o t e s
S
2. Examine internal and external environmental factors:
It is important for an organisation to identify and analyse
various internal and external environmental factors. Internal
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factors help the organisation in identifying their strengths and
weaknesses and external factors help in recognising the threats
and opportunities present in the market.
3. Identify your skills and competencies: At this step, businesses
are required to identify their core competencies that could help
them in gaining a competitive advantage. Identifying skills and
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n o t e s
Here, you should note that there is no fixed design to build a com-
petitive advantage. Different organisations, even if they belong to the
same industry, follow their own approach to position themselves in the
S
market. However, the aforementioned steps are some general guide-
lines that may help an organisation to build competitive advantage in
a basic manner.
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self assessment Questions
10. The _____________ model determines the intensity of
competition in an industry.
Activity
N
n o t e s
S
is a strength that allows an organisation to gain a competitive advan-
tage by differentiating its products or minimising costs. For instance,
Motorola created a distinctive competency by developing Six Sigma
methodologies in its manufacturing process to produce defect-free
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cell phones. Table 4.1 shows the difference between a core competen-
cy and a distinctive competency.
Examples: Examples:
Sony: Core competency in miniatur- Sharp Corporation: Expertise in
isation of products flat panel display technology
McDonald’s: Core competency in Intel: Expertise in designing and
delivery speed, customer care and manufacturing powerful micropro-
cleanliness cessors for PCs
Federal Express: Core competency Walmart: Expertise in low cost dis-
in logistics management and cus- tribution and use of state-of-the-art
tomer service retail technology
n o t e s
S
that have fewer chances for being copied.
Activity
n o t e s
S
IM Analysing the strategic alternatives
n o t e s
Desired
Performance
Performance Gap
Present
Performance
Performance
T1 T2
Time
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Figure 4.5: Gap Analysis
The gap size (narrow or wide) determines the strategic choice
from available alternatives. Strategic alternatives available to
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an organisation at the corporate level are expansion, stability,
retrenchment and combination. A narrow gap implies that
an organisation is not too far from its goal, thus the feasible
alternative in this case can be stability strategies. If the gap is
wide due to potential environmental opportunities, expansion
strategies could be followed. However, if the gap is wide due to
poor performance in the past, retrenchment strategies can be
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n o t e s
Exhibit
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Role of TOWS Matrix in Developing Strategic Alternatives
Strategies
Tactics Internal Strengths Internal Weaknesses
Actions
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n o t e s
S
mise the effect of external threats by utilising the organisation’s
strengths.
W-O strategies: These strategies help in leveraging external op-
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portunities by overcoming the weaknesses of an organisation.
W-T strategies: These strategies help in avoiding threats by mi-
nimising the weaknesses of an organisation. The W-T strategy is
the most defensive strategy among all four strategies.
Therefore, you can say that the TOWS Matrix is an effective tool
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Activity
n o t e s
4.7 SUMMARY
Business-level strategies work as individual strategies practiced
by organisations for each of their business units separately.
Business-level strategies address the problem of how an organisa-
tion could compete in a particular industry.
Business-level strategies are either competitive or cooperative. In
a competitive strategy, a business unit competes with other com-
petitors for a bigger market share.
On the other hand, in a cooperative strategy, an organisation works
in association with other organisation(s) in the industry.
Generic strategies are called generic because their applicability in
all organisations, regardless of their type or size.
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A generic strategy is a way of positioning an organisation within
the industry.
The four types of generic strategies are:
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Cost leadership
Differentiation
Cost focus
Differentiation focus
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Strategy of collusion
Strategic alliance
The industry life cycle theory suggests that every industry passes
through different stages in its entire life cycle.
There are four stages in the life cycle of an industry: embryonic,
growth stage, maturity and decline.
n o t e s
S
Competitive advantage can be defined as the specific advantage
possess by the organisation over its competitors existing in the ex-
ternal environment.
The
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competitive advantage helps the organisation to provide the
valued product/service to the customers with increased profit mar-
gins.
There are two main types of competitive advantage:
Cost advantage
Differentiation advantage
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n o t e s
Low transparency
Low transferability
S
Low replicability
Strategic choice refers to the process of selecting the best strategic
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alternatives from the available strategies.
The steps involved in the strategic choice process are:
1. Identifying the strategic alternatives
2. Analysing the strategic alternatives
3. Evaluating the strategic alternatives
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key words
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n o t e s
S
Topic Q. No. Answers
Business-level Strategies 1. Corporate
2. False
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3. b. Differentiation
4. True
5. Strategy of collusion
Business-level Strategies and 6. a. Embryonic stage
Industry Life Cycle
7. False
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8. Growth
Competitive Advantage 9. Cost advantage
10. Five Forces
Acquiring Core Competency 11. Tacit
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12. False
Strategic Choice and Strategic 13. Strategic choice
Alternatives
14. a. Expansion
n o t e s
S
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.] ; Munich: Pearson.
IM
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer, J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
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E-REFERENCES
Generic Strategies. (2017). Marketingteacher.com. Retrieved 8 June
2017, from http://www.marketingteacher.com/generic-strategies/
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CONTENTS
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5.1 Introduction
5.2 Product and Process
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Self Assessment Questions
Activity
5.3 Types of Processes
Self Assessment Questions
Activity
5.4 Process Technology
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Introductory Caselet
n o t e s
S
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Source: www.abc.net.au
n o t e s
learning objectives
5.1 INTRODUCTION
S
In the previous chapter, you studied how business-level strategies are
formulated within an organisation and how they help (the organisa-
tion) in achieving a competitive advantage. In order to bring a strat-
egy to life, an organisation requires creating integrated processes to
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ensure that all functions and divisions are aligned with the formulated
strategy and are able to accomplish organisational goals. In this chap-
ter, let us study process planning and improvement in detail.
You must have heard the term ‘process’ many times. But do you know
what does it actually mean? A process is nothing but a systemat-
ic and planned sequence of cross-functional, value-adding activities
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The concept of a process lays emphasis on the point that every process
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n o t e s
Product, here, refers to a good or service that satisfies the needs and
wants of customers. It is offered in the market by an organisation to
S
earn revenue by meeting the requirements of customers. Product is
an asset of an organisation and referred to as the backbone of market-
ing mix. Therefore, it is important for an organisation to understand
the needs of customers before developing the product. For exam-
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ple, some customers use mobile phones mostly for talking purposes,
whereas some use it for talking as well as for browsing the Internet.
Some customers also use mobile phones for business purposes, such
as teleconferencing. Therefore, you can say that a product is anything
that is capable of satisfying a felt need.
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tasks need to be done and how they should be coordinated with other
functions, people and organisations.
n o t e s
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ment process.
Product design process: This provides detailed knowledge by the
use of intense research conducted to determine the technical fea-
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sibility of the product. Then, there are certain parameters that are
used to define the fittest design. This is one test which all the avail-
able alternative designs have to pass through.
Engineering design process: This involves performing engineer-
ing activities to develop a detailed definition of the product, includ-
ing its subsystems and components, materials, sizes, etc. These
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n o t e s
Exhibit
S
in a minimum amount of time to accomplish customer demands.
For managing service operations, organisations use technology and
different processes coupled with specialised individuals to meet
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customer requirements in a short duration. Service processes are
important because they:
Provide an organisation with a clear roadmap of roles and re-
sponsibilities for each and every individual.
Enable employees to learn quickly and get on to the process of
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n o t e s
Activity
S
or society as a whole. Prepare a report on it.
Project
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Batch Production
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Mass Production
Continuous Production
n o t e s
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telecommunication projects, refinery projects, steel projects and
fertiliser projects).
Irrespective of the type, all projects consist of a number of
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activities. Let us take the example of the customer survey
project mentioned earlier. This project may include functions
such as defining the sample group, determining the sample size,
designing a questionnaire, getting the questionnaire filled by
the target customers, taking personal interviews (if applicable),
analysing the feedback of customers, making a report, etc.
These activities can further be divided into tasks. For example,
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n o t e s
S
characterised by stable demand and high product volume.
Because of the steadiness and volume of demand, the production
system tends to be capital-intensive and highly repetitive, with
specialised equipment and limited labour skills.
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Mass production involves the following manufacturing process
arrangements:
Flow lines: Flow lines describe how a product moves (through
the system) from one workstation to the next in order of the
processing requirements. This is different from batch pro-
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n o t e s
S
duction duction Production
Product Unique Customised Standard- Commodity
type ised
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Customer One at a time Few individu- Mass market Mass market
type al customers
Product Occasional Fluctuates Stable Highly stable
demand
Demand Very low Low to medi- High Very high
volume um
Variety of Infinite vari- Varied Few Very few
M
products ety
Produc- Long-term Discrete Assembly Continuous
tion sys- projects lines
tem
N
n o t e s
S
_________ production.
7. ____________ production is characterised by highly efficient
output, ease of control and enormous capacity of the system.
IM
Activity
Product type
Customer type
Product demand
N
Variety of products
Production system
Type of work
n o t e s
S
technology helps in managing processes that create a product/service.
In other words, indirect process technology helps in facilitating the di-
rect creation of products and services; for example, accounting system
IM
or stock control system of any organisation.
are cut into boards; and plastic materials are turned into plastic
boards and plastic strips, etc. The basic aim of processing
(cutting, forming, joining, etc.) materials is to make products
more suitable for customer’s needs. Thus, technologies, which
are used for processing materials, are called material processing
N
n o t e s
S
E-business that allows the use of the Internet-based technol-
ogy, either for supporting current business processes or for
creating entirely new business opportunities
M-business
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that combines broadband Internet and mobile
telephony devices
Decision Support System (DSS) that uses data storage and
models to structure information and present the consequenc-
es of decisions
3. Customer-processing technology: The technology is used to
M
customer-processing technology:
Active interaction technology: This allows customers to
take control of the technology as the customer can tangibly
identify the active technology. Mobile phone services, Inter-
net-based ordering, e-mail, cash machines, etc. are examples
of active interaction technology.
Passive interaction technology: This type of technology ‘pro-
cesses’ customers and therefore, controls them by limiting
their actions in some aspects. For example, being a passenger
in aircraft or going to watch movie in theatre are some exam-
ples where customers are guided and thus, interact with the
technology. But, the customers do not hold control over the
technology and it is the technology that constrains the cus-
tomer’s actions in one way or another.
Hidden interaction with technology: This type of technolo-
gy is used to track customer’s movement in an unobtrusive
way. Customers neither directly interact with such technol-
ogies, nor the technologies affect customers’ actions openly.
n o t e s
S
customers, pressure of quality output and improved productivity, are
some major reasons that compel organisations to automate their pro-
duction and operations system. Let us now discuss how automation is
performed in manufacturing and service industry.
IM
5.4.1 AUTOMATION IN MANUFACTURING
From the past few decades, technology has changed the nature of
manufacturing. In old days, manufacturing was done manually. How-
ever, today, manufacturers are using machine automation to produce
M
n o t e s
S
chine, the possibility of analysing the cause of low or poor produc-
tivity increases. An organisation by identifying and eliminating
such cause, can improve its productivity.
IM
5.4.2 AUTOMATION IN SERVICES
n o t e s
S
based on technical considerations. This involves preparing, cooking,
or serving food; cleaning food preparation areas; preparing hot and
cold beverages; and collecting dirty dishes. Some of this potential has
IM
long been in use as restaurants are now testing new, more sophisti-
cated automation concepts, like self-service ordering or even robotic
servers. Take an example of Momentum Machines that has made a
hamburger-cooking robot, which can assemble and cook 360 burgers
an hour. Moreover, the device could automate a number of cooking
and food-preparation activities.
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Exhibit
n o t e s
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supervise and carry out every-day network management func-
tions. These functions can range from basic network mapping
and device discovery to network configuration management
IM
and the provisioning of virtual network resources.
Source: http://www.ejaet.com/PDF/3-2/EJAET-3-2-45-47.pdf
Activity
n o t e s
S
(ROI), etc.
5.5.1 APPROACH TO IMPROVEMENT
IM
Two approaches to achieve process improvement are shown in
Figure 5.2:
Breakthrough Improvement
N
n o t e s
S
Reduction in the waste through prevention of errors
Improvement in product quality
IM
Reduction in the rework time
Reduction in the cycle time
Faster response time, i.e., fulfilling customer orders on time
Competitive edge by bringing down costs
M
BREAKTHROUGH IMPROVEMENT
n o t e s
S
ciples focus on non-stop improvements, irrespective of the improve-
ment size, rate or type. Thus, such improvements can be implemented
by anyone and everyone in the organisation with an aim of improving
IM
the working processes and practices. However, this is not in the case
of breakthrough improvement. The breakthrough improvement prac-
tices require expertise and competence for sprinting. Table 5.2 shows
major features of continuous and breakthrough improvement:
Continuous Breakthrough
Improvement Improvement
Effect Long-term and steady Short-term and rapid
Pace Small steps Big steps
N
5.5.2 STEPS IN IMPROVEMENT
As you know, process improvement is a systematic approach and in-
volves a number of steps, which are:
1. Identifying the core outputs mandatory for customer satisfaction;
for example, the core outputs of a restaurant can be the taste and
the quality of the food and beverages served
n o t e s
S
Areas of improvement in an organisation are:
Reduction in manufacturing costs
Reduction in cycle time
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Reduction in downtime
Reduction in changeover time
Improvement in the flow of communication
Improvement in productivity
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Increase in capacity
REPAIR
n o t e s
REFINEMENT
RENOVATION
S
ment. In renovation, improvement happens through improved focus
and systematic exploitation of opportunities. In other words, the ren-
ovation strategy inculcates major changes in the existing systems and
IM
processes in an organisation. Therefore, as you can see this approach
is significantly different from the earlier approaches as that focus more
on refining or repairing the existing processes. Renovation heavily re-
lies on scientific methods and technologies. Therefore, renovation is
more expensive to apply. For example, if a manufacturer renovates the
production process by installing more technologically sophisticated
machineries, control systems etc. rather than repairing or refining the
M
REINVENTION
N
n o t e s
Activity
5.6 SUMMARY
A process is a group of related tasks with specific inputs and
output.
Product refers to a good or service that satisfies the needs and
wants of customers.
For a manufacturer, a product is a combination of various process-
es or operations. It is the manufacturer who determines processes
S
and operations which are deployed to create the product.
Processes are developed to create value for customers, sharehold-
ers or society as a whole.
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An organisation requires developing the process strategy for:
Vertical integration
Capital intensity
Process flexibility
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Customer involvement
In production, processes can be classified basically into four types,
which are:
Project
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Batch production
Mass production
Continuous production
A project is a pre-determined set of activities with a defined begin-
ning and end to achieve a unique goal.
Batch production is a production system that processes items in
small groups or batches.
Mass production is used by producers who create more stan-
dardised products in larger quantities.
A continuous production process is used to produce a large vol-
ume of highly standardised products.
Process technology refers to the use of machines, equipment and
devices to operations for creating and delivering products/services.
n o t e s
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ity and quality.
Automation in manufacturing helps in the following ways:
Reduction in production time
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Increase in accuracy with less human error
Reduced costs
Increased safety
Higher volume production
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n o t e s
Refinement
Renovation
Reinvention
S
key words
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Extranet: A private network that with the help of Internet tech-
nology and the public telecommunication system, shares a sub-
set of the information with partners, vendors and suppliers or
customers.
Marketing mix: A general term for a set of marketing activities
used to promote and sell a product into the market.
M
n o t e s
S
7. Continuous
Process Technology 8. Process technology
9. True
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10. Automation
11. True
Process Improvement 12. Continuous improvement
13. False
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n o t e s
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.]; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
S
Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
E-REFERENCES
IM
Automation in the Service Industry. (2017). Smallbusiness.chron.
com. Retrieved 27 June 2017, from http://smallbusiness.chron.com/
automation-service-industry-37635.html
Breakthrough Improvement. (2017). Isixsigma.com. Retrieved 27
June 2017, from https://www.isixsigma.com/dictionary/break-
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through-improvement/
How Automation Will Change the Services Industry | Sherpas in Blue
Shirts - Everest Group. (2017).Everest Group. Retrieved 27 June
2017, from http://www.everestgrp.com/2015-03-how-automation-
N
will-change-the-services-industry-sherpas-in-blue-shirts-16793.
html/
Process Technology Presentation | Business Process | Automation.
(2017). Scribd. Retrieved 27 June 2017, from https://www.scribd.
com/doc/36111171/Process-Technology-Presentation
Where machines could replace humans--and where they can’t (yet).
(2017). McKinsey & Company. Retrieved 27 June 2017, from http://
www.mckinsey.com/business-functions/digital-mckinsey/our-in-
sights/where-machines-could-replace-humans-and-where-they-
cant-yet
CONTENTS
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6.1 Introduction
6.2 Capacity Management in Operations
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6.2.1 Determining Capacity Requirements
Self Assessment Questions
Activity
6.3 Capacity Planning
6.3.1 Time Horizons for Capacity Planning (Long, Intermediate and Short
Term)
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Introductory Caselet
n o t e s
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Source: www.electrek.co
Introductory Caselet
n o t e s
Source: www.inhabitat.com
S
The name ‘Gigafactory’ derives from Tesla’s planned annual bat-
tery production capacity of 35 gigawatt-hours (GWh). “Giga” is
a unit of measurement that represents “billions”. Tesla started
working on the Tesla Gigafactory in June 2014 outside Sparks,
IM
Nevada. Tesla expects to begin battery cell production by the end
of 2017. The company also expects that by 2018, the Gigafactory
will reach its full capacity and produce enough batteries to meet
the requirements.
Tesla expects to drive down the per kilowatt hour (kWh) cost of
our battery pack by more than 30 percent. The Gigafactory will
also be powered by renewable energy sources, with the goal of
achieving net zero energy.
Source: https://www.tesla.com/gigafactory
n o t e s
learning objectives
6.1 INTRODUCTION
In the previous chapter, you studied about process planning and im-
S
provement. In this chapter, let us discuss the role of strategic capacity
management in operations. Capacity is the capability of an individual
to perform a particular work in a given time period. For example, the
IM
amount of load you can lift for a specific period of time is your capaci-
ty. Similarly, the capacity of a sugar factory can be expressed in terms
of the tons of sugar cane (input) crushed per day or in terms of the
tons of sugar (output) produced per day.
In this chapter, you will study the concept of capacity and capacity
management in detail. Further, you will learn the concept of capac-
ity planning. You will also learn about the classification of capacity
planning based on different time horizons. At the end, you will study
the concept of service capacity planning and how service capacity
utilisation determines the level of service quality within a service
organisation.
n o t e s
CAPACITY MANAGEMENT IN
6.2
OPERATIONS
Capacity refers to the ability of a production unit to produce some-
thing using available resources within the given time period. The ca-
pacity of a production unit depends on the demand for products or
services, which is largely influenced by the location where products
and services are sold. For example, the demand for fast food is higher
in urban areas as compared to rural areas.
S
pressed in terms of the input. For example, the capacity of a hospital is
expressed in terms of the total number of beds. Here, you should note
that the capacity of a production facility depends on various factors,
IM
such as the demand, cost and scale of production.
n o t e s
S
If the available capacity is greater than the required capacity,
there would be a surplus of finished goods. This would lead
to a significant increase in different types of costs, such as the
IM holding cost of inventory and wastage cost.
Introduce changes in the required or available capacity: The
production manager needs to make alterations in the existing pro-
duction plans, master schedules, etc. Apart from this, the produc-
tion manager can also use the following alternatives to make alter-
ations in the existing capacity of the production facility:
M
n o t e s
S
6.2.1 DETERMINING CAPACITY REQUIREMENTS
n o t e s
Exhibit
Types of Capacity
Capacity can be of different types, which are as follow:
Fixed capacity: Capital assets of an organisation at a particular
time are known as fixed capacity. These assets are not liable
to change within the short or intermediate range of production
planning.
Adjusted capacity: It entails the size of the workforce, employ-
ee working hours on a weekly basis and the number of shifts
and the extent of sub-contracting.
Design capacity: It is the planned rate of the output of goods or
services under normal or full-scale operating conditions. It is
S
also known as installed capacity.
Theoretical capacity: It is a kind of idealised goal that can rare-
ly be achieved practically. It may also be defined as the rate of
IM work to be achieved during the functioning of machine at its
full-rated speed for 100 per cent of the time.
System capacity: It refers to the optimal output of certain prod-
ucts or services, or a mix of product and services, which a pro-
duction system is able to produce at a given point of time.
Potential capacity: It is the capacity that can be made available
M
n o t e s
Activity
S
Capacity planning refers to a process of determining the level of ca-
pacity required to manufacture a specific product with a defined
quantity. There are several factors that can affect capacity planning.
IM
These factors include the number of workers and their skills, number
of machines, productivity of employees, number of suppliers, govern-
ment regulations and preventive maintenance.
Identifying demand
N
n o t e s
S
capacity planning of the existing facility.
n o t e s
S
ty are quite possible. Different ways of adjusting capacity based on
the varying demands in the short-term time horizon are as follows:
Use of overtime or idle time
IM
Increasingthe number of shifts per day to meet a temporary
strong demand
Sub-contracting to other firms
Apart from these three basic types, capacity planning can also be clas-
sified as:
M
n o t e s
Here, you must note that capacity focus can only be used in cases
when having the full range of capabilities is not necessary or when the
production facility has several sub-facilities (PWPs), each with their
own methods, policies and equipment. Only in these cases, the best
operating level could be determined for each sub-facility and the fo-
cus concept could be carried down to the operational level.
S
Flexible facility: The facility is called flexible if it is able to de-
crease the changeover time to zero by using movable equipment
and utilities that can be easily accessed and routed. Such facilities
IM
can adapt quickly to any changes.
Flexible processes: An organisation is said to have flexible pro-
cesses when it consists of the flexible manufacturing system and
simple and easy set-up equipment. It allows the organisation to
have low-cost switching between products referred to as the econ-
omies of scope (an economy of scope is achieved when multiple
M
n o t e s
c. Government regulations
d. None of these
8. Intermediate-term capacity planning is also known
as_________________.
9. ________________allows an organisation to easily change the
production levels or switch between product types.
Activity
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6.4 PLANNING SERVICE CAPACITY
IM
Service capacity refers to a service system’s ability to deliver the in-
tended service for meeting the customer demand. For example, the
total number of beds in a healthcare facility shows the service capacity
of the facility. Similarly, the square meter area utilised in a supermar-
ket shows the service capacity of the store. Thus, service capacity is
the highest possible amount of output that may be attained in a spe-
cific period of time.
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n o t e s
S
Moreover, every customer often has different needs and requires dif-
ferent numbers of transactions. This not only generates variability in
the processing time needed for each customer, but also brings incon-
IM
sistency in the minimum capacity requirement.
Apart from these two reasons, the third major reason for volatility in
service demand is constant change in consumer behaviour. The be-
havioural pattern of consumers affects the demand for any service
to a great extent. For example, it is not easy to book a hotel room at
some hill station during summers as at that time the demand for hotel
M
rooms are higher due to summer vacation. However, you can easily
get rooms in winter or rainy season due to low or moderate demand.
n o t e s
On the other hand, in the case of low capacity utilisation, the service
provider could give more attention to each and every customer and
therefore, could focus more on service quality. In such situations, cus-
tomers receive higher quality of services as they get minimum wait-
ing time and an opportunity to fully utilise the capacity of the facili-
S
ty. However, this situation leads to excess production capacity where
human resources as well as other equipment remain underutilised.
In such a scenario, the production cost per unit would be higher as
organisations usually have a fixed cost component. High cost and low
IM
revenue may lead the organisation to incur financial loss.
However, there are certain exclusions. Many experts believe that low
M
capacity utilisation rates are appropriate when both the degree of un-
certainty and stakes are high in the business. For example, healthcare
emergency rooms and fire stations should aim for low utilisation due
to the high level of uncertainty and the life-or-death nature of their
N
n o t e s
Activity
6.5 SUMMARY
Capacity refers to the ability of a production unit to produce some-
thing using the available resources within the given time period.
Capacity management is all about ensuring whether the available
capacity of a production facility is sufficient to meet the business
S
requirements effectively.
An organisation can determine the capacity requirements of a pro-
duction facility by converting its production schedule into stan-
IMdard hours.
Capacity planning refers to the process of determining the level of
capacity required to manufacture a specific product with a defined
quantity.
Capacity planning decisions of an organisation can be classified
into three different categories based on the time horizons. These
M
n o t e s
S
capacity of a service is being used.
A service organisation requires handling its capacity carefully so
IM
that the optimum level of capacity utilisation is achieved at any
given point of time.
When capacity utilisation exceeds a certain limit, it would nega-
tively affect service quality.
In the case of lower capacity utilisation, the service provider could
give more attention to each and every customer and therefore,
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key words
Best operating level: The level of capacity for which the aver-
N
n o t e s
S
Topic Q. No. Answers
Capacity Management in Oper- 1. True
ations
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2. Capacity management
3. True
4. Standard hours
Capacity Planning 5. Demands
6. Time; capacity
M
n o t e s
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
S
[u.a.]; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,
IM
J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
E-REFERENCES
M
CONTENTS
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7.1 Introduction
7.2 The Evolution of Manufacturing and Supply Chain Strategies
IM
Self Assessment Questions
Activity
7.3 Production and Logistics Strategy
7.3.1 Lean Production
7.3.2 Agile Supply Chains
7.3.3 Mass Customisation
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Activity
7.5 Critical Factors Considered in Supply Chain Planning
Self Assessment Questions
Activity
7.6 Operational and Strategic Issues in Global Logistics
Self Assessment Questions
Activity
7.7 Logistics Outsourcing Strategy (3PL and 4PL)
7.7.1 Types of Logistics Companies
Self Assessment Questions
Activity
7.8 Summary
7.9 Descriptive Questions
7.10 Answers and Hints
7.11 Suggested Readings & References
Introductory Caselet
n o t e s
Source: www.cnbc.com
S
Established in 1906 and headquartered in Battle Creek, Michi-
gan, United States; the Kellogg Company (also called Kellogg’s,
Kellogg, and Kellogg’s of Battle Creek) is a multinational food
IM
manufacturing company. Kellogg’s produces a large variety of ce-
real and convenience foods, including:
Cookies
Crackers
Toaster pastries
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Cereal bars
Fruit-flavoured snacks
Frozen waffles
Vegetarian foods
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Source: http://seltek.co
Introductory Caselet
n o t e s
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the target customers in a fresh condition, Kellogg’s locates its
manufacturing facility near to suppliers, distribution chan-
nels and customers.
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Size and scale of production: The next important decision is
made with regard to size and scale of production and produc-
tion facilities. Due to big scale of production, Kellogg’s facil-
ities require adequate space for equipment and production
processes. Apart from this, large facilities also help in the fre-
quent delivery of incoming materials and outgoing finished
goods.
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freshness.
Selection of intermediaries: Kellogg’s relies heavily on a
large number of intermediaries like wholesalers, supermar-
kets, high street stores, etc. for the distribution of its products.
Thus, it needs to decide and select its intermediaries carefully
to ensure vast reach to end-consumers.
Introductory Caselet
n o t e s
S
IM
M
N
n o t e s
learning objectives
S
7.1 INTRODUCTION
In the previous chapter, you studied the role of strategic capacity man-
IM
agement in operations. In this chapter, let us focus on supply chain
strategies that help in achieving operational objectives.
n o t e s
tion and supply chain strategy. The chapter will also focus on the tax-
onomy of supply chain strategies and the factors considered in supply
chain planning. Finally, you will study the operational and strategic
issues in global logistics, and the logistics outsourcing strategy (3PL
and 4PL).
S
sponsibility and scarcity of resources. For this purpose, organisations
should have reliable, flexible and cost-effective manufacturing and
supply chain strategies ready.
IM
In other words, manufacturing and supply chain strategies involve a
plan of activities, which are required to be performed for meeting cus-
tomers’ requirements by producing and delivering products on time
at the lowest cost possible. It concentrates on what should be done to
improve the production and supply chain network performance of an
organisation.
M
n o t e s
S
Activity
Production and logistics are two inter-linked areas that together en-
sure the success of any operations strategy. Today, customers expect
to get high quality products/services in rapid response times. This
stresses on building an efficient production and logistics strategy to
fulfil the demands of customers.
N
n o t e s
S
Continuous improvement: High performing organisations look
at ways and techniques to continually improve their operations.
These may impact the organisation internally or may affect its ex-
IM
ternal stakeholders.
7.3.1 LEAN PRODUCTION
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tion time and lower costs. Lean production uses certain tools, such as:
Single-Minute Exchange of Die (SMED)
Value Stream Mapping
5-S
n o t e s
Lean production aims to provide the right things at the right place at
the right time in the right quantity to achieve an efficient work flow,
while minimising waste and retaining flexibility. Waste is considered
to be of three types – muda, mura and muri. Muda deals with the vari-
ation in output and in-operation wastes. The various types of muda
are:
Transport of products/items which are not required for immediate
processing
Excess inventory
Excess production
Defects which lead to a waste of resources
Mura defines how the work design is executed and work imbalances
are avoided. Muri occurs from mura, and it relates to the removal of
S
excess waste from the process.
n o t e s
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3. Network creation: Every individual in the supply chain needs to
put their efforts to bring success to the chain. As the task is divided
among all individuals according to their core competencies, it
IMhelps in reducing the overall burden on one or few departments.
4. Market demand: Today’s supply chain is highly market sensitive.
Demand forecasting is performed to predict demand based on
daily Point of Sale (PoS). Daily feedback is necessary as markets
are highly volatile in nature and in order to accurately meet the
future demand, it is necessary to keep track of the day-to-day
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Agile supply chain solves problems that exist in today’s supply chain
management network. It is perceived as a solution to increase the re-
sponsiveness of a supply chain in the ever-changing market environ-
N
n o t e s
S
fabrication.
Pure customisation: Products are customised from the starting
point. There is however, a certain element of standardisation, as it
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may be viewed as prototyping for every product.
n o t e s
S
environment.
5. The ability of the organisation to manufacture and design
customised products at an efficiency associated with mass
IM production is called ____________.
6. In ___________ approach to mass customisation, a standard
product is presented in a varied manner to different customers.
a. Collaborative
b. Adaptive
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c. Cosmetic
d. Transparent
Activity
N
Using the Internet and other secondary sources, identify any three
retail organisations that implement the agile supply chain strategy
to deal with many problems that exist in today’s supply chain man-
agement network. Prepare a report on how the agile supply chain
strategy helps organisations in overcoming supply chain issues.
n o t e s
Lean Leagile
Long lead time
Plan and execute Postponement
Lean
Agile
Short lead time Continuous
Quick response
replenishment
The taxonomy uses both predictability of demand for products and re-
S
plenishment lead times. The explanations related to this combination
are given in Table 7.1:
The table suggests that there could be four generic supply chain
strategies. In cases when demand is predictable and replenishment
lead time is short then a continuous replenishment strategy is adopt-
ed. This is how companies like Procter & Gamble manage their sup-
ply chain for fulfilling demands at Walmart. Procter & Gamble takes
help of point-of-sale data to replenish products at individual stores of
Walmart.
Now, if there is unpredictable demand and long lead time, the ideal
solution could be to carry inventory in some generic form and assem-
ble/configure them as and when required (depending on when the
actual demand takes place). This is an example of the postponement
strategy. Hewlett Packard (HP) follows this strategy for the range of
its Deskjet printers. HP builds semi-finished products at its central
facility and then ships it to regional centres around the world, which
are run by third-party logistics service providers. At these centres, the
product finally gets configured and delivered to customers when actu-
al orders are received.
n o t e s
The third situation depicts long lead times with predictable demand.
In such situations there is an opportunity to use lean type of strate-
gies, where products could be made or sourced well ahead of demand
in the most efficient manner. Take an example of UK based retailer
Woolworths that sells a million plastic Christmas trees every year. The
store basically sources these products from China and for this it places
their order over six months ahead of the season. Woolworths does so
as based on the prior experience of demand for such trees at the time
of Christmas, the store sees no or little risk in following this strategy.
Let us now discuss the last scenario, when the demand is unpredict-
able and lead times are short. In such cases, agile solutions are re-
quired based on a rapid response. Zara is a good example of a retail
chain, following this strategy. Zara is operated by Inditex Group, a
Spanish fashion giant. Zara is known for developing a new product
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and getting it into stores within just two weeks. It collects information
on a daily basis to know the tastes of consumers and creates new de-
signs and modifies existing ones. Accurate product information and
inventory management help Zara to manage and design thousands
IM
of garments within the available stock. If a certain style or fashion
becomes the new must-have on, Zara’s designers work swiftly on the
new style and bring it in store while the trend is still going strong.
Activity
Using the Internet, find at least five organisations that apply a le-
agile production/logistics postponement strategy. Prepare a list of
such organisations. Give reasons why these organisations follow
the leagile production/logistics postponement strategy.
n o t e s
Information Technology
Value Addition
Business Management
Customer Satisfaction
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Figure 7.2: Critical Factors Considered in Supply Chain Planning
n o t e s
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el of operational excellence desired to achieve superior customer
experience. The measurability and consistency are important in-
dicators of SCM performance. The specific parameters for mea-
IMsuring the performance include throughput efficiency, inventory
levels, cost and level of service. Effective administration includes
improvement in logistics, better knowledge about the supplier
markets, enhanced level of supplier performance and low cost ma-
terial sourcing.
Business management: This comprises planning, organising,
monitoring and controlling of all factors that influence the achieve-
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at lower costs.
Customer satisfaction: The perception of the customer may vary
from one manufacturer to another. The customer may give more
value to timely delivery or cost. The manufacturers aim to deliver
the best product or service to the customer in order to achieve
maximum customer satisfaction.
Opportunities and risk identification: This helps manufacturers
to design or re-design the supply chain accordingly.
10. An organisation does not have any direct control over these
external factors. (True/False)
Activity
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Different Customer Expectations
Limitations in Infrastructure
Shortage of Talent
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n o t e s
Nowadays, there are many institutes around the world, which have
started courses in supply chain management. Besides, organisations
are also analysing potential delays in terms of how it may affect pro-
S
duction or promotion of goods and services. Many logistics organisa-
tions provide suppliers with Internet-based tools that help them in:
production status updates
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purchase order acceptance
quality check results
shipment routing
bar coding of cartons and products
radio frequency identification (RFID) tags
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carrier rates
carrier capacities
contract commitments
shipment details
movement schedules
in-transit status
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performance measures
dynamic, real-time scheduling
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Activity
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term ‘4PL’ was coined in 1996 by Anderson Consulting Company (now
Accenture). It is a comparatively a new concept in supply chain man-
agement. As per Accenture, A 4PL is an integrator that assembles the
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resources, capabilities and technology of its own organisation and other
organisations to design, build and run comprehensive supply chain solu-
tions.
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the customer and performs extensive tasks for them.
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Activity
7.8 SUMMARY
Manufacturing and supply chain strategies are evolving by focus-
ing more on using techniques like lean manufacturing, Just-In-
Time, continuous improvement, etc. to improve quality and lower
costs. Earlier, the sole focus of these strategies was to improve pro-
duction and distribute more products in the market.
Production and logistics are two inter-linked areas that together
ensure the success of any operations strategy.
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Generally, the production and logistics strategy should support an
organisation to provide the best level of products/services to its
customers.
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Lean production is defined as a systematic method for waste min-
imisation (Muda) within a manufacturing system.
The agile supply chain strategy minimises the reaction time that
an organisation takes to respond to the changes in the market de-
mand.
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n o t e s
There are certain critical factors that could affect the supply chain
planning of any organisation to a great extent. These factors are:
Uncertainty in external environmental factors
Information technology
Supply chain relationships
Value addition
Supply Chain Management (SCM) performance
Business management
Customer satisfaction
Opportunities and risk identification
Issues that affect the operations and strategy of global logistics are:
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Complex taxation laws
Different quality standards
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Different customer expectations
Rapid technological changes
Conflicts in networking
Limitations in infrastructure
Shortage of talent
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key words
n o t e s
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7.10 ANSWERS AND HINTS
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ANSWERS FOR SELF ASSESSMENT QUESTIONS
6. c. Cosmetic
Taxonomy of Supply Chain 7. Continuous replenishment
Strategies
8. False
9. Agile
Critical Factors Considered in 10. True
Supply Chain Planning
Operational and Strategic Issues 11. d. All of these
in Global Logistics
Logistics Outsourcing Strategy 12. 3PL
(3 PL and 4 PL)
13. True
14. 4PL
n o t e s
and lower costs. Earlier, the sole focus of these strategies was to
improve production and distribute more products in the market.
Refer to Section 7.2 The Evolution of Manufacturing and
Supply Chain Strategies.
2. Lean production is defined as a systematic method for waste
minimisation (Muda) within a manufacturing system. Agile supply
chain strategy minimises the reaction time that an organisation
takes to respond to the changes in the market demand. Refer to
Section 7.3 Production and Logistics Strategy.
3. The taxonomy of supply chain strategies provides a detailed
theoretical framework for any strategy-related research in the
field of supply chain management. Refer to Section 7.4 Taxonomy
of Supply Chain Strategies.
4. The critical factors that could affect the supply chain planning of
S
any organisation include uncertainty in external environmental
factors, information technology, supply chain relationships,
value addition, supply chain management (SCM) performance,
IM
etc. Refer to Section 7.5 Critical Factors Considered in Supply
Chain Planning.
5. Complex taxation laws, different quality standards and
customer expectations, rapid technological changes, conflicts
in networking, etc. are some major operational and strategic
issues in global logistics. Refer to Section 7.6 Operational and
M
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.]; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer,J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,
S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
n o t e s
E-REFERENCES
Introduction to Lean Manufacturing. (2017). Leanproduction.com.
Retrieved 26 July 2017, from http://www.leanproduction.com/
Logistics Woes Disappear With 3PL for Ecommerce. (2017). The
Balance. Retrieved 26 July 2017, from https://www.thebalance.
com/3pl-ecommerce-logistics-1141740
Manufacturing Strategy for the Extended Supply Chain. (2017). Sup-
plychainbrain.com. Retrieved 26 July 2017, from http://www.
supplychainbrain.com/content/research-analysis/gartner/sin-
gle-article-page/article/manufacturing-strategy-for-the-extend-
ed-supply-chain/
Slade, S. (2017). 6 Strategies for Better Supply Chain Management
in the Current Economy.Blogs.oracle.com. Retrieved 26 July 2017,
S
from https://blogs.oracle.com/scm/5-strategies-for-better-sup-
ply-chain-management-in-the-current-economy
The Agile Supply Chain Management: What is it and why should
IMyou care!. (2017). Medium. Retrieved 26 July 2017, from https://me-
dium.com/supply-chain-hubspot/the-agile-supply-chain-manage-
ment-what-is-it-and-why-should-you-care-966ad9829d19
Third Party Logistics (3PL) and Fourth Party Logistics (4PL) -
Cquential. (2017). Cquential. Retrieved 26 July 2017, from http://
www.cquential.co.za/industries/3pl-4pl/
M
CONTENTS
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8.1 Introduction
8.2 Supply Chain Mapping
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Self Assessment Questions
Activity
8.3 Supply Chain Process Restructuring
Self Assessment Questions
Activity
8.4 Postponing the Point of Differentiation
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Introductory Caselet
n o t e s
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Source: http://profit.ndtv.com
Introductory Caselet
n o t e s
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n o t e s
learning objectives
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8.1 INTRODUCTION
In the previous chapter, you studied supply chain strategies, which
are long-term plans of a value chain to meet the demands of custom-
IM
ers at the lowest cost possible. Supply chain activities start from the
very point when the manufacturer acquires raw materials and ends
when the products are bought by the end customers.
n o t e s
In this chapter, you will study the concepts of supply chain mapping
and supply chain process restructuring in detail. Next, it will explain
the importance of postponing the point of differentiation. Lastly, it will
discuss the role of re-engineering improvement in supply chain man-
agement.
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8.2 SUPPLY CHAIN MAPPING
Supply chain mapping is a method of identifying existing supply chain
IM
processes. This can be done on the basis of three dimensions:
Shape of the value-addition curve
Point of differentiation
Customer (entry point) in a supply chain
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Order Placed by
Customer
N
Point of Differentiation
Cost
Time
n o t e s
Let us now discuss each dimension separately and see what kind of
restructuring can be undertaken in each of these dimensions.
1. Value-addition curve: A typical supply chain begins with raw
material and information, which are transformed into finished
goods and finally delivered to customers. This transformation
comprises a number of activities and each activity incurs cost and
time. Moreover, value addition for each activity also takes place.
Here, it has been assumed that all non-value adding activities
have been removed by an organisation during the supply chain
optimisation process. Refer Figure 8.1, the time is shown on the
x-axis while the total cost (cumulative) in the supply chain is
shown on the y-axis.
To map the value-addition curve, a reverse route (backward)
from the point where the value is delivered to the end customer
S
is taken and all activities that were performed to make the end-
product and service available are traced back. All these activities
are mapped in two dimensions:
IM Time
Cost
That means the value addition curve mainly captures the way
cost is added over a period of time in supply chain processes.
For example, a bus manufacturer receives engines (an important
component for making the bus) from an engine supplier; the
M
n o t e s
S
Similarly, a garment manufacturer produces different styles of
garment using the same material (fabric). Here, differentiation
may occur at the stitching stage. An automobile manufacturer
IM
may create differentiation based on colours and models of
automobiles. Here, differentiation may take place at the painting
and designing stage. All the aforementioned examples reflect
one point of differentiation that occurs during a specific stage.
However, organisations can introduce differentiation in products
at various stages also. For example, a pizza manufacturer may
M
differentiate its pizzas based on the size and type of crust. It may
further differentiate each pizza based on the variety of toppings
used. Thus, you can say that a product can have more than one
point of differentiation.
N
n o t e s
S
organisations to deliver the product, the customer’s entry point
is ahead of the delivery time. This is similar to the Configure to
Order (CTO) supply chain situation. The customers’ entry point
captures the order to delivery lead time. The importance of this
IM
dimension lies in the fact that all previous activities were carried
out on the basis of forecasts, whereas after the order placement by
the customer, all activities are done based on the order. However,
how perfect a forecast may be, there is a scope of errors in it. So
a lot of certainty comes to the entire operations if most activities
are carried out based on the real order rather than forecast.
M
Activity
n o t e s
S
supply chain by adopting any of the following three approaches:
1. Postpone the point of differentiation: According to this
approach, the point of differentiation should be close enough to
IM
the end of the value curve. It means that all changes that are
made to introduce differentiation in a product should be made
near the customers at the delivery time. It is important as this
may help in carrying out majority of activities at the aggregate
level instead of the variant level. For example, paint companies
produce paints of different varieties in different colours. They
M
percent of the base and 1 per cent of stainers. The base for all
emulsions remains same whereas the stainer is manufactured in
various colours. Stainers are available in about 150-250 shades.
The process of mixing the base with the stainer is called tinting
operation. Now, Asian Paints has shifted its tinting operation
at the retail level. It means that the retailer produces emulsion
having a particular colour in tinting machines (paint mixing
machines) only after getting an order from a customer. By doing
this, Asian paints is not only changing its Made to Stock (MTS)
model to Configure to Order (CTO) model, but also saving billions
by reducing the inventory level at the variant level.
2. Alteration in the shape of the value-addition curve: Most cost
addition in products should be shifted to the end of the supply
chain. This helps in decreasing the level of inventory. Shifting
majority of cost addition towards the end of the supply chain
is important because if any unpredictable changes occur, the
organisation can incorporate those changes with minimum cost.
n o t e s
S
Order Placed by
IM Customer
Point of Differentiation
Cost
M
Time
N
In Figure 8.2, supply chain integration and optimisation lower the val-
ue-addition curve, which means that there is overall reduction in cost
and time involved in the supply chain. Additionally, there is also an
absolute shift in the point of differentiation; however, the relative po-
sition of the point of differentiation does not change. Please note that
supply chain integration and optimisation only lower the value-addi-
tion curve; they do not affect its shape. On the contrary, supply chain
restructuring may have one or more of the following impacts:
Affecting the shape of the value-addition curve
Shifting customer order (entry) point
Shifting the point of differentiation
n o t e s
moving from the MTS model to the CTO model of the supply chain.
All these changes lead to the increased efficiency of the supply chain
along with reduced costs for an organisation.
S
the point of differentiation does not change. (True/False)
IM
Activity
n o t e s
S
ganisations may also use the postponement strategy for delaying the
operational process to a later stage in the supply chain with an aim to
reduce transportation cost. There are organisations that achieve this
reduction in transportation cost by shifting the assembly of the final
IM
(bulky) finished products towards the customers’ end. This practice
is generally followed in cases where the product can be transported
as a kit consisting of various parts, which can be easily assembled by
the customer after he/she purchases it. In such a case, transportation
costs are significantly reduced because transporting kits is easier and
cheaper as compared to the transportation of a finished product.
M
brakes, etc. are sourced through their respective suppliers. Retail deal-
ers of bicycles stock frames and other components separately. When a
customer arrives, he/she chooses a particular bicycle (from catalogue
or display) and finalises his/her order. After this, the dealer instructs
his/her technician to assemble the demanded bicycle using the frame
and other components. This assembly time takes about 15-30 minutes.
After the completion of assembly, the bicycle is handed over to the
customer. The advantage to the bicycle manufacturer is that the kits
are less prone to damage as compared to the fully assembled bicycles.
Also, kits require less space as compared to the fully assembled bicy-
cles; therefore, more kits can be transported in a transporting vehicle
as compared to the number of fully assembled bicycles.
n o t e s
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vantages such as reduced inventory, warehousing and transportation
costs and increased responsiveness to customers. However, there are
some problems associated with the postponement strategy. These
problems are as follows:
IM
Economies of scale are reduced due to mass customisation
Product quality may be affected (in certain cases) when a manu-
facturer shifts the final assembling processes to the dealers’ end
Relationship with other members of the supply chain may get af-
fected
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Activity
RE-ENGINEERING IMPROVEMENT IN
8.5
SCM
An organisation usually tends to alter the shape of the value-addition
curve so that maximum cost addition takes place as late as possible
in the supply chain. This is shown in Figure 8.3, which presents two
n o t e s
curves namely the existing value-addition curve and the proposed val-
ue-addition curve:
Cost
S
Proposed Value-addition Curve
Time
IM Figure 8.3: Change in the Shape of Value Addition Curve
For analysing the curves (shown in Figure 8.3), the organisation needs
to differentiate between cost-intensive and time-intensive activities.
Activities which can be completed within a short time, but require a
high cost are cost-intensive activities; whereas activities that require a
lot of time, but only a small cost are time-intensive activities.
M
To shift cost addition at the later stages of the supply chain, a manu-
facturer should rearrange all activities in such a way that maximum
time-intensive activities are carried out during the initial period of
supply chain whereas cost-intensive activities are carried out during
N
n o t e s
S
ue-addition curve looked like the dotted curve as shown in Figure 8.3.
Activity
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8.6 SUMMARY
Supply chain mapping is a method that identifies existing supply
chain processes.
Three dimensions of supply chain processes based on which re-
structuring of supply chain is done includes: value addition curve,
point of differentiation and customer entry point.
To map the value-addition curve, a reverse route (backward) from
the point where the value is delivered to the end customer is taken
and all activities are mapped in two dimensions: time and cost.
Pointof differentiation refers to the stage at which the product is
modified or differentiated and becomes a specific variant of the
end product.
n o t e s
S
helps in reducing inventories.
The postponement of the point of differentiation can also help in
reducing transportation costs.
IM
There are organisations that achieve reduction in transportation
cost by shifting the assembly of the final (bulky) finished products
towards the customers’ end.
Organisations that manufacture bicycles in India have been quite
successful in implementing the postponement strategy.
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key words
n o t e s
S
3. Explain why is it beneficial for an organisation to advance the
point of entry.
4. Discuss how postponing the point of differentiation helps an
IM
organisation.
5. Explain how altering the shape of the value-addition curve can
be used for improving the supply chain management.
2. Time; cost
3. True
4. Variant
5. False
Supply Chain Process 6. True
Restructuring
7. Postpone the point of differentia-
tion, alteration in the shape of the
value-addition curve, advancement
in the customer ordering point
8. Advancing in the customer order-
ing point.
9. False
Postponing the Point of 10. Value-addition
Differentiation
11. True
n o t e s
S
because by doing so most of the activities can be accomplished
against an order. When activities are done on the basis of order,
the level and importance of forecasting reduces. Refer to Section
IM
8.3 Supply Chain Process Restructuring.
4. By postponing the point of differentiation, organisations can move
from MTS model to CTO model which leads to cost reduction.
Refer to Section 8.4 Postponing the Point of Differentiation.
5. Shifting cost addition at the later stages of the supply chain, a
manufacturer should rearrange all activities in such a way that
M
SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.] ; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer, J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
n o t e s
E-REFERENCES
(2017).Retrieved 6 July 2017, from https://www.researchgate.net/
publication/297512042_Postponing_product_differentiation
Coursera | Online Courses From Top Universities. Join for Free.
(2017). Coursera. Retrieved 6 July 2017, from https://www.cour-
sera.org/learn/supply-chain-management/lecture/sSMkP/post-
ponement
Supply Chain Restructuring: Considerations for Change – The Jour-
nal of Healthcare Contracting. (2017). Jhconline.com. Retrieved 6
July 2017, from http://www.jhconline.com/supply-chain-restruc-
turing-considerations-for-change.html
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CONTENTS
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9.1 Introduction
9.2 Framework for Supply Chain Drivers
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9.2.1 Facilities
9.2.2 Inventory
9.2.3 Transportation
9.2.4 Information
9.2.5 Sourcing
9.2.6 Pricing
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Activity
9.4 Supply Chain Operations Reference (SCOR) Model
Self Assessment Questions
Activity
9.5 Summary
9.6 Descriptive Questions
9.7 Answers and Hints
9.8 Suggested Readings & References
Introductory Caselet
n o t e s
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Source: www.livemint.com
Introductory Caselet
n o t e s
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n o t e s
learning objectives
9.1 INTRODUCTION
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In the previous chapter, you have studied the supply chain process
restructuring. In this chapter, let us discuss the metrics and drivers
of supply chain. A successful supply chain consists of certain drivers
that govern the responsiveness and competitiveness of an organisa-
IM
tion with regard to its supply chain network. In an organisation, these
drivers serve as metrics that measure the performance of its supply
chain network.
There are six main supply chain drivers. While three of them are lo-
gistical drivers, the rest are cross-functional drivers. Logistical drivers
are involved in the movement of products from a supply centre or an
M
In this chapter, you will study the framework for supply chain drivers
in detail. You will also study how to manage performance with met-
rics. Moreover, you will study the SCOR model.
n o t e s
Facilities
Inventory
Transportation
Information
Sourcing
Pricing
S
A supply chain’s performance depends on interaction among these six
key supply chain drivers. Let us first discuss the framework for struc-
turing these drivers. The supply chain of each organisation targets at
IM
aligning its competitive strategy with its supply chain strategy for in-
creased efficiency and responsiveness. To achieve this, organisations
require structuring a suitable combination of all these six drivers of
a supply chain. These drivers interact with one another to determine
the supply chain’s responsiveness. Figure 9.2 shows the framework
for structuring these drivers:
M
Competitive Strategy
Supply Chain
N
Strategy
Efficiency Responsiveness
Supply Chain Structure
Logistical Drivers
Cross-Functional Drivers
n o t e s
S
It can employ its own fleet to increase awareness and ensure bet-
ter product availability.
It can use its central distribution centres to enhance efficiency
IMwith fewer facilities.
It can ensure a smooth flow of information throughout its supply
chain network to improve responsiveness.
It can define valid criteria for selecting suppliers to determine re-
liable and efficient sources for selling its products.
It can adopt the Everyday Low Pricing (EDLP) scheme to confirm
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9.2.1 FACILITIES
Warehouses
Distribution centres
n o t e s
9.2.2 INVENTORY
S
Work-in-progress or goods at the semi-finished stage
Finished goods or final output
Cycle
Inventory
N
Obsolete Transit
Inventory Inventory
Types of
Inventories
Seasonal Safety
Inventory Inventory
n o t e s
are known, the cycle inventory is only required to meet the regular
demand.
Transit inventory: This refers to the inventory that is dispatched
by the seller, but is still not received by the respective purchaser.
Its level depends on the distance between the manufacturing fa-
cility and consumption centres. If the distance is large, then the
transit inventory level increases.
Safety inventory: This refers to the extra inventory stored by an
organisation to deal with any unintended and unanticipated situ-
ations, such as stock-outs. The level of safety inventory is higher
than that of the regular cycle inventory because it helps the organ-
isation to deal with uncertainties in product demand or supply.
Seasonal inventory: This inventory is held by an organisation to
meet its seasonal demand. For example, the demand for raincoats
S
and umbrellas increases during the rainy season. Seasonal inven-
tory helps an organisation to meet fluctuations in demand caused
by unstable production during a specific season.
IM
Obsolete inventory: This inventory includes only non-moving
items, which are expected to have low demand in future.
An organisation can make its supply chain more efficient and respon-
sive by managing its inventories effectively. For example, if a large
amount of inventory is stocked near consumption centres, it will help
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9.2.3 TRANSPORTATION
n o t e s
S
Carrier consolidation
Vehicle consolidation
IM
Transportation mode decisions: These decisions are related to the
carrier and mode for the movement of goods in a specific freight
transaction. For example:
Rail container services can be used for long distances in an
economical way.
Truck load carriers are used for overnight freight movements
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9.2.4 INFORMATION
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n o t e s
9.2.5 SOURCING
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tion costs and delivery schedules.
9.2.6 PRICING
n o t e s
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d. Sourcing
3. Sourcing determines whether a particular supply chain
activity should be performed in-house or outsourced. (True/
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False)
4. ________ refers to the consolidated data associated with
various facets of a supply chain.
5. Stable prices may help an organisation in maintaining
consistent demand for its products by customers. (True/False)
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future?
a. Transit inventory
b. Safety inventory
c. Obsolete inventory
d. Seasonal inventory
Activity
n o t e s
S
parts of the supply chain. Therefore, an organisation should consider
some basic requirements while choosing a metric. The requirements
are as follows:
IM
The metric should be simple to decipher.
The metric should use an objective value to express the results of
measurement.
The metric should provide consistent results after each measure-
ment process.
M
n o t e s
S
If the cash-to-cash cycle time is fast, then the supply chain is effec-
tive for the organisation.
Rate of return: This metric determines the rate at which the dis-
IM
patched items are returned to an organisation. It helps the organ-
isation to determine the reasons and ways by which it can reduce
the amount of products returned by customers.
Back order rate: This metric determines the number of orders
that could not be processed at the time of placing the order. If the
back order rate is high, it implies that customers are compelled
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n o t e s
Exhibit
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self assessment Questions
a. Rate of return
b. Back order rate
c. Fill rate
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Activity
n o t e s
isational goals and improve inventory turns. Thus, the SCOR model
provides a process-based methodology to supply chain management.
Plan
S
Source
Make
IM
Deliver
Return
M
n o t e s
Packaging
Staging
Releasing
S
and export prerequisites. It includes the following activities:
Order management
IM Storage
Shipment
Assets
Shipment
Regulatory prerequisites
n o t e s
S
Activity
9.5 SUMMARY
A supply chain driver is a factor that enables a supply chain to op-
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2. Inventory
3. Transportation
4. Information
5. Sourcing
6. Pricing
Facilities
are the physical locations in a supply chain network
which are used for manufacturing, storing and transporting prod-
ucts.
Inventory refers to the stock of materials or goods owned by a
business with an aim of production and sale.
Based on the role in the entire process of customer satisfaction,
there are five main types of inventories held by an organisation:
1. Cycle inventor`y
2. Transit inventory
3. Safety inventory
n o t e s
4. Seasonal inventory
5. Obsolete inventory
Transportation refers to the movement of products from one loca-
tion to another, such as from a supplier to a manufacturer.
An organisation needs to take various strategic decisions to make
its transportation responsive and cost-effective. These decisions
are classified as:
Long-term decisions
Lane operation decisions
Transportation mode decisions
Information refers to the consolidated data associated with vari-
ous facets of a supply chain, such as transportation, facilities, pric-
S
es, costs, customers and suppliers.
Sourcing is an array of business processes used to purchase and
deliver products and services.
IM
Pricing is a process used to determine the amount charged by an
organisation for making its products and services available to cus-
tomers.
There are different metrics for measuring supply chain perfor-
mance. An organisation should choose a metric based on its need
and usage.
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key words
n o t e s
S
Topic Q. No. Answers
Framework for Supply Chain 1. Facilities
Drivers
IM
2. c. Inventory
3. True
4. Information
5. True
6. Lane operation
7. c. Obsolete inventory
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n o t e s
SUGGESTED READINGS
S
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
[u.a.]; Munich: Pearson.
IM
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer, J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale, S. (2013). Production and Operations Management (1st ed.).
New Delhi: McGraw Hill Education (India).
M
E-REFERENCES
(2017). Performance Drivers. Retrieved 30 June 2017, from http://
www.performancedrivers.com.au/knowledge-centre/technical/
what-is-scor-model.shtml
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CONTENTS
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10.1 Introduction
10.2 Customer Service and Cost Trade-off
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Self Assessment Questions
Activity
10.3 Internal and External Performance Measures
Self Assessment Questions
Activity
10.4 Linking Supply Chain and Business Performance
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Introductory Caselet
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Source:www.wsj.com
However, from the last few years, due to changing market trends,
Dell’s PC business experienced a considerable market share loss-
es. In order to deal with this situation, Dell has transformed its
core principles and formulated a new supply chain strategy called
the ‘End user computing’ growth plan. The strategy focuses on
Introductory Caselet
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further helped Dell in lowering costs and driving revenue.
Apart from the direct sales model and BTO model, another major
characteristic of Dell’s supply chain strategy is strong supplier in-
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tegration. Dell has strong supplier network spread in all over the
world, including countries like China, India, U.S., etc. Some of
the biggest suppliers of Dell are Samsung, Motorola, Sony, Sanyo,
etc. that supply components to Dell as per the pre-defined code
of conduct. Dell considers its suppliers an essential part of its suc-
cess as they help Dell in minimising inventory and maximising
speed.
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Thus, these three supply chain strategies (direct sales model, BTO
model and supplier integration) are the most basic strengths of
Dell. These strategies help Dell in lowering cost by holding mini-
mum inventory, reducing number of mediators in the distribution
channel and helping customers to customise orders as per their
choices.
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learning objectives
10.1 INTRODUCTION
In the previous chapter, you studied the metrics and drivers of sup-
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ply chain. Now, let us move forward and study business performance
measures vis-à-vis supply chain strategies.
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In simple words, a strategy refers to a plan of action formulated to
achieve certain goals. A supply chain strategy refers to the plan of ac-
tion organisations take regarding the execution of their supply chain
cycle to achieve business goals, such as reduction in manufacturing
cost or cycle time, gaining competitive advantage, providing better
and timely services to the customers, etc. A well-formulated and ef-
fective supply chain strategy leads to efficient logistics, which helps to
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reduce the costs of the overall business and increase customer service
levels, thus increasing profitability.
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uation, in which it fails to supply goods to customers, as and when
demanded. Therefore, to improve customer service, a manufacturer
would like to keep a high level of inventory. Now, you can see the di-
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lemma of the manufacturer in keeping the right inventory level while
trying to maintain a balance between low cost and effective customer
service. Lowering costs result in ineffective service and effective cus-
tomer service comes at a higher cost. In such a circumstance, a trade-
off balance between cost and customer service level is maintained, in
which inventory levels are maintained at a relatively lower level and
customer service is maintained at a relatively higher level. When the
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customer service level and supply chain cost trade-off is plotted in the
graph, it is called the supply chain’s ‘efficiency frontier’. Figure 10.1
shows the supply chain’s efficiency frontier:
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Total Supply Chain Cost
Starting Point
Current
Efficient Frontier
New
Efficient Frontier
Optimized Strategy
Service Level
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ing in the current efficient frontier. The figure also shows that a man-
ufacturer can achieve the goal of lower supply chain cost and higher
customer service level by moving up to a higher efficiency frontier.
The service level and supply chain cost trade-off points towards the
importance of managing inventory levels to achieve competitive ad-
vantage. Most organisations consider inventory mainly as a cost head.
However, inventory can be managed to reduce costs, provide better
customer service and increase revenue. This notion leads to the con-
cept of Inventory Optimisation (IO). A large number of organisations
have been benefitted by adopting IO. It is very common for companies
to reduce up to 30% of inventory after implementing IO. For exam-
ple, Hewlett Packard (HP) saved more than $130 million, Microsoft
increased inventory turn by 18-20% while increasing fill rates by 6-7%
and Procter & Gamble reduced inventory level by $100 million (Effi-
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cient Frontier: A Moving Target).
Customer order
Order penetrations point
(decoupling point) Order delivery lead time
Figure 10.2: Supply Chain Lead Time and Order Delivery Lead Time
As can be seen in Figure 10.2, a typical organisation sources ma-
terial from suppliers, manufactures components, assembles the
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Push-pull
Boundary
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Push Pull
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Supply chain lead time
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and higher customer service level by shifting to a _________
efficiency frontier.
3. Customer service and inventory cost has a trade-off
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4. ________refers to the total time starting from the procurement
of raw materials to delivery of the finished goods to the
customers.
5. Under the pull strategy, supply chain functions are carried out
only after receiving customer orders. (True/False)
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Activity
With the help of the Internet, conduct a research on how large man-
ufacturers balance the supply chain and customer service trade off.
Prepare a report on it.
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INTERNAL LEVELS
EXTERNAL LEVEL
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Let us now study each of these measures in detail:
Cycle time or lead time: Cycle time or lead time of any business
process refers to the end-to-end time of any process. While mea-
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suring the efficiency of a supply chain, two important lead times
are taken into consideration. These measures are supply chain
lead time and order-to-delivery lead time. You have already stud-
ied both these types of lead times in the last section. The efficien-
cy level of the supply chain strategies of two organisations can be
compared with the help of their lead time. For example, suppose A
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and B are two close competing automobile companies and the sup-
ply chain lead time of the organisations are 15 days and 21 days,
respectively. From this, you can conclude that company A has a
more efficient supply chain.
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Stockout rate: It refers the fractions of orders cancelled due to
unavailability of goods in stock. As you can see, stock out rate
is complementary to order fill rate.
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Backorder level: It refers to the number of orders that are yet
to be filled.
Probability of on-time delivery: It refers to the fraction of or-
ders fulfilled within the promised delivery time.
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Activity
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performance measures. Now, let us see how the supply chain function
is related to the business performance of an organisation.
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creasing ROA can be accomplished by an efficient supply chain in the
following points:
Cost reduction: This objective can be accomplished by:
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Decreasing indirect material expenditures
Decreasing logistics expenditures
Decreasing stocks
Decreasing direct material expenditures
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Activity
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In real life, most organisations are usually not able to manage their
supply chain procedures smoothly. As a result, the position of their
supply chain efficiency frontiers is always at some distance from the
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optimal efficiency frontier. The only way organisations can meet their
goals is by moving to a higher efficiency frontier. Going to a higher
efficiency frontier requires organisations to optimise, integrate and
restructure their supply chain cycles.
Let us next study how organisations can improve their business per-
formance by implementing optimisation, integration and restructur-
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chain, an organisation needs to use information such as Point of
Sale (POS) data, market trends, etc. This information enables sup-
ply chains to respond more efficiently to demand fluctuations.
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10.5.2 SUPPLY CHAIN INTEGRATION
its own budget and set of priorities and measurements. Some compa-
nies have discovered that total distribution costs can be reduced by
integrating such distribution related activities.
Inventory Flow
Physical Manufacturing
Customer Procurement Suppliers
Distribution Support
Information Flow
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LOGISTICAL INTEGRATION
Information flow plays a vital role in the process of supply chain in-
tegration. Effective supply chain is perceived as a competency that
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associates an organisation with its customers and suppliers. As men-
tioned previously, the information about the customers flows through
the organisation in the form of sales activity, estimate and orders.
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10.5.3 SUPPLY CHAIN RESTRUCTURING
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14. By restructuring its supply chain, an organisation moves the
whole frontier downwards. (True/False)
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Activity
With the help of the Internet, find out a case of supply chain re-
structuring, study the case, and make a report on your findings.
10.6 SUMMARY
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nies have discovered that total distribution costs can be reduced
by integrating such distribution related activities.
Supply chain restructuring includes critical changes in the supply
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chain structure in the way material and information flows are man-
aged. Restructuring of supply chains helps organisations move the
entire efficiency frontier downwards and in the right direction, re-
sulting in lower costs and higher customer service.
key words
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2. Higher
3. True
4. Supply chain lead time
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5. True
6. Delivery reliability
Internal and External Performance 7. Order fill rate
Measures
8. False
Linking Supply Chain and Business 9. True
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Performance
10. False
Enhancing Supply Chain Performance 11. Integrated
12. False
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SUGGESTED READINGS
Slack, N., & Lewis, M. (2011). Operations Strategy (1st ed.). Harlow
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[u.a.] ; Munich: Pearson.
Waters, C. (2006). Operations Strategy (1st ed.). London: Thomson.
Heizer, J. & Render, B. (2001). Operations Management (1st ed.).
Upper Saddle River, N.J.: Prentice Hall.
Kale,S. (2013). Production and Operations Management (1st ed.).
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E-REFERENCES
Customer Service Level. (2017). Lcm.csa.iisc.ernet.in. Retrieved
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CASE STUDIES
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CONTENTS
Base
Case Study 9 Implementation of Lean Production Method by Jaguar
Case Study 10 Postponement Strategy Followed by Long Grove Confectionery Co.
Case Study 11 Implementation of the Scor Model By Expresspoint
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Case study 1
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Source: http://www.gingerhotels.com
Ginger Hotels has slowly carved a niche for itself amongst brand-
ed budget hotels in the country and today boasts of being a hotel
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of choice for leisure and business travellers who are looking for
comfort and luxury at competitive prices.
Case study 1
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Source: http://www.gingerhotels.com
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Seen at the first time, the Ginger property seems just like any
other hotel of this range and offers similar facilities that include
check in facilities, amenities in the room like refrigerator, TV, cof-
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fee machine/electric kettles, Wi-Fi, conference halls, fitness ame-
nities, cab services, currency exchange etc. However some of the
distinguishing features of Ginger hotels that form an intimate
part of its operations strategy are:
Affordable meals: The hotels serve nominally priced ala carte
meals with limited items in the menu. However, the guests
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the hotel as well as the guests. The saving on space helps the
hotel have more space available to accommodate more rooms,
at the same time making the rooms rentals more affordable for
the guests. This gives Ginger a competitive edge over others.
Source: http://www.gingerhotels.com
Case study 1
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Source: www.indianholiday.com
Case study 1
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Case study 2
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This Case Study discusses how the niche focused strategy helped
Netflix in capturing global audience. It is with respect to Chapter 2
of the book.
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Source: http://www.netflix.com
Netflix’s operations started with DVD sales and rental, but Hast-
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Case study 2
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nos” and “The Shield” which were based on complex storylines
that aimed viewership by niche audiences. Since the revenue for
these channels came from both subscribers and advertisers, de-
spite of limited viewership they could survive the television in-
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dustry. In the early 2000s, technology advancement took place
in compression technology. Together with high-speed internet
services reaching more and more homes, it became possible to
stream large video files over the Internet. These developments set
ground for Netflix to further its business lines in 2007 from DVDs
by mail to a national video streaming service. Television series
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Case study 2
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able for young viewers.
Case study 2
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Source: www.ivacy.com
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Netflix caters to the cultural and geographic viewership needs of
the global audience and not just distributing shows produced for
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the US audience. “Marseille,” a French political drama; or “Hi-
bana,” a Japanese drama are the examples of such series being
aired to the intended audience. With the growing number of sub-
scribers from other countries, Netflix’s library of original content
too has increased manifolds. Netflix’s foothold in the global mar-
ket has been so far the strongest and its experiment as a global,
subscriber-funded television portal is likely to be a major mile-
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questions
Case study 3
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This Case Study discusses the how one of the leading airlines of
India successfully turned profitable from a stage of huge losses by
implementing a turnaround strategy. It is with respect to Chapter 3
of the book.
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Source: www.jetairways.com
Case study 3
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highest profit ever reported since the company started its oper-
ations. This came after the company implemented a turnaround
strategy that worked faster than what was anticipated.
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Source: www.jetairways.com
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The first step that the company took in the turnaround strategy
was to get away from the low cost aircraft model. A corporate cus-
Case study 3
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Source: https://goo.gl/images/u2LyGP
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Source: http://econ243.academic.wlu.edu
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In 2006, The Walt Disney Company bought Pixar at a value of $7.4
billion, which was one of the biggest transactions made in the an-
imation industry.
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The Walt Disney Company was founded in 1923 by Walt and Roy
Disney and is known as one of the largest media and entertain-
ment corporations in the world. Pixar Animation Studios, on the
other hand, began its journey in 1979 as Graphics Group, a part
of the Computer Division of Lucasfilm. It was acquired by Steve
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Disney had already been working with Pixar since 1991. It used
to look after the distribution of Pixar’s animated films. However,
in 2004, due to the differences with Disney’s then CEO Michael
Eisner, Pixar announced that it would partner with another dis-
tribution company. But the things changed as Robert Iger took
over from Eisner in 2005 and revitalised talks with Pixar. The talk
ended up in the successful acquisition of Pixar by Disney that
made Steve Jobs, the ex-CEO of Apple Computer Inc., the ma-
jor shareholder in Disney with an equity stake of around 7%. Not
only this, but Jobs had also become a member of Disney’s Board
of Directors.
Case study 4
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Source: www.appliedfinancejulianshovlin.wordpress.com
Analysts said that the deal was more important to Disney than
to Pixar. The deal gave Disney the ownership of the world’s most
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renowned computer animation studio and its talent. The merg-
er offered the necessary technology edge and direction to Dis-
ney. At that time, Disney was facing trouble as its own animation
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films were failing one after another. The deal provided Disney a
chance to get the necessary push in creativity. On several benefits
that Disney would derive, Nelson Gayton, Professor at Wharton
School of Business said, I believe that the acquisition of Pixar was
of utmost strategic importance to Disney, not only because of where
Disney’s previous distribution relationship with Pixar seemed
headed, but also because of Pixar’s potential value to Disney’s ‘fam-
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ily entertainment’ brand and assets, like theme parks and televi-
sion, that feed off this brand.
Source: www.uk.movies.yahoo.com
Case study 4
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The basic reason behind the success of the merger was that it
turned out to be a win-win deal for both the parties. On one hand,
the deal helped Disney to get access to the animating expertise of
Pixar and produce more hit creations. On the other hand, Pixar
got the advantage of using the vast network of Disney for captur-
ing the untapped market. Disney, after all is the world’s largest
entertainment company. It owns television networks; film studio;
theme parks and consumer products businesses; and all of these
could help Pixar in gaining maximum profit.
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Pixar employees get mixed in the new environment. Disney and
Pixar, even after the merger, continued to work from their sepa-
rate headquarters at Burbank and Emeryville respectively. Iger
not only allowed the Pixar name to remain but also never changed
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employees’ email addresses. In other words, Disney allowed Pixar
to maintain its own identity within the enlarged group. Howev-
er, in turn, Iger involved Pixar employees in tasks that could in-
crease the efficiency of Disney. Before the merger, Pixar used to
release only one film a year. Not only this, but it also used to stay
away from the idea of sequels as it believed that sequels destroy
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questions
Case study 5
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Source: www.airlinersgallery.smugmug.com
Case study 5
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The main reason behind the success of the airline is its cost lead-
ership strategy. Virgin Australia Airline adopted the cost leader-
ship strategy by using the following measures:
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Eliminating different costs: To become a low-cost service
provider, Virgin focused on minimising various costs, such as
printed ticketing cost and cost of in-flight meals. This helped
the company to offer cheaper fares to its passengers as com-
pared to its competitors.
Using the Internet as a channel for airline distribution: It
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Case study 5
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such as bus, train or personal cars. It also offered seats on a one-
way basis, and 75 percent of the seats in aircraft were offered for
the minimum fare assigned for a particular route. These unique
cost-cutting measures along with a very competitive workforce
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made Virgin Australia Airlines a very competitive airline in the
world.
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leadership.
(Hint: Cost leadership refers to the generic strategy in
which an organisation delivers its products or services at
a lower cost than its competitors. Virgin Australia Airlines
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This Case Study discusses how precise process planning helps Mc-
Donald’s to achieve operational excellence. It is with respect to
Chapter 5 of the book.
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Source: ww.askmen.com
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ABOUT THE COMPANY
Case study 6
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a five star level by experts. High level policies regarding process
planning and implementation seem to have contributed largely to
the company’s success.
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Though the front face of a McDonald’s outlet may be just some
burger chute, drink dispensers, fries bank and a couple of oth-
er things along with an impeccably friendly service suggestive of
some very slick selling techniques, the secret to McDonald’s is
actually what goes on backstage.
Source: retail.franchiseindia.com
Case study 6
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Source: http://mcdonaldsblog.in
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Case study 6
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ald’s is their stringent hygiene standards. The outlets never com-
promise on these standards that they feel are important to their
service delivery policy. McDonald’s has been able to sustain its
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business practices with huge efforts in their product research and
sales and marketing processes.
pared, so that the next customer’s order can be taken. This gives
a perception of continuity and flow to the customer, even though
the total service time remains the same. Another advantage of this
process is that it reduces idle time at the billing counter thereby,
decreasing the number of counters and staff requirements. This
helps in improving the effectiveness of the overall process.
CONCLUSION
Case study 6
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cy, leading to high quality processes.
questions
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1. With reference to the given case study, discuss why
process planning is important factor for the success of
organisations like McDonald’s?
(Hint: The concept of a process lays emphasis on the
point that every process of an organisation or any of its
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organisation.)
2. Discuss major challenges that McDonald’s (as a service
organisation) could face in managing its service processes.
(Hint: As a service organisation, McDonald’s service
processes include all those activities that are designed to
provide services as per customer satisfaction. Managing
service processes is a complex and difficult task. This is
due to the fact that service-oriented business deals with
the majority of intangible things and being intangible, it
is subjected to individual preferences. Thus, the success
of service processes at McDonald’s largely depends on a
continuous and standard delivery of services. Only this
could result in customer satisfaction.)
Case study 7
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Source: http://sumul.com
angered them and they decided to get rid of this unfair and ma-
nipulative practice. Sardar Vallabhbhai Patel was approached by
farmers for a solution, who suggested that the farmers get rid of
middlemen and form their own co-operative. It was recommend-
ed that the cooperative so formed shall have the procurement,
processing and marketing verticals under their control. The local
farmers of Anand went on a strike and refused milk sales and
under guidance of leaders like Sardar Patel, Morarji Desai and
Tribhuvandas Patel, Amul was formed as cooperative in 1946.
Case study 7
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Source: http://www.panoramio.com
Case study 7
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Source: http://www.thehindubusinessline.com
questions
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Source: http://www.ccjdigital.com
At the time of its inception in 1969, A&R Logistics had only two
trucks to transport resin materials from and to Lyondell Basell’s
Equistar petrochemical factory. Over a period of time, its fleet
grew to over 810 tractors, and 1.3 million square feet of the area
was covered by its warehouses and terminals across the country.
The company is basically known for its transportation services.
The warehousing and brokerage of A&R contributed to around
30% of its total business. With the expansion of its 3PL business,
A&R is today one of the leading providers of transportation for
plastic and dry flowable materials.
Case study 8
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Source: http://www.3plogistics.com/AR_7-2011_files/image013.gif
In Morris warehouse, the silos are placed next to rail sidings. This
warehouse stores plastic resin pellets. The containers are inven-
toried using a system that tracks their dates and lot numbers.
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Case study 8
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ments. As an example, DOW is a major customer of A&R. 40% of
the dry bulk volume of DOW is shipped by A&R. The remainder
is shared among 46 other carriers. GL has delivered a 3% to 5%
of savings in a year by leveraging the shipment volume to gain
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favourable rates from dry bulk carriers and running empty miles
with planning.
The movement and loading data is fed into the database that is
able to give a status report for some of the late rail cars. The Just-
in-Time (JIT) delivery and reduction in inventory have made GL
a preferred value-add choice to bulk shippers. A&R has a heavy
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asset base and a wide customer base in the resin industry. It in-
tends to grow its non-asset-based businesses.
questions
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Case study 9
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Source: www.dirdoo.com
The earlier work relationship was based on the ‘tell and do’ ap-
proach. Instructions were given to subordinates to exercise con-
trol from the top-down approach. The new pattern allowed for
more opportunities of collective decision making. Under the new
system, line workers were expected to take responsibility for
Case study 9
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their own work and depend on team leaders only for support. The
workers were asked to operate in small groups of seven headed by
a leader, an approach called cellular working. The teams (called
cells) were made familiarised with a series of new approaches,
developed to assist them in their work. The group members were
trained on site for a practical approach that would help them in
applying new tools in a work-based context. The line workers ac-
tively adopted the new work approach that promoted greater in-
volvement and responsibility. The result of the new approach was
increased productivity and quality of work.
The second step taken by the organisation for achieving the lean
production line was to develop a continuous flow system of manu-
facturing based on the ‘just-in-time’ approach. Earlier, employees
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focused on the already determined processes of production using
batches of car components. The work area was messed up with
batches of these car components resulting in a confined work en-
vironment with a lack of space.
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Source: www.adandp.media
The new approach was based on reducing the stock of car com-
ponents in the workspace to the exact amount that would keep
the production to continue smoothly. The line workers dropped
signals using an alarm to order fresh stocks as and when needed.
A prompt response from the central storing unit was supplied to
the work stations ‘just-in-time’ to continue with the production.
This resulted in the following benefits:
Reduced floor space for components
Allowed spacious area for workers
Decreased unwanted movements between operations
Reduced damage caused to the components lying on the floor
Case study 9
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questions
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1. What were the wastes that Jaguar could eliminate
after adopting the lean production method at its Castle
Bromwich manufacturing unit in Birmingham?
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(Hint: Dependence of workers, space constraints at work
stations, rising inventory, etc.)
2. What are the main features of the Jaguar’s new lean
production system?
(Hint: Cellular working, Just-in-Time inventory, demand-
supply equilibrium, etc.)
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This Case Study discusses how Long Grove Confectionery Co. de-
vised its postponement strategy to deal with the leftover inventory
problem. It is with respect to Chapter 8 of the book.
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Source: www.roadtrippers.com
vourable situations for the company and also affected its financial
performance and revenues.
The company analysed its situation and found that the root cause
of their problem was that it was not able to predict the demand
for new products efficiently and accurately. The variance related
to a particular product’s demand can fluctuate either on the high-
er side or on the lower side. The fluctuation can be on the higher
Case study 10
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packaging for its products which added to its product’s unique-
ness. If the demand was less than expected, the packaging inven-
tory would lie idle with no alternative use whereas if the demand
exceeded forecast, additional inventory must be acquired in small
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lots. Consequently, profits were lowered and costs increased due
to excess inventory holding costs and disposal costs (that arise as
a result of discarding the unused packaging material).
changed recently and the company had the same old informa-
tion systems. Therefore, it was difficult to resolve this problem in
short term. The new management wanted to introduce some new
products for which the forecasts of demand and sales were highly
unpredictable (being new). The management decided to reduce
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inventory holding costs and disposal costs. Most of the sales for
LGCC’s wholesale business are generated by the use of catalogue.
However, the catalogue includes both hot selling products as well
as the slow selling products. The slow selling products are adver-
tised in the catalogue so as to use the excess inventory from last
year; these products are often advertised as on sale products in
catalogue. It means that these slow sellers occupy the scarce and
costly catalogue space which should be given to new products and
increase focus on hot sellers.
Case study 10
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(Source:Adapted from, (2015). Retrieved 10 December 2015, from http://www.kellogg.
northwestern.edu/course/opns430/modules/supply_chain_management/postpone-
ment-august141998.pdf)
questions
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1. What was the main problem of LGCC and its cause?
(Hint: The problem of LGCC was related to unused
inventory and the associated disposal and carrying costs.
The root cause of the problem was that it was not able
to predict the demand for new products efficiently and
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accurately.)
2. How did LGCC solve its problem and increase its profits?
(Hint: By postponing the point of differentiation in
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Case study 11
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Source: www.zoominfo.com
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ExpressPoint Technology Services is a company that provides
supply chain and high quality repair solutions to equipment man-
ufacturers and third-party logistics providers. The company’s
leadership team is aware of the fact that collaboration, undergo-
ing continuous improvement and flexibility in conducting busi-
ness are essential for satisfying customers. The company’s main
business goal is to make on-time delivery of products and services
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Case study 11
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discovered that the company’s planning processes and system
capabilities were not fully integrated and several of them were
either broken or missing.
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In present times, ExpressPoint is reaping benefits by having
a more comprehensive understanding of its supply chain. The
SCOR model helped us better understand our supply chain and the
competitive requirements, Buttner says. Refining our metrics gives
us increased visibility and helps balance our customers’ require-
ments with our financial objectives.
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questions
Case study 12
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This Case Study discusses major tools and techniques used in sup-
ply chain optimisation. It is with respect to Chapter 10 of the book.
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Source: www.happiestminds.com
Case study 12
n o t e s
questions
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application of mathematical models and computer
software to determine the optimal inventory level and
minimise supply chain cost. Data analytics help in pattern
recognition, accurate forecasting, information sharing,
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etc. and thereby, enabling managers to optimise supply
chain strategies.)
2. How can analytics help in building a responsive supply
chain?
(Hint: Analysis of customer feedback, study of production
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