Operations and Supply Strategy

What is Operations and Supply Strategy?

Operations and supply strategy is concerned with setting broad policies and plan for using the resources of a firm to best support its long-term competitive strategy.

Competitive Dimensions

•Cost or Price

–Make the Product or Deliver the Service Cheap

•Quality

–Make a Great Product or Deliver a Great Service

•Delivery Speed

–Make the Product or Deliver the Service Quickly

•Delivery Reliability

–Deliver It When Promised

•Coping with Changes in Demand

–Change Its Volume

•Flexibility and New Product Introduction Speed

            --Change it

•Other Product-Specific Criteria

            --Support it.

Dealing with Trade-offs

For example, if we reduce costs by reducing product quality inspections, we might 

         reduce product quality.

If we improve customer service problem solving by cross-training personnel to deal  with a wider-range of problems, they may become less efficient at dealing with  commonly occurring problems. 

                                      

                       

Order Qualifiers and Winners Defined

Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers

Order winners are the criteria that differentiates the products and services of one firm from another 

What is Productivity? Defined

Productivity is a common measure on how well resources are being used. In  the broadest sense, it can be defined as the following ratio: 

Outputs

  Inputs

Total Measure Productivity

Total Measure Productivity = Goods and services produced

                                                              All resources used

Partial measures of productivity =

Output or   Output or Output    or    Output

Labor         Capital      Materials        Energy   

  

Operation Management

1. Introduction to the Field
2. Operations and Supply Strategy
3. Project Management
4. Product Design
5. Strategic Capacity Management
6. Quality Management
7. Supply Chain Strategy

Introduction to the Field

OBJECTIVES 

•What is Operations and Supply Management?

•Why Study Operations Management?

•Transformation Processes Defined

•Differences between Services and Goods

•The Importance of Operations Management

•Historical Development of OM

•Current Issues in OM

Operations and Supply Management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and  services.

A transformation process is defined as a user of resources to transform inputs into some desired outputs.

Transformations

•Physical--manufacturing

•Locational--transportation

•Exchange--retailing

•Storage--warehousing

•Physiological--health care

•Informational--telecommunications

•“If you drop it on your foot, it won’t hurt you.” (Good or service?)

•“Services never include goods and goods never include services.”  (True or false?)

•Historical Development of OM

•JIT and TQC

•Manufacturing Strategy Paradigm

•Service Quality and Productivity

•Total Quality Management and Quality Certification

Historical Development of OM (cont’d)

•Business Process Reengineering

•Six-Sigma Quality

•Supply Chain Management

•Electronic Commerce

•Service Science

Current Issues in OM

•Coordinate the relationships between mutually supportive but separate organizations.

•Optimizing global supplier, production, and distribution networks.

•Increased co-production of goods and services

Current Issues in OM (cont’d)

•Managing the customers experience during the service encounter

•Raising the awareness of operations as a significant competitive weapon

MARKET-DRIVEN STRATEGY

Objectives 

• Market-Driven Strategy 
• Becoming Market Oriented 
• Distinctive Capabilities 
• Creating Value for Customers 
• Becoming Market Driven 
• Challenges of a New Era for Strategic Marketing

Market-Driven Strategy

• All business strategy decisions should start with a clear understanding of markets, customers, and competitors.
• The market and the customers that form the market should be the starting pint in shaping business strategy.

Why Pursue a Market-Driven Strategy?

• Strong supporting logic
• Achievements of companies displaying market-driven characteristics are impressive

Examples include:

• Dell Inc.
• Louis Vuitton
• Southwest Airlines
• Tesco
• Tiffany & Co.
• Wal-Mart
• Zara

BECOMING MARKET ORIENTED

• Customer is the focal point of the organization
• Commitment to continuous creation of superior customer value
• Superior skills in understanding and satisfying customers
• Requires involvement and support of the entire workforce
• Monitor rapidly changing customer needs and wants
• Determine the impact of changes on customer satisfaction
• Increase the rate of product innovation
• Pursue strategies to create competitive advantage

Characteristics of Market Orientation

Customer Focus
What are the customer’s value requirements? 
Competition Intelligence
Importance of understanding the  competition as well as the customer.
Cross-Functional Coordination
Remove the walls between business functions.
Performance Consequences
Market orientation leads to superior organizational  performances.


Market Orientation

Information Acquisition

• Gather relevant information on customers, competition, and markets
• Involve all business functions
• Intuit’s Quicken

Inter-functional Assessment

§  Share information and develop   innovative products with people from different functions.

§

§Shared diagnosis and action

§ Deliver superior customer value

DISTINCTIVE CAPABILITIES


“Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.”

Southwest Airline’s Distinctive Capabilities Organizational Processes

Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines.  The airline offers services to 57 cities in 29 states, with an average trip about 500 miles.  The carrier’s value proposition consists of low fares and limited services (no meals).  Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base.  Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty.  The company continues to grow by expanding its point-to-point route network.

Skills and Accumulated Knowledge

The airline has developed impressive skills in operating its business model at very low cost levels.  Accumulated knowledge has guided management in improving the business design over time.

Coordination of Activities

Coordination of activities across business functions is facilitated by the point-to-point business model.  The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis.

Assets

Southwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps.

CREATING VALUE  FOR CUSTOMERS

Customer Value:

§Value for buyers consists of the benefits less the costs resulting from the purchase of products.

§Superior value:  positive net benefits

Creating Value:

§“Customer value is the  outcome of a process that   begins with a business  strategy anchored in a deep   understanding of customer  needs.” 

Market Driven Initiatives

Market Sensing Capabilities

–Effective processes for learning about markets

–Sensing:

•Collected information needs to be shared across functions and interpreted to determine proper actions.

Customer Linking Capabilities

–Create and maintain close customer relationships

CHALLENGES OF A NEW ERA FOR STRATEGIC MARKETING

§Strategic marketing faces unprecedented challenges and opportunities:

• Turbulent markets 
• Intense competition 
• Disruptive innovations 
• Escalating customer demands 

§Ethical Challenges

§Societal and Global Change

§Social Responsiveness of Organizations

Escalating Globalization

It is important to understand the differences (and similarities) between the developed economies and the new world beyond.

Market opportunities  

Competitive threats 

Partnering opportunities

Outsourcing initiatives

The world’s poor

Ethical Behavior and Social Responsiveness

Increasingly demanding ethical challenges

Corporate responsibility

Responsibilities to stakeholders

Ratio Analysis

Balance Sheet and Income Statement are important, but they are only the starting point for successful financial management.  Ratio Analysis could be applied to Financial Statements to analyze the success, failure, and progress of business (Foster, 1978).

Ratio Analysis allows the business owner/manager to mark developments in a business and to compare its performance and condition with the average performance of similar businesses in the same industry or comparing current year’s performances with the previous year’s performance (Horrigan, 1968).

 One of the ways to compare performance of a business is by ratio analysis. Comparing current years financial statements with the previous year’s financial statements may help investors and other interested parties to understand the stability and performance of the business (Foster, 1978). Ratio analysis may provide the all-important early warning indications that allow solving business problems before the business is destroyed.

This paper provides a critical review of the theoretical and practical basis of four central areas of financial ratio analysis. The research areas reviewed are the Profitability ratios, Liquidity Ratios, Capital Structure Ratios and Investment Ratios.  It is observed that it is typical of financial ratio analysis research that there are several unexpectedly different looks with research traditions of their own. A common characteristic of all the areas of financial ratio analysis research seems to be that while significant regularities can be observed, they are not necessarily stable across the different ratios, industries, and time periods. This leaves much space for the development of a stronger theoretical basis and for further practical research (T. S. and T. Martikainen (1994).

This research study is based on secondary data, means data that are already available i.e. the data which have been already collected and analyzed by some one else.

Secondary data are used for the study of Ratio analysis of this company. To collect the data I have refered – Company annual report, annual magazine, last 5 year balance sheet, and cash flow statements.

Another source of secondary data was in the form of reference books and Literature Review published by third parties but available to the public. The World Wide Web (Internet) was also an important source of information related to ratio analysis.

This research was based on analyzing the financial statement of one of the biggest manufacturing companies in Cyprus – CYPRUS TRADING CORPORATION LTD by ratio analysis, concentrating on the questions of how the company performed in the year 2010 compared with the previous year (2009) and how this information will be useful to third parties on their decision making. The importance of this research is that the financial ratios are widely used for modeling purposes both by practitioners and researchers. The firm involves many interested parties, like the owners, management, personnel, customers, suppliers, competitors, regulatory agencies, and academics, each having their views in applying financial statement analysis in their evaluations. Ratio analysis of the financial statements of CTC for the years 2009-2010 showed the overall performance of the company compared with the previous year and as a result based on all the calculations and analysis of all available ratios a conclusion has been made that the company has developed and improved its performance in 2010 compared to 2009.

Ratios are divided into four main groups:

1. Profitability Ratios – These are ratios used to asses a firms profitability.  It is the aim of all firms to make a profit because profit provides the income for the owner(s); it enables firms to put away reserves in case of future needs (Chen and Shimerda (1981).  Profit is also a source of funding for investments as well as an indicator of the health of the firm.  It is very important that a firm’s financiers, shareholders and potential investors have a reliable measure of the ability of the firm to generate satisfactory profits and be able to compare these with profits made by the same firm in previous years (Luoma and Ruuhela (1991).

2. Liquidity Ratios –, These are ratios that show the ability of a firm to meet commitments as they fall due.  A firm should have sufficient liquid resources (cash and assets readily convertible into cash) to meet all current liabilities. 

 “Liquidity is the ability of the firms to meet its current obligations as they fall due” (Saloman J. Flink).

3. Capital Structure Ratios – These ratios can also be called financial leverage ratios. They are used to see whether companies finance their activities mainly by attracting investments on their equity shares or borrowing from banks.  Measures of financial leverage are tools in determining the probability that the firm will default on its debt contracts (Vatter (1966).

4. Investment Ratios – Also called Market Value Ratios are of great interest to investors.  Balance sheets and Income statements give us a lot of information about the business but they do not give us any information about important characteristics such as the market value.  Therefore investment ratios are used to overcome this situation.  These ratios are applicable to public limited companies (Stauffer (1971).

Key Customer Markets

• Consumer markets
• Business markets
• Global markets
• Nonprofit/Government markets


• Consumer Markets: Companies selling mass consumer goods and
services spend a great deal of time establishing a strong brand image by
developing a superior product and packaging, ensuring its availability, and
backing it with engaging communications and reliable service.
• Business Markets: Companies selling business goods and services often
face well-informed professional buyers skilled at evaluating competitive
offerings.
• Global Markets: Companies in the global marketplace must decide which
countries to enter; how to enter each (as an exporter, licenser, joint venture
partner, contract manufacturer, or solo manufacturer); how to adapt product
and service features to each country; how to price products in different
countries; and how to design communications for different cultures. They
face different requirements for buying and disposing of property; cultural,
language, legal and political differences; and currency fluctuations.
• Nonprofit and Governmental Markets: Companies selling to nonprofit
organizations with limited purchasing power such as churches, universities,
charitable organizations, and government agencies need to price carefully.

Segmentation, target markets and positioning

   Segmentation: Dividing a market into smaller groups of buyers with distinct needs, characteristics, or behavior who might require separate products. 
   Next step is to target one or more segments. Consists of set of buyers who share common needs or characteristics that the company decides to serve.
   Positioning is developing a product and brand image in the minds of consumers.
   It's become necessary for companies to change their market segmentation, because markets are dynamic. The market preference is always changing, so the company should make sure that their capacity and capability match with their market segment demand. If the current segment is not well match toward the company capability, consequently the organization should change their market identification.