Resource Management Strategies and Tools for Success Rick Donahoue CPIM, CSCP Master IDP Instructor Today s Challenges Understanding competitive strategy and the four most common competitive strategies SWOT analysis Demonstrating a high level overview of the four competitive strategies Review of the five classic performance objectives, and other tactical planning considerations and how they support the competitive strategy Explanation of how a company s supply chain needs to be aligned with the competitive strategies as well as the five performance objectives Exercise demonstrating a high level overview of a distribution network optimization that incorporates strategy, operations initiatives and tactical planning/execution 1
Why Plan Alice: Which way should I go Cheshire Cat: That depends on where you are going Alice: I don t know where I am going Cheshire Cat: Then it doesn t matter which way you go! Lewis Carroll Alice in Wonderland What is Your Role Strategic Tactical Operational 2
Helium Stick Demonstration of strategy What is Strategy? Strategy is what makes you different Michael Porter Harvard Business Review, 1996 3
Effective Communications The single biggest problem with communication is the illusion that it has been accomplished. -George Bernard Shaw Purpose of Setting Strategy Sets the company s game plan for winning in the marketplace Requires being disciplined about trade-offs of what you will and will not do Is a shared statement of the specific business you want to be in, how you will differentiate your customers experience and what is the path to success Informs, aligns and inspires the employees to give their best for something they feel is worthwhile 4
Competitive Advantage The unique value that a company can deliver to a chosen market that is better than any of its industry rivals. There are external and internal sources of competitive advantage. An internal view, or resource view, of sources of competitive advantages states that a company can create a sustainable advantage in their market if they can build and maintain a unique set of strategic capabilities that are difficult for other firms to replicate. Strategic Capabilities One possible definition for Strategic capabilities. a unique set of capacities, resources, and workforce skills that create a long-term competitive advantage for an organization. 5
Strategic Planning Process Evaluate results and refine What Strategic Planning is Not It is not forecasting, although this plays a key role into the future of any plan It is not a simple application of quantitative or qualitative techniques to be used in planning your business Strategic planning is concerned with making decisions today, based on today s knowledge, that will impact the future of the organization, so it is not a wish list but something executable Strategic planning does not eliminate risks but it does help reduce them. Identifying and developing a plan to minimize risks, both today and in the future, is a key element of strategic planning. 6
Generic Strategies Cost leadership Differentiation Focus Lower overall costs with products/service s aimed at either a narrow or wide market segment Creating a product/service with diverse attributes valued by customers Focuses on a narrow market segment with either cost considerations or customers willing to pay a premium for the product or service Cost Leadership Competes on price Cost reduction is a key element of this strategy, driving down costs is instrumental to this competitive advantage Targets a broad market segment This strategy requires the organization to be well-known as a cost leader and very difficult to challenge in it s targeted market This strategy is very effective where customers focus on price over any of the other generic operational objectives, speed, quality, dependability and flexibility 7
Cost Leadership Success Risks Can make significant capital investment when needed Design for efficient manufacturing and distribution Extremely efficient supply chain Who is the competition Technology improvements can level the playing field or even allow the competition to surpass the organization What could be the aftermath of a price war Is the model sustainable Differentiation Strategy This strategy requires the development of a product or service that provides a set of unique attributes the customer desires Customers believe the product to be different/better than what the competitors can provide Customers often are willing to pay a higher price for the product or service Differentiation can be based on image, quality, special features as well as other attributes Strong marketing is usually key to the success of this strategy 8
Differentiation Strategy Success Risks Access to leading technology/research Strong sales/marketing team, who can communicate/emphasize the strengths of the product or service Knownas aleader in quality and innovation Cost are often higher in this strategy than other competitive strategies Price can become an issue/concern over the uniqueness to the product or service Is the uniqueness still needed, order winner Competitors, what is their strategy, might it be more focus strategy which could lead to a greater differentiation in the market Focus Strategy Focuses on a narrow market segment, one that is geared towards achieving either a cost advantage or differentiation Customer needs can be clearly identified and address within a more focus approach Customer loyalty is one of the key factors here which also becomes a deterrent to others competing directly with or for your customer base. Typically the volume is lower n this strategy thus reducing the organizations ability to effective negotiate with their suppliers. However, if you are pursuing a differentiation-focus strategy you might be able to pass on the higher cost 9
Focus Strategy Success Risks Lower investment in resources due to the benefit from specialization Better understanding of the market segment and allows entry into a new market easier and less costly Customer loyalty Due to the narrow market growth opportunities can be limited Sudden change in customerneeds or decline in the market Knock off products Pigeon hole into a particular market may inhibit moving or expanding into other market sectors Generic Strategies Attribute Advantage (low cost) Advantage (product uniqueness) Broad (industry wide) Cost leadership Differentiation Narrow (market wide) Focus strategy (low cost) Focus strategy (differentiation) 10
BUSINESS STRATEGY examples Tasks Increase revenues Decrease Manufacturing costs Reduce Distributionst Cost Strategy Increase Gross Profit. Decrease Operating Cost Tasks Reduce Inventories Improve capital Planning Reduce cost of debt Strategy Capital Deployment Cost of Capital SWOT Analysis is SWOT is a structured planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit. - Define realistic goals - Improve capability - Overcome weaknesses with strengths - Identify threats than can be turned into opportunities As defined by Wikipedia 11
S SWOT Analysis Characteristics of the business or team that give it an advantage over others in the industry Superior product quality Lowest price Location W Characteristics that place the firm at a disadvantage relative to others Inferior location High overheads A lack of R&D O Externalchances to make greater sales or profits in the environment A regulatory or tax change A high-profile event (marketing opportunity) An untapped market A gap left by a failed competitor T Externalelements in the environment that could cause trouble for the business Unfavourable regulation changes A new entrant into the market Problems with the economy Market shrinkage Strengths and Opportunities A key question is how can I utilize a strength to maximize any given opportunity, as an example: Strength s were listed as superior product quality, lowest price and location. Whereas the opportunities this could maximize might be untapped market or a gap left by a failed competitor. Similarly how can we strengthen a weakness to capitalize on an opportunity: By focusing on our lack of R&D could that maximize the opportunity for untapped market, failed competitor or any other marketing opportunity Finally how can we optimize our strengths to address any potential threats: Superior quality versus a new market entrant 12
Interaction of SWOT Strengths Superior product quality Lowest price Location Leverage Weakness Inferior location High overheads A lack of R&D Opportunities Tax change High-profile event Untapped market Gap left by competitor Problems Threat Unfavorable regulation New market entrant Economy Market shrinkage Price is Right 13
Competitive Advantage Hand power mower is geared towards those individuals with a small area to cut and price (low cost strategy) is important to the customer Push mower could be for a variety of applications from small areas to those more energetic with larger areas to mow (either broad differentiation or focus low-cost strategies) Riding mower often would be considered a broad differentiation strategy, although price is important it may not be the order winner. A particular attribute might be more important to the customer. Specialized tractor, in this case is utilized for a golf course, thus lending itself strategy to a Focused Differentiation Question What might be some of the considerations for each of the products when considering a SWOT analysis? 14
Porters Five Forces Threats of New Entrants Bargaining Power of Suppliers Competitive Rivalry Within an Industry Bargaining Power of Customers Threats of Substitute Products Threat of New Entrants Is influenced by some of the following attributes: Market profitability High fixed Cost Economies of scale Brand identity Capital requirements Industry growth Ease of switching customers 15
Bargaining Power of Customers (buyers) The bargaining power of customers is the ability of customers to put pressure or influence the buyers ability to purchase product or services. Number of buyers is small Volume Cost of switching Substitute products Pricing and the sensitivity of the market Presence or absence of customer loyalty programs Threat of Substitute Products or Services The existence of alternative products, pricing, quality, availability as well as other factors increases the likelihood of customers to switch to alternatives. Some examples might be: Coke versus Pepsi Online news versus hard copy print Sugar versus sugar substitutes Movie theater versus Red Box, Netflix or on demand channels 16
Bargaining Power of Suppliers Suppliers of materials and/or services to an organization can be a source of power over the firm. This can occur when: Number of suppliers is limited There are few substitutes Switching cost of suppliers is high Supplier availability Strength of distribution channel Uniqueness of the product/service Availability of the product or service Competitive Rivalry Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from: Sustainable competitive advantage through innovation Competition between online and offline companies Level of marketing expense Powerful competitive strategy Many Players with no dominant player Mature industry with little growth Growth can only occur through eliminating competition, acquiring your competition or stealing from your competition 17
Changing the Forces Change in buyer demand Change in long-term market growth Product and marketing innovation Technology change Regulatory influences Change in uncertainty Economy Globalization Understanding and leveraging these forces will assist in planning action plans identified in your SWOT Tactical Planning Tactical planning is the specific actions you take in implementing your strategy. These actions comprise what is to be done, in what order, using which tools and personnel. It is the basis for determining facility size, layout, process types, process technology, infrastructure choices to name only a few of the key decisions made during this phase. Another key element and decision made during this phase is tied directly to the five performance objectives. 18
Five Performance Objectives Speed: for companies competing in markets with rapid innovation, new product and service introduction are key Dependability: product or service results are repeatable in performance such as on-time delivery and meeting of objectives Flexibility: how responsive to both internal and external demands or events Quality:although a given, often can be considered an order winner, but at a minimum the product/service must meet both conformance and specification quality. Cost: is internally focused on a companies ability to control cost in the transformation process. Adapted from APICS SMR Integrated Measurement Model Broad strategic measures Overall strategic objectives High strategic relevance and aggregation Functional strategic measures Market strategic objectives Operations strategic objectives Financial strategic objectives Composite performance measures Customer satisfaction Agility Resilience Generic operations performance measures Quality Dependability Speed Flexibility Cost Examples of detailed performance measures Defects per unit Level of complaints Mean time between failures Lateness complaints Customer query time Throughput time Time to market Product range Transaction costs Labor productivity Source: Operations and Process Management, Slack et al., 2 nd ed., 2009; reprinted by permission of Pearson Education High diagnostic power and frequency of measurement 19
Competitive Strategy Performance Objectives Quality Speed Performance objectives Dependability Flexibility Cost Performance characteristics relating to competitive strategy Level of design (specification) quality Percent of products and services conforming to specs Lead time from inquiry to quotation Lead time from order to delivery Lead time for technical advice Percent on-time delivery of complete orders Percent of new product introduction on schedule Consistency of service and quality Range of features, sizes, coatings, and so on Rate of new product introduction Ability to change order quantity, composition, and time Product and service price Price of technical advice Discounts available Payment terms Source: Adapted from Operations and Process Management, Slack et al., 2 nd ed., 2009; reprinted by permission of Pearson Education Tactical Planning Considerations In addition to the 5 generic objectives companies need to align other structural and infrastructure choices with their competitive strategy: Process types: Project, job shop, batch, mass or continuous Layouts: Fixed position, functional, cell or product Technology utilized in the process, automation, type of equipment and information Volume and variety considerations Capacity: lead or lag strategy Infrastructure choices such as centralized versus decentralized or hierarchical versus horizontal 20
Supply Chain Alignment The supply chain must be set to support the desired flow of the product and services as dictated by the performance objectives. For example: Quality: Having the right quality at the right time and place with the right price Speed: Cycle time from order process to material availability for the transformation process Dependability: the five rights, place, time, quality, quantity and cost Flexibility: ability to adapt to market changes either up or down Cost: managing inventories, transaction cost, and direct material cost Supply Chain Relationships Relationships are key in supporting the performance and strategic objectives. A strong relationship can augment the organizations competitive strategy in a number of ways, here are just a few: Capacity Design innovation and speed Volume flexibility Inventory/distribution concerns Technology advances Price protection Lower transaction cost 21
Supply Chain Relationships cont Although not always a favorite topic, a key supply chain relationship could be through outsourcing. Outsourcing could augment the organizations capacity strategy, focus on core competencies, design integration, capital plan as well as numerous other key elements of the organization. One may determine from an operational perspective to outsource or better said utilize a 3PL or 4PL to manage their distribution, traffic and inventories of product throughout the downstream supply chain. Supplier Support Supplier considerations need to be able to support the five generic performance objectives, in particular the one key objective that drives your business. Some examples for consideration might be: Number of suppliers, this could impact cost (transaction/economies of scale and so on), flexibility and speed for increase or decrease in market demand, dependability, and clearly quality considerations. Better communication and collaboration can lead to a reduction of the Bullwhip effect Lead-time reduction considerations 22
Operational Planning Operational planning is where the rubber meets the road, here we get into the level of detail for key business processes such as: focuses on the production, equipment, personnel, inventory and processes of a business. An operational plan uses an organization's financial results to analyze profitability. The plan needs to include: clear objectives quality standards efficiencies and utilization objectives personnel and equipment needs implementation timetables along with continuous improvement initiatives a process for monitoring progress. Operational Planning Although at the tactical level we address business needs such as layout, capacity, personal, location, at the operational level we now need to address the execution. Layouts: Project, process (functional), cellular or product or some combination will be open for execution. Pending the competitive strategy coupled with the performance objective, will dictate the layout. For example, a company has a low cost competitive strategy, more than likely they would utilize a product or cellular layout. However if they have a broad product offering this layout does not necessarily support flexibility. 23
Operational Planning cont. A low cost competitive strategy one would consider rate base scheduling, Kan-Ban with finite loading/scheduling. Using a differentiation strategy one would consider shop or work order packets/scheduling and infinite loading/scheduling The question becomes when to add capacity, again in a low cost I might take the approach of a lag whereas in a differentiation I would take a lead strategy Another consideration is producing at a level or chase, which one do you think best supports low cost? Operational Planning We only touched on a few of the key execution decisions that come about as a result of the competitive strategy. The question you need to take away from this is whatis your companies competitive strategy and howcan you support or influence the outcome to better support the needs of your organization and ultimately your customer! 24
Strategy and Execution Strategy Adapt Market Segmentation Execution Align Systems Strategic Intent Strategic Capabilities Engage People Execution Culture Business Model Adapted from IBM s Business Leadership Model Continuous feedback loop between strategy and execution Key Outputs Financial Customer Workforce Execute Around the World Distribution network exercise 25
Questions, comments or any closing thoughts Thank you RICK DONAHOUE CPIM, CSCP 26
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