The world is changing – how about your Operations Strategy? The world is changing rapidly – same goes for your customers and suppliers. You are required to constantly improve your operations. Is optimising your current operating model sufficient or do you need to rethink? A great Operations Strategy is what makes the sum of all operational capabilities of your business a competitive advantage. Does your Operations Strategy fit in relation to environmental changes or changes in future customer demand?

1. OpsStrat
Operations
Strategy

2. Content
1
Why Operations Strategy?
2
Operations Strategy approach
3
What is Operations Strategy – the elements in Operations Strategy?
4
Selected Operations references
2

3. The world is changing – how about your Operations Strategy?
A NEW STRATEGY FOR OPERATIONS?
• The world is changing rapidly – same goes for
your customers and suppliers
• You are required to constantly improve your
operations
• Is optimising your current operating model
sufficient or do you need to rethink?
• A great Operations Strategy is what makes the
sum of all operational capabilities of your
business a competitive advantage
• Does your Operations Strategy fit in relation to
environmental changes or changes in future
customer demand?
3

4. To realise the vision and create value, Operations Strategy must consider
both market requirements, operations resources and cost of capital
REAL WORLD PERSPECTIVE
FINANCIAL PERSPECTIVE
Understand needs
Choose customers
Deliver products/
services
Customers
Products/
services
Economic value
is created if
Payment
ROIC
Satisfy
customer
needs
>
WACC
Revenues
Operating profit margin
EBIT/Sales
Customer
interaction
Use
operations
resources
Capital efficiency
Sales/Invested capital
Make
money
Resources/
services
Cost of debt after tax
Proportion of debt
D/(D+E)
Returns
Payment
Capabilities
Suppliers
Partners
Define operating model
Expenses
Tax
(1- Tax rate)
Capital
Cost of equity
Investors
Define capital
structure
Choose investors
Proportion of equity
E/(D+E)
4

5. There are two paths to strategic value creation – exploration and
optimisation
TWO PATHS TO STRATEGIC VALUE CREATION ...
EXPLORATION
... AND HOW THEY CAN WORK IN A REAL WORLD PERSPECTIVE
OPTIMISATION
• Invention of
business
• Administration of
business
• Rethinking current
operating model
• Current operating
model
• Intuition, feeling,
hypotheses about
the future,
originality
• Systematically
honing and refining
within current state
• Uneven, false
starts and
significant leaps
forward
• High risk with
potential of big
reward
• Long term
Satisfy
customer
needs
Customer
interaction
• Analysis,
reasoning, data
from the past,
mastery
Revenues
Use
operations
resources
Make
money
• Measured, careful
incremental steps
• Low risk but small
reward
Expenses
• Short term
Exploration: Reinvent the operating model with new manufacturing
footprint, distribution footprint, technologies and/or network partner
integration
VALUE CREATION
Optimisation: Optimize your current operating model through
continuous improvements and improvement project within the current
footprint, processes and competencies
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6. Market Requirements drives the need for Operations Resources
Corporate
Strategy
• Capacity
• Quality
• Supply Network
• Speed
• Process Technology
• Development &
Organisation
Operations
Resources
Operations
Strategy
Market
Requirements
• Dependability
• Flexibility
• Cost
Bottom-up
Experience
ACHIEVING THE PERFECT FIT
• Depending on the market requirements, the operational resources will have to be configured differently. Have you ensured the perfect
fit or are you wasting resources?
Source: Slack & Lewis
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7. Configuring your operating model must be based on your customers’
demand
Impact on Operations Strategy
Impact on relationship
The below model divides supply chains into four dedicated conveyor belts
based on different demand flow types. All supply chains demonstrate value-add
and clear value propositions against the customers’ buying behaviour. For each
flow type, the marketplace is analysed and used for configuration of related
supply chains.
The below model describes the four generic configurations of the supply chain
in relation to ”relationship to customer” vs. ”predictable demand”.
Collaboration and
forecasting
Tight
Flow types Types of supply chains
Cavitation
”Fully flexible”. Unplanned and unplannable
demand due to unknown customers with
exceptional, sometimes emergency, requests
Surge
”Agile”. Usually unplanned, at least until the last
possible moment. May result from promotions,
new product launches, fashion marketing,
unplanned stock-outs or unforeseen opportunities
Semiwave
Innovative and
creative solutions
”Lean”. Regular pattern of demand, quite
predictable and forecastable, although it may
be seasonal. Tends to be mature low-risk
products/services
”FULLY
FLEXIBLE”
”CONTINUOUS
REPLENISHMENT’
Relationship to
customer
”LEAN”
Base
”AGILE”
Loose
High
”Continuous replenishment”. Very predictable
demand from known customers. Easily managed
through tight collaboration with collaborative
customers
Low
Predictable demand
Request for low
cost and high
reliability
Source: Gattorna
7
Balance service
and costs

8. Content
1
Why Operations Strategy?
2
Operations Strategy approach
3
What is Operations Strategy – the elements in Operations Strategy?
4
Selected Operations references
8

9. We believe that Operations Strategy should be the result of cascading
and aligning the overall strategic decisions to operations
What is our
winning
aspiration?
WHICH ARE CASCADED DOWNWARDS WITH UPWARD FEEDBACK LOOPS …
Corporate
STRATEGY CONSISTS OF FIVE KEY CHOICES
Winning
aspiration
The purpose of the company
Where to play
How to win
How will we
win?
The unique way to win: Our
value proposition and our
competitive advantage
What
capabilities
must be in
place?
Management
systems
The set and configuration of
capabilities needed to win in the
chosen way
What
management
systems are
required?
Capabilities
Operations
Where will we
play?
Where we will compete:
Geography, products,
segments, channels, value
chain stages
The systems and measures that
enable the capabilities and
support the choices
Winning
aspiration
Where to play
How to win
Capabilities
Management
systems
Strategic choices are cascaded to the next level as an overall strategic direction, but upward
feedback loops from the business and functional units are essential part in strategy development
Source: Roger Martin
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10. Choices in Operations Strategy
What is our winning
aspiration?
• Choices: What is the guiding purpose for Operations in terms of supporting corporate and
business unit strategies?
• Example: Operating cost/Delivery performance/Working capital (choose one!)
• Choices: What position will we take in the value chain? What will be the focus areas in
Operations to support corporate and business unit strategies?
Where will we play?
• Examples: Where to produce? How to launch? Who to integrate to (customer or
supplier)? Make/buy
How will we win?
• Choices: How will we perform the activities to support corporate and business
unit strategies? How will we allocate internal and external resources to maximise
productivity?
• Examples: S&OP, Late customisation, VMI, Outsourcing/partnership, Platforms
What capabilities must
be in place?
What management systems
are required?
• Choices: What specific capabilities must be in place in Operations? How will
we upgrade the maturity of capabilities needed to support activities?
• Examples: Competencies, IT/technology, Organisation, Sourcing
• Choices: What systems, skills and structures are required to support the
capabilities? How will the organisational design look like in Operations?
How will we measure success?
• Examples: Performance Management systems, Governance structures
10

11. Our operating model serves as a platform for analysing and designing
how Operations will support the value creation process
OPERATING MODEL
Operations
Resources
Market
Requirements
The cost and effectiveness of a business is
largely determined by how well the
business operating model is designed and
implemented.
Suppliers and
Partners
Capacity
Why an operating model?
What is it?
Development
and
Organisation
Supply
Network
Operational
Performance
Objectives
Customers
An operating model defines how people,
organisation, processes and technology
are designed to deliver one or several
strategic choices to support the overall
customer value propositions.
How to use?
Process
Technology
Competitors
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The operating model is used when defining
how operations will support the value
creation process.

12. It is essential to frame the conditions: What needs to be true for
Operations to execute on the overall strategic choices?
By framing the right prerequisites we can identify the real strategic options
Strategic
choice
External
factors
Operations
capabilities
Ability to
supply
Analysis of
performance
Partner/supply
network
Process
technologies
Capacity
Volumes
What must
we believe
about our
partner and
supply
network?
What
technologies
need to be
in place?
What
capacities
must we
have and
where?
What will we
be able to
deliver? And
where?
What is it?
A clear specification of the conditions that
must be true for a strategic option to be
valid.
Why?
Strategic
choice for
Operations
Customers
What must
we know
about our
customers?
Operations
capabilities
What
capabilities
must we
have?
Supply
network
Costs
What must
be true
about our
supply
network?
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At what cost
will we be
able to
supply our
markets?
Part of a simpler, more effective and
engaging approach to strategy
development more focused on choice:
Deeply analytical, but focused on what
really matters.

13. Content
1
Why Operations Strategy?
2
Operations Strategy approach
3
What is Operations Strategy – the elements in Operations Strategy?
4
Selected Operations references
13

14. The customer is king – so how do you prosper in their kingdom?
Depending on which of the performance objectives the customers value, the operations resources must be aligned
and conform or else the organisation loses ground. Top performers will therefore split their value chains to perfectly
match the customer requirements, as exemplified by the four generic value chains presented below.
The five performance objectives within each strategic decision area: Quality, Speed, Dependability, Flexibility & Cost.
Capacity
Strategy
Supply Network
Strategy
Process Technology
Strategy
Fully flexible
Unplanned and unplannable demand.
Focus on: Quality, Speed, and Flexibility.
Agile
Usually unplanned, at least until the last possible moment.
Focus on: Quality, Speed, and Flexibility.
Lean
Regular pattern of demand, quite predictable and forecastable.
Focus on: Quality, Dependability, and Cost.
Continuous
replenishment
Very predictable demand from known customers.
Focus on: Dependability and Cost.
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Development &
Organisation

15. Capacity Strategy – David or Goliath?
Definition
• The capacity strategy of an operation defines its overall scale.
• That is, the number and size of different sites between which its capacity is distributed, the specific
activities allocated to each site and the location of each site.
Why a Strategy?
Key strategic questions
ICG viewpoint
• Capacity is a fundamental
decision that affects a large
part of the business and its
opportunities in the industry
• How much capacity is needed
to satisfy the market?
• We emphasise that capacity
and capability must go hand in
hand while designing your
Supply Chain footprint
• For the business to fulfil its full
potential, there must be a
correlation between capacity
decisions and overall corporate
strategy
• Many smaller factories spread
around the world can give
more flexibility and speed,
where fewer larger factories
can achieve economies of
scale to ensure dependability
and low cost
• How should the capacity be
distributed?
• Where should the capacity be
located?
• How should we govern our
different sites?
• What level of capability should
the different sites have?
• Agility is king to most
organisations – this requires
additional capacity in your
Supply Chain
• When it comes to sourcing and
manufacturing, we see a
tendency towards “Move on or
move home” to stay
competitive
• Complexity grows by itself – all
structural changes must be
towards simplification with the
right balance of cost and
complexity
15

16. Supply Network Strategy – arm’s length or collaboration?
Definition
Supply network strategy is the strategic direction of an organisation’s relationships with suppliers, customers,
suppliers’ suppliers and customers’ customers
Supplier collaboration
Why a Strategy?
Production &
distribution
flow
Need
creation,
price &
terms of
delivery
Product portfolio
Market segments &
sales/distribution channels
Pipeline & capacity management
Order processing & planning
Product
structure
Key strategic questions
ICG viewpoint
• No operation, or part of an
operation, can be seen
insulation. All are part of an
interconnected network of their
own customers and suppliers
and their customers’
customers and suppliers’
suppliers
• What we should do ourselves
and what to subcontract?
• We believe in upstream as well
as downstream integration in
the supply chain
• Should you have close
cooperation with few turnkey
suppliers, or keep the suppliers
at arm’s length?
• Each set-up will grant different
performance for the supply
chain, but it must match the
overall strategic goal of the
entire value chain
• How and why develop
‘partnership’ supply?
• Number of and depth of
relationships
• Reducing supply chain
instability
• When to use market-based
purchasing?
• How supply networks fluctuate
over time?
16
• Non-core, complex production
should not be outsourced – it
should be eliminated
• Always be in close dialogue
with your strategic suppliers
and create common solutions
with common goals
• The best examples are when
you succeed in integrating
business processes,
competences and information
systems based on openness
and confidence with an
ambition to share the risk and
profit

17. Process Technology Strategy – low cost or high flexibility?
Definition
The set of decisions that define the strategic role that direct and indirect process technologies can play in the
overall operations strategy of the organisation and sets out the general characteristics that help to evaluate
alternative technologies.
Why a Strategy?
Key strategic questions
ICG viewpoint
• The choice of how to design
your process flows is important
to gain the sufficient speed and
agility needed for each
customer-driven chain
• What are the process criteria
for each customer segments?
• The level of automation goes
hand in hand with your supply
chain footprint and level of
labour wages - one size does
not fit all
• The design of process-cells
can significantly increase the
impact of customer service
levels and cost to serve and
are dependent on the
material-, information-, and
customer processing
technologies
• Which process capabilities do
we need for each segment?
• How should the new
leadership style look like for
each segment?
• How should the DNA look like
in each process cluster and
how do we manage them day
to day?
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• Products and process
technologies are closely
related. We often see that a
wide product portfolio is setting
the boundaries for achieving
the benefits from automation even though we see an
increase in the possibilities for
flexibility in automation
technologies

18. Development & Organisation – change or die
Definition
• Set of broad- and long-term decisions governing how the operation is run on a continuing basis.
• Operations development is the ability of manage large “breakthroughs” and continuous improvements, and
applies to both the organisation and its products and services.
Why a Strategy?
ICG viewpoint
• Continuous change is
necessary just to keep up with
competitors
Continuous
improvement
Key strategic questions
• Big radical improvement
projects, or small, continuous
improvements?
• If you aspire to beat them you
must identify the next step,
and move there before anyone
else realises the change
• Benchmarking against other
operators?
• The speed of change and level
of Operational Excellence are
correlated to the number of
people decoupled from direct
operational work
• Understanding how customer
value is created and how this
can be increased through
service and product
development
• Companies must be aware not
to eliminate the resources
required to maintain their
ability to continuously improve
and stay agile
• Combining product and
process development, on the
hunt for higher customer value
• We believe that every level in
the organisation is responsible
for continuous improvements.
The best solution and
knowledge must come from
the people who are actually
doing the work
• We often see a great need for
killing complexity in the product
portfolio
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19. Content
1
Why Operations Strategy?
2
Operations Strategy approach
3
What is Operations Strategy – the elements in Operations Strategy?
4
Selected Operations references
19

20. Selected references
New global Operations Strategy
with lead time reduction of +40 %
European supply chain
structure with COGS
reduction of + €13m per year
Redefinition of Operations
Strategy leading to reduced
working capital of +25 %
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21. Learn more about how we work with Operations Strategy
Go to Implement Consulting Group's main website
Implement Consulting Group
Jan Lythcke-Jørgensen, Partner
Thomas Graugaard, Managing Consultant
Email: jlj@implement.dk
Email: thg@mplement.dk
Mobile: +45 2338 0017
Mobile: +45 5138 7423
Jacob Bønnelycke, Partner
Martin Trier Hartz, Managing Consultant
Email: jab@implement.dk
Email: mth@implement.dk
Mobile: +45 4138 0064
Mobile: +45 2338 0033
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