 this session. This is an NPTEL lecture on supply chain digitization. This particular lecture is going to talk about supply chain design and operation strategies. I will be touching upon a few of the elements of supply chain strategy that are important and operation strategy that are important. A brief introduction about myself. I am Professor Sushmita Narayan Aghalaya. I am a faculty in the operations and supply chain management area at the Indian Institute of Management, Mumbai. So, along with my two colleagues, Professor Priyanka Verma and Professor Debra Pratadas. We will be taking these sessions on supply chain digitization. Now, this particular topic for today which is on operation strategy and design strategies. It is what we call as a high level topic in supply chain management. It is an important aspect of supply chain management and operations management because it determines a lot of activities that a firm is going to take up as it proceeds along the way with respect to its business, with respect to its processes, with respect to managing products, managing employees, so on and so forth. Now, if we were to consider this particular topic, obviously we want to think why is this such an important topic for us. So, as a part of my session overview, I am going to be covering some aspects of this with respect to an introduction to supply chain operations strategies, where we will first try to link it with corporate and other functional strategies. And then we are going to look into an interface between operations and finance and how it is an important aspect of consideration when we are trying to design strategies, when we are trying to implement strategies. So, we will begin with the first aspect which is the introduction to supply chain design and operation strategies. The first and foremost question that you know any firm would like to think about is we talk about so many strategies when it comes to the operations of a firm. So, why only operation strategy? Why not any other strategy? So, the first question that would come to our mind is why should a firm have a supply chain or operation strategy in the first place? What is the necessity for having this strategy in the first place? We need to understand that a firm has many functions that are going to be a part of its operations. It is going to be involved in marketing, it is going to be involved in finance, it is going to be involved in production, advertising, management of human resources. So, there are various dimensions to any firm or any organization, be it for profit, be it not for profit. Irrespective of all of these every firm is going to have some kind of an overarching strategy called as the corporate strategy or the business strategy. The corporate strategy or the business strategy essentially determines what kinds of products and services a firm is going to provide, what kind of markets it is going to be functioning in, whether it is going to be functioning in local markets, whether it is functioning in global markets, whether it is looking at price conscious consumers, whether it is looking at a very niche clientele of its products and services and whether it is even going to be functioning as a pure product oriented firm or a service oriented firm, all of these elements are part of what we call as the corporate strategy of the firm. So, we can have extreme levels to this as well. A firm might decide that it is only going to produce one type of a product and sell it in the market and that is going to be its core identity. On the other hand, a firm might decide to be in several different businesses. It may be in FMCG products, it may be dealing with automobile sector, it may be dealing with the steel sector and at the same time it would be dealing with both domestic as well as international markets as well as international vendors and clientele. Now as we can see, this is the first and foremost step that an organization needs to really think about when it is developing some kind of a business or corporate strategy. In this strategy, somehow we also need to look at the role of how we implement the vision and mission that is going to be part of the strategy. How do you ensure that you are going to supply products to a market? How do you ensure that you are going to manufacture products as per the customer requirements? How do you ensure the products that are going to be supplied also have an after sales service provided to them? How do we go about doing all of this and is this really important for the organization to really think about? So in essence when we talk about supply chain or operation strategy, it is looking at execution of the corporate strategy in some form on the ground level. And in essence what we mean is the supply chain or operation strategy is essential and it is required to implement the corporate strategy of the firm. So the firm has decided that it has to produce these kinds of products, these kinds of services, it has to function in these kinds of markets and the operation strategy is going to help achieve that particular goal. Now in other words, if we were to think about it in more layperson terms, the supply chain or operation strategy determines how the corporate strategy is going to be achieved or implemented and this is as I am mentioning over here, it is a continuous process. So why do we think this is a continuous process? A firm is not going to be functioning only for a day or for a week, it is going to function over a long period of time that is part of its vision and mission. It is going to last for let us say a few years from now on. So it is going to have certain long-term goals and ambitions. At the same time, it is going to be functioning in a dynamic market where customer profiles are going to change over a period of time. There are going to be external forces with regulatory forces or environmental aspects. All of these aspects are going to bring in a lot of different kinds of constraints as well as opportunities for the firm. If the firm has to really think about staying on course and trying to achieve its targets of supplying to a specific market or working with a certain kind of clientele, then it has to also manage all of these dynamic elements. The operation strategy is going to help that particular company or that firm or organization to manage all of these dynamic elements as it proceeds with functioning through these markets and through these industries. That is why when we speak about the operation strategy, it is not a one-time exercise that is going to be carried out. It is a strategy that is revisited year on year sometimes even once or twice a year. As a result of this, it is an important facet of consideration when we are looking at how the company is going to function over a long period of time. So, let us take an example just to showcase how the corporate strategy and the operation strategy are actually going to be linked or connected with each other. So, this is an example that I have picked up. It is a very simple example or a simple scenario that I have brought forward. Let us say that we have a firm which wants to supply a standardized FMCG product. Now, what do we mean by FMCG product? FMCG product stands for fast moving consumer goods. So, when you are going to go to the marketplace and you want to purchase let us say soaps or shampoos, these are products that are being regularly used by consumers. On the other hand, you might not be purchasing a car on a daily basis. This is a product that you would purchase once in maybe 10 years or 5 years depending upon your income status, depending upon your choices and preference. But on the other hand, an FMCG product let us say soaps, shampoos, grocery items, products that we are going to consume in cooking, products that are going to be used in healthcare, you know daily essentials that we require. These are products that are sold on a continuous basis in the market. And if you go to any retail store, whether it is a Kirana store or whether it is let us say part of a retail chain, you are going to see these products on the shelves and you can easily pick these products and you can purchase these products very quickly. Not only that, you can even purchase FMCG products even through online shopping portals like Amazon, Flipkart, so on and so forth. So, in such a kind of scenario where you are trying to bring in a product and sell it in the market and you want to ensure that it is going to be a fast moving product, one of the things that you would like to look at is whether this product should be extremely different from what is there in the market or something which is very similar to what consumers use. So, if you were to bring in a shampoo, a product into the market, you would like to bring in a product that is acceptable to consumers right. And that is why I am talking about a standardized FMCG product, a typical shampoo product for example, is a standardized product and it is appealing to let us say price conscious consumers. So, these are consumers who are very much interested in purchasing this product, but at the same time these consumers are also very sensitive to the kind of price you are going to place on this product when you sell it in the market. Even slight differences or variations in price, the consumers may choose to either switch to a different brand, they might not purchase your products, they may never purchase your products if they think that your product is too expensive for them. Now, price conscious consumers we need to keep in mind are not necessarily those consumers who are not of high income status, even high income status consumers can also be price conscious right. So, when you think about such a product you are bringing in a product which is extremely standardized, something which is acceptable to most of the population in the demographic of interest for you. Let us say you are talking about a specific region, let us say the north of India or south of India and you are trying to appeal to a consumer base that is price conscious. If this is what you are trying to achieve as part of your corporate strategy or business strategy, you have to think about what are the implications that it brings to your firm in terms of how you need to start planning your resources, how you need to think about positioning this product in the market so on and so forth. One of the direct implications that we can think about is in terms of what kind of profitability that we could we could expect from this particular product. One of the direct implications that we can think is if I am trying to sell a product to price conscious consumers and it is a standardized product meaning it is not extremely unique or different from others, there is a good chance that there are many other products in the marketplace that are going to be similar to this product and are also going to be priced somewhere around this price that you are placing on your product. In order to exist in this marketplace, in order to really exist in this marketplace or function in this marketplace, you would want to ensure that you have positive profit margins that means you are able to recover your costs that were you know incurred when you are trying to manufacture the product, market the product, distribute the product so on and so forth. And you would try your best to lower the costs and you would also try your best to increase the volume of product that you are selling. So, when I say volume, it means the number of units that you are going to sell in that marketplace. So, these are some of the primary implications. I am not saying that this is something that we can generalize to every company, but this is a typical scenario that we could expect when we are trying to supply a product to a price conscious consumer base. So, now let us look at it step by step. What would be the implications of having you know such kind of products to be supplied and what implication does it have on various strategies across functions. So, if you were to think about it the first one is in product design and R and D itself. If I were to consider trying to you know bring in a product to a price conscious marketplace, I would want to see to that I am also able to lower my manufacturing costs right. So, I would want to see to that my unit manufacturing costs that is how much I am going to incur per unit should be as low as possible. So, that I can actually gain positive profit margins right. So, for this purpose we would start looking at it from a design perspective or an engineering perspective. And we would start looking at how can we design the product such that when I am going to really produce or manufacture this product, I am not going to incur very high cost. So, this is designing for the marketplace that is of interest to us. So, when we look at the technical specifications of the product, we might try to use let us say recycle materials instead of virgin materials. Recycle materials have already been recovered from other used materials in the past. Let us say it is recycled paper or plastic and these will be less expensive when compared to virgin materials. Not always the case, but there is a good chance this is going to occur specifically if it takes more effort to use or to create virgin materials in the first place. So, we might make a choice on the kind of material that we are going to use when we manufacture this product. So, this could be one implication. So, one of the implications that I am talking about is from a design perspective where we are going to make a conscious choice of choosing materials that can lower the cost of our manufacturing. Now, remember we are choosing these materials and we need to ensure that these materials give us the same functionality that was there in the product with virgin materials and with recycled materials. In the sense the consumer should not be driven away from a product simply because it is made of recycled materials right. Now, in the same way this could be one example it is not again it is not a hard and fast requirement that we should be following this particular structure because sometimes even recycled materials can be more expensive if the cost of recovering, if the cost of recycling are very high, if the technology costs are very high recycling itself may be more expensive and we may move then to virgin materials. The other alternative that we could think about is if we are again trying to lower our manufacturing cost should we be using very unique or customized materials in our manufacturing should the design of the product be extremely unique or customized. We are talking about selling a shampoo bottle or shampoo product in the marketplace should be really look at making the color of the shampoo extremely unique something which is not at all available in the marketplace. If we were to do this then definitely it would attract the consumer for sure, but at the same time in order to bring in this new color or new tint or dye within the shampoo we may need to invest in additional resources and we may need to find additional suppliers who would perhaps be not located very close by to the location of manufacturing, who would also have may be limited access to dyes etcetera. So, as a result of this what would occur at the end of this exercise would be that the cost of bringing in this unique color or dye or tint to the shampoo is going to increase the cost of manufacturing. So, instead at the design level we may want to take a decision that we use standardized components or materials something which is regularly available in the marketplace and this is something that we could expect considering the fact that we are also looking at a product that is regularly used by the market by the marketplace. So, for example, if we were to think about shampoo colors we would be looking at yellow, pink or white colors which are very common very rarely you might find a fluorescent color to the shampoo right. So, it is easier for us to procure materials which are used by other competitors or other companies as well. This is going to help us lower our cost of manufacturing because it is easier to procure it is readily available in the marketplace. So, at the design level we make this conscious choice that we use standardized components of materials. Now, this is in the case of a shampoo product, but even if you were to take the case of let us say electronics or you know furniture items we see this kind of trend which occurs when companies try to reduce their cost of manufacturing. They first look at the design stage itself and they think about can I bring in some kind of modularity to the system? Can I bring in some kind of standardization such that components that are readily available in the marketplace can be assembled to create a unique offering for the consumer. So, this is not something which is very uncommon, it is actually very commonly done at the design stage in order to lower unit manufacturing costs. So, this was one example in which we are able to attack the design stage itself. Now, at the same time we may be interested in other aspects also. You have designed the product such that it appeals to your cost aspects which is it appeals to lowering your cost, but at the same time we need to ensure that the consumer who is going to purchase is also going to be willing to purchase such a product. It should not look like that the product that you have created is very expensive, it might drive away the consumer if he thinks that the product is very expensive. So, we also think at the design stage can we design the product or the packaging such that it targets the price conscious consumer. So, something which is very popular in India is the concept of using sashes which is very popular in remote locations or rural areas or with people who have low income status who are not able to afford very expensive products, but they still want to use the product. Sashes are very common you are you see this quite commonly with shampoos, you can purchase the shampoo in a large 1 liter 1 and a half liter bottle or you could make the choice of purchasing a sachet of shampoo. So, a bottle product 1 1 and a half liter is something that would be used by a family right and whereas, a sachet is something that is going to be used by an individual. It is very common in India we have seen these examples where even for a family consumers may purchase several sashes several 1 rupee sashes which you might see it in the marketplace and they are actually going to extract the shampoo and create their own bottle. So, now we have to take a call in such a marketplace the consumer is naturally inclined to not buy a bottle because they feel it is very expensive they would be very willing to purchase a sachet. Now, the few reasons for this when you are purchasing a bottle product you are also going to be paying for the bottle itself whereas, the cost of a sachet is not much and hence it is going to be much affordable for a price conscious consumer. So, we might want to think about looking at a mix of such product units for the same kind of shampoo it is the same product that we are selling it is the kind of packaging that we are trying to play around with in order to see that we attract the cost conscious consumer. So, looking at the marketplace and by understanding the marketplace we might want to see how much proportion of the products should be actually packaged as sashes and how much proportion of the products should be actually packaged as bottle products right. Now, these are what we call as design level you know strategies that can be carried out and they can be implemented in order to lower the costs of manufacturing and also to attract the right kind of consumer base. We might want to consider even implications for advertising and marketing how can you price the product so, that it can be affordable to the price conscious consumer it should appeal to the price conscious consumer. A very common strategy that is used especially in retail chains is to not vary the price of the product too much in the marketplace. If you were to visit any retail chain you would observe that the price of the product is more or less the same every day and you might even see the same kind of discount being offered on a daily basis. This will attract the customer because the customer sees that apart from the maximum retail price of the product in the channel that he is going to or she is going to purchase the product they can observe that the products are actually having low prices and some cost savings are being passed on to them by retail chains. So, this is a channel level decision that can be taken up on pricing. Now, again you want that you are going to sell large volumes of these products. So, how can we do this? One of the ways is to provide options for discounts and product bundling. Let us say you are going to sell only one unit of the product per day, but this is not large enough in terms of volumes. You want at least 10 units of the product to be sold per day. You can offer a product bundling strategy and you might say that this shampoo is going to be provided at a discount if you buy 10 units of it right. So, this is discount as well as bundling that you have provided. Now, this is a kind of decision that can be taken up at the advertising and marketing level. Now finally, let us look at what could be done at the level of operations. At the level of operations we are interested in how can we reduce the cost of operation? Reducing the cost of manufacturing was a design strategy or a design decision. We may be interested now that given that we have already decided what is a design of the product, given that we have already decided what is the price of the product and given that we have already decided how much volumes of the product we are going to sell or how many units we are going to sell, how can we further reduce the cost of operation? Here we would start looking at removing let us say duplicate processes, redundant processes. We might want to look at making best utilization of our resources. Let us say you are talking about delivering the products via vehicles or transporting them via vehicles. You might want to achieve full truckloads. You will negotiate with your vendors for lower purchase costs. You would start looking at reducing inventory through lean practices so on and so forth. At the same time your cost of operations may be very high because you are owning several assets. Let us say manufacturing equipment or vehicles. You might want to reduce all of this by reducing the ownership of these assets itself and hence you might look at the option of outsourcing. So, you can see here that for the case of a firm that is trying to sell a standard product in the market, what are the different kinds of strategies it could kind of adopt be it in design, be it in advertising or be it in operations. One of the final insights that we get from here is all of them are related to each other. Hence, when we are looking at supply chain design in operations which is over here, we cannot ignore the fact that it is going to be intertwined with what was the product design, how much we priced it in the market or how much do we plan to price it in the market and what are the kinds of operations that are going to be required in order to sell this product finally in the market. So, this was an overview or an example of corporate strategy and how it has implications across different functional strategies and how these are intertwined with each other. In the next session, we are going to look at what are the relationships between operation strategy and the financial strategy of the firm. Thank you.