chapter 2 â€“ operations strategy in a global environment

© 2008 Prentice Hall, Inc. 2 – 1

Operations ManagementOperations ManagementChapter 2 Chapter 2 ––Operations Strategy in Operations Strategy in a Global Environmenta Global Environment

PowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e


OutlineOutline

Global Company Profile: BoeingGlobal Company Profile: BoeingA Global View of OperationsA Global View of Operations

Cultural and Ethical IssuesCultural and Ethical Issues

Developing Missions And Developing Missions And StrategiesStrategies

MissionMissionStrategyStrategy


Outline Outline –– ContinuedContinued

Achieving Competitive Advantage Achieving Competitive Advantage Through OperationsThrough Operations

Competing On DifferentiationCompeting On DifferentiationCompeting On CostCompeting On CostCompeting On ResponseCompeting On Response

Ten Strategic OM DecisionsTen Strategic OM Decisions



Issues In Operations StrategyIssues In Operations StrategyResearchResearchPreconditionsPreconditionsDynamicsDynamics



Strategy Development and Strategy Development and ImplementationImplementation

Critical Success Factors and Core Critical Success Factors and Core CompetenciesCompetenciesBuild and Staff the OrganizationBuild and Staff the OrganizationIntegrate OM with Other ActivitiesIntegrate OM with Other Activities



Global Operations Strategy Global Operations Strategy OptionsOptions

International StrategyInternational StrategyMultidomestic StrategyMultidomestic StrategyGlobal StrategyGlobal StrategyTransnational StrategyTransnational Strategy


Learning ObjectivesLearning Objectives

1.1. Define mission and strategyDefine mission and strategy2.2. Identify and explain three strategic Identify and explain three strategic

approaches to competitive approaches to competitive advantageadvantage

3.3. Identify and define the 10 decisions Identify and define the 10 decisions of operations managementof operations management

When you complete this chapter you When you complete this chapter you should be able to:should be able to:


Learning ObjectivesLearning Objectives

4.4. Identify five OM strategy insights Identify five OM strategy insights provided by PIMS researchprovided by PIMS research

5.5. Identify and explain four global Identify and explain four global operations strategy optionsoperations strategy options

When you complete this chapter you When you complete this chapter you should be able to:should be able to:


Global StrategiesGlobal Strategies

Boeing Boeing –– sales and production are sales and production are worldwideworldwideBenetton Benetton –– moves inventory to stores moves inventory to stores around the world faster than its around the world faster than its competition by building flexibility into competition by building flexibility into design, production, and distributiondesign, production, and distributionSony Sony –– purchases components from purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world


Global StrategiesGlobal Strategies

Volvo Volvo –– considered a Swedish company considered a Swedish company but it is controlled by an American but it is controlled by an American company, Ford. The current Volvo S40 is company, Ford. The current Volvo S40 is built in Belgium and shares its platform built in Belgium and shares its platform with the Mazda 3 built in Japan and the with the Mazda 3 built in Japan and the Ford Focus built in Europe.Ford Focus built in Europe.Haier Haier –– A Chinese company, produces A Chinese company, produces compact refrigerators (it has onecompact refrigerators (it has one--third of third of the US market) and wine cabinets (it has the US market) and wine cabinets (it has half of the US market) in South Carolinahalf of the US market) in South Carolina


Some Multinational Some Multinational CorporationsCorporations

% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside

HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce

CiticorpCiticorp USAUSA 3434 4646 NANAColgateColgate-- USAUSA 7272 6363 NANAPalmolivePalmoliveDow Dow USAUSA 6060 5050 NANAChemicalChemicalGilletteGillette USAUSA 6262 5353 NANAHondaHonda JapanJapan 6363 3636 NANAIBMIBM USAUSA 5757 4747 5151


Some Multinational Some Multinational CorporationsCorporations

% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside

HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce

ICIICI BritainBritain 7878 5050 NANANestleNestle SwitzerlandSwitzerland 9898 9595 9797PhilipsPhilips NetherlandsNetherlands 9494 8585 8282ElectronicsElectronicsSiemensSiemens GermanyGermany 5151 NANA 3838UnileverUnilever Britain &Britain & 9595 7070 6464

NetherlandsNetherlands


Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentLatecoereLatecoere FranceFrance Passenger doorsPassenger doorsLabinelLabinel FranceFrance WiringWiringDassaultDassault FranceFrance Design and Design and

PLM softwarePLM softwareMessierMessier--BugattiBugatti FranceFrance Electric brakesElectric brakesThalesThales FranceFrance Electrical power Electrical power

conversion system conversion system and integrated and integrated standby flight displaystandby flight display

MessierMessier--DowtyDowty FranceFrance Landing gear structureLanding gear structureDiehlDiehl GermanyGermany Interior lightingInterior lighting


Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentCobhamCobham UKUK Fuel pumps and valvesFuel pumps and valvesRollsRolls--RoyceRoyce UKUK EnginesEnginesSmiths AerospaceSmiths Aerospace UKUK Central computer Central computer

systemsystemBAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronicsAlenia AeronauticsAlenia Aeronautics ItalyItaly Upper center Upper center

fuselage & fuselage & horizontal stabilizerhorizontal stabilizer

Toray IndustriesToray Industries JapanJapan Carbon fiber for Carbon fiber for wing and tail unitswing and tail units


Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentFuji HeavyFuji Heavy JapanJapan Center wing boxCenter wing boxIndustriesIndustries

Kawasaki HeavyKawasaki Heavy JapanJapan Forward fuselage,Forward fuselage,IndustriesIndustries fixed section of wing,fixed section of wing,

landing gear welllanding gear wellTeijin SeikiTeijin Seiki JapanJapan Hydraulic actuatorsHydraulic actuatorsMitsubishi Heavy Mitsubishi Heavy JapanJapan Wing boxWing boxIndustriesIndustries

Chengdu Aircraft Chengdu Aircraft ChinaChina RudderRudderGroupGroupHafei AviationHafei Aviation ChinaChina PartsParts


Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentKorean AviationKorean Aviation SouthSouth WingtipsWingtips

KoreaKoreaSaabSaab SwedenSweden Cargo access doorsCargo access doors


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)2.2. Improve supply chainImprove supply chain3.3. Provide better goods and servicesProvide better goods and services4.4. Understand marketsUnderstand markets5.5. Learn to improve operationsLearn to improve operations6.6. Attract and retain global talentAttract and retain global talent

Tangible Tangible ReasonsReasons

Intangible Intangible ReasonsReasons


Reduce CostsReduce Costs

Foreign locations with lower wage Foreign locations with lower wage rates can lower direct and indirect rates can lower direct and indirect costscosts

MaquiladorasMaquiladorasWorld Trade Organization (World Trade Organization (WTOWTO))North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR European Union (EU)European Union (EU)


Improve the Supply ChainImprove the Supply Chain

Locating facilities closer to Locating facilities closer to unique resourcesunique resources

Auto design to CaliforniaAuto design to CaliforniaAthletic shoe production to ChinaAthletic shoe production to ChinaPerfume manufacturing in FrancePerfume manufacturing in France


Provide Better Goods Provide Better Goods and Servicesand Services

Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservices

OnOn--time deliveriestime deliveriesCultural variablesCultural variablesImproved customer serviceImproved customer service


Understand MarketsUnderstand Markets

Interacting with foreign customers Interacting with foreign customers and suppliers can lead to new and suppliers can lead to new opportunitiesopportunities

Cell phone Cell phone design from design from EuropeEuropeCell phone Cell phone fads from fads from JapanJapanExtend the product life cycleExtend the product life cycle


Learn to Improve OperationsLearn to Improve Operations

Remain open to the free flow of Remain open to the free flow of ideasideas

General Motors partnered with a General Motors partnered with a Japanese auto manufacturer to Japanese auto manufacturer to learnlearnEquipment and layout have been Equipment and layout have been improved using Scandinavian improved using Scandinavian ergonomic competenceergonomic competence


Attract and Retain Global Attract and Retain Global TalentTalent

Offer better employment Offer better employment opportunitiesopportunities

Better growth opportunities and Better growth opportunities and insulation against unemploymentinsulation against unemploymentRelocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locationsIncentives for people who like to Incentives for people who like to travel travel


Cultural and Ethical IssuesCultural and Ethical Issues

Cultures can be quite differentCultures can be quite differentAttitudes can be quite different Attitudes can be quite different towards towards

PunctualityPunctualityLunch breaksLunch breaksEnvironmentEnvironmentIntellectual Intellectual propertyproperty

ThieveryThieveryBriberyBriberyChild laborChild labor


You May Wish To ConsiderYou May Wish To ConsiderNational literacy rateNational literacy rateRate of innovationRate of innovationRate of technology Rate of technology changechangeNumber of skilled Number of skilled workersworkersPolitical stabilityPolitical stabilityProduct liability lawsProduct liability lawsExport restrictionsExport restrictionsVariations in languageVariations in language

Work ethicWork ethicTax ratesTax ratesInflationInflationAvailability of raw Availability of raw materialsmaterialsInterest ratesInterest ratesPopulationPopulationNumber of miles of Number of miles of highwayhighwayPhone systemPhone system


Match Product & ParentMatch Product & ParentBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--Dazs Ice Dazs Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo PetfoodsAlpo Petfoods

1.1. VolkswagenVolkswagen2.2. BridgestoneBridgestone3.3. Campbell SoupCampbell Soup4.4. Ford Motor CompanyFord Motor Company5.5. GilletteGillette6.6. NestlNestléé7.7. PillsburyPillsbury8.8. SonySony


Match Product & CountryMatch Product & CountryBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--DazDaz Ice Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo Pet FoodsAlpo Pet Foods

1.1. Great BritainGreat Britain2.2. GermanyGermany3.3. JapanJapan4.4. United StatesUnited States5.5. SwitzerlandSwitzerland


Developing Missions and Developing Missions and StrategiesStrategies

MissionMission statements tell an statements tell an organization where it is goingorganization where it is going

The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there


MissionMission

Mission Mission -- where are where are you going?you going?

OrganizationOrganization’’s s purpose for beingpurpose for beingAnswers Answers ‘‘What do What do we provide society?we provide society?’’Provides boundaries Provides boundaries and focusand focus


FedExFedExFedEx is committed to our PeopleFedEx is committed to our People--ServiceService--Profit Profit

philosophy. We will produce outstanding financial philosophy. We will produce outstanding financial returns by providing total reliable, competitively returns by providing total reliable, competitively

superior, global airsuperior, global air--ground transportation of high ground transportation of high priority goods and documents that require rapid, priority goods and documents that require rapid, timetime--certain delivery. Equally important, positive certain delivery. Equally important, positive

control of each package will be maintained using real control of each package will be maintained using real time electronic tracking and tracing systems. A time electronic tracking and tracing systems. A

complete record of each shipment and delivery will complete record of each shipment and delivery will be presented with our request for payment. We will be presented with our request for payment. We will

be helpful, courteous, and professional to each other be helpful, courteous, and professional to each other and the public. We will strive to have a completely and the public. We will strive to have a completely satisfied customer at the end of each transaction.satisfied customer at the end of each transaction.

Figure 2.2Figure 2.2


MerckMerck

The mission of Merck is to provide The mission of Merck is to provide society with superior products and society with superior products and

services services -- innovations and solutions innovations and solutions that improve the quality of life and that improve the quality of life and

satisfy customer needs satisfy customer needs -- to provide to provide employees with meaningful work and employees with meaningful work and

advancement opportunities and advancement opportunities and investors with a superior rate of returninvestors with a superior rate of return



Hard Rock CafeHard Rock Cafe

Our Mission: To spread the spirit of Rock Our Mission: To spread the spirit of Rock ‘‘nn’’Roll by delivering an exceptional Roll by delivering an exceptional

entertainment and dining experience. We entertainment and dining experience. We are committed to being an important, are committed to being an important,

contributing member of our community and contributing member of our community and offering the Hard Rock family a fun, healthy, offering the Hard Rock family a fun, healthy,

and nurturing work environment while and nurturing work environment while ensuring our longensuring our long--term success.term success.



Arnold Palmer HospitalArnold Palmer Hospital

Arnold Palmer Hospital is a healing Arnold Palmer Hospital is a healing environment providing familyenvironment providing family--centered centered

care with compassion, comfort and care with compassion, comfort and respectrespect…… when it matters the most.when it matters the most.



Benefit to Society

Mission

Factors Affecting MissionFactors Affecting Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image


Sample MissionsSample Missions

To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.

Sample Operations Management MissionSample Operations Management Mission

To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.

Sample Company MissionSample Company Mission





To determine and design or produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.

Process design

To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations

Quality management

To design and produce products and services with outstanding quality and inherent customer value.

Product design

Sample OM Department MissionsSample OM Department Missions




To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.

Human resources

To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.

Layout design

To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.

Location





To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.

Maintenance

To achieve high levels of throughput and timely customer delivery through effective scheduling.

Scheduling

To achieve low investment in inventory consistent with high customer service levels and high facility utilization.

Inventory

To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.

Supply chainmanagement



Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission


StrategyStrategy

Action plan to Action plan to achieve missionachieve missionFunctional areas Functional areas have strategieshave strategiesStrategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses


Strategies for Competitive Strategies for Competitive AdvantageAdvantage

Differentiation Differentiation –– better, or at least better, or at least differentdifferentCost leadership Cost leadership –– cheapercheaperResponse Response –– rapid responserapid response


Competing on Competing on DifferentiationDifferentiation

Uniqueness can go beyond both the Uniqueness can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything

that impacts customerthat impacts customer’’s perception of s perception of valuevalue

Safeskin gloves Safeskin gloves –– leading edge productsleading edge productsWalt Disney Magic Kingdom Walt Disney Magic Kingdom ––experience differentiationexperience differentiationHard Rock Cafe Hard Rock Cafe –– dining experiencedining experience


Competing on CostCompeting on Cost

Provide the maximum value as Provide the maximum value as perceived by customer. Does not perceived by customer. Does not

imply low quality.imply low quality.

Southwest Airlines Southwest Airlines –– secondary secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipmentWalWal--Mart Mart –– small overheads, shrinkage, small overheads, shrinkage, distribution costsdistribution costsFranz Colruyt Franz Colruyt –– no bags, low light, no no bags, low light, no music, doors on freezersmusic, doors on freezers


Competing on ResponseCompeting on Response

Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes

Institutionalization at HewlettInstitutionalization at Hewlett--PackardPackardReliability is meeting schedulesReliability is meeting schedules

German machine industryGerman machine industryTimeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery

Johnson Electric, Johnson Electric, BenniganBennigan’’s, Motorolas, Motorola


OMOM’’s Contribution to Strategys Contribution to Strategy

Product

Quality

Process

Location

Layout

Humanresource

Supply chain

Inventory

Scheduling

Maintenance

FLEXIBILITY:Sony’s constant innovation of new products………………………………....Design

HP’s ability to lead the printer market………………………………Volume

Southwest Airlines No-frills service……..…..LOW COST

DELIVERY:Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed

Federal Express’s “absolutely, positively on time”………………………..….Dependability

QUALITY:Motorola’s HDTV converters….……........Conformance

Motorola’s pagers………………………..….Performance

Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE

Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE


OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage

Response(Faster)

Cost leadership(Cheaper)

Differentiation(Better)


10 Strategic OM Decisions10 Strategic OM Decisions

1.1. Goods and Goods and service design service design

2.2. Quality Quality 3.3. Process and Process and

capacity designcapacity design4.4. Location Location

selectionselection5.5. Layout designLayout design

6.6. Human resources Human resources and job designand job design

7.7. Supply chain Supply chain managementmanagement

8.8. InventoryInventory9.9. SchedulingScheduling10.10. MaintenanceMaintenance


Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions

Customer may be Customer may be directly involveddirectly involvedCapacity must Capacity must match demandmatch demand

Customers not Customers not involvedinvolved

Process Process and and capacity capacity designdesign

Many subjective Many subjective standardsstandards

Many objective Many objective standardsstandards

QualityQuality

Product is not Product is not tangibletangible

Product is usually Product is usually tangibletangible

Goods and Goods and service service designdesign

ServicesServicesGoodsGoodsOperationsOperationsDecisionsDecisions

Table 2.1Table 2.1



Interact with Interact with customers, labor customers, labor standards varystandards vary

Technical skills, Technical skills, consistent labor consistent labor standards, output standards, output based wagesbased wages

Human Human resources resources and job and job designdesign

Enhances product Enhances product and productionand production

Production Production efficiencyefficiency

Layout Layout designdesign

Near customersNear customersNear raw Near raw materials and materials and laborlabor

Location Location selectionselection


Table 2.1Table 2.1



Meet immediate Meet immediate customer demandcustomer demand

Level schedules Level schedules possiblepossible

SchedulingScheduling

Cannot be storedCannot be storedRaw materials, Raw materials, workwork--inin--process, process, and finished and finished goods may be goods may be heldheld

InventoryInventory

Important, but Important, but may not be may not be criticalcritical

Relationship Relationship critical to final critical to final productproduct

Supply Supply chain chain


Table 2.1Table 2.1



Often Often ““repairrepair”” and and takes place at takes place at customercustomer’’s sites site

Often preventive Often preventive and takes place and takes place at production siteat production site

MaintenanceMaintenanceServicesServicesGoodsGoods

OperationsOperationsDecisionsDecisions

Table 2.1Table 2.1


Managing Global Service Managing Global Service OperationsOperations

Capacity planningCapacity planningLocation planningLocation planningFacilities design and layoutFacilities design and layoutSchedulingScheduling

Requires a different perspective on:Requires a different perspective on:


Process DesignProcess Design

LowLow ModerateModerate HighHighVolumeVolume

HighHigh

ModerateModerate

LowLow

Varie

ty o

f Pro

duct

sVa

riety

of P

rodu

cts

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,

fine-diningrestaurant)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances,

TVs, fast-food restaurants) Product focused

CONTINUOUS(steel, beer, paper, bread, institutional

kitchen)

Mass CustomizationCustomization at high

Volume(Dell Computer’s PC,

cafeteria)


Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies

Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage

Meets regulatory Meets regulatory requirements on a requirements on a country by country country by country basisbasis

Major priority, exceed Major priority, exceed regulatory requirementsregulatory requirements

QualityQuality

Low R&D investment; Low R&D investment; focus on development focus on development of generic drugsof generic drugs

Heavy R&D investment; Heavy R&D investment; extensive labs; focus on extensive labs; focus on development in a broad development in a broad range of drug range of drug categoriescategories

Product Product Selection and Selection and DesignDesign

Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.

Table 2.2Table 2.2




Recently moved to lowRecently moved to low--tax, lowtax, low--laborlabor--cost cost environmentenvironment

Still located in the city Still located in the city where it was foundedwhere it was founded

LocationLocation

Process focused; Process focused; general processes; general processes; ““job job shopshop”” approach, shortapproach, short--run production; focus run production; focus on high utilizationon high utilization

Product and modular Product and modular process; long process; long production runs in production runs in specialized facilities; specialized facilities; build capacity ahead of build capacity ahead of demanddemand

ProcessProcess


Table 2.2Table 2.2




Layout supports Layout supports processprocess--focused focused ““job job shopshop”” practicespractices

Layout supports Layout supports automated productautomated product--focused productionfocused production

LayoutLayout

Many shortMany short--run run products complicate products complicate schedulingscheduling

Centralized production Centralized production planningplanning

SchedulingScheduling


Table 2.2Table 2.2




Tends to purchase Tends to purchase competitively to find competitively to find bargainsbargains

LongLong--term supplier term supplier relationshipsrelationships

Supply ChainSupply Chain

Very experienced top Very experienced top executives; other executives; other personnel paid below personnel paid below industry averageindustry average

Hire the best; Hire the best; nationwide searchesnationwide searches

Human Human ResourcesResources


Table 2.2Table 2.2




Highly trained staff to Highly trained staff to meet changing demandmeet changing demand

Highly trained staff; Highly trained staff; extensive parts extensive parts inventoryinventory

MaintenanceMaintenance

Process focus drives up Process focus drives up workwork--inin--process process inventory; finished inventory; finished goods inventory tends goods inventory tends to be lowto be low

High finished goods High finished goods inventory to ensure all inventory to ensure all demands are metdemands are met

InventoryInventory


Table 2.2Table 2.2


Issues In Operations StrategyIssues In Operations Strategy

Research about effective Research about effective operations management operations management strategiesstrategiesPreconditions for developing Preconditions for developing effective OM strategieseffective OM strategiesThe dynamics of OM strategy The dynamics of OM strategy developmentdevelopment


Characteristics of Characteristics of High ROI FirmsHigh ROI Firms

High product quality High product quality High capacity utilizationHigh capacity utilizationHigh operating efficiencyHigh operating efficiencyLow investment intensityLow investment intensityLow direct cost per unitLow direct cost per unit

From the PIMS program of the Strategic Planning InstituteFrom the PIMS program of the Strategic Planning Institute


Strategic Options to Gain a Strategic Options to Gain a Competitive AdvantageCompetitive Advantage

28% 28% -- Operations ManagementOperations Management18% 18% -- Marketing/distributionMarketing/distribution17% 17% -- Momentum/name recognitionMomentum/name recognition16% 16% -- Quality/serviceQuality/service14% 14% -- Good managementGood management4% 4% -- Financial resourcesFinancial resources3% 3% -- OtherOther


Elements of Operations Elements of Operations Management StrategyManagement StrategyLowLow--cost productcost productProductProduct--line breadthline breadthTechnical superiorityTechnical superiorityProduct characteristics/differentiationProduct characteristics/differentiationContinuing product innovationContinuing product innovationLowLow--price/highprice/high--value offeringsvalue offeringsEfficient, flexible operations adaptable to Efficient, flexible operations adaptable to consumersconsumersEngineering research developmentEngineering research developmentLocationLocationSchedulingScheduling


PreconditionsPreconditions

Strengths and weaknesses of competitors and Strengths and weaknesses of competitors and possible new entrants into the marketpossible new entrants into the marketCurrent and prospective environmental, Current and prospective environmental, technological, legal, and economic issuestechnological, legal, and economic issuesThe product life cycleThe product life cycleResources available within the firm and within Resources available within the firm and within the OM functionthe OM functionIntegration of OM strategy with companyIntegration of OM strategy with company’’s s strategy and with other functional areasstrategy and with other functional areas

One must understand:One must understand:


Dynamics of Dynamics of Strategic ChangeStrategic Change

Changes within the organizationChanges within the organizationPersonnelPersonnelFinanceFinanceTechnologyTechnologyProduct lifeProduct life

Changes in the environmentChanges in the environment


Product Life CycleProduct Life Cycle

Best period to Best period to increase market increase market shareshare

R&D engineering is R&D engineering is criticalcritical

Practical to change Practical to change price or quality price or quality imageimage

Strengthen nicheStrengthen niche

Poor time to Poor time to change image, change image, price, or qualityprice, or quality

Competitive costs Competitive costs become criticalbecome criticalDefend market Defend market positionposition

Cost control Cost control criticalcritical

Introduction Growth Maturity Decline

Com

pany

Str

ateg

y/Is

sues

Com

pany

Str

ateg

y/Is

sues


Internet search enginesInternet search engines

SalesSales

Xbox 360Xbox 360

DriveDrive--through through restaurantsrestaurants

CDCD--ROMsROMs

3 1/23 1/2””Floppy Floppy disksdisks

LCD & plasma TVsLCD & plasma TVsAnalog TVsAnalog TVs

iPodsiPods


Product Life CycleProduct Life Cycle

Product design Product design and and development development criticalcriticalFrequent Frequent product and product and process design process design changeschangesShort production Short production runsrunsHigh production High production costscostsLimited modelsLimited modelsAttention to Attention to qualityquality

Introduction Growth Maturity Decline

OM

Str

ateg

y/Is

sues

OM

Str

ateg

y/Is

sues

Forecasting Forecasting criticalcriticalProduct and Product and process process reliabilityreliabilityCompetitive Competitive product product improvements improvements and optionsand optionsIncrease capacityIncrease capacityShift toward Shift toward product focusproduct focusEnhance Enhance distributiondistribution

StandardizationStandardizationLess rapid Less rapid product changes product changes –– more minor more minor changeschangesOptimum Optimum capacitycapacityIncreasing Increasing stability of stability of processprocessLong production Long production runsrunsProduct Product improvement improvement and cost cuttingand cost cutting

Little product Little product differentiationdifferentiationCost Cost minimizationminimizationOvercapacity Overcapacity in the in the industryindustryPrune line to Prune line to eliminate eliminate items not items not returning returning good margingood marginReduce Reduce capacitycapacity



Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission


Strategy Development ProcessStrategy Development Process

Determine Corporate MissionState the reason for the firm’s existence and identify the

value it wishes to create.

Form a StrategyBuild a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-

sale service, broad product lines.

Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.



Strategy Development and Strategy Development and ImplementationImplementation

Identify critical success factorsIdentify critical success factorsBuild and staff the organizationBuild and staff the organizationIntegrate OM with other activitiesIntegrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity


Critical Success FactorsCritical Success Factors

Decisions Sample Options Chapter

ProductProduct Customized, or standardizedCustomized, or standardized 55QualityQuality Define customer expectations and how to achieve themDefine customer expectations and how to achieve them 6, S66, S6ProcessProcess Facility size, technology, capacityFacility size, technology, capacity 7, S77, S7LocationLocation Near supplier or near customerNear supplier or near customer 88LayoutLayout Work cells or assembly lineWork cells or assembly line 99Human resourceHuman resource Specialized or enriched jobsSpecialized or enriched jobs 10, S1010, S10Supply chainSupply chain Single or multiple suppliersSingle or multiple suppliers 11, S1111, S11InventoryInventory When to reorder, how much to keep on handWhen to reorder, how much to keep on hand 12, 14, 1612, 14, 16ScheduleSchedule Stable or fluctuating production rateStable or fluctuating production rate 13, 1513, 15Maintenance Maintenance Repair as required or preventive maintenanceRepair as required or preventive maintenance 1717

Marketing

ServiceServiceDistributionDistributionPromotionPromotionChannels of distributionChannels of distributionProduct positioningProduct positioning(image, functions)(image, functions)

Finance/Accounting

LeverageLeverageCost of capitalCost of capitalWorking capitalWorking capitalReceivablesReceivablesPayablesPayablesFinancial controlFinancial controlLines of creditLines of credit

Production/Operations



Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing

737 Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules


Automated ticketing machinesNo seat assignmentsNo baggage transfersNo meals (peanuts)




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules


No meals (peanuts)Lower gate costs at secondary airports

High number of flights reduces employee idle time

between flights




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

High number of flights reduces employee idle time

between flightsSaturate a city with flights,

lowering administrative costs (advertising, HR, etc.) per passenger for that cityPilot training required on only one type of aircraftReduced maintenance

inventory required because of only one type of aircraft




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules


Pilot training required on only one type of aircraftReduced maintenance

inventory required because of only one type of aircraftExcellent supplier relations

with Boeing has aided financing




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules


Reduced maintenance inventory required because of only one type of aircraft

Flexible employees and standard planes aid

schedulingMaintenance personnel trained only one type of

aircraft20-minute gate turnarounds

Flexible union contracts




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules


Automated ticketing machines

Empowered employeesHigh employee compensation

Hire for attitude, then trainHigh level of stock

ownershipHigh number of flights

reduces employee idle time between flights


Four International Four International Operations StrategiesOperations Strategies

Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh

LowLowHighHighLowLow

Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy



Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh







International StrategyInternational Strategy




Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh



Standardized productEconomies of scaleCross-cultural learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy



Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh





Global Strategy







Global StrategyGlobal Strategy





Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh



Use existing domestic model globallyFranchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy



Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh





Global Strategy




Multidomestic StrategyUse existing domestic model globallyFranchise, joint ventures, subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe









Global StrategyGlobal Strategy


Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh



Move material, people, ideas across national boundariesEconomies of scaleCross-cultural learning

ExamplesCoca-ColaNestlé

Transnational Strategy



Cos

t Red

uctio

n C

onsi

dera

tions

Cos

t Red

uctio

n C

onsi

dera

tions

HighHigh





Global Strategy Transnational StrategyMove material, people, ideas across national boundariesEconomies of scaleCross-cultural learning

ExamplesCoca-ColaNestlé







Ranking CorruptionRanking CorruptionRankRank CountryCountry 2006 CPI Score (out of 10)2006 CPI Score (out of 10)11 FinlandFinland 9.69.611 IcelandIceland 9.69.611 New ZealandNew Zealand 9.69.655 SingaporeSingapore 9.49.477 SwitzerlandSwitzerland 9.19.11111 UKUK 8.68.61414 CanadaCanada 8.58.51515 Hong KongHong Kong 8.38.31616 GermanyGermany 8.08.01717 JapanJapan 7.67.62020 USA, BelgiumUSA, Belgium 7.37.33434 Israel, TaiwanIsrael, Taiwan 5.95.97070 Brazil, China, MexicoBrazil, China, Mexico 3.33.3121121 RussiaRussia 2.52.5

Least Least CorruptCorrupt

Most Most CorruptCorrupt

Table 8.2Table 8.2

chapter 2 â€“ operations strategy in a global environment

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