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© 2008 Prentice Hall, Inc. 2 – 1
Operations
Management
Chapter 2 –
Operations Strategy in
a Global Environment
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc. 2 – 2
Global Strategies
 Boeing – sales and production are
worldwide
 Benetton – moves inventory to stores
around the world faster than its
competition by building flexibility into
design, production, and distribution
 Sony – purchases components from
suppliers in Thailand, Malaysia, and
around the world
© 2008 Prentice Hall, Inc. 2 – 3
Global Strategies
 Volvo – considered a Swedish company
but it is controlled by an American
company, Ford. The current Volvo S40 is
built in Belgium and shares its platform
with the Mazda 3 built in Japan and the
Ford Focus built in Europe.
 Haier – A Chinese company, produces
compact refrigerators (it has one-third of
the US market) and wine cabinets (it has
half of the US market) in South Carolina
© 2008 Prentice Hall, Inc. 2 – 4
Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce
Citicorp USA 34 46 NA
Colgate- USA 72 63 NA
Palmolive
Dow USA 60 50 NA
Chemical
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51
© 2008 Prentice Hall, Inc. 2 – 5
Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce
ICI Britain 78 50 NA
Nestle Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Unilever Britain & 95 70 64
Netherlands
© 2008 Prentice Hall, Inc. 2 – 6
Some Boeing Suppliers (787)
Firm Country Component
Latecoere France Passenger doors
Labinel France Wiring
Dassault France Design and
PLM software
Messier-Bugatti France Electric brakes
Thales France Electrical power
conversion system
and integrated
standby flight display
Messier-Dowty France Landing gear structure
Diehl Germany Interior lighting
© 2008 Prentice Hall, Inc. 2 – 7
Some Boeing Suppliers (787)
Firm Country Component
Cobham UK Fuel pumps and valves
Rolls-Royce UK Engines
Smiths Aerospace UK Central computer
system
BAE SYSTEMS UK Electronics
Alenia Aeronautics Italy Upper center
fuselage &
horizontal stabilizer
Toray Industries Japan Carbon fiber for
wing and tail units
© 2008 Prentice Hall, Inc. 2 – 8
Some Boeing Suppliers (787)
Firm Country Component
Fuji Heavy Japan Center wing box
Industries
Kawasaki Heavy Japan Forward fuselage,
Industries fixed section of wing,
landing gear well
Teijin Seiki Japan Hydraulic actuators
Mitsubishi Heavy Japan Wing box
Industries
Chengdu Aircraft China Rudder
Group
Hafei Aviation China Parts
© 2008 Prentice Hall, Inc. 2 – 9
Some Boeing Suppliers (787)
Firm Country Component
Korean Aviation South Wingtips
Korea
Saab Sweden Cargo access doors
© 2008 Prentice Hall, Inc. 2 – 10
Reasons to Globalize
Reasons to Globalize
1. Reduce costs (labor, taxes, tariffs, etc.)
2. Improve supply chain
3. Provide better goods and services
4. Understand markets
5. Learn to improve operations
6. Attract and retain global talent
Tangible
Reasons
Intangible
Reasons
© 2008 Prentice Hall, Inc. 2 – 11
Reduce Costs
 Foreign locations with lower wage
rates can lower direct and indirect
costs
Maquiladoras
World Trade Organization (WTO)
North American Free Trade
Agreement (NAFTA)
APEC, SEATO, MERCOSUR (an economic
and political bloc consisting of Argentina, Brazil, Paraguay, and Uruguay
European Union (EU)
© 2008 Prentice Hall, Inc. 2 – 12
Improve the Supply Chain
 Locating facilities closer to
unique resources
Auto design to California
Athletic shoe production to China
Perfume manufacturing in France
© 2008 Prentice Hall, Inc. 2 – 13
Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
On-time deliveries
Cultural variables
Improved customer service
© 2008 Prentice Hall, Inc. 2 – 14
Understand Markets
 Interacting with foreign customers
and suppliers can lead to new
opportunities
Cell phone
design from
Europe
Cell phone
fads from
Japan
Extend the product life cycle
© 2008 Prentice Hall, Inc. 2 – 15
Learn to Improve Operations
 Remain open to the free flow of
ideas
General Motors partnered with a
Japanese auto manufacturer to
learn
Equipment and layout have been
improved using Scandinavian
ergonomic competence
© 2008 Prentice Hall, Inc. 2 – 16
Attract and Retain Global
Talent
 Offer better employment
opportunities
Better growth opportunities and
insulation against unemployment
Relocate unneeded personnel to
more prosperous locations
Incentives for people who like to
travel
© 2008 Prentice Hall, Inc. 2 – 17
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different
towards
 Punctuality
 Lunch breaks
 Environment
 Intellectual
property
 Thievery
 Bribery
 Child labor
© 2008 Prentice Hall, Inc. 2 – 18
You May Wish To Consider
 National literacy rate
 Rate of innovation
 Rate of technology
change
 Number of skilled
workers
 Political stability
 Product liability laws
 Export restrictions
 Variations in language
 Work ethic
 Tax rates
 Inflation
 Availability of raw
materials
 Interest rates
 Population
 Number of miles of
highway
 Phone system
© 2008 Prentice Hall, Inc. 2 – 19
Match Product & Parent
 Braun Household
Appliances
 Firestone Tires
 Godiva Chocolate
 Haagen-Dazs Ice
Cream
 Jaguar Autos
 MGM Movies
 Lamborghini Autos
 Alpo Petfoods
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony
© 2008 Prentice Hall, Inc. 2 – 20
Match Product & Parent
 Braun Household
Appliances
 Firestone Tires
 Godiva Chocolate
 Haagen-Dazs Ice
Cream
 Jaguar Autos
 MGM Movies
 Lamborghini Autos
 Alpo Petfoods
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony
© 2008 Prentice Hall, Inc. 2 – 21
Match Product & Country
Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Daz Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Pet Foods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
© 2008 Prentice Hall, Inc. 2 – 22
Match Product & Country
Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Daz Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Pet Foods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
© 2008 Prentice Hall, Inc. 2 – 23
Developing Missions and
Strategies
Mission statements tell an
organization where it is going
The Strategy tells the
organization how to get there
© 2008 Prentice Hall, Inc. 2 – 24
Mission
 Mission - where are
you going?
Organization’s
purpose for being
Answers ‘What do
we provide society?’
Provides boundaries
and focus
© 2008 Prentice Hall, Inc. 2 – 25
FedEx
FedEx is committed to our People-Service-Profit
philosophy. We will produce outstanding financial
returns by providing total reliable, competitively
superior, global air-ground transportation of high
priority goods and documents that require rapid,
time-certain delivery. Equally important, positive
control of each package will be maintained using real
time electronic tracking and tracing systems. A
complete record of each shipment and delivery will
be presented with our request for payment. We will
be helpful, courteous, and professional to each other
and the public. We will strive to have a completely
satisfied customer at the end of each transaction.
© 2008 Prentice Hall, Inc. 2 – 26
Merck
The mission of Merck is to provide
society with superior products and
services - innovations and solutions
that improve the quality of life and
satisfy customer needs - to provide
employees with meaningful work and
advancement opportunities and
investors with a superior rate of return
© 2008 Prentice Hall, Inc. 2 – 27
Hard Rock Cafe
Our Mission: To spread the spirit of Rock ‘n’
Roll by delivering an exceptional
entertainment and dining experience. We
are committed to being an important,
contributing member of our community and
offering the Hard Rock family a fun, healthy,
and nurturing work environment while
ensuring our long-term success.
© 2008 Prentice Hall, Inc. 2 – 28
IIUI
To provide every opportunity for an all round and
harmonious development of individuals and
society and reconstruction of human thought in all
its forms on the foundations of Islam in order to
encourage and promote education, training the
research in Islamic learning, social, natural,
applied and communication sciences and other
branches of learning to ensure the Muslim
Ummah’s ideological, moral, intellectual, social,
economic and technological development in
accordance with the values, ideals, principles and
norms of Islam.
© 2008 Prentice Hall, Inc. 2 – 29
Benefit to
Society
Mission
Factors Affecting Mission
Philosophy
and Values
Profitability
and Growth
Environment
Customers Public Image
© 2008 Prentice Hall, Inc. 2 – 30
Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and
profitable worldwide microwave communications business
that exceeds our customers’ expectations.
Sample Operations Management Mission
To produce products consistent with the company’s mission
as the worldwide low-cost manufacturer.
Figure 2.3
© 2008 Prentice Hall, Inc. 2 – 31
Sample Missions
Figure 2.3
Sample OM Department Missions
Product design To design and produce products and
services with outstanding quality and
inherent customer value.
Quality management 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
Process design 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.
© 2008 Prentice Hall, Inc. 2 – 32
Sample Missions
Figure 2.3
Sample OM Department Missions
Location To locate, design, and build efficient and
economical facilities that will yield high
value to the company, its employees, and the
community.
Layout design To achieve, through skill, imagination, and
resourcefulness in layout and work methods,
production effectiveness and efficiency while
supporting a high quality of work life.
Human resources 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.
© 2008 Prentice Hall, Inc. 2 – 33
Sample Missions
Figure 2.3
Sample OM Department Missions
Supply chain
management
To collaborate with suppliers to develop
innovative products from stable, effective,
and efficient sources of supply.
Inventory To achieve low investment in inventory
consistent with high customer service levels
and high facility utilization.
Scheduling To achieve high levels of throughput and
timely customer delivery through effective
scheduling.
Maintenance To achieve high utilization of facilities and
equipment by effective preventive
maintenance and prompt repair of facilities
and equipment.
© 2008 Prentice Hall, Inc. 2 – 34
Strategic Process
Marketing Operations
Finance/
Accounting
Functional
Area Missions
Organization’s
Mission
© 2008 Prentice Hall, Inc. 2 – 35
Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
© 2008 Prentice Hall, Inc. 2 – 36
Strategies for Competitive
Advantage
 Differentiation – better, or at least
different
 Cost leadership – cheaper
 Response – rapid response
© 2008 Prentice Hall, Inc. 2 – 37
Competing on
Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything
that impacts customer’s perception of
value
 Safeskin gloves – leading edge products
 Walt Disney Magic Kingdom –
experience differentiation
 Hard Rock Cafe – dining experience
© 2008 Prentice Hall, Inc. 2 – 38
Competing on Cost
Provide the maximum value as
perceived by customer. Does not
imply low quality.
 Southwest Airlines – secondary
airports, no frills service, efficient
utilization of equipment
 Wal-Mart – small overheads, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers
© 2008 Prentice Hall, Inc. 2 – 39
Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness
in design, production,
and delivery
 Johnson Electric,
Bennigan’s, Motorola
© 2008 Prentice Hall, Inc. 2 – 40
OM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human
resource
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
Figure 2.4
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Response
(Faster)
Cost
leadership
(Cheaper)
Differentiation
(Better)
© 2008 Prentice Hall, Inc. 2 – 41
10 Strategic OM Decisions
1. Goods and
service design
2. Quality
3. Process and
capacity design
4. Location
selection
5. Layout design
6. Human resources
and job design
7. Supply chain
management
8. Inventory
9. Scheduling
10. Maintenance
© 2008 Prentice Hall, Inc. 2 – 42
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Goods and
service
design
Product is usually
tangible
Service is not
tangible
Quality Many objective
standards
Many subjective
standards
Process
and
capacity
design
Customers not
involved
Customer may be
directly involved
Capacity must
match demand
© 2008 Prentice Hall, Inc. 2 – 43
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Location
selection
Near raw
materials and
labor
Near customers
Layout
design
Production
efficiency
Enhances product
and production
Human
resources
and job
design
Technical skills,
consistent labor
standards, output
based wages
Interact with
customers, labor
standards vary
© 2008 Prentice Hall, Inc. 2 – 44
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Supply
chain
Relationship
critical to final
product
Important, but
may not be
critical
Inventory Raw materials,
work-in-process,
and finished
goods may be
held
Cannot be stored
Scheduling Level schedules
possible
Meet immediate
customer demand
© 2008 Prentice Hall, Inc. 2 – 45
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Maintenance Often preventive
and takes place
at production site
Often “repair” and
takes place at
customer’s site
Table 2.1
© 2008 Prentice Hall, Inc. 2 – 46
Managing Global Service
Operations
 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling
Requires a different perspective on:
© 2008 Prentice Hall, Inc. 2 – 47
Process Design
Low Moderate High
Volume
High
Moderate
Low
Variety
of
Products
Process-focused
JOB SHOPS
(Print shop, emergency
room, machine shop,
fine-dining
restaurant)
Repetitive (modular)
focus
ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, beer, paper,
bread, institutional
kitchen)
Mass Customization
Customization at high
Volume
(Dell Computer’s PC,
cafeteria)
© 2008 Prentice Hall, Inc. 2 – 48
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Product
Selection and
Design
Heavy R&D investment;
extensive labs; focus on
development in a broad
range of drug
categories
Low R&D investment;
focus on development
of generic drugs
Quality Major priority, exceed
regulatory requirements
Meets regulatory
requirements on a
country by country
basis
Table 2.2
© 2008 Prentice Hall, Inc. 2 – 49
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Process Product and modular
process; long
production runs in
specialized facilities;
build capacity ahead of
demand
Process focused;
general processes; “job
shop” approach, short-
run production; focus
on high utilization
Location Still located in the city
where it was founded
Recently moved to low-
tax, low-labor-cost
environment
Table 2.2
© 2008 Prentice Hall, Inc. 2 – 50
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Scheduling Centralized production
planning
Many short-run
products complicate
scheduling
Layout Layout supports
automated product-
focused production
Layout supports
process-focused “job
shop” practices
Table 2.2
© 2008 Prentice Hall, Inc. 2 – 51
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Human
Resources
Hire the best;
nationwide searches
Very experienced top
executives; other
personnel paid below
industry average
Supply Chain Long-term supplier
relationships
Tends to purchase
competitively to find
bargains
Table 2.2
© 2008 Prentice Hall, Inc. 2 – 52
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Inventory High finished goods
inventory to ensure all
demands are met
Process focus drives up
work-in-process
inventory; finished
goods inventory tends
to be low
Maintenance Highly trained staff;
extensive parts
inventory
Highly trained staff to
meet changing demand
Table 2.2
© 2008 Prentice Hall, Inc. 2 – 53
Issues In Operations Strategy
 Research about effective
operations management
strategies
 Preconditions for developing
effective OM strategies
 The dynamics of OM strategy
development
© 2008 Prentice Hall, Inc. 2 – 54
Characteristics of
High ROI Firms
 High product quality
 High capacity utilization
 High operating efficiency
 Low investment intensity
 Low direct cost per unit
From the PIMS program of the Strategic Planning Institute
© 2008 Prentice Hall, Inc. 2 – 55
Strategic Options to Gain a
Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
© 2008 Prentice Hall, Inc. 2 – 56
Elements of Operations
Management Strategy
 Low-cost product
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to
consumers
 Engineering research development
 Location
 Scheduling
© 2008 Prentice Hall, Inc. 2 – 57
Preconditions
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas
One must understand:
© 2008 Prentice Hall, Inc. 2 – 58
Dynamics of
Strategic Change
 Changes within the organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment
© 2008 Prentice Hall, Inc. 2 – 59
Product Life Cycle
Best period to
increase market
share
R&D engineering is
critical
Practical to change
price or quality
image
Strengthen niche
Poor time to
change image,
price, or quality
Competitive costs
become critical
Defend market
position
Cost control
critical
Introduction Growth Maturity Decline
Company
Strategy/Issues
Figure 2.5
Internet search engines
Sales
Xbox 360
Drive-through
restaurants
CD-ROMs
3 1/2”
Floppy
disks
LCD & plasma TVs
Analog TVs
iPods
© 2008 Prentice Hall, Inc. 2 – 60
Product Life Cycle
Product design
and
development
critical
Frequent
product and
process design
changes
Short production
runs
High production
costs
Limited models
Attention to
quality
Introduction Growth Maturity Decline
OM
Strategy/Issues
Forecasting
critical
Product and
process
reliability
Competitive
product
improvements
and options
Increase capacity
Shift toward
product focus
Enhance
distribution
Standardization
Less rapid
product changes
– more minor
changes
Optimum
capacity
Increasing
stability of
process
Long production
runs
Product
improvement
and cost cutting
Little product
differentiation
Cost
minimization
Overcapacity
in the
industry
Prune line to
eliminate
items not
returning
good margin
Reduce
capacity
Figure 2.5
© 2008 Prentice Hall, Inc. 2 – 61
Strategy
Analysis
SWOT Analysis
Internal
Strengths
Internal
Weaknesses
External
Opportunities
External
Threats
Mission
© 2008 Prentice Hall, Inc. 2 – 62
Strategy Development Process
Determine Corporate Mission
State the reason for the firm’s existence and identify the
value it wishes to create.
Form a Strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, after-
sale service, broad product lines.
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6
© 2008 Prentice Hall, Inc. 2 – 63
Strategy Development and
Implementation
 Identify critical success factors
 Build and staff the organization
 Integrate OM with other activities
The operations manager’s job is to implement
an OM strategy, provide competitive
advantage, and increase productivity
© 2008 Prentice Hall, Inc. 2 – 64
Critical Success Factors
Decisions Sample Options Chapter
Product Customized, or standardized 5
Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10, S10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17
Marketing
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
Finance/Accounting
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Production/Operations
Figure 2.7
© 2008 Prentice Hall, Inc. 2 – 65
Activity 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
© 2008 Prentice Hall, Inc. 2 – 66
Activity 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
Automated ticketing machines
No seat assignments
No baggage transfers
No meals (peanuts)
© 2008 Prentice Hall, Inc. 2 – 67
Activity 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
No meals (peanuts)
Lower gate costs at
secondary airports
High number of flights
reduces employee idle time
between flights
© 2008 Prentice Hall, Inc. 2 – 68
Activity 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
High number of flights
reduces employee idle time
between flights
Saturate a city with flights,
lowering administrative
costs (advertising, HR, etc.)
per passenger for that city
Pilot training required on
only one type of aircraft
Reduced maintenance
inventory required because
of only one type of aircraft
© 2008 Prentice Hall, Inc. 2 – 69
Activity 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
Pilot training required on
only one type of aircraft
Reduced maintenance
inventory required because
of only one type of aircraft
Excellent supplier relations
with Boeing has aided
financing
© 2008 Prentice Hall, Inc. 2 – 70
Activity 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
Reduced maintenance
inventory required because
of only one type of aircraft
Flexible employees and
standard planes aid
scheduling
Maintenance personnel
trained only one type of
aircraft
20-minute gate turnarounds
Flexible union
contracts
© 2008 Prentice Hall, Inc. 2 – 71
Activity 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
Automated ticketing
machines
Empowered employees
High employee
compensation
Hire for attitude, then train
High level of stock
ownership
High number of flights
reduces employee idle time
between flights
© 2008 Prentice Hall, Inc. 2 – 72
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
International
Strategy
© 2008 Prentice Hall, Inc. 2 – 73
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
© 2008 Prentice Hall, Inc. 2 – 74
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Standardized
product
 Economies of scale
 Cross-cultural
learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global
Strategy
© 2008 Prentice Hall, Inc. 2 – 75
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
© 2008 Prentice Hall, Inc. 2 – 76
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Use existing
domestic model
globally
 Franchise, joint
ventures,
subsidiaries
Examples
Heinz
McDonald’s
The Body Shop
Hard Rock Cafe
Multidomestic
Strategy
© 2008 Prentice Hall, Inc. 2 – 77
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe
© 2008 Prentice Hall, Inc. 2 – 78
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Move material,
people, ideas
across national
boundaries
 Economies of scale
 Cross-cultural
learning
Examples
Coca-Cola
Nestlé
Transnational
Strategy
© 2008 Prentice Hall, Inc. 2 – 79
Four International
Operations Strategies
Cost
Reduction
Considerations
High
Low
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy Transnational Strategy
 Move material, people, ideas
across national boundaries
 Economies of scale
 Cross-cultural learning
Examples
Coca-Cola
Nestlé
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe

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2. Operations Strategy in a Global Environment.ppt

  • 1. © 2008 Prentice Hall, Inc. 2 – 1 Operations Management Chapter 2 – Operations Strategy in a Global Environment PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations Management, 9e
  • 2. © 2008 Prentice Hall, Inc. 2 – 2 Global Strategies  Boeing – sales and production are worldwide  Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
  • 3. © 2008 Prentice Hall, Inc. 2 – 3 Global Strategies  Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.  Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina
  • 4. © 2008 Prentice Hall, Inc. 2 – 4 Some Multinational Corporations % Sales % Assets Outside Outside Home Home Home % Foreign Company Country Country Country Workforce Citicorp USA 34 46 NA Colgate- USA 72 63 NA Palmolive Dow USA 60 50 NA Chemical Gillette USA 62 53 NA Honda Japan 63 36 NA IBM USA 57 47 51
  • 5. © 2008 Prentice Hall, Inc. 2 – 5 Some Multinational Corporations % Sales % Assets Outside Outside Home Home Home % Foreign Company Country Country Country Workforce ICI Britain 78 50 NA Nestle Switzerland 98 95 97 Philips Netherlands 94 85 82 Electronics Siemens Germany 51 NA 38 Unilever Britain & 95 70 64 Netherlands
  • 6. © 2008 Prentice Hall, Inc. 2 – 6 Some Boeing Suppliers (787) Firm Country Component Latecoere France Passenger doors Labinel France Wiring Dassault France Design and PLM software Messier-Bugatti France Electric brakes Thales France Electrical power conversion system and integrated standby flight display Messier-Dowty France Landing gear structure Diehl Germany Interior lighting
  • 7. © 2008 Prentice Hall, Inc. 2 – 7 Some Boeing Suppliers (787) Firm Country Component Cobham UK Fuel pumps and valves Rolls-Royce UK Engines Smiths Aerospace UK Central computer system BAE SYSTEMS UK Electronics Alenia Aeronautics Italy Upper center fuselage & horizontal stabilizer Toray Industries Japan Carbon fiber for wing and tail units
  • 8. © 2008 Prentice Hall, Inc. 2 – 8 Some Boeing Suppliers (787) Firm Country Component Fuji Heavy Japan Center wing box Industries Kawasaki Heavy Japan Forward fuselage, Industries fixed section of wing, landing gear well Teijin Seiki Japan Hydraulic actuators Mitsubishi Heavy Japan Wing box Industries Chengdu Aircraft China Rudder Group Hafei Aviation China Parts
  • 9. © 2008 Prentice Hall, Inc. 2 – 9 Some Boeing Suppliers (787) Firm Country Component Korean Aviation South Wingtips Korea Saab Sweden Cargo access doors
  • 10. © 2008 Prentice Hall, Inc. 2 – 10 Reasons to Globalize Reasons to Globalize 1. Reduce costs (labor, taxes, tariffs, etc.) 2. Improve supply chain 3. Provide better goods and services 4. Understand markets 5. Learn to improve operations 6. Attract and retain global talent Tangible Reasons Intangible Reasons
  • 11. © 2008 Prentice Hall, Inc. 2 – 11 Reduce Costs  Foreign locations with lower wage rates can lower direct and indirect costs Maquiladoras World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) APEC, SEATO, MERCOSUR (an economic and political bloc consisting of Argentina, Brazil, Paraguay, and Uruguay European Union (EU)
  • 12. © 2008 Prentice Hall, Inc. 2 – 12 Improve the Supply Chain  Locating facilities closer to unique resources Auto design to California Athletic shoe production to China Perfume manufacturing in France
  • 13. © 2008 Prentice Hall, Inc. 2 – 13 Provide Better Goods and Services  Objective and subjective characteristics of goods and services On-time deliveries Cultural variables Improved customer service
  • 14. © 2008 Prentice Hall, Inc. 2 – 14 Understand Markets  Interacting with foreign customers and suppliers can lead to new opportunities Cell phone design from Europe Cell phone fads from Japan Extend the product life cycle
  • 15. © 2008 Prentice Hall, Inc. 2 – 15 Learn to Improve Operations  Remain open to the free flow of ideas General Motors partnered with a Japanese auto manufacturer to learn Equipment and layout have been improved using Scandinavian ergonomic competence
  • 16. © 2008 Prentice Hall, Inc. 2 – 16 Attract and Retain Global Talent  Offer better employment opportunities Better growth opportunities and insulation against unemployment Relocate unneeded personnel to more prosperous locations Incentives for people who like to travel
  • 17. © 2008 Prentice Hall, Inc. 2 – 17 Cultural and Ethical Issues  Cultures can be quite different  Attitudes can be quite different towards  Punctuality  Lunch breaks  Environment  Intellectual property  Thievery  Bribery  Child labor
  • 18. © 2008 Prentice Hall, Inc. 2 – 18 You May Wish To Consider  National literacy rate  Rate of innovation  Rate of technology change  Number of skilled workers  Political stability  Product liability laws  Export restrictions  Variations in language  Work ethic  Tax rates  Inflation  Availability of raw materials  Interest rates  Population  Number of miles of highway  Phone system
  • 19. © 2008 Prentice Hall, Inc. 2 – 19 Match Product & Parent  Braun Household Appliances  Firestone Tires  Godiva Chocolate  Haagen-Dazs Ice Cream  Jaguar Autos  MGM Movies  Lamborghini Autos  Alpo Petfoods 1. Volkswagen 2. Bridgestone 3. Campbell Soup 4. Ford Motor Company 5. Gillette 6. Nestlé 7. Pillsbury 8. Sony
  • 20. © 2008 Prentice Hall, Inc. 2 – 20 Match Product & Parent  Braun Household Appliances  Firestone Tires  Godiva Chocolate  Haagen-Dazs Ice Cream  Jaguar Autos  MGM Movies  Lamborghini Autos  Alpo Petfoods 1. Volkswagen 2. Bridgestone 3. Campbell Soup 4. Ford Motor Company 5. Gillette 6. Nestlé 7. Pillsbury 8. Sony
  • 21. © 2008 Prentice Hall, Inc. 2 – 21 Match Product & Country Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Daz Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Pet Foods 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland
  • 22. © 2008 Prentice Hall, Inc. 2 – 22 Match Product & Country Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Daz Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Pet Foods 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland
  • 23. © 2008 Prentice Hall, Inc. 2 – 23 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there
  • 24. © 2008 Prentice Hall, Inc. 2 – 24 Mission  Mission - where are you going? Organization’s purpose for being Answers ‘What do we provide society?’ Provides boundaries and focus
  • 25. © 2008 Prentice Hall, Inc. 2 – 25 FedEx FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction.
  • 26. © 2008 Prentice Hall, Inc. 2 – 26 Merck The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return
  • 27. © 2008 Prentice Hall, Inc. 2 – 27 Hard Rock Cafe Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.
  • 28. © 2008 Prentice Hall, Inc. 2 – 28 IIUI To provide every opportunity for an all round and harmonious development of individuals and society and reconstruction of human thought in all its forms on the foundations of Islam in order to encourage and promote education, training the research in Islamic learning, social, natural, applied and communication sciences and other branches of learning to ensure the Muslim Ummah’s ideological, moral, intellectual, social, economic and technological development in accordance with the values, ideals, principles and norms of Islam.
  • 29. © 2008 Prentice Hall, Inc. 2 – 29 Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Customers Public Image
  • 30. © 2008 Prentice Hall, Inc. 2 – 30 Sample Missions Sample Company Mission To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations. Sample Operations Management Mission To produce products consistent with the company’s mission as the worldwide low-cost manufacturer. Figure 2.3
  • 31. © 2008 Prentice Hall, Inc. 2 – 31 Sample Missions Figure 2.3 Sample OM Department Missions Product design To design and produce products and services with outstanding quality and inherent customer value. Quality management 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 Process design 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.
  • 32. © 2008 Prentice Hall, Inc. 2 – 32 Sample Missions Figure 2.3 Sample OM Department Missions Location To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community. Layout design To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life. Human resources 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.
  • 33. © 2008 Prentice Hall, Inc. 2 – 33 Sample Missions Figure 2.3 Sample OM Department Missions Supply chain management To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply. Inventory To achieve low investment in inventory consistent with high customer service levels and high facility utilization. Scheduling To achieve high levels of throughput and timely customer delivery through effective scheduling. Maintenance To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.
  • 34. © 2008 Prentice Hall, Inc. 2 – 34 Strategic Process Marketing Operations Finance/ Accounting Functional Area Missions Organization’s Mission
  • 35. © 2008 Prentice Hall, Inc. 2 – 35 Strategy  Action plan to achieve mission  Functional areas have strategies  Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses
  • 36. © 2008 Prentice Hall, Inc. 2 – 36 Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response
  • 37. © 2008 Prentice Hall, Inc. 2 – 37 Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value  Safeskin gloves – leading edge products  Walt Disney Magic Kingdom – experience differentiation  Hard Rock Cafe – dining experience
  • 38. © 2008 Prentice Hall, Inc. 2 – 38 Competing on Cost Provide the maximum value as perceived by customer. Does not imply low quality.  Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment  Wal-Mart – small overheads, shrinkage, distribution costs  Franz Colruyt – no bags, low light, no music, doors on freezers
  • 39. © 2008 Prentice Hall, Inc. 2 – 39 Competing on Response  Flexibility is matching market changes in design innovation and volumes  Institutionalization at Hewlett-Packard  Reliability is meeting schedules  German machine industry  Timeliness is quickness in design, production, and delivery  Johnson Electric, Bennigan’s, Motorola
  • 40. © 2008 Prentice Hall, Inc. 2 – 40 OM’s Contribution to Strategy Product Quality Process Location Layout Human resource 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 Figure 2.4 Operations Specific Competitive Decisions Examples Strategy Used Advantage Response (Faster) Cost leadership (Cheaper) Differentiation (Better)
  • 41. © 2008 Prentice Hall, Inc. 2 – 41 10 Strategic OM Decisions 1. Goods and service design 2. Quality 3. Process and capacity design 4. Location selection 5. Layout design 6. Human resources and job design 7. Supply chain management 8. Inventory 9. Scheduling 10. Maintenance
  • 42. © 2008 Prentice Hall, Inc. 2 – 42 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Goods and service design Product is usually tangible Service is not tangible Quality Many objective standards Many subjective standards Process and capacity design Customers not involved Customer may be directly involved Capacity must match demand
  • 43. © 2008 Prentice Hall, Inc. 2 – 43 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Location selection Near raw materials and labor Near customers Layout design Production efficiency Enhances product and production Human resources and job design Technical skills, consistent labor standards, output based wages Interact with customers, labor standards vary
  • 44. © 2008 Prentice Hall, Inc. 2 – 44 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Supply chain Relationship critical to final product Important, but may not be critical Inventory Raw materials, work-in-process, and finished goods may be held Cannot be stored Scheduling Level schedules possible Meet immediate customer demand
  • 45. © 2008 Prentice Hall, Inc. 2 – 45 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Maintenance Often preventive and takes place at production site Often “repair” and takes place at customer’s site Table 2.1
  • 46. © 2008 Prentice Hall, Inc. 2 – 46 Managing Global Service Operations  Capacity planning  Location planning  Facilities design and layout  Scheduling Requires a different perspective on:
  • 47. © 2008 Prentice Hall, Inc. 2 – 47 Process Design Low Moderate High Volume High Moderate Low Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine-dining restaurant) Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen) Mass Customization Customization at high Volume (Dell Computer’s PC, cafeteria)
  • 48. © 2008 Prentice Hall, Inc. 2 – 48 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Product Selection and Design Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories Low R&D investment; focus on development of generic drugs Quality Major priority, exceed regulatory requirements Meets regulatory requirements on a country by country basis Table 2.2
  • 49. © 2008 Prentice Hall, Inc. 2 – 49 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand Process focused; general processes; “job shop” approach, short- run production; focus on high utilization Location Still located in the city where it was founded Recently moved to low- tax, low-labor-cost environment Table 2.2
  • 50. © 2008 Prentice Hall, Inc. 2 – 50 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Scheduling Centralized production planning Many short-run products complicate scheduling Layout Layout supports automated product- focused production Layout supports process-focused “job shop” practices Table 2.2
  • 51. © 2008 Prentice Hall, Inc. 2 – 51 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Human Resources Hire the best; nationwide searches Very experienced top executives; other personnel paid below industry average Supply Chain Long-term supplier relationships Tends to purchase competitively to find bargains Table 2.2
  • 52. © 2008 Prentice Hall, Inc. 2 – 52 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Inventory High finished goods inventory to ensure all demands are met Process focus drives up work-in-process inventory; finished goods inventory tends to be low Maintenance Highly trained staff; extensive parts inventory Highly trained staff to meet changing demand Table 2.2
  • 53. © 2008 Prentice Hall, Inc. 2 – 53 Issues In Operations Strategy  Research about effective operations management strategies  Preconditions for developing effective OM strategies  The dynamics of OM strategy development
  • 54. © 2008 Prentice Hall, Inc. 2 – 54 Characteristics of High ROI Firms  High product quality  High capacity utilization  High operating efficiency  Low investment intensity  Low direct cost per unit From the PIMS program of the Strategic Planning Institute
  • 55. © 2008 Prentice Hall, Inc. 2 – 55 Strategic Options to Gain a Competitive Advantage 28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 3% - Other
  • 56. © 2008 Prentice Hall, Inc. 2 – 56 Elements of Operations Management Strategy  Low-cost product  Product-line breadth  Technical superiority  Product characteristics/differentiation  Continuing product innovation  Low-price/high-value offerings  Efficient, flexible operations adaptable to consumers  Engineering research development  Location  Scheduling
  • 57. © 2008 Prentice Hall, Inc. 2 – 57 Preconditions  Strengths and weaknesses of competitors and possible new entrants into the market  Current and prospective environmental, technological, legal, and economic issues  The product life cycle  Resources available within the firm and within the OM function  Integration of OM strategy with company’s strategy and with other functional areas One must understand:
  • 58. © 2008 Prentice Hall, Inc. 2 – 58 Dynamics of Strategic Change  Changes within the organization  Personnel  Finance  Technology  Product life  Changes in the environment
  • 59. © 2008 Prentice Hall, Inc. 2 – 59 Product Life Cycle Best period to increase market share R&D engineering is critical Practical to change price or quality image Strengthen niche Poor time to change image, price, or quality Competitive costs become critical Defend market position Cost control critical Introduction Growth Maturity Decline Company Strategy/Issues Figure 2.5 Internet search engines Sales Xbox 360 Drive-through restaurants CD-ROMs 3 1/2” Floppy disks LCD & plasma TVs Analog TVs iPods
  • 60. © 2008 Prentice Hall, Inc. 2 – 60 Product Life Cycle Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Introduction Growth Maturity Decline OM Strategy/Issues Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Less rapid product changes – more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2.5
  • 61. © 2008 Prentice Hall, Inc. 2 – 61 Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission
  • 62. © 2008 Prentice Hall, Inc. 2 – 62 Strategy Development Process Determine Corporate Mission State the reason for the firm’s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after- sale service, broad product lines. Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6
  • 63. © 2008 Prentice Hall, Inc. 2 – 63 Strategy Development and Implementation  Identify critical success factors  Build and staff the organization  Integrate OM with other activities The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity
  • 64. © 2008 Prentice Hall, Inc. 2 – 64 Critical Success Factors Decisions Sample Options Chapter Product Customized, or standardized 5 Quality Define customer expectations and how to achieve them 6, S6 Process Facility size, technology, capacity 7, S7 Location Near supplier or near customer 8 Layout Work cells or assembly line 9 Human resource Specialized or enriched jobs 10, S10 Supply chain Single or multiple suppliers 11, S11 Inventory When to reorder, how much to keep on hand 12, 14, 16 Schedule Stable or fluctuating production rate 13, 15 Maintenance Repair as required or preventive maintenance 17 Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Production/Operations Figure 2.7
  • 65. © 2008 Prentice Hall, Inc. 2 – 65 Activity 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
  • 66. © 2008 Prentice Hall, Inc. 2 – 66 Activity 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 Automated ticketing machines No seat assignments No baggage transfers No meals (peanuts)
  • 67. © 2008 Prentice Hall, Inc. 2 – 67 Activity 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 No meals (peanuts) Lower gate costs at secondary airports High number of flights reduces employee idle time between flights
  • 68. © 2008 Prentice Hall, Inc. 2 – 68 Activity 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 High number of flights reduces employee idle time between flights Saturate a city with flights, lowering administrative costs (advertising, HR, etc.) per passenger for that city Pilot training required on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft
  • 69. © 2008 Prentice Hall, Inc. 2 – 69 Activity 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 Pilot training required on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing
  • 70. © 2008 Prentice Hall, Inc. 2 – 70 Activity 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 Reduced maintenance inventory required because of only one type of aircraft Flexible employees and standard planes aid scheduling Maintenance personnel trained only one type of aircraft 20-minute gate turnarounds Flexible union contracts
  • 71. © 2008 Prentice Hall, Inc. 2 – 71 Activity 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 Automated ticketing machines Empowered employees High employee compensation Hire for attitude, then train High level of stock ownership High number of flights reduces employee idle time between flights
  • 72. © 2008 Prentice Hall, Inc. 2 – 72 Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy
  • 73. © 2008 Prentice Hall, Inc. 2 – 73 Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson
  • 74. © 2008 Prentice Hall, Inc. 2 – 74 International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy
  • 75. © 2008 Prentice Hall, Inc. 2 – 75 Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson
  • 76. © 2008 Prentice Hall, Inc. 2 – 76  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz McDonald’s The Body Shop Hard Rock Cafe Multidomestic Strategy
  • 77. © 2008 Prentice Hall, Inc. 2 – 77 Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop McDonald’s Hard Rock Cafe
  • 78. © 2008 Prentice Hall, Inc. 2 – 78 International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop McDonald’s Hard Rock Cafe  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé Transnational Strategy
  • 79. © 2008 Prentice Hall, Inc. 2 – 79 Four International Operations Strategies Cost Reduction Considerations High Low High Low Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Transnational Strategy  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop McDonald’s Hard Rock Cafe