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2 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall
2 Operations Strategy in a
Global Environment
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl
2 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline
 Global Company Profile: Boeing
 A Global View of Operations
 Cultural and Ethical Issues
 Developing Missions And
Strategies
 Mission
 Strategy
2 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline – Continued
 Achieving Competitive Advantage
Through Operations
 Competing On Differentiation
 Competing On Cost
 Competing On Response
 Ten Strategic OM Decisions
2 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline – Continued
 Strategy Development and
Implementation
 Key Success Factors and Core
Competencies
 Build and Staff the Organization
 Integrate OM with Other Activities
2 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline – Continued
 Global Operations Strategy
Options
 International Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy
2 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall
Learning Objectives
1. Define mission and strategy
2. Identify and explain three strategic
approaches to competitive
advantage
3. Identify and define the 10 decisions
of operations management
When you complete this chapter you
should be able to:
2 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall
Learning Objectives
4. Understand the significant key
success factors and core
competencies
5. Identify and explain four global
operations strategy options
When you complete this chapter you
should be able to:
2 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall
Some Boeing Suppliers (787)
Firm Country Component
Korean Aviation South Wingtips
Korea
Saab Sweden Cargo access doors
2 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall
Global Strategies
 Volvo – considered a Swedish company
but until recently was 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
2 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall
35 –
30 –
25 –
20 –
15 –
10 –
5 –
0 –| | | | | | | | | | |
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*)
Year
Percent
Growth of World Trade
Figure 2.1
Collapse of the
Berlin Wall
2 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall
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, CAFTA
 European Union (EU)
2 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall
Improve the Supply Chain
 Locating facilities closer to
unique resources
 Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France
2 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall
Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
 On-time deliveries
 Cultural variables
 Improved customer service
2 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall
Learn to Improve
Operations
 Remain open to the free flow of
ideas
 General Motors partnered with a
Japanese auto manufacturer to
learn new approaches to
production and inventory control
 Equipment and layout have been
improved using Scandinavian
ergonomic competence
2 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall
Attract and Retain Global
Talent
 Offer better employment
opportunities
 Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations
2 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall
Companies Want 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
2 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall
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. Tata Motors Limited
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
2 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall
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. Tata Motors Limited
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
2 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall
Match Product & Country
 Braun Household
Appliances
 Firestone Tires
 Godiva Chocolate
 Haagen-Dazs Ice
Cream
 Jaguar Autos
 MGM Movies
 Lamborghini Autos
 Alpo Pet Foods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
6. India
2 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall
Match Product & Country
 Braun Household
Appliances
 Firestone Tires
 Godiva Chocolate
 Haagen-Dazs Ice
Cream
 Jaguar Autos
 MGM Movies
 Lamborghini Autos
 Alpo Pet Foods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
6. India
2 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall
Developing Missions and
Strategies
Mission statements tell an
organization where it is going
The Strategy tells the
organization how to get there
2 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall
Mission
 Mission - where are
you going?
 Organization‘s
purpose for being
 Answers ‗What do
we provide society?‘
 Provides boundaries
and focus
2 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall
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.
Figure 2.2
2 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall
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.
Figure 2.2
2 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall
Arnold Palmer Hospital
Arnold Palmer Hospital for
Children provides state-of-the-art,
family centered healthcare
focused on restoring the joy of
childhood in an environment of
compassion, healing, and hope.
Figure 2.2
2 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall
Benefit to
Society
Mission
Factors Affecting Mission
Philosophy
and Values
Profitability
and Growth
Environment
Customers Public Image
2 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall
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, design, and 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.
2 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall
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.
2 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall
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.
2 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategic Process
Marketing Operations
Finance/
Accounting
Functional
Area Missions
Organization‘s
Mission
2 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
2 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategies for Competitive
Advantage
 Differentiation – better, or at
least different
 Cost leadership – cheaper
 Response – rapid response
2 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall
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 overhead, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers
2 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall
Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 A way of life at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness
in design, production,
and delivery
 Johnson Electric,
Pizza Hut, Motorola
2 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall
OM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human
resource
Supply chain
Inventory
Scheduling
Maintenance
DIFFERENTIATION
Innovative design … Safeskin‘s innovative gloves
Broad product line … Fidelity Security‘s mutual funds
After-sales service … Caterpillar‘s heavy equipment
service
Experience … Hard Rock Café‘s dining
experience
COST LEADERSHIP
Low overhead … Franz-Colruyt‘s warehouse-type
stores
Effective capacity
use … Southwest Airline‘s
aircraft utilization
Inventory
management … Wal Mart‘s sophisticated
distribution system
RESPONSE
Flexibility … Hewlett-Packard‘s response to
volatile world market
Reliability … FedEx‘s ―absolutely, positively,
on time‖
Quickness … Pizza Hut‘s 5-minute guarantee
at lunchtime
Figure 2.4
10 Operations Competitive
Decisions Approach Example Advantage
Response
(faster)
Cost
leadership
(cheaper)
Differentiation
(better)
2 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Goods and
service
design
Product is usually
tangible
Product 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
Table 2.1
2 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
Table 2.1
2 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
Table 2.1
2 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
2 - 52© 2011 Pearson Education, Inc. publishing as Prentice Hall
Managing Global Service
Operations
 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling
Requires a different perspective on:
2 - 53© 2011 Pearson Education, Inc. publishing as Prentice Hall
Process Design
Low Moderate High
Volume
High
Moderate
Low
VarietyofProducts
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)
2 - 54© 2011 Pearson Education, Inc. publishing as Prentice Hall
Operations Strategies of
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
2 - 55© 2011 Pearson Education, Inc. publishing as Prentice Hall
Operations Strategies of
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
2 - 56© 2011 Pearson Education, Inc. publishing as Prentice Hall
Operations Strategies of
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
2 - 57© 2011 Pearson Education, Inc. publishing as Prentice Hall
Operations Strategies of
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
2 - 58© 2011 Pearson Education, Inc. publishing as Prentice Hall
Operations Strategies of
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
2 - 59© 2011 Pearson Education, Inc. publishing as Prentice Hall
Issues In Operations Strategy
 Resources view
 Value Chain analysis
 Porter‘s Five Forces model
 Operating in a system with many
external factors
 Constant change
2 - 60© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
CompanyStrategy/Issues
Figure 2.5
Internet search engines
Sales
Drive-through
restaurants
CD-ROMs
Analog
TVs
iPods
Boeing 787
LCD &
plasma TVs
Twitter
Avatars
Xbox 360
2 - 61© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
OMStrategy/Issues
Forecasting
critical
Product and
process
reliability
Competitive
product
improvements
and options
Increase capacity
Shift toward
product focus
Enhance
distribution
Standardization
Fewer 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
2 - 62© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategy
Analysis
SWOT Analysis
Internal
Strengths
Internal
Weaknesses
External
Opportunities
External
Threats
Mission
2 - 63© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategy Development Process
Determine the 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.
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6
2 - 64© 2011 Pearson Education, Inc. publishing as Prentice Hall
Strategy Development and
Implementation
 Identify key 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
2 - 65© 2011 Pearson Education, Inc. publishing as Prentice Hall
Key Success Factors
Production/Operations
Figure 2.7
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
Decisions Sample Options Chapter
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
Customized, or standardized
Define customer expectations and how to achieve them
Facility size, technology, capacity
Near supplier or near customer
Work cells or assembly line
Specialized or enriched jobs
Single or multiple suppliers
When to reorder, how much to keep on hand
Stable or fluctuating production rate
Repair as required or preventive maintenance
5
6, S6
7, S7
8
9
10
11, S11
12, 14, 16
13, 15
17
Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas
2 - 66© 2011 Pearson Education, Inc. publishing as Prentice Hall
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
Activity Mapping at
Southwest Airlines
2 - 67© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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)
2 - 68© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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
2 - 69© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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
2 - 70© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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
2 - 71© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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
2 - 72© 2011 Pearson Education, Inc. publishing as Prentice Hall
Activity Mapping at
Southwest Airlines
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
2 - 73© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Figure 2.9
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
International
Strategy
2 - 74© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Figure 2.9
2 - 75© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Figure 2.9
 Standardized
product
 Economies of scale
 Cross-cultural
learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global
Strategy
2 - 76© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
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
Figure 2.9
2 - 77© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
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
Figure 2.9
 Use existing
domestic model
globally
 Franchise, joint
ventures,
subsidiaries
Examples
Heinz
McDonald‘s
The Body Shop
Hard Rock Cafe
Multidomestic
Strategy
2 - 78© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
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
Figure 2.9
2 - 79© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
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
Figure 2.9
 Move material,
people, ideas
across national
boundaries
 Economies of scale
 Cross-cultural
learning
Examples
Coca-Cola
Nestlé
Transnational
Strategy
2 - 80© 2011 Pearson Education, Inc. publishing as Prentice Hall
Four International
Operations Strategies
CostReductionConsiderations
High
Low
HighLow
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
Figure 2.9
2 - 81© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson Education
Ranking Corruption
Rank Country 2011 CPI Score (out of 10)
1 New Zealand 9.5
2 Demark, Finland 9.4
5 Singapore 9.2
6 Norway 9.0
8 Australia, Switzerland 8.8
10 Canada 8.7
12 Hong Kong 8.4
14 Germany, Japan 8.0
16 UK 7.8
24 USA 7.1
32 Taiwan 6.1
43 South Korea 5.4
60 Malaysia 4.3
75 China 3.6
112 Vietnam 2.9
143 Russia 2.4
Least
Corrupt
Most
Corrupt
2 - 82© 2011 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the prior
written permission of the publisher.
Printed in the United States of America.

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  • 1. 2 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 Operations Strategy in a Global Environment PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl
  • 2. 2 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall Outline  Global Company Profile: Boeing  A Global View of Operations  Cultural and Ethical Issues  Developing Missions And Strategies  Mission  Strategy
  • 3. 2 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall Outline – Continued  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions
  • 4. 2 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Outline – Continued  Strategy Development and Implementation  Key Success Factors and Core Competencies  Build and Staff the Organization  Integrate OM with Other Activities
  • 5. 2 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall Outline – Continued  Global Operations Strategy Options  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy
  • 6. 2 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives 1. Define mission and strategy 2. Identify and explain three strategic approaches to competitive advantage 3. Identify and define the 10 decisions of operations management When you complete this chapter you should be able to:
  • 7. 2 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives 4. Understand the significant key success factors and core competencies 5. Identify and explain four global operations strategy options When you complete this chapter you should be able to:
  • 8. 2 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 9. 2 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 10. 2 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 11. 2 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Boeing Suppliers (787) Firm Country Component Korean Aviation South Wingtips Korea Saab Sweden Cargo access doors
  • 12. 2 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 13. 2 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall Global Strategies  Volvo – considered a Swedish company but until recently was 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
  • 14. 2 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall 35 – 30 – 25 – 20 – 15 – 10 – 5 – 0 –| | | | | | | | | | | 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*) Year Percent Growth of World Trade Figure 2.1 Collapse of the Berlin Wall
  • 15. 2 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 16. 2 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 17. 2 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 18. 2 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall 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, CAFTA  European Union (EU)
  • 19. 2 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Improve the Supply Chain  Locating facilities closer to unique resources  Auto design to California  Athletic shoe production to China  Perfume manufacturing in France
  • 20. 2 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Provide Better Goods and Services  Objective and subjective characteristics of goods and services  On-time deliveries  Cultural variables  Improved customer service
  • 21. 2 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 22. 2 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall Learn to Improve Operations  Remain open to the free flow of ideas  General Motors partnered with a Japanese auto manufacturer to learn new approaches to production and inventory control  Equipment and layout have been improved using Scandinavian ergonomic competence
  • 23. 2 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Attract and Retain Global Talent  Offer better employment opportunities  Better growth opportunities and insulation against unemployment  Relocate unneeded personnel to more prosperous locations
  • 24. 2 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 25. 2 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall Companies Want 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
  • 26. 2 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall 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. Tata Motors Limited 5. Proctor and Gamble 6. Nestlé 7. Pillsbury 8. Sony
  • 27. 2 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall 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. Tata Motors Limited 5. Proctor and Gamble 6. Nestlé 7. Pillsbury 8. Sony
  • 28. 2 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Match Product & Country  Braun Household Appliances  Firestone Tires  Godiva Chocolate  Haagen-Dazs Ice Cream  Jaguar Autos  MGM Movies  Lamborghini Autos  Alpo Pet Foods 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland 6. India
  • 29. 2 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Match Product & Country  Braun Household Appliances  Firestone Tires  Godiva Chocolate  Haagen-Dazs Ice Cream  Jaguar Autos  MGM Movies  Lamborghini Autos  Alpo Pet Foods 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland 6. India
  • 30. 2 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there
  • 31. 2 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall Mission  Mission - where are you going?  Organization‘s purpose for being  Answers ‗What do we provide society?‘  Provides boundaries and focus
  • 32. 2 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall 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. Figure 2.2
  • 33. 2 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall 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. Figure 2.2
  • 34. 2 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall Arnold Palmer Hospital Arnold Palmer Hospital for Children provides state-of-the-art, family centered healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope. Figure 2.2
  • 35. 2 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Customers Public Image
  • 36. 2 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 37. 2 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall 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, design, and 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.
  • 38. 2 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall 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.
  • 39. 2 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall 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.
  • 40. 2 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategic Process Marketing Operations Finance/ Accounting Functional Area Missions Organization‘s Mission
  • 41. 2 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy  Action plan to achieve mission  Functional areas have strategies  Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses
  • 42. 2 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response
  • 43. 2 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 44. 2 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 overhead, shrinkage, distribution costs  Franz Colruyt – no bags, low light, no music, doors on freezers
  • 45. 2 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall Competing on Response  Flexibility is matching market changes in design innovation and volumes  A way of life at Hewlett-Packard  Reliability is meeting schedules  German machine industry  Timeliness is quickness in design, production, and delivery  Johnson Electric, Pizza Hut, Motorola
  • 46. 2 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall OM’s Contribution to Strategy Product Quality Process Location Layout Human resource Supply chain Inventory Scheduling Maintenance DIFFERENTIATION Innovative design … Safeskin‘s innovative gloves Broad product line … Fidelity Security‘s mutual funds After-sales service … Caterpillar‘s heavy equipment service Experience … Hard Rock Café‘s dining experience COST LEADERSHIP Low overhead … Franz-Colruyt‘s warehouse-type stores Effective capacity use … Southwest Airline‘s aircraft utilization Inventory management … Wal Mart‘s sophisticated distribution system RESPONSE Flexibility … Hewlett-Packard‘s response to volatile world market Reliability … FedEx‘s ―absolutely, positively, on time‖ Quickness … Pizza Hut‘s 5-minute guarantee at lunchtime Figure 2.4 10 Operations Competitive Decisions Approach Example Advantage Response (faster) Cost leadership (cheaper) Differentiation (better)
  • 47. 2 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 48. 2 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Goods and service design Product is usually tangible Product 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 Table 2.1
  • 49. 2 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 Table 2.1
  • 50. 2 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 Table 2.1
  • 51. 2 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall 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
  • 52. 2 - 52© 2011 Pearson Education, Inc. publishing as Prentice Hall Managing Global Service Operations  Capacity planning  Location planning  Facilities design and layout  Scheduling Requires a different perspective on:
  • 53. 2 - 53© 2011 Pearson Education, Inc. publishing as Prentice Hall Process Design Low Moderate High Volume High Moderate Low VarietyofProducts 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)
  • 54. 2 - 54© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of 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
  • 55. 2 - 55© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of 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
  • 56. 2 - 56© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of 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
  • 57. 2 - 57© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of 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
  • 58. 2 - 58© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of 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
  • 59. 2 - 59© 2011 Pearson Education, Inc. publishing as Prentice Hall Issues In Operations Strategy  Resources view  Value Chain analysis  Porter‘s Five Forces model  Operating in a system with many external factors  Constant change
  • 60. 2 - 60© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 CompanyStrategy/Issues Figure 2.5 Internet search engines Sales Drive-through restaurants CD-ROMs Analog TVs iPods Boeing 787 LCD & plasma TVs Twitter Avatars Xbox 360
  • 61. 2 - 61© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 OMStrategy/Issues Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer 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
  • 62. 2 - 62© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission
  • 63. 2 - 63© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy Development Process Determine the 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. Analyze the Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6
  • 64. 2 - 64© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy Development and Implementation  Identify key 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
  • 65. 2 - 65© 2011 Pearson Education, Inc. publishing as Prentice Hall Key Success Factors Production/Operations Figure 2.7 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 Decisions Sample Options Chapter Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance Customized, or standardized Define customer expectations and how to achieve them Facility size, technology, capacity Near supplier or near customer Work cells or assembly line Specialized or enriched jobs Single or multiple suppliers When to reorder, how much to keep on hand Stable or fluctuating production rate Repair as required or preventive maintenance 5 6, S6 7, S7 8 9 10 11, S11 12, 14, 16 13, 15 17 Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas
  • 66. 2 - 66© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 Activity Mapping at Southwest Airlines
  • 67. 2 - 67© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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)
  • 68. 2 - 68© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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
  • 69. 2 - 69© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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
  • 70. 2 - 70© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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
  • 71. 2 - 71© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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
  • 72. 2 - 72© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines 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
  • 73. 2 - 73© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Figure 2.9  Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy
  • 74. 2 - 74© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9
  • 75. 2 - 75© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy
  • 76. 2 - 76© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow 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 Figure 2.9
  • 77. 2 - 77© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow 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 Figure 2.9  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz McDonald‘s The Body Shop Hard Rock Cafe Multidomestic Strategy
  • 78. 2 - 78© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow 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 Figure 2.9
  • 79. 2 - 79© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow 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 Figure 2.9  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé Transnational Strategy
  • 80. 2 - 80© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies CostReductionConsiderations High Low HighLow 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 Figure 2.9
  • 81. 2 - 81© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson Education Ranking Corruption Rank Country 2011 CPI Score (out of 10) 1 New Zealand 9.5 2 Demark, Finland 9.4 5 Singapore 9.2 6 Norway 9.0 8 Australia, Switzerland 8.8 10 Canada 8.7 12 Hong Kong 8.4 14 Germany, Japan 8.0 16 UK 7.8 24 USA 7.1 32 Taiwan 6.1 43 South Korea 5.4 60 Malaysia 4.3 75 China 3.6 112 Vietnam 2.9 143 Russia 2.4 Least Corrupt Most Corrupt
  • 82. 2 - 82© 2011 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.