This document provides an outline for a chapter on operations management strategies and competitiveness. It discusses developing missions and strategies, achieving competitive advantage through operations, 10 strategic operations management decisions, issues in operations strategy, strategy development and implementation, and global operations strategy options. Key learning objectives are to identify approaches used by operations management to achieve strategies like differentiation, low cost, and quick response.

1. OPM 533 2- Operations Management Operations Strategy & Competitiveness Chapter 2

2. Outline DEVELOPING MISSIONS AND STRATEGIES Mission Strategy ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS Competing on Differentiation Competing on Cost Competing on Response TEN STRATEGIC OM DECISIONS OPM 533 2-

3. Outline - Continued ISSUES IN OPERATIONS STRATEGY Research Preconditions Dynamics STRATEGY DEVELOPMENT AND IMPLEMENTATION Identify Critical Success Factors A Global view of Operations Cultural and Ethical Issues Build and Staff the Organization Integrate OM with Other Activities GLOBAL OPERATIONS STRATEGY OPTIONS International Strategy Multidomestic Strategy Global Strategy Transnational Strategy OPM 533 2-

4. Learning Objectives When you complete this chapter, you should be able to : Identify or Define : Mission Strategy Ten Decisions of OM Multinational Corporations Describe or Explain : Specific approaches used by OM to achieve strategies Differentiation Low Cost Response Four Global Operations Strategies Why Global Issues are Important OPM 533 2-

5. Developing Missions and Strategies OPM 533 2-

6. Mission OPM 533 2- Mission - where are you going? Organization’s purpose for being Provides boundaries & focus Answers ‘What do we provide society?’ © 1995 Corel Corp.

7. Mission of 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. OPM 533 2-

8. Factors Affecting Mission OPM 533 2- Mission Philosophy & Values Profitability & Growth Environment Customers Public Image Benefit to Society

9. Mission/Strategy Mission - where you are going Strategy - how you are going to get there; an action plan OPM 533 2-

10. Strategy OPM 533 2- Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies © 1995 Corel Corp.

11. Strategy Process OPM 533 2- Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area Functional Area Strategies

12. Strategies for Competitive Advantage Differentiation Cost leadership Quick response OPM 533 2-

13. Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value OPM 533 2-

14. Competing on Cost Provide the maximum value as perceived by customer Does not imply low value or low quality OPM 533 2-

15. Competing on Response Flexibility Reliability Timeliness Requires institutionalization within the firm of the ability to respond OPM 533 2-

16. Competing, Regardless of the Basis, Requires the institutionalization within the firm of the ability to change, and to adapt OPM 533 2-

17. OM’s Contribution to Strategy OPM 533 2- Response (Faster) Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance HP’s ability to follow the printer market Differentiation (Better) Cost leadership (Cheaper) Southwest Airlines No-frills service Sony’s constant innovation of new products Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” Motorola’s automotive products ignition systems Motorola’s pagers IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage

18. 10 Strategic OM Decisions Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance OPM 533 2-

19. Goods & Services and the 10 OM Decisions OPM 533 2-

20. Goods & Services and the 10 OM Decisions – Continued OPM 533 2-

21. Goods & Services and the 10 OM Decisions – Continued OPM 533 2-

22. Goods & Services and the 10 OM Decisions – Continued OPM 533 2-

23. Process Design OPM 533 2- Low Moderate High Volume High Moderate Low Variety of Products Process-focused Job Shops (Print shop, emergency room , machine shop, fine dining 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)

24. Characteristics of High ROI Firms High quality product High capacity utilization High operating effectiveness Low investment intensity Low direct cost per unit OPM 533 2- From the PIMS study of the Strategic Planning Institute

25. Strategic Options Managers Use to Gain Competitive Advantage 28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 3% - Other OPM 533 2-

26. Strategic Options Managers Use to Gain Competitive Advantage 28% Operations Management 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 OPM 533 2-

27. Preconditions - To Implement a Strategy One must understand: Strengths & weaknesses of competitors and new entrants into the market Current and prospective environmental, legal, and economic issues The notion of product life cycle Resources available with the firm and within the OM function Integration of OM strategy with company strategy and with other functions. OPM 533 2-

28. Impetus for Strategy Change Changes in the organization Stages in the product life cycle Changes in the environment OPM 533 2-

29. Stages in the Product Life Cycle OPM 533 2- Introduction Growth Maturity Decline Growth rate

30. Strategy & Issues During Product Life Company Strategy & Issues OM Strategy & Issues OPM 533 2- Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects Introduction

31. Strategy & Issues During Product Life Company Strategy & Issues OM Strategy & Issues OPM 533 2- Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution Growth

32. Strategy & Issues During Product Life Company Strategy & Issues OM Strategy & Issues OPM 533 2- Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises Maturity

33. Strategy & Issues During Product Life Company Strategy & Issues OM Strategy & Issues OPM 533 2- Cost control critical to market share Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity Decline

34. Strategy and Issues During a Product’s Life OPM 533 2-

35. Strategy Development and Implementation Identify critical success factors Build and staff the organization OPM 533 2-

36. SWOT Analysis Process Environmental Analysis OPM 533 2- Determine Corporate Mission Form a Strategy

37. SWOT Analysis to Strategy Formulation OPM 533 2- Strategy Mission External O pportunities Internal S trengths Internal W eaknesses External T hreats Competitive Advantage

38. Identifying Critical Success Factors OPM 533 2- Decisions Sample Option 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 customer 8 Layout Work cells or assembly line 9 Human resource Specialized or enriched jobs 10, S10 Supply chain Single or multiple source suppliers 11, S11 Inventory When to reorder, how much to keep on hand 12, 14,16 Schedule Stable or fluctuating productions 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

39. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost

40. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals

41. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Short haul, point-to-point routes, often to secondary airports Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights

42. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Frequent, reliable schedules High number of flights reduces employee idle time between flights Saturate a city with flights lowering administrative costs per passenger for that city

43. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Standardized fleet of Boeing 737 aircraft Pilot training 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

44. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- High aircraft utilization Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 20 minute gate turnarounds

45. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Lean, productive employees High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines

46. Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage OPM 533 2- Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost

47. Examples of Global Strategies Boeing – both sales and production are worldwide. Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution Sony – purchases components from suppliers in Thailand, Malaysia, and around the world GM is building four similar plants in Argentina, Poland, China, and Thailand OPM 533 2-

48. Management Issues in Global Operations Global Strategic Context Differentiation Cost leadership Response OPM 533 2- Logistics Management Location Decisions Supply Chain Management

49. Supply-Chain Management Sourcing Vertical integration Make-or-buy decisions Partnering OPM 533 2-

50. Location Decisions Country-related issues Product-related issues Government policy/political risk Organizational issues OPM 533 2-

51. Materials Management Flow of materials Transportation options and speed Inventory levels Packaging Storage OPM 533 2-

52. Defining Global Operations International business - engages in cross-border transactions Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country Global company - integrates operations from different countries, and views world as a single marketplace Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness OPM 533 2-

53. Reasons to Globalize Operations Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chain Provide better goods and services Attract new markets Learn to improve operations Attract and retain global talent OPM 533 2- Tangible Intangible

54. Trade and Tariff Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders NAFTA - a free trade agreement between Canada, Mexico, and the United States AFTA – a free trade agreement among the Asian countries OPM 533 2-

55. Free trade may take us into the era of the floating factory - a six person crew will take a factory from port to port in order to obtain the best market, material, labor and tax advantages OPM 533 2-

56. Achieving Global Operations -Four Considerations- Global product design Global process design and technology Global factory location analysis Impact of Culture and Ethics OPM 533 2-

57. Global Product Design Remember social and cultural differences packaging and marketing can help make product seem “domestic” but - “ liter” versus “quart” “ sweetness” and “taste” OPM 533 2-

58. Global Process Design and Technology Information technology enables management of integrated, globally dispersed operation Texas Instruments: 50 plants in 19 countries Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany Reduces time-to-market OPM 533 2-

59. Global Facility Location Analysis Select CSFs based on parent organization;’s strategic or operations objectives Obtain country-specific information on the CSFs Evaluate each country’s CSFs using a 1 (bad) to 5 (good) rating scale Sum the ratings OPM 533 2- Using CSFs for Country Selection

60. You May Wish To Consider national literacy rate rate of innovation rate of technology change number of skilled workers stability of government product liability laws export restrictions similarity in language OPM 533 2- work ethic tax rates inflation availability of raw materials interest rates population number of miles of highway

61. Global Impact of Culture and Ethics Cultures differ! Some accept/expect: variations in punctuality long lunch hours expectation of thievery bribery little protection of intellectual property OPM 533 2-

62. To Establish Global Services Determine if sufficient people or facilities exist to support the service Identify foreign markets that are open - not controlled by governments Determine what services are of most interest to foreign customers Determine how to reach global customers OPM 533 2-

63. Managing Global Service Operations Must take a different perspective on Capacity planning Location Planning Facilities design and layout Scheduling OPM 533 2-

64. Some Definitions International business A firm that engages in cross-border transactions. Multinational Corporation (MNC) A firm that has extensive involvement in international business, owning or controlling facilities in more than one country OPM 533 2-

65. Some Global Strategies International Strategy : uses exports and licenses to penetrate the global area Multidomestic Strategy : uses decentralized authority with substantial autonomy at each business Global Strategy : Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants Transnational Strategy : Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization OPM 533 2-

66. Four International Operations Strategies OPM 533 2-