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Rahuldas Kalathil

The document outlines the key topics in Chapter 2 of the Operations Management textbook, including developing missions and strategies, achieving competitive advantage, global operations strategy options, and cultural and ethical issues in global operations. It provides examples of company missions from FedEx, Merck, and Hard Rock Cafe to illustrate what a mission statement communicates. It also gives sample missions for operations management departments.

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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. 2–1
Outline  Global Company Profile: Boeing  A Global View of Operations  Cultural and Ethical Issues  Developing Missions And Strategies  Mission  Strategy © 2008 Prentice Hall, Inc. 2–2
Outline – Continued  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions © 2008 Prentice Hall, Inc. 2–3
Outline – Continued  Issues In Operations Strategy  Research  Preconditions  Dynamics © 2008 Prentice Hall, Inc. 2–4
Outline – Continued  Strategy Development and Implementation  Critical Success Factors and Core Competencies  Build and Staff the Organization  Integrate OM with Other Activities © 2008 Prentice Hall, Inc. 2–5
Outline – Continued  Global Operations Strategy Options  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy © 2008 Prentice Hall, Inc. 2–6
Learning Objectives When you complete this chapter you should be able to: 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 © 2008 Prentice Hall, Inc. 2–7
Learning Objectives When you complete this chapter you should be able to: 4. Identify five OM strategy insights provided by PIMS research 5. Identify and explain four global operations strategy options © 2008 Prentice Hall, Inc. 2–8
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. 2–9
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 – 10
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 – 11
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 – 12
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 – 13
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 – 14
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 – 15
Some Boeing Suppliers (787) Firm Country Component Korean Aviation South Wingtips Korea Saab Sweden Cargo access doors © 2008 Prentice Hall, Inc. 2 – 16
Reasons to Globalize Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, etc.) Reasons 2. Improve supply chain 3. Provide better goods and services 4. Understand markets Intangible 5. Learn to improve operations Reasons 6. Attract and retain global talent © 2008 Prentice Hall, Inc. 2 – 17
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  European Union (EU) © 2008 Prentice Hall, Inc. 2 – 18
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 – 19
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 – 20
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 – 21
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 – 22
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 – 23
Cultural and Ethical Issues  Cultures can be quite different  Attitudes can be quite different towards  Punctuality  Thievery  Lunch breaks  Bribery  Environment  Child labor  Intellectual property © 2008 Prentice Hall, Inc. 2 – 24
You May Wish To Consider  National literacy rate  Work ethic  Rate of innovation  Tax rates  Rate of technology  Inflation change  Availability of raw  Number of skilled materials workers  Interest rates  Political stability  Population  Product liability laws  Number of miles of  Export restrictions highway  Variations in language  Phone system © 2008 Prentice Hall, Inc. 2 – 25
Match Product & Parent  Braun Household Appliances 1. Volkswagen  Firestone Tires 2. Bridgestone  Godiva Chocolate 3. Campbell Soup  Haagen-Dazs Ice 4. Ford Motor Company Cream 5. Gillette  Jaguar Autos 6. Nestlé  MGM Movies 7. Pillsbury  Lamborghini Autos 8. Sony  Alpo Petfoods © 2008 Prentice Hall, Inc. 2 – 26
Match Product & Parent  Braun Household Appliances 1. Volkswagen  Firestone Tires 2. Bridgestone  Godiva Chocolate 3. Campbell Soup  Haagen-Dazs Ice 4. Ford Motor Company Cream 5. Gillette  Jaguar Autos 6. Nestlé  MGM Movies 7. Pillsbury  Lamborghini Autos 8. Sony  Alpo Petfoods © 2008 Prentice Hall, Inc. 2 – 27
Match Product & Country  Braun Household Appliances  Firestone Tires 1. Great Britain  Godiva Chocolate 2. Germany  Haagen-Daz Ice 3. Japan Cream 4. United States  Jaguar Autos 5. Switzerland  MGM Movies  Lamborghini Autos  Alpo Pet Foods © 2008 Prentice Hall, Inc. 2 – 28
Match Product & Country  Braun Household Appliances  Firestone Tires 1. Great Britain  Godiva Chocolate 2. Germany  Haagen-Daz Ice 3. Japan Cream 4. United States  Jaguar Autos 5. Switzerland  MGM Movies  Lamborghini Autos  Alpo Pet Foods © 2008 Prentice Hall, Inc. 2 – 29
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 – 30
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 – 31
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. Figure 2.2 © 2008 Prentice Hall, Inc. 2 – 32
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 © 2008 Prentice Hall, Inc. 2 – 33
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 © 2008 Prentice Hall, Inc. 2 – 34
Arnold Palmer Hospital Arnold Palmer Hospital is a healing environment providing family-centered care with compassion, comfort and respect… when it matters the most. Figure 2.2 © 2008 Prentice Hall, Inc. 2 – 35
Factors Affecting Mission Philosophy and Values Profitability Environment and Growth Mission Customers Public Image Benefit to Society © 2008 Prentice Hall, Inc. 2 – 36
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 – 37
Sample Missions 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 38
Sample Missions 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 39
Sample Missions Sample OM Department Missions Supply chain To collaborate with suppliers to develop management 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 40
Strategic Process Organization’s Mission Functional Area Missions Finance/ Marketing Operations Accounting © 2008 Prentice Hall, Inc. 2 – 41
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 – 42
Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response © 2008 Prentice Hall, Inc. 2 – 43
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 – 44
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 – 45
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 – 46
OM’s Contribution to Strategy Operations Specific Competitive Decisions Examples Strategy Used Advantage Product FLEXIBILITY: Sony’s constant innovation Quality of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume Process Southwest Airlines No-frills service……..…..LOW COST Location DELIVERY: Pizza Hut’s 5-minute guarantee Differentiation Layout at lunchtime…………………..…..………………….Speed (Better) Federal Express’s “absolutely, positively on time”………………………..….Dependability Human resource QUALITY: Response Motorola’s HDTV converters….……........Conformance (Faster) Motorola’s pagers………………………..….Performance Cost Supply chain leadership Caterpillar’s after-sale service (Cheaper) Inventory on heavy equipment……………....AFTER-SALE SERVICE Fidelity Security’s broad Scheduling line of mutual funds………….BROAD PRODUCT LINE Maintenance Figure 2.4 © 2008 Prentice Hall, Inc. 2 – 47
10 Strategic OM Decisions 1. Goods and 6. Human resources service design and job design 2. Quality 7. Supply chain 3. Process and management capacity design 8. Inventory 4. Location selection 9. Scheduling 5. Layout design 10. Maintenance © 2008 Prentice Hall, Inc. 2 – 48
Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Goods and Product is usually Product is not service tangible tangible design Quality Many objective Many subjective standards standards Process Customers not Customer may be and involved directly involved capacity Capacity must design match demand Table 2.1 © 2008 Prentice Hall, Inc. 2 – 49
Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Location Near raw Near customers selection materials and labor Layout Production Enhances product design efficiency and production Human Technical skills, Interact with resources consistent labor customers, labor and job standards, output standards vary design based wages Table 2.1 © 2008 Prentice Hall, Inc. 2 – 50
Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Supply Relationship Important, but chain critical to final may not be product critical Inventory Raw materials, Cannot be stored work-in-process, and finished goods may be held Scheduling Level schedules Meet immediate possible customer demand Table 2.1 © 2008 Prentice Hall, Inc. 2 – 51
Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Maintenance Often preventive Often “repair” and and takes place takes place at at production site customer’s site Table 2.1 © 2008 Prentice Hall, Inc. 2 – 52
Managing Global Service Operations Requires a different perspective on:  Capacity planning  Location planning  Facilities design and layout  Scheduling © 2008 Prentice Hall, Inc. 2 – 53
Process Design High Process-focused Mass Customization JOB SHOPS Customization at high (Print shop, emergency Volume room, machine shop, (Dell Computer’s PC, Variety of Products fine-dining Repetitive (modular) cafeteria) restaurant) focus ASSEMBLY LINE Moderate (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen) Low Low Moderate High Volume © 2008 Prentice Hall, Inc. 2 – 54
Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Product Heavy R&D investment; Low R&D investment; Selection and extensive labs; focus on focus on development Design development in a broad of generic drugs range of drug categories Quality Major priority, exceed Meets regulatory regulatory requirements requirements on a country by country basis Table 2.2 © 2008 Prentice Hall, Inc. 2 – 55
Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Process Product and modular Process focused; process; long general processes; “job production runs in shop” approach, short- specialized facilities; run production; focus build capacity ahead of on high utilization demand Location Still located in the city Recently moved to low- where it was founded tax, low-labor-cost environment Table 2.2 © 2008 Prentice Hall, Inc. 2 – 56
Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Scheduling Centralized production Many short-run planning products complicate scheduling Layout Layout supports Layout supports automated product- process-focused “job focused production shop” practices Table 2.2 © 2008 Prentice Hall, Inc. 2 – 57
Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Human Hire the best; Very experienced top Resources nationwide searches executives; other personnel paid below industry average Supply Chain Long-term supplier Tends to purchase relationships competitively to find bargains Table 2.2 © 2008 Prentice Hall, Inc. 2 – 58
Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Inventory High finished goods Process focus drives up inventory to ensure all work-in-process demands are met inventory; finished goods inventory tends to be low Maintenance Highly trained staff; Highly trained staff to extensive parts meet changing demand inventory Table 2.2 © 2008 Prentice Hall, Inc. 2 – 59
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 – 60
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 – 61
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 – 62
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 – 63
Preconditions One must understand:  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 © 2008 Prentice Hall, Inc. 2 – 64
Dynamics of Strategic Change  Changes within the organization  Personnel  Finance  Technology  Product life  Changes in the environment © 2008 Prentice Hall, Inc. 2 – 65
Product Life Cycle Introduction Growth Maturity Decline Best period to Practical to change Poor time to Cost control Company Strategy/Issues increase market price or quality change image, critical share image price, or quality R&D engineering is Strengthen niche Competitive costs critical become critical Defend market position CD-ROMs Internet search engines Analog TVs Drive-through LCD & plasma TVs restaurants Sales iPods 3 1/2” Xbox 360 Floppy disks Figure 2.5 © 2008 Prentice Hall, Inc. 2 – 66
Product Life Cycle Introduction Growth Maturity Decline Product design Forecasting Standardization Little product and critical Less rapid differentiation development Product and product changes Cost OM Strategy/Issues critical process – more minor minimization Frequent reliability changes Overcapacity product and Competitive Optimum in the process design product capacity industry changes improvements Increasing Prune line to Short production and options stability of eliminate runs Increase capacity process items not High production returning Shift toward Long production costs good margin product focus runs Limited models Reduce Enhance Product capacity Attention to distribution improvement and quality cost cutting Figure 2.5 © 2008 Prentice Hall, Inc. 2 – 67
SWOT Analysis Mission Internal External Strengths Opportunities Analysis Internal External Weaknesses Threats Strategy © 2008 Prentice Hall, Inc. 2 – 68
Strategy Development Process Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. 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. © 2008 Prentice Hall, Inc. Figure 2.6 2 – 69
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 – 70
Critical Success Factors Marketing Finance/Accounting Production/Operations Service Leverage Distribution Cost of capital Promotion Working capital Channels of distribution Receivables Product positioning Payables (image, functions) Financial control Lines of credit 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 Figure 2.7 © 2008 Prentice Hall, Inc. 2 – 71
Activity Mapping Courteous, but Limited Passenger Service Lean, Short Haul, Point-to- Productive Point Routes, Often to Employees Secondary Airports Competitive Advantage: Low Cost High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 72
Activity Mapping Courteous, but Limited Passenger Service Lean, Short Haul, Point-to- Productive Point Routes, Often to Employees Secondary Airports Automated ticketing machines Competitive Advantage: No seat assignments Low Cost No baggage transfers High Frequent, Aircraft No meals (peanuts) Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 73
Activity Mapping Courteous, but Limited Passenger Service No meals (peanuts) Lean, Lower gate costs at Short Haul, Point-to- Productive Point Routes, Often to secondary airports Employees Secondary Airports High number of flights Competitive Advantage: reduces employee idle time Low Cost between flights High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 74
Activity Mapping High number of flights Courteous, but reduces employee Passenger Limited idle time Service between flights Lean, Short Haul, Point-to- Saturate a city with flights, Productive Point Routes, Often to lowering administrative Employees Secondary Airports costs (advertising, HR, etc.) Competitive Advantage: per passenger for that city Low Cost Pilot training required on only one type of aircraft High Frequent, Aircraft Reliable Reduced maintenance Utilization Schedules Standardized inventory required of Boeing Fleet because of only one type ofAircraft 737 aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 75
Activity Mapping Pilot training required on Courteous, but only one type of aircraft Limited Passenger Service Reduced maintenance Lean, inventory required because Haul, Point-to- Short Productive of only one type of aircraft Routes, Often to Point Employees Secondary Airports Excellent supplier relations with Boeing has aided Competitive Advantage: financing Low Cost High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 76
Activity Mapping Courteous, but Limited Passenger Reduced maintenance Service inventory required because Lean, of only one type of aircraft Point-to- Short Haul, Productive Point Routes, Often to Flexible union Employees Flexible employees and Secondary Airports contracts standard planes aid Competitive Advantage: scheduling Low Cost Maintenance personnel High trained only one type of Frequent, Aircraft aircraft Reliable Utilization Standardized Schedules 20-minute gate turnarounds Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 77
Activity Mapping Automated ticketing Courteous, but machines Limited Passenger Service Empowered employees Lean, High employee Short Haul, Point-to- Productive compensation Routes, Often to Point Employees Secondary Airports Hire for attitude, then train Competitive Advantage: Low Cost of stock High level ownership High Frequent, Aircraft High number of flights Reliable Utilization reduces employee idle time Standardized Schedules Fleetbetween flights of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 78
Four International Operations Strategies International High Strategy  Import/export or Cost Reduction Considerations license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 79
Four International Operations Strategies High Cost Reduction Considerations International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 80
Four International Operations Strategies Global High Strategy  Standardized Cost Reduction Considerations product  Economies of scale  Cross-cultural learning Examples International Strategy  Import/export or Texas Instruments license existing product Examples Caterpillar Harley Davidson Elevator Otis U.S. Steel Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 81
Four International Operations Strategies High Global Strategy  Standardized product Cost Reduction Considerations  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 82
Four International Multidomestic Operations Strategies Strategy High  Use existing Global Strategy domestic model  Standardized product Cost Reduction Considerations  Economies of scale globally  Cross-cultural learning Examples  Franchise, joint Texas Instruments Caterpillar Otis Elevatorventures, subsidiaries International Strategy Examples  Import/export or Heinz license existing product Examples McDonald’s U.S. Steel The Body Shop Harley Davidson Low Hard Rock Cafe Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 83
Four International Operations Strategies High Global Strategy  Standardized product Cost Reduction Considerations  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy Multidomestic Strategy  Use existing  Import/export or domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples U.S. Steel Heinz The Body Shop Harley Davidson McDonald’s Hard Rock Cafe Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 84
Four International Operations Strategies Transnational High Strategy  Move material, Global Strategy  Standardized product Cost Reduction Considerations people, ideas  Economies of scale  Cross-cultural learning Examples across national Texas Instruments Caterpillar boundaries Otis Elevator  Economies of scale  Cross-cultural International Strategy Multidomestic Strategy learning  Import/export or  Use existing domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples Examples Coca-Cola U.S. Steel Harley Davidson Heinz The Body Shop McDonald’s Hard Rock Cafe Low Nestlé Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 85
Four International Operations Strategies High Global Strategy Transnational Strategy  Standardized product  Move material, people, ideas Cost Reduction Considerations  Economies of scale across national boundaries  Cross-cultural learning  Economies of scale  Cross-cultural learning Examples Texas Instruments Examples Caterpillar Coca-Cola Otis Elevator Nestlé International Strategy Multidomestic Strategy  Use existing  Import/export or domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples U.S. Steel Heinz The Body Shop Harley Davidson McDonald’s Hard Rock Cafe Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 86
Ranking Corruption Rank Country 2006 CPI Score (out of 10) 1 Finland 9.6 Least 1 Iceland 9.6 Corrupt 1 New Zealand 9.6 5 Singapore 9.4 7 Switzerland 9.1 11 UK 8.6 14 Canada 8.5 15 Hong Kong 8.3 16 Germany 8.0 17 Japan 7.6 20 USA, Belgium 7.3 34 Israel, Taiwan 5.9 70 Brazil, China, Mexico 3.3 Most 121 Russia 2.5 Corrupt Table 8.2 © 2008 Prentice Hall, Inc. 2 – 87

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Int operation strategy

  • 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. 2–1
  • 2. Outline  Global Company Profile: Boeing  A Global View of Operations  Cultural and Ethical Issues  Developing Missions And Strategies  Mission  Strategy © 2008 Prentice Hall, Inc. 2–2
  • 3. Outline – Continued  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions © 2008 Prentice Hall, Inc. 2–3
  • 4. Outline – Continued  Issues In Operations Strategy  Research  Preconditions  Dynamics © 2008 Prentice Hall, Inc. 2–4
  • 5. Outline – Continued  Strategy Development and Implementation  Critical Success Factors and Core Competencies  Build and Staff the Organization  Integrate OM with Other Activities © 2008 Prentice Hall, Inc. 2–5
  • 6. Outline – Continued  Global Operations Strategy Options  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy © 2008 Prentice Hall, Inc. 2–6
  • 7. Learning Objectives When you complete this chapter you should be able to: 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 © 2008 Prentice Hall, Inc. 2–7
  • 8. Learning Objectives When you complete this chapter you should be able to: 4. Identify five OM strategy insights provided by PIMS research 5. Identify and explain four global operations strategy options © 2008 Prentice Hall, Inc. 2–8
  • 9. 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. 2–9
  • 10. 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 – 10
  • 11. 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 – 11
  • 12. 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 – 12
  • 13. 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 – 13
  • 14. 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 – 14
  • 15. 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 – 15
  • 16. Some Boeing Suppliers (787) Firm Country Component Korean Aviation South Wingtips Korea Saab Sweden Cargo access doors © 2008 Prentice Hall, Inc. 2 – 16
  • 17. Reasons to Globalize Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, etc.) Reasons 2. Improve supply chain 3. Provide better goods and services 4. Understand markets Intangible 5. Learn to improve operations Reasons 6. Attract and retain global talent © 2008 Prentice Hall, Inc. 2 – 17
  • 18. 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  European Union (EU) © 2008 Prentice Hall, Inc. 2 – 18
  • 19. 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 – 19
  • 20. 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 – 20
  • 21. 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 – 21
  • 22. 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 – 22
  • 23. 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 – 23
  • 24. Cultural and Ethical Issues  Cultures can be quite different  Attitudes can be quite different towards  Punctuality  Thievery  Lunch breaks  Bribery  Environment  Child labor  Intellectual property © 2008 Prentice Hall, Inc. 2 – 24
  • 25. You May Wish To Consider  National literacy rate  Work ethic  Rate of innovation  Tax rates  Rate of technology  Inflation change  Availability of raw  Number of skilled materials workers  Interest rates  Political stability  Population  Product liability laws  Number of miles of  Export restrictions highway  Variations in language  Phone system © 2008 Prentice Hall, Inc. 2 – 25
  • 26. Match Product & Parent  Braun Household Appliances 1. Volkswagen  Firestone Tires 2. Bridgestone  Godiva Chocolate 3. Campbell Soup  Haagen-Dazs Ice 4. Ford Motor Company Cream 5. Gillette  Jaguar Autos 6. Nestlé  MGM Movies 7. Pillsbury  Lamborghini Autos 8. Sony  Alpo Petfoods © 2008 Prentice Hall, Inc. 2 – 26
  • 27. Match Product & Parent  Braun Household Appliances 1. Volkswagen  Firestone Tires 2. Bridgestone  Godiva Chocolate 3. Campbell Soup  Haagen-Dazs Ice 4. Ford Motor Company Cream 5. Gillette  Jaguar Autos 6. Nestlé  MGM Movies 7. Pillsbury  Lamborghini Autos 8. Sony  Alpo Petfoods © 2008 Prentice Hall, Inc. 2 – 27
  • 28. Match Product & Country  Braun Household Appliances  Firestone Tires 1. Great Britain  Godiva Chocolate 2. Germany  Haagen-Daz Ice 3. Japan Cream 4. United States  Jaguar Autos 5. Switzerland  MGM Movies  Lamborghini Autos  Alpo Pet Foods © 2008 Prentice Hall, Inc. 2 – 28
  • 29. Match Product & Country  Braun Household Appliances  Firestone Tires 1. Great Britain  Godiva Chocolate 2. Germany  Haagen-Daz Ice 3. Japan Cream 4. United States  Jaguar Autos 5. Switzerland  MGM Movies  Lamborghini Autos  Alpo Pet Foods © 2008 Prentice Hall, Inc. 2 – 29
  • 30. 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 – 30
  • 31. 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 – 31
  • 32. 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. Figure 2.2 © 2008 Prentice Hall, Inc. 2 – 32
  • 33. 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 © 2008 Prentice Hall, Inc. 2 – 33
  • 34. 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 © 2008 Prentice Hall, Inc. 2 – 34
  • 35. Arnold Palmer Hospital Arnold Palmer Hospital is a healing environment providing family-centered care with compassion, comfort and respect… when it matters the most. Figure 2.2 © 2008 Prentice Hall, Inc. 2 – 35
  • 36. Factors Affecting Mission Philosophy and Values Profitability Environment and Growth Mission Customers Public Image Benefit to Society © 2008 Prentice Hall, Inc. 2 – 36
  • 37. 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 – 37
  • 38. Sample Missions 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 38
  • 39. Sample Missions 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 39
  • 40. Sample Missions Sample OM Department Missions Supply chain To collaborate with suppliers to develop management 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. Figure 2.3 © 2008 Prentice Hall, Inc. 2 – 40
  • 41. Strategic Process Organization’s Mission Functional Area Missions Finance/ Marketing Operations Accounting © 2008 Prentice Hall, Inc. 2 – 41
  • 42. 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 – 42
  • 43. Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response © 2008 Prentice Hall, Inc. 2 – 43
  • 44. 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 – 44
  • 45. 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 – 45
  • 46. 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 – 46
  • 47. OM’s Contribution to Strategy Operations Specific Competitive Decisions Examples Strategy Used Advantage Product FLEXIBILITY: Sony’s constant innovation Quality of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume Process Southwest Airlines No-frills service……..…..LOW COST Location DELIVERY: Pizza Hut’s 5-minute guarantee Differentiation Layout at lunchtime…………………..…..………………….Speed (Better) Federal Express’s “absolutely, positively on time”………………………..….Dependability Human resource QUALITY: Response Motorola’s HDTV converters….……........Conformance (Faster) Motorola’s pagers………………………..….Performance Cost Supply chain leadership Caterpillar’s after-sale service (Cheaper) Inventory on heavy equipment……………....AFTER-SALE SERVICE Fidelity Security’s broad Scheduling line of mutual funds………….BROAD PRODUCT LINE Maintenance Figure 2.4 © 2008 Prentice Hall, Inc. 2 – 47
  • 48. 10 Strategic OM Decisions 1. Goods and 6. Human resources service design and job design 2. Quality 7. Supply chain 3. Process and management capacity design 8. Inventory 4. Location selection 9. Scheduling 5. Layout design 10. Maintenance © 2008 Prentice Hall, Inc. 2 – 48
  • 49. Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Goods and Product is usually Product is not service tangible tangible design Quality Many objective Many subjective standards standards Process Customers not Customer may be and involved directly involved capacity Capacity must design match demand Table 2.1 © 2008 Prentice Hall, Inc. 2 – 49
  • 50. Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Location Near raw Near customers selection materials and labor Layout Production Enhances product design efficiency and production Human Technical skills, Interact with resources consistent labor customers, labor and job standards, output standards vary design based wages Table 2.1 © 2008 Prentice Hall, Inc. 2 – 50
  • 51. Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Supply Relationship Important, but chain critical to final may not be product critical Inventory Raw materials, Cannot be stored work-in-process, and finished goods may be held Scheduling Level schedules Meet immediate possible customer demand Table 2.1 © 2008 Prentice Hall, Inc. 2 – 51
  • 52. Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Maintenance Often preventive Often “repair” and and takes place takes place at at production site customer’s site Table 2.1 © 2008 Prentice Hall, Inc. 2 – 52
  • 53. Managing Global Service Operations Requires a different perspective on:  Capacity planning  Location planning  Facilities design and layout  Scheduling © 2008 Prentice Hall, Inc. 2 – 53
  • 54. Process Design High Process-focused Mass Customization JOB SHOPS Customization at high (Print shop, emergency Volume room, machine shop, (Dell Computer’s PC, Variety of Products fine-dining Repetitive (modular) cafeteria) restaurant) focus ASSEMBLY LINE Moderate (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen) Low Low Moderate High Volume © 2008 Prentice Hall, Inc. 2 – 54
  • 55. Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Product Heavy R&D investment; Low R&D investment; Selection and extensive labs; focus on focus on development Design development in a broad of generic drugs range of drug categories Quality Major priority, exceed Meets regulatory regulatory requirements requirements on a country by country basis Table 2.2 © 2008 Prentice Hall, Inc. 2 – 55
  • 56. Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Process Product and modular Process focused; process; long general processes; “job production runs in shop” approach, short- specialized facilities; run production; focus build capacity ahead of on high utilization demand Location Still located in the city Recently moved to low- where it was founded tax, low-labor-cost environment Table 2.2 © 2008 Prentice Hall, Inc. 2 – 56
  • 57. Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Scheduling Centralized production Many short-run planning products complicate scheduling Layout Layout supports Layout supports automated product- process-focused “job focused production shop” practices Table 2.2 © 2008 Prentice Hall, Inc. 2 – 57
  • 58. Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Human Hire the best; Very experienced top Resources nationwide searches executives; other personnel paid below industry average Supply Chain Long-term supplier Tends to purchase relationships competitively to find bargains Table 2.2 © 2008 Prentice Hall, Inc. 2 – 58
  • 59. Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Product Differentiation Low Cost Advantage Inventory High finished goods Process focus drives up inventory to ensure all work-in-process demands are met inventory; finished goods inventory tends to be low Maintenance Highly trained staff; Highly trained staff to extensive parts meet changing demand inventory Table 2.2 © 2008 Prentice Hall, Inc. 2 – 59
  • 60. 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 – 60
  • 61. 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 – 61
  • 62. 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 – 62
  • 63. 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 – 63
  • 64. Preconditions One must understand:  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 © 2008 Prentice Hall, Inc. 2 – 64
  • 65. Dynamics of Strategic Change  Changes within the organization  Personnel  Finance  Technology  Product life  Changes in the environment © 2008 Prentice Hall, Inc. 2 – 65
  • 66. Product Life Cycle Introduction Growth Maturity Decline Best period to Practical to change Poor time to Cost control Company Strategy/Issues increase market price or quality change image, critical share image price, or quality R&D engineering is Strengthen niche Competitive costs critical become critical Defend market position CD-ROMs Internet search engines Analog TVs Drive-through LCD & plasma TVs restaurants Sales iPods 3 1/2” Xbox 360 Floppy disks Figure 2.5 © 2008 Prentice Hall, Inc. 2 – 66
  • 67. Product Life Cycle Introduction Growth Maturity Decline Product design Forecasting Standardization Little product and critical Less rapid differentiation development Product and product changes Cost OM Strategy/Issues critical process – more minor minimization Frequent reliability changes Overcapacity product and Competitive Optimum in the process design product capacity industry changes improvements Increasing Prune line to Short production and options stability of eliminate runs Increase capacity process items not High production returning Shift toward Long production costs good margin product focus runs Limited models Reduce Enhance Product capacity Attention to distribution improvement and quality cost cutting Figure 2.5 © 2008 Prentice Hall, Inc. 2 – 67
  • 68. SWOT Analysis Mission Internal External Strengths Opportunities Analysis Internal External Weaknesses Threats Strategy © 2008 Prentice Hall, Inc. 2 – 68
  • 69. Strategy Development Process Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. 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. © 2008 Prentice Hall, Inc. Figure 2.6 2 – 69
  • 70. 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 – 70
  • 71. Critical Success Factors Marketing Finance/Accounting Production/Operations Service Leverage Distribution Cost of capital Promotion Working capital Channels of distribution Receivables Product positioning Payables (image, functions) Financial control Lines of credit 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 Figure 2.7 © 2008 Prentice Hall, Inc. 2 – 71
  • 72. Activity Mapping Courteous, but Limited Passenger Service Lean, Short Haul, Point-to- Productive Point Routes, Often to Employees Secondary Airports Competitive Advantage: Low Cost High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 72
  • 73. Activity Mapping Courteous, but Limited Passenger Service Lean, Short Haul, Point-to- Productive Point Routes, Often to Employees Secondary Airports Automated ticketing machines Competitive Advantage: No seat assignments Low Cost No baggage transfers High Frequent, Aircraft No meals (peanuts) Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 73
  • 74. Activity Mapping Courteous, but Limited Passenger Service No meals (peanuts) Lean, Lower gate costs at Short Haul, Point-to- Productive Point Routes, Often to secondary airports Employees Secondary Airports High number of flights Competitive Advantage: reduces employee idle time Low Cost between flights High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 74
  • 75. Activity Mapping High number of flights Courteous, but reduces employee Passenger Limited idle time Service between flights Lean, Short Haul, Point-to- Saturate a city with flights, Productive Point Routes, Often to lowering administrative Employees Secondary Airports costs (advertising, HR, etc.) Competitive Advantage: per passenger for that city Low Cost Pilot training required on only one type of aircraft High Frequent, Aircraft Reliable Reduced maintenance Utilization Schedules Standardized inventory required of Boeing Fleet because of only one type ofAircraft 737 aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 75
  • 76. Activity Mapping Pilot training required on Courteous, but only one type of aircraft Limited Passenger Service Reduced maintenance Lean, inventory required because Haul, Point-to- Short Productive of only one type of aircraft Routes, Often to Point Employees Secondary Airports Excellent supplier relations with Boeing has aided Competitive Advantage: financing Low Cost High Frequent, Aircraft Reliable Utilization Standardized Schedules Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 76
  • 77. Activity Mapping Courteous, but Limited Passenger Reduced maintenance Service inventory required because Lean, of only one type of aircraft Point-to- Short Haul, Productive Point Routes, Often to Flexible union Employees Flexible employees and Secondary Airports contracts standard planes aid Competitive Advantage: scheduling Low Cost Maintenance personnel High trained only one type of Frequent, Aircraft aircraft Reliable Utilization Standardized Schedules 20-minute gate turnarounds Fleet of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 77
  • 78. Activity Mapping Automated ticketing Courteous, but machines Limited Passenger Service Empowered employees Lean, High employee Short Haul, Point-to- Productive compensation Routes, Often to Point Employees Secondary Airports Hire for attitude, then train Competitive Advantage: Low Cost of stock High level ownership High Frequent, Aircraft High number of flights Reliable Utilization reduces employee idle time Standardized Schedules Fleetbetween flights of Boeing 737 Aircraft Figure 2.8 © 2008 Prentice Hall, Inc. 2 – 78
  • 79. Four International Operations Strategies International High Strategy  Import/export or Cost Reduction Considerations license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 79
  • 80. Four International Operations Strategies High Cost Reduction Considerations International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 80
  • 81. Four International Operations Strategies Global High Strategy  Standardized Cost Reduction Considerations product  Economies of scale  Cross-cultural learning Examples International Strategy  Import/export or Texas Instruments license existing product Examples Caterpillar Harley Davidson Elevator Otis U.S. Steel Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 81
  • 82. Four International Operations Strategies High Global Strategy  Standardized product Cost Reduction Considerations  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 82
  • 83. Four International Multidomestic Operations Strategies Strategy High  Use existing Global Strategy domestic model  Standardized product Cost Reduction Considerations  Economies of scale globally  Cross-cultural learning Examples  Franchise, joint Texas Instruments Caterpillar Otis Elevatorventures, subsidiaries International Strategy Examples  Import/export or Heinz license existing product Examples McDonald’s U.S. Steel The Body Shop Harley Davidson Low Hard Rock Cafe Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 83
  • 84. Four International Operations Strategies High Global Strategy  Standardized product Cost Reduction Considerations  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy Multidomestic Strategy  Use existing  Import/export or domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples U.S. Steel Heinz The Body Shop Harley Davidson McDonald’s Hard Rock Cafe Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 84
  • 85. Four International Operations Strategies Transnational High Strategy  Move material, Global Strategy  Standardized product Cost Reduction Considerations people, ideas  Economies of scale  Cross-cultural learning Examples across national Texas Instruments Caterpillar boundaries Otis Elevator  Economies of scale  Cross-cultural International Strategy Multidomestic Strategy learning  Import/export or  Use existing domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples Examples Coca-Cola U.S. Steel Harley Davidson Heinz The Body Shop McDonald’s Hard Rock Cafe Low Nestlé Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 85
  • 86. Four International Operations Strategies High Global Strategy Transnational Strategy  Standardized product  Move material, people, ideas Cost Reduction Considerations  Economies of scale across national boundaries  Cross-cultural learning  Economies of scale  Cross-cultural learning Examples Texas Instruments Examples Caterpillar Coca-Cola Otis Elevator Nestlé International Strategy Multidomestic Strategy  Use existing  Import/export or domestic model globally license existing  Franchise, joint ventures, product subsidiaries Examples Examples U.S. Steel Heinz The Body Shop Harley Davidson McDonald’s Hard Rock Cafe Low Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 86
  • 87. Ranking Corruption Rank Country 2006 CPI Score (out of 10) 1 Finland 9.6 Least 1 Iceland 9.6 Corrupt 1 New Zealand 9.6 5 Singapore 9.4 7 Switzerland 9.1 11 UK 8.6 14 Canada 8.5 15 Hong Kong 8.3 16 Germany 8.0 17 Japan 7.6 20 USA, Belgium 7.3 34 Israel, Taiwan 5.9 70 Brazil, China, Mexico 3.3 Most 121 Russia 2.5 Corrupt Table 8.2 © 2008 Prentice Hall, Inc. 2 – 87

Editor's Notes

  • #12: This slide can be used to further explore the characteristics of multinational companies
  • #88: CPI is the Corrupt Perceptions Index calculated by Transparency International, an organization dedicated to fighting business corruption. The Index is calculated from up to 13 different individual scores. For details and the methodology, see www.transparency.org. In case students are interested, the country with the lowest score in the 2006 survey was Haiti with a score of 1.8 out of 10.