the global environment and operations strategy Operation management
- 1. W E L C O M E PRESENTATION FROM BATOOL GHARAIBEH
- 2. Operations Management (Arab World Edition) First Published 2013 Jay Heizer, Paul Render, Zu’bi AL Zu’bi Ch 2 The Global Environment & Operations Strategy
- 3. Define mission & strategy Identify & explain three Strategic approaches to Competitive advantage LO 3 Identify & define the ten Decisions of operation management Understand the significance of key success factors and core competencies LO 5 Identify and explain four global Operations strategy options LO 4 LO 2 LO 1 Learning Objectives
- 4. A global view of operations Huge opportunities to extend operation to other area of the world Companies have benefited from advances in technology and cheap communication to lunch operation to different parts of the world for Example : Almarai ( invest in storage and delivery system- gulf cooperation council GCC) Free trade zone ( dubai CNN,BBC, AL Arabiya) How to achieve globalization??? Next…
- 5. 1 Reduce cost Foreign locations with lower wages can help lower both direct and indirect costs Trade agreements can lower tariffs •World Trade Organization (WTO), •North American Free Trade Agreement (NAFTA),APEC, SEATO, MERCOSUR,CAFT,/European Union (EU) 2 Improve the supply chain Locating facilities closer to unique resources Eg .Gulf region in petroleum industry 3 Provide better goods and services Goods & services can be objective & measurable (number of time delivery) or less measurable as (sensitivity to culture) Responds quickly to changes in customers’ requirements 4 Understand market Interacting with foreign customers, suppliers, competition can lead to new opportunities 5 Learn to improve operations Remain open to the free flow of ideas Understand differences between how business is handled in other countries International operations can improve response time and customer service 6 Attract and retain global talent Offer better employment opportunities • Better growth opportunities and insulation against unemployment • Relocate unneeded personnel to more prosperous
- 6. Cultural and ethical issues ▶ Cultures can be quite different ▶ Attitudes can be quite different towards Wasta ,Child labor,Environment, Then managers some times don’t know how to respond when operations in different culture, what acceptable in country its not acceptable or illegal in another So its important to have international laws and agreements to provide standard guidelines for managers to enable them to make ethical decisions *
- 7. Mission Purpose or rationale for an organization’s existence . what it will provide to society? Fig2.1 p 30 1 ones mission is decided each functional area determines its supporting mission to firm’s over all mission 2 supporting missions are established for the OM function. (back to page 31 figure 2.2) Strategy How an organization expects to achieve its missions and goals and its the organization’ action plan . These strategies exploit opportunities & strengths and neutralize threat avoid weakness . Firms achieve mission in three conceptual ways: 1- differentiation 2- cost leadership 3- responses operation manager called on to deliver 1 better or different goods services 2 cheaper 3 more responsive . Operation manager translate these strategic concept into tangible tasks to become accomplished Developing Mission & Strategy
- 8. 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 2.2
- 9. 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, 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. Figure 2.2
- 10. 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 2.2
- 11. Sample Missions 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. Figure 2.2
- 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 Experience differentiation (five senses / emotion / feels/ thought) ► Ferrari world Abu Dhabi ► Walt Disney Magic Kingdom – experience differentiation ► Hard Rock Cafe – dining experience
- 14. Competing on Cost Provide the maximum value as perceived by customer. Does not imply low quality. ► Petra Engineering Industries Co ► Walmart – small overhead, shrinkage, and distribution costs ► Franz Colruyt – no bags, no bright lights, no music, and doors on freezers
- 15. 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
- 16. 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 Southwest Airline’s use aircraft utilization Inventory Walmart’s sophisticated management 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 2.3 10 Operations Competitive Decisions Strategy Example Advantage Response (faster) Cost leadership (cheaper) Differentiation (better)
- 17. 1. Goods and services design •Defines what is required of operations •Product design determines quality, sustainability and human resources 2. quality •Determine the customer’s quality expectations •Establish policies and procedures to identify and achieve that quality 3. Process and capacity design •How is a good or service produced? •Commits management to specific technology, quality, resources, and investment. 4. Location selection • Nearness to customers, suppliers, and talent. • Determine ultimate success. Ten Strategic OM Decisions
- 18. 5. Layout design •Integrate capacity needs, personnel levels, technology, and inventory •Determine the efficient flow of materials, people, and information. 7. Supply-chain management •Determine what is to be made and purchased, from whom, and under what conditions (quality, delivery, innovation) •Mutual trust between buyer and supplier 8. Inventory management •Optimize considering customer satisfaction, supplier capability, and production schedules. Ten Strategic OM Decisions cont.. 6. Human resources and job design •Integral and expensive part of the total system design. •Recruit, motivate, and retain personnel with the required talent
- 19. 9. Scheduling •Develop feasible and efficient schedules of production •Determine facilitate e & control the HR and demands 10. Maintenance •Maintain a reliable and stable system. Ten Strategic OM Decisions cont..
- 20. Example
- 21. Implementing Strategic Decisions TABLE 2.2 Operations Strategies of Two Drug Companies COMPETITIVE ADVANTAGE BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY 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 Quality is major priority, standards exceed regulatory requirements Meets regulatory requirements on a country-by-country basis, as necessary Process Product and modular production process; tries to have long product runs in specialized facilities; builds capacity ahead of demand Process focused; general production processes; “job shop” approach, short-run production; focus on high utilization Location Still located in city where it was founded Recently moved to low-tax, low-labor- cost environment
- 22. Implementing Strategic Decisions TABLE 2.2 Operations Strategies of Two Drug Companies COMPETITIVE ADVANTAGE BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY Layout Layout supports automated product- focused production Layout supports process-focused “job shop” practices Human resources Hire the best; nationwide searches Very experienced top executives provide direction; other personnel paid below industry average Supply chain Long-term supplier relationships Tends to purchase competitively to find bargains Inventory Maintains high finished goods inventory primarily to ensure all demands are met Process focus drives up work-in-process inventory; finished goods inventory tends to be low Scheduling Centralized production planning Many short-run products complicate scheduling Maintenance Highly trained staff; extensive parts inventory Highly trained staff to meet changing demands
- 23. Issues In Operations Strategy ▶ Resources view ▶ Value-chain analysis ▶ Porter’s Five Forces model ▶ Operating in a system with many external factors ▶ Constant change
- 25. Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission
- 26. Risks of Outsourcing TABLE 2.2 Potential Advantages and Disadvantages of Outsourcing ADVANTAGES DISADVANTAGES Cost savings Increased logistics and inventory costs Gaining outside expertise Loss of control (quality, delivery, etc.) Improving operations and service Potential creation of future competition Maintaining a focus on core competencies Negative impact on employees Accessing outside technology Risks may not manifest themselves for years
- 27. 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 DVDs Analog TVs Boeing 787 Electric vehicles iPods 3-D game players 3D printers Xbox 360
- 28. 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
- 29. Strategy Development and Implementation ▶ Identify key success factors ▶ Integrate OM with other activities ▶ Build and staff the organization The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity
- 30. 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
- 31. 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 10 OM Decisions Sample Options Chapter Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance Customized, or standardized; sustainability Define customer expectations and how to achieve them Facility size, technology, capacity, automation 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, S5 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
- 32. 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
- 33. 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 Automated ticketing machines No seat assignments No baggage transfers No meals (peanuts) Figure 2..7
- 34. 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 No meals (peanuts) Lower gate costs at secondary airports High number of flights reduces employee idle time between flights Figure 2.7
- 35. 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 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 Figure 2.7
- 36. 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 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 Figure 2.7
- 37. 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 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 Figure 2.8
- 38. 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 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 Figure 2.8
- 39. • Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Global Operations Strategy Options • Standardize product • Economies of scale • Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) CostReduction High Low HighLow Local Responsiveness (Quick Response and/or Differentiation) Figure 2.8 • Use existing domestic model globally • Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Transnational strategy (eg, Coca-Cola, Nestlé) • Move material, people, ideas across national boundaries • Economies of scale • Cross-cultural learning
- 40. T H A N K S F O R W A T C H I N G Batool Gharaibeh