Globalization:

 
Globalization means customers, talent and suppliers are worldwide.
And this requires new standards, leaving an impact on quality, variety, customization,
convenience, timeliness and cost
Globalization strategies are important because they contribute to efficiency, adding
value to product and services. But on the downside they complicate the operation
manager's job.
Because with globalization comes: complexity, risk and competition => forcing
companies to adjust or go out of business.
 
There are 6 reasons why domestic companies decide to go international (globalize):
 
1. Improve the supply chain:
a. Usually, companies face problems with their supply chain and that is when
they buy things, make things, move things, sell things and service things
(which needs maintenance)
b. The supply chain manager must be able to give customers the product
they want, when they want it, as often that they want it and for a reasonable,
but still managing to make a profit.
c. Therefore with globalization the supply chain can be improved by locating
facilities in countries where unique resources are available. Or simply
relocating some of your facilities (say your manufacturing) to a country that
has a cheaper cost of labor, tax incentives and other potential benefits.
d. Thus going to a place with better human resource expertise, low cost of
labor or raw materials.
2. Reduce costs and exchange rate risks:
a. Shifting low skilled jobs to another country has several advantages. First
of all the firm may reduce its costs.
b. Moving lower skilled jobs to a lower cost location, frees up space for the
higher cost workers in more valuable tasks.
c. Third by reducing the wage cost, firms can save money allowing them to
invest in improved products and facilities.
2. Improve operations:
a. By understanding the differences between how business is handled in
other countries, operations can improve response time and customer service.
b. You get the chance to choose if you want to export or import
c. Quick and adequate services are often improved
2. Understanding markets:
 a. Because going international requires a lot of interaction with foreign
customers, suppliers and competitive business, Firms end up learning a lot
about opportunities for new products and services
b. This doesn’t only help firms understand where the market is going but also
helps them diversify their customer base, add production flexibility and
smooth the business cycle.
c. Also it allows firms to expand the product life cycle
2. Improve products:
a. Learning doesn’t take place in isolation
b. Therefore firms should remain open to the flow of ideas
c. Companies can even think about joining with others or creating
partnerships. => leading to lower costs and more efficiency
2. Attract and retain global challenge:
a. This can be done by offering better employment opportunities.
b. And global companies can do that because they provide both, greater
growth opportunities and insulation against unemployment during times of
economic downturn
 
Cultural and ethical issues with globalization:
 
 Issues arise such as bribery, child labor, low work conditions
 The environment itself can also be a challenge, where managers sometimes don’t
know how to respond when operating in a different cultures
 Because what one country deems acceptable, may be considered unacceptable
or illegal in another
 
 
Developing Missions and Strategies:
 
An effective operations management effort must have a mission (so it knows where it’s
going) and a strategy (so it knows how to get there)
 
Mission:
 It's the company's purpose - what it will contribute to society
 It provides boundaries and focus
=> Where the focus of course is to satisfy the customers
 Once the mission has been decided, each functional area within the firm
determines its supporting mission
 The functional areas are: HR, marketing, finance, production/operation
  And so missions for each functional area is developed to support to support the
firm's overall mission
 
Strategy:
 Once the mission is established, the strategy and its implementation can begin.
 And the strategy refers to the organization's action plan to achieve the mission
 Where each functional area has a strategy for achieving its mission and for
helping the organization reach the overall mission
 Strategies usually exploit opportunities and strengths and neutralize and avoid
weaknesses.
 
Achieving competitive strategy through operations:
 
Competitive advantage means creating a system that has a unique advantage over
competitors
Where the idea is to create customer value in an efficient and sustainable way.
 
Managers can achieve a competitive advantage via 3 ways:
 
1. Competing on Differentiation:
a. This is concerned with providing uniqueness
b. And the firm's opportunities for creating uniqueness is not located within
a particular function or activity, but it actually arises in everything the firm
does
=> Where the opportunities for creating this uniqueness are limited only by
imagination
 
c. Differentiation should go beyond both physical characteristics and service
attributes to encompass everything about the product and service that
influences that value that customers derive from it.
d. Therefore this is when the job of the OM comes, where they have to assist in
defining everything about a product and service that will influence the
potential value to the customers.
e. This is where it would be convenient to have a broad product line, product
features, or service related to the product. Thus allowing customers a large
range of products from where they could choose from
f. In the service sector for example, one way for expanding product
differentiation is through experience. The idea of "experience differentiation"
is to engage the customer. To use people's 5 senses to become more
immersed or even an active participant in the product
 g. Examples could be Disney's magic kingdom. Where they not only provide
entertainment but an unforgettable and magical experience
So they immerse the people in the experience with the dynamic visuals,
sound experiences…
The same applies to theaters nowadays where they are moving the seats,
changing smells…
Hard rock is another example, where they differentiate themselves by
providing an experience. Engaging customers with rock music, big screen rock
videos, staff who tell stories and so on..
 
2. Competing on Cost:
a. Low cost leadership: entails achieving maximum value as defined by your
customer. Which requires examining each of the 10 OM decisions
b. => so providing the maximum value perceived by customers
c. So low cost doesn't imply a low quality or low value
d. It’s about reducing the cost of production (manufacturing cost) but not
necessary the selling price
So for example a company can try implementing a low cost strategy by
reducing the cost of labor, by maybe relocating to another country that
provides that.

 
 
3. Competing on Response:
a. This is about a flexible response, but it also refers to a reliable and quick
response
 b. Flexible response is the ability to match changes in a market place, where
design innovations and volumes fluctuate substantially
=> When you are that responsive to the changes in the market place, you
become in the right track to build a sustainable competitive advantage
c. The second aspect of response is reliability of scheduling. And this has to do
with meeting schedules.
d. Finally the third aspect is quickness. Relating to quickness in design and
delivery
i. Johnson for example has a competitive advantage in speed. This involves:
speed in product development, production and delivery
 
In practice all these 3 strategies can generate a sustainable competitive advantage.
 

 
Product life cycle:
This may be of any length from days to decades
The operations function must be able to introduce new products successfully
 1. Introductory phase:
 This is a phase where the company is making no profit, but actually
incurring losses. As they are still researching, investing in product
development, process modification and enhancement and supplier
development.
 Loss>Profit
2. Growth Phase:
 In this phase the product design begins to stabilize
 Effective forecasting of capacity becomes necessary
 Where adding and enhancing capacity becomes necessary
 They start to minimize their losses and start making some profits
3. Maturity phase:
 Competitors are now established
 High volume, innovation production may be needed
 Improved costs control, reduction in options, paring down of
product line.
 In this phase the company is making profit and growing
 This is the time to lower manufacturing costs, and look for new
markets.
4. Decline phase:
 Time to reduce capacity
 Firms get rid and terminate products that are no longer working
 Example: iTunes

Issues in Operations Strategies:

 
Whichever the strategy the OM chooses, the operation manager itself is a critical player
Therefore before establishing and implementing the strategy some alternative
perspective might be helpful:
 
1. Resources View: this means thinking in terms of financial, physical, human and
technological resources available and ensuring that the potential strategy is
compatible with those resources
2. Value chain analysis (Porter's value chain analysis): it is used to identify activities
that represent strengths, or potential strengths and may be opportunities for
developing competitive advantage
 a. These are where the firms add its unique value through product research,
design, human resource, supply chain management, process innovation and
quality management.
b. Porter's value chain activities include:
i. Inbound logistics: all the processes involved in the receiving,
storing, and internal distribution of the raw materials or basic
ingredients of a product or service.
ii. Outbound logistics: all activities that are related to delivering the
products and services to the customer. These include, for instance,
storage, distribution (systems) and transport.
iii. Production: all the activities that convert inputs of products or
services into semi-finished or finished products.
iv. Marketing and Sales: all processes related to putting the products
and services in the markets including managing and generating customer
relationships.
v. Service: all activities that maintain the value of the products or
service to customers as soon as a relationship has developed
b. Porter also suggests the analysis of competitors via the five forces model.
Where the potential competing forces are
i. Immediate rivals
ii. Potential entrants
iii. Customers
iv. Suppliers
v. Substitute products
 
3. Therefore the OM needs to understand that the firm is operating in a system with
many other external factors. Which range from economic, to legal to cultural.
4. Additionally consider the significant changes required within the firm as its
products move from the introduction stage, to growth, maturity and then decline.
5. Boeings strategy is changed with technology and globalization. Microsoft is also
always adapting to the external environment
6. And finally once a firm understands itself and the environment, a SWOT analysis
is in order
 
Strategy development and implementation:
 
A SWOT analysis is a formal review of internal strengths and weaknesses, and external
opportunities and threats
Organizations position themselves, through their strategy, to have a competitive
advantage.
Where a firm may have for example excellent design skills or great talent in identifying
outstanding locations. However it might recognize its limitations in its manufacturing
processes or in finding good suppliers.
The idea is to maximize opportunities and minimize threats in the environment while
maximizing the advantages of the organization’s strengths and minimizing the
weaknesses.
 
Key success factors and core competencies:
 
A successful strategy requires determining the firms' key success factors and core
competencies
KSF: are those activities that are necessary for a firm to achieve its goals

 
So for example the KSF for MacDonald's' is a layout. Where without effective drive
through and an effective kitchen, the chain won’t be successful
KSF's are often necessary, but not sufficient for a competitive advantage
 
The core competencies are the set of unique skills, talents and capabilities that a firm
does at a world class standard
Allowing the firm to set itself apart and develop a competitive advantage
Thus firms that prosper identify their core competencies and nurture them
 
MacDonald's for example core competencies are consistency and quality
 
Difference between KSF and core competencies:
KSF is about the set of activities whereby core competencies are the talents skills and
capabilities.
 
The idea is to build KSFs and core competencies that provide a competitive advantage
and support a successful strategy and mission.
 
A core competency is the ability to perform the KSF (set of activities that are supposed
to bring in the competitive advantage)
Therefore the manager must ask itself a set of questions:

Only by identifying and strengthening your key success factors and core competencies
can an organization achieve a sustainable competitive advantage.
 

 
Integrating OM with other activities:
 
Whatever the KSFs or core competencies, they must be supported by related activities.
One way to identify these activities is with an activity map: which links the competitive
advantage, KSF and supporting activities.
 
For example, Figure 2.8 shows how Southwest Airlines, whose core competency is
operations, built a set of integrated activities to support its low cost competitive
advantage. Notice how the KSFs support operations and in turn are supported by other
activities. The activities fit together and reinforce each other. In this way, all of the areas
support the company’s objectives.
 
The better the activities are integrated and reinforce each other, the more sustainable
the competitive advantage.
 
Building and staffing the organization:
 
Once a strategy, KSFs, and the necessary integration have been identified, the second
step is to group the necessary activities into an organizational structure.
Then, managers must staff the organization with personnel who will get the job done.
The manager works with subordinate managers to build plans, budgets, and programs
that will successfully implement strategies that achieve missions.
 
The operations manager’s job is to implement an OM strategy, provide competitive
advantage, and increase productivity
 
Implementing the 10 strategic OM decisions:
****** 
As mentioned earlier, the implementation of the 10 strategic OM decisions is influenced
by a variety of issues: from missions and strategy to key success factors and core
competencies—while addressing such issues as product mix, product life cycle, and
competitive environment
 
 
Strategic planning, core competencies and outsourcing:
 
 
As organizations develop missions, goals and strategies they identify their strengths:
which is what they do as well or better than their competitors
=> And this is referred to as core competencies.
 
By contrast, non-core activities which can be a sizable portion of an organization's total
business are good candidates for outsourcing
Outsourcing: is transferring activities that have traditionally been internal to external
suppliers
Outsourcing adds complexity and risk to the supply chain
 
This expansion is accelerating due to:
1. Increased technological expertise
2. More reliable and cheaper transportation
3. The rapid development and deployment of advancements in telecommunication
and computers
 
Outsourcing typically implies an agreement (usually a legally binding contract) with an
external organization, where the firm transfers its activities that are usually done
internally to external suppliers
 
For example the classic make or buy decision, concerning which products to buy and
which products to make is the basis of outsourcing
So when apple find that their core competency is in creativity, innovation and product
design they may want to outsource their manufacturing
 
Outsourcing manufacturing is an extension of the long-standing practice of
subcontracting production activities, which when done on a continuing basis is known as
contract manufacturing.
Contract manufacturing is becoming standard practice in many industries, from
computers to automobiles.
For instance, Johnson & Johnson, like many other big drug companies whose core
competency is research and development, often farms out manufacturing to
contractors.
 
 
Theory of comparative advantage:
 
The motivation for internal outsourcing comes from the theory of comparative
advantage
And this theory focuses on the economic concept of relative advantage
 
According to this theory, if an external provider, regardless of its geographic location,
can perform activities more productively than the purchasing firm, then the external
provider should do the work
And the purchasing firm can continue focusing on what it does best => core
competencies
 
It’s important to note that outsourcing the wrong activities can be a disaster!
 
Risks of outsourcing:
 
Indeed, outsourcing is risky, with roughly half of all outsourcing agreements failing
because of inadequate/poor planning and analysis

 
However, when outsourcing is overseas, additional issues must be considered. These
issues include financial attractiveness, people skills and availability, and the general
business environment.
Another risk of outsourcing overseas is the political backlash that results
From moving jobs to foreign countries=> which is the perceived loss of jobs
 
In addition to the external risks, operations managers must deal with other issues that
outsourcing brings. These include:
1. reduced employment levels
2. changes in facility requirements
3. Potential adjustments to quality control systems and manufacturing processes
4. Expanded logistics issues, including insurance, tariffs, customs, and timing.
 
Rating outsource providers:
 
Research suggests that the most common reason for outsourcing, is due to poor
decision making and insufficient analysis
 
So for that reason the factor-rating method is used as it provides an objective way to
evaluate outsource providers.
Where we assign points for each factor to each provider and then importance weights
to each of the factors.
 
 

Global operations strategy options:

 
 An international firm is any firm that engages in international trade or investment
 A multinational corporation is a firm with extensive international business
involvement
o So these firms buy resources, create goods and services, and then sell
goods and services in a variety of countries
 
Operations managers of international and multinational firms approach global
opportunities with one of four strategies: international, Multidomestic, global, or
transnational
 
 International strategy: uses exports and licenses to penetrate the global arena.
o This strategy is the least advantageous, with little local responsiveness and
little cost advantage
o But the international strategy is often the easies, as exports can require
little change in existing operations and licensing operations usually leave
much of the risk on the license itself
 
 Multidomestic strategy: has decentralized authority with substantial autonomy at
each business.
o These are usually subsidiaries, franchises, or joint ventures with
substantial independence
o The advantage is that it maximizes competitive response from the local
market.
o But it has little or no cost advantage
o So for example many food producers such as Heinz use a Multidomestic
strategy to accommodate local tastes.
o => The concept is one of “we were successful in the home market; let’s
export the management talent and processes, not necessarily the product, to
accommodate another market
 
 Global strategy: has a high degree of centralization, with headquarters
coordinating the organization to seek out standardization and learning between
plants
o => thus generating economies of scale
o This strategy is appropriate when focusing on cost reduction, but not that
advantageous when it comes to focusing on local responsiveness
 
 Transnational strategy: exploits the economies of scale and learning, as well as
being responsive to the locals
o These firms have the potential to pursue all three operations strategies
(i.e., differentiation, low cost, and response).
o Such firms can be thought of as “world companies” whose country identity
is not as important as their interdependent network of worldwide operations.
o Nestlé is a good example of such a company. Although it is legally Swiss,
95% of its assets are held and 98% of its sales are made outside Switzerland.
Fewer than 10% of its workers are Swiss.
 

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