Operations

Management
Operations Strategy in a Global
Environment
Chapter 2

2-1
 Examples of Global Strategies
♦ Boeing – both sales and production are
worldwide.
♦ Benetton – moves inventory to stores around the
world faster than its competitor by building
flexibility into design, production, and
distribution
♦ Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world
♦ GM is building four similar plants in Argentina,
Poland, China, and Thailand

2-2
 Boeing Suppliers (777)

Firm Country Parts

Alenia Italy Wing flaps
AeroSpace Australia Rudder
Technologies
CASA Spain Ailerons
Fuji Japan Landing gear
doors, wing section
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
Menasco Aerospace Canada Landing gears

Short Brothers Ireland Landing gear doors

Singapore Singapore Landing gear doors

Aerospace
2-3
 Reasons to Globalize
Operations
Tangible
♦ Reduce costs (labor, taxes, tariffs, etc.)
♦ Improve the supply chain
♦ Provide better goods and services
♦ Attract new markets
♦ Learn to improve operations
♦ Attract and retain global talent
Intangible

2-4
 Trade and Tariff

♦ Maquiladoras - Mexican factories located along

the U.S.-Mexico border that receive
preferential tariff treatment
♦ GATT - an international treaty that helps
promote world trade by lowering barriers to the
free flow of goods across borders
♦ NAFTA - a free trade agreement between
Canada, Mexico, and the United States

2-5
 Free trade may
take us into the era of the floating factory - a six
person crew will take a factory from port to
port in order to obtain the best market,
material, labor and tax advantages

2-6
 Achieving Global Operations
-Four Considerations-

♦ Global product design

♦ Global process design and technology
♦ Global factory location analysis
♦ Impact of Culture and Ethics

2-7
 Global
Product Design

♦ Remember social and cultural differences

♦ packaging and marketing can help make product seem
“domestic” but -
♦ “liter”
versus “quart”
♦ “sweetness” and “taste”

2-8
 Global
Process Design and
Technology
♦ Information technology enables management
of integrated, globally dispersed operation
♦ Texas Instruments: 50 plants in 19 countries
♦ Hewlett-Packard - product development teams
in U.S., Japan, Great Britain, and Germany
♦ Reduces time-to-market

2-9
 Global
Facility Location Analysis

Using CSFs for Country Selection

♦ Select CSFs based on parent organization;’s
strategic or operations objectives
♦ Obtain country-specific information on the CSFs
♦ Evaluate each country’s CSFs using a 1 (bad)
to 5 (good) rating scale
♦ Sum the ratings

2-10
 You May Wish To Consider

♦ national literacy rate ♦ work ethic

♦ rate of innovation ♦ tax rates
♦ rate of technology change ♦ inflation
♦ number of skilled workers ♦ availability of raw materials
♦ stability of government ♦ interest rates
♦ product liability laws ♦ population
♦ export restrictions ♦ number of miles of highway
♦ similarity in language

2-11
 Global
Impact of Culture and Ethics

♦ Cultures differ! Some accept/expect:

♦ variations in punctuality
♦ long lunch hours
♦ expectation of thievery
♦ bribery
♦ little protection of intellectual property

2-12
 To Establish Global Services

♦ Determine if sufficient people or facilities exist

to support the service
♦ Identify foreign markets that are open - not
controlled by governments
♦ Determine what services are of most interest
to foreign customers
♦ Determine how to reach global customers

2-13
 Managing Global Service
Operations

Must take a different perspective on

♦ Capacity planning
♦ Location Planning
♦ Facilities design and layout
♦ Scheduling

2-14
Developing Missions and
Strategies

2-15
 Mission

♦ Mission - where are you

going?
♦ Organization’s purpose for being
♦ Provides boundaries & focus
♦ Answers ‘What do we provide
society?’

© 1995 Corel Corp.

2-16
 Mission of FedEx
FedEx is committed to our People-Service-Profit philosophy.
We will produce outstanding financial returns by
providing total reliable, competitively superior, global air-
ground transportation of high priority goods and
documents that require rapid, time-certain delivery.
Equally important, positive control of each package will
be maintained using real time electronic tracking and
tracing systems. A complete record of each shipment
and delivery will be presented with our request for
payment. We will be helpful, courteous, and professional
to each other and the public. We will strive to have a
completely satisfied customer at the end of each
transaction.

2-17
 Sample Mission - 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

2-18
Mission of the Hard Rock Café

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.

2-19
 Factors Affecting Mission

Philosophy &
Values

Profitability
Environment
& Growth

Mission

Customers Public Image

Benefit to
Society

2-20
 Mission/Strategy

♦ Mission - where you are going

♦ Strategy - how you are going to get there; an

action plan

2-21
 Strategy

♦ Action plan to achieve

mission
♦ Shows how mission will be
achieved
♦ Company has a business
strategy
♦ Functional areas have
strategies

© 1995 Corel Corp.

2-22
 Strategy Process
Company
Mission

Business
Strategy

Functional
Functional Area
Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

2-23
 Strategies for Competitive
Advantage

♦ Differentiation

♦ Cost leadership

♦ Quick response

2-24
Competing on Differentiation

Uniqueness can go beyond both the physical

characteristics and service attributes to
encompass everything that impacts customer’s
perception of value

2-25
 Competing on Cost

Provide the maximum value as perceived by

customer

Does not imply low value or low quality

2-26
 Competing on Response

♦ Flexibility: the ability to match changes in a

marketplace in which design innovations and volumes
fluctuate substantially
♦ Reliability: reliable scheduling to get the
customer’s trust.
♦ Timeliness: speed in design, production and
delivery.

Requires institutionalization within the firm of the ability

to respond

2-27
Competing, Regardless of the Basis,

Requires the institutionalization within the firm

of the ability to change, and to adapt

2-28
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage

Quality FLEXIBILITY

Product Sony’s constant innovation of new products Design

HP’s ability to follow the printer market Volume
Process
Southwest Airlines No-frills service LOW COST
Location

Layout DELIVERY

Pizza Hut’s five-minute guarantee at lunchtime Speed

Human Resource
Federal Express’s “absolutely, positively on time” Dependability Differentiation
(Better)
Supply Chain
QUALITY
Inventory Response
Motorola’s automotive products ignition systems Conformance Cost (Faster)
Motorola’s pagers Performance leadership
Scheduling
(Cheaper)
Maintenance
IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE

Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE

2-29
 10 Strategic OM Decisions
♦ Goods & service design
♦ Quality
♦ Process & capacity design
♦ Location selection
♦ Layout design
♦ Human resource and job design
♦ Supply-chain management
♦ Inventory
♦ Scheduling
♦ Maintenance

2-30
Goods & Services and the 10 OM
Decisions
Operations Goods Services
Decisions
Goods & Product is usually Product is usually
services tangible intangible
decisions
Quality Objective quality Subjective quality
standards standards
Process Customer not involved Customer may be directly
and in most of process involved in process.
capacity Capacity must match
design demand to avoid lost sales
2-31
Goods & Services and the 10 OM
Decisions – Continued

Operations Goods Services

Decisions
Location Mayneedtobenearraw Productis usually
Selection materials orlaborforce intangible
Layout Layoutcanenhance Subjectivequality
Design productionefficiency standards
Human Workforcefocusedon Customermaybedirectly
Resources technical skills. involvedinprocess.
andJob Laborstandards consistent. Capacitymatches
Design Output -basedwagesystem. demandtoavoidlost
sales

2-32
Goods & Services and the 10 OM
Decisions – Continued

Operations Goods Services

Decisions
Supplychain Supply-chain Supply-chainrelationships
management relationships critical to important, not necessarily
final product critical
Inventory Rawmaterials, work - Most services can not be
in-process, and stored
finishedgoods
Scheduling Abilitytoconvert Primarilyconcernedwith
inventorymayallow meetingthecustomer's
levelingof production immediateschedule
rates 2-33
Goods & Services and the 10 OM
Decisions – Continued

Operations Goods Services

Decisions
Maintenance Maintenanceis often Maintenanceis often
preventiveandtakes "repair"andtakes placeat
placeattheproduction thecustomer's site
site

2-34
 Process Design

Customization at high
High Process-focused Volume
Job Shops Mass Customization
(Print shop, emergency
room , machine shop, (Dell Computer’s PC)
fine dining
Repetitive (modular)
focus
Assembly line
Variety of Products

(Cars, appliances, TVs,

Moderate fast-food restaurants)

Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)

Low

Low Moderate High

Volume
2-35
 Operations Strategies for Two
Drug Companies
BrandNameDrugs, Generic DrugCorp.
Inc.
Product Heavy R &D; LowR &D investment; focus on
Selection Extensive labs; focus development of generic drugs
andDesign on development in
broad range of \drug
categories
Quality Quality is a major Meets regulatory requirements on
priority; a country-by-country basis as
Standards exceed necessary
regulatory
requirements

2-36
 Operations Strategies for Two
Drug Companies - Continued
BrandNameDrugs, GenericDrugCorp.
Inc.
Process Product&modular Process focused
productionprocesses General productionprocesses;
Longproductruns in “JobShop”approach, shortrun;
specializedfacilities Focus onhig hutilization
Buildcapacityaheadof
demand
Location Still locatedincityin Recentlymovedtolowtax, lowlaborcost
whichitwas founded environment
Scheduling Central production Manyshortrunproducts complicate
planning scheduling

2-37
 Operations Strategies for Two
Drug Companies - Continued
BrandNameDrugs, Generic DrugCorp.
Inc.
Human Hires thebest; nation - Veryexperiencedtopexecutives
Resources widesearches providedirection; other
personnel paidbelowaverage
Supply Longtermsupplier Tends topurchasecompetit ively
Chain relationship tofindbargains
Inventory Maintains highfinished Process focus drives upWIP
goods inventory, inventory.
primarilytoensureall Finishedgoods inventorytends
demands aremet tobelow

2-38
 Operations Strategies for Two
Drug Companies - Continued
BrandName GenericDrugCorp.
Drugs, Inc.
Maintenance Highlytrainedstaff; Highlytrainedstaff tomeet
Extensiveparts challengingdemands
inventory

2-39
Characteristics of High ROI Firms

♦ High quality product

♦ High capacity utilization
♦ High operating effectiveness
♦ Low investment intensity
♦ Low direct cost per unit

From the PIMS study of the Strategic

Planning Institute

2-40
 Strategic Options Managers
Use to Gain Competitive
Advantage
♦ 28% - Operations Management
♦ 18% - Marketing/distribution
♦ 17% - Momentum/name recognition
♦ 16% - Quality/service
♦ 14% - Good management
♦ 4% - Financial resources
♦ 3% - Other

2-41
 Strategic Options Managers
Use to Gain Competitive
Advantage
♦ 28% Operations Management
♦ Low- cost product
♦ Product-line breadth
♦ Technical superiority
♦ Product characteristics/differentiation
♦ Continuing product innovation
♦ Low-price/high-value offerings
♦ Efficient, flexible operations adaptable to consumers
♦ Engineering research development
♦ Location
♦ Scheduling

2-42
 Preconditions -
To Implement a Strategy
One must understand:
♦ Strengths & weaknesses of competitors and new
entrants into the market
♦ Current and prospective environmental, legal, and
economic issues
♦ The notion of product life cycle
♦ Resources available with the firm and within the OM
function
♦ Integration of OM strategy with company strategy and
with other functions.

2-43
 Impetus for Strategy Change

♦ Changes in the organization

♦ Stages in the product life cycle
♦ Changes in the environment

2-44
 Stages in the Product Life Cycle

Introduction
Growth rate

Growth

Maturity

Decline

2-45
Strategy & Issues During Product
Life
Introduction
♦ Company Best period to increase market share
Strategy & R&D engineering are critical
Issues
Product design and development are critical
Frequent product and process design changes
Over-capacity
Short production runs
♦ OM Strategy High skilled-labor content
& Issues High production costs
Limited number of models
Utmost attentions to quality
Quick elimination of market-revealed design defects

2-46
Strategy & Issues During Product Life
Growth

Company Practical to change prices or quality image

Strategy Marketing is critical
Strengthen niche
& Issues
Forecasting is critical
Product and process reliability
OM Strategy Competitive product improvements and options
& Issues Shift toward product oriented
Enhance distribution

2-47
Strategy & Issues During Product
Life
Maturity
Poor time to increase market share
Company Competitive costs become critical
Poor time to change price, image, or quality
Strategy Defend position via fresh promotional and distribution
& Issues approaches

Standardization
Less rapid product changes and more minor annual model
changes
OM Strategy Optimum capacity
Increasing stability of manufacturing process
& Issues Lower labor skills
Long production runs
Attention to product improvement and cost cutting
Re-examination of necessity of design compromises

2-48
 Strategy & Issues During Product
Life
Decline

Company Strategy Cost control critical to market share

& Issues

Little product differentiation

OM Strategy Cost minimization
& Issues Overcapacity in the industry
Prune line to eliminate items not returning
Good margin
Reduce capacity

2-49
Strategy and Issues During a
Product’s Life

2-50
 Strategy Development and
Implementation

♦ Identify critical success factors

♦ Build and staff the organization

2-51
SWOT Analysis Process

♦ Environmental Analysis

♦ Determine Corporate Mission

♦ Form a Strategy

2-52
 SWOT Analysis to Strategy
Formulation

Mission

Internal External
S trengths O pportunities

Strategy

Internal External
W eaknesses T hreats
Competitive
Advantage

2-53
 Identifying
Critical Success Factors
Marketing Finance/Accounting Production/Operations
Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of Receivables
distribution Payables
Product positioning Financial control
(image, functions) Lines of credit

Decisions Sample Option

Chapter
Product Customized, or standardized 5
Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity 7, S7
Location Near supplier or customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10, S10
Supply chain Single or multiple source suppliers
11, S11
Inventory When to reorder, how much to keep on hand
12, 14,16
Schedule Stable or fluctuating productions rate
13, 15
Maintenance Repair as required or preventive maintenance 17
2-54
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage
Courteous, but limited
passenger service

Short haul, point-to-point

Lean, productive routes, often to
employees secondary airports
Competitive Advantage:
Low Cost

High Frequent, reliable

aircraft schedules
utilization Standardized fleet of
Boeing 737 aircraft

2-55
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage
Courteous, but limited
passenger service

No seat assignments
No baggage transfers
Automated ticketing machines
No meals

2-56
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage

Lower gate costs at

secondary airports
Short haul, point-to-point
High number of routes, often to
flights, reduces secondary airports
employee idle time
between flights

2-57
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage

High number of flights

reduces employee idle time
between flights
Saturate a city with flights
lowering administrative costs
per passenger for that city
Frequent, reliable
schedules

2-58
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage
Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one
type of aircraft
Excellent supplier relations with
Boeing has aided financing

Standardized fleet of
Boeing 737 aircraft

2-59
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage

Flexible employees and

standard planes aids
scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
High
aircraft
utilization

2-60
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage

High level of stock ownership

Hire for attitude, then train
High employee compensation
Empowered employees
Lean, productive Automated ticket machines
employees

2-61
 Activity Mapping: Southwest
Airline’s Low Cost Competitive
Advantage
Courteous, but limited
passenger service

Lean, productive Short haul, point-to-point

employees routes, often to
secondary airports
Competitive Advantage:
Low Cost

High Frequent, reliable

aircraft schedules
utilization Standardized fleet of
Boeing 737 aircraft

2-62
Southwest Airline’s Low Cost
Competitive Advantage

2-63
 Vanguard’s Activity System

A broad array of mutual

funds excluding some fund
categories

Very low
Efficient investment
expenses
management approach
passed on to
offering good consistent
client
performance

Strict cost
control

Direct Straightforward client

distributions communication and
education

2-64
 How It Works

If competitive
Distinctive
advantage, leads
Company competencies affect
to achieving Mission

Business
Strategy

Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

2-65
 Some Definitions

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

2-66
 Defining Global Operations

♦ International business - engages in cross-border

transactions

♦ Multinational Corporation - has extensive involvement in

international business, owning or controlling facilities in
more than one country

♦ Global company - integrates operations from different

countries, and views world as a single marketplace

♦ Transnational company - seeks to combine the benefits

of global-scale efficiencies with the benefits of local
responsiveness

2-67
 Some Global Strategies
♦ International Strategy: uses exports and licenses to
penetrate the global area
♦ Multidomestic Strategy: uses decentralized authority with
substantial autonomy at each business
♦ Global Strategy: Uses a high degree of centralization,
with headquarters coordinating to seek standardization
and learning between plants
♦ Transnational Strategy: Exploits economies of scale and
learning, as well as pressure for responsiveness, by
recognizing that core competencies reside everywhere in
the organization

2-68
Four International Operations
Strategies

2-69