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Operations Management

Operations Strategy & Competitiveness Chapter 2


Prepared by: Shatina Saad

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Outline
DEVELOPING MISSIONS AND STRATEGIES Mission Strategy ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS Competing on Differentiation Competing on Cost Competing on Response 2-2
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Outline - Continued
ISSUES IN OPERATIONS STRATEGY

STRATEGY DEVELOPMENT AND IMPLEMENTATION


Research Preconditions Dynamics

GLOBAL OPERATIONS STRATEGY OPTIONS


International Strategy Prepared by: Shatina Saad Multidomestic Strategy 2-3

Identify Critical Success Factors A Global view of Operations Cultural and Ethical Issues Build and Staff the Organization Integrate OM with Other Activities

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Learning Objectives
When you complete this chapter, you should be able to :
Identify or Define:

Mission Strategy Ten Decisions of OM Multinational Corporations

Describe or Explain: Specific approaches used by OM to achieve strategies

Differentiation Low Cost Response

Four Global Operations Strategies Why Global Issues are Important Prepared by: Shatina Saad 2-4

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Developing Missions and Strategies

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Mission
Mission - where are you going?

Organizations purpose for being Provides boundaries & focus Answers What do we provide society?
1995 Corel Corp.

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Mission of FedEx
FedEx is committed to our People-ServiceProfit 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 Prepared by: Shatina Saad 2-7 and the public. We will strive to have a OPM 533

Factors Affecting Mission


Philosophy & Values Environment Mission Customers Benefit to Society Public Image Profitability & Growth

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Mission/Strategy
Mission - where you are going Strategy - how you are going to get there; an action plan

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

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Strategy Process
Company Mission Business Strategy Functional Area Functional Area Strategies Marketing Decisions
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Operations Decisions
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Fin./Acct. Decisions
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Strategies for Competitive Advantage


Differentiation Cost leadership Quick response

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Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customers perception of value

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Competing on Cost
Provide the maximum value as perceived by customer Does not imply low value or low quality

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Competing on Response
Flexibility Reliability Timeliness Requires institutionalization within the firm of the ability to respond

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Competing, Regardless of the Basis,


Requires the institutionalization within the firm of the ability to change, and to adapt

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Operatio ns Decision Quality s

OMs Contribution to Strategy


Exampl es Specific Strategy Used
FLEXIBILITY

Competi tive Advanta ge

Product HPs ability to follow the printer market Process Southwest Airlines No-frills service Location

Sonys constant innovation of new products Design Volume


LOW COST DELIVERY

Pizza Huts five-minute guarantee at lunchtime Speed time Layout Federal Expresss absolutely, positively on Dependability

Differentiation (Better) Respons Cost e leadership (Faster) (Cheaper)

Human
Motorolas pagers

QUALITY

Conformance Motorolas automotive products ignition systems Resource Performance

Supply Chain
IBMs AFTER-SALE SERVICE Inventory after-sale service on mainframe computers

Scheduling

BROAD Fidelity Securitys broad line of mutual funds PRODUCT LINE

Maintenance

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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 by: Shatina Saad Maintenance Prepared 2-18

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Goods & Services and the 10 OM Decisions


Oe t s p ra ion D cision e s Goods & services decisions Quality Process and capacity design Good s
Product is usually tangible Objective quality standards

Se rvice s
Product is usually intangible Subjective quality standards

Custom not involved Custom m be directly er er ay in m of process ost involved in process. Capacity m m ust atch dem to avoid lost sales and
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Goods & Services and the 10 OM Decisions Continued


O eaio s pr t n D c io s e is n Lo t n caio Se ct n le io La o t yu D sig e n H mn u a Re u s so rce a dJo n b D sig e n Gos od
M yn e t b n a ra a edo e er w m t ria o la o fo ae ls r b r rce La o tca e h n y u n n a ce p d ct ne n ro u io fficie cy W rkfo fo se o o rce cu d n t ch ica sk e n l ills. La o st n a s co sist n. b r a d rd n e t O t u a dw g sy e . up t-b se a e st m

S r ic s ev e
Pro u is u a d ct su lly ina g le t n ib Su je iv q a y b ct e u lit st n a s a d rd Cu o e m yb d ct st m r a e ire ly in o e inp ce v lv d ro ss. Ca a ym t e p cit ach s d m n t a o lo e a d o v id st sa s le
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Goods & Services and the 10 OM Decisions Continued


Oe t n p raio s D cisio s e n Gos od S rv s e ice
Su p p ly-ch relation ip ain sh s Su p ch p ly ain Supply-chain m ag en relationships critical to im ortant, not necessarily an em t p fin p u al rod ct critical M serv can n b ost ices ot e stored Prim con edw arily cern ith m gth cu eetin e stom er's im ed sch u m iate ed le
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In en v tory

Rawm aterials, w ork in-p rocess, an d fin edg s ish ood

Sch u g ed lin

Ab to con ert ility v in en m allow v tory ay lev gof p u elin rod ction rates Prepared by: Shatina Saad 2-21

Goods & Services and the 10 OM Decisions Continued


O eaio s pr t n D cis n e io s M ine a ce a tnn Gos od
M ine a ceis o e a tnn ft n p v niv a dt k s re e t e n a e p cea t ep d ct n la t h ro u io sit e

S r ic s ev e
M ine a ceis o e a tnn ft n " p ir"a dt k s p cea re a n a e la t t ecu o e sit h st m r's e

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Process Design
High

Process-focused

Job Shops
Variety of Products

Customization at high Volume

(Print shop, emergency room , machine shop, Repetitive (modular) fine dining focus

Mass CustomizationPC) (Dell Computers

Assembly line
(Cars, appliances, TVs, fast-food restaurants) Product-focused

Moderate

Continuous
(steel, beer, paper, bread, institutional kitchen) Volume 2-23
Moderate High
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Low Low
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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
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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
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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
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One must understand:

Preconditions To Implement a Strategy

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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.
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Impetus for Strategy Change


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

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Stages in the Product Life Cycle


Growth rate

Introduction Growth Maturity Decline

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Strategy & Issues During Product Life


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

OM Strategy & Issues

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Strategy & Issues During Product Life


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


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

OM Strategy & Issues

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Strategy & Issues During Product Life


Decline
Company Strategy & Issues OM Strategy & Issues
Cost control critical to market share

Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity
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Strategy and Issues During a Products Life

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Strategy Development and Implementation


Identify critical success factors Build and staff the organization

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SWOT Analysis Process


Environmental Analysis

Determine Corporate Mission Form a Strategy


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SWOT Analysis to Strategy Formulation


Mission Internal Strengths Strategy Internal Weaknesses External Threats External Opportunities

Competitive Advantage
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Identifying Critical Success Factors


Marketing
Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions Product 5 Quality achieve them Process Define customer expectations and how to 6, S6 Facility size, technology, capacity 7, S7 Location Near supplier or customer 8 Layout Work cells or assembly line 9 Prepared by: Shatina Saad 2-38 Human resource Specialized or enriched jobs 10, S10

Finance/Accoun ting
Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit

Production/Oper ations

Sample Option Chapter


Customized, or standardized

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Southwest Airlines Low Cost Competitive Advantage Courteous, but


Lean, productive employees High aircraft utilizatio n
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limited passenger service

Competitive Advantage: Low Cost


Standardized fleet of Boeing 737 aircraft
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Short haul, pointto-point routes, often to secondary airports Frequent, reliable schedules
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Southwest Airlines Low Cost Competitive Advantage


Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals

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Southwest Airlines Low Cost Competitive Advantage


Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights
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Short haul, pointto-point routes, often to secondary airports

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Southwest Airlines 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
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Frequent, reliable schedules


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Southwest Airlines 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
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Southwest Airlines 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
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High aircraft utilizatio n


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Southwest Airlines 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

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Southwest Airlines Low Cost Competitive Advantage Courteous, but


Lean, productive employees limited passenger service Short haul, pointto-point routes, often to secondary airports Frequent, reliable schedules
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High aircraft utilizatio n


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Competitive Advantage: Low Cost


Standardized fleet of Boeing 737 aircraft
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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 2-47 GM is building four similar plants in
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Management Issues in Global Operations


Global Strategic Context

Differentiation Cost leadership Response

Supply Chain Manageme nt

Location Decisions

Logistics Managem ent

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Supply-Chain Management
Sourcing Vertical integration Make-or-buy decisions Partnering

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Location Decisions
Country-related issues Product-related issues Government policy/political risk Organizational issues

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Materials Management
Flow of materials Transportation options and speed Inventory levels Packaging Storage

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Defining Global Operations


International business - engages in crossborder 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
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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 Intangible Attract and retain global talent
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Trade and Tariff


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

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Achieving Global Operations -Four Considerations Global product design Global process design and technology Global factory location analysis Impact of Culture and Ethics

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Global Product Design


Remember social and cultural differences

packaging and marketing can help make product seem domestic but liter

versus quart sweetness and taste

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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
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Global Process Design and Technology

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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 countrys CSFs using a 1 (bad) to 5 (good) rating scale 2-59
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You May Wish To Consider


national literacy rate rate of innovation rate of technology change number of skilled workers stability of government product liability laws Prepared by: Shatina Saad export restrictions 2-60 work ethic tax rates inflation availability of raw materials interest rates population number of miles of highway
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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

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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 2-62 reach global to
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Managing Global Service Operations


Must take a different perspective on Capacity planning Location Planning Facilities design and layout Scheduling

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Some Definitions
International business

A firm that engages in crossborder transactions.

Multinational Corporation (MNC)


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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 OPM 533 Prepared by: Shatina Saad the organization 2-65

Four International Operations Strategies

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Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods

Match Product & Parent

1. Volkswagen 2. Bidermann International 3. Bridgestone 4. Campbell Soup 5. Credit Lyonnais 6. Ford Motor Company 7. Gillette 8. Grand Metropolitan 9. Michelin 10. Nestl

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Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods

Match Product & Country


1. 2. 3. 4. 5. 6.

France Great Britain Germany Japan United States Switzerland

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