Operations Management Chapter 2 – Global Environment and Operations Strategy Power. Point presentation to accompany Heizer/Render Operations Management, 11 Ed. Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised March 2016. © 2008 Prentice Hall, Inc. 2– 1
Outline þ Global Company Profile: Boeing þ A Global View of Operations þ Cultural and Ethical Issues þ Developing Missions And Strategies þ Mission þ Strategy © 2008 Prentice Hall, Inc. 2– 2
Outline – Continued þ Achieving Competitive Advantage Through Operations þ Competing On Differentiation þ Competing On Cost þ Competing On Response þ Ten Strategic OM Decisions © 2008 Prentice Hall, Inc. 2– 3
Outline – Continued þ Strategy Development and Implementation þ Critical Success Factors and Core Competencies þ Build and Staff the Organization þ Integrate OM with Other Activities © 2008 Prentice Hall, Inc. 2– 4
Outline – Continued þ Global Operations Strategy Options þ International Strategy þ Multidomestic Strategy þ Global Strategy þ Transnational Strategy © 2008 Prentice Hall, Inc. 2– 5
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– 6
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– 7
Some Boeing Suppliers (787) Firm Latecoere Labinel Dassault Country France Messier-Bugatti Thales France Messier-Dowty Diehl France Germany © 2008 Prentice Hall, Inc. Component Passenger doors Wiring Design and PLM software Electric brakes Electrical power conversion system and integrated standby flight display Landing gear structure Interior lighting 2– 8
Some Boeing Suppliers (787) Firm Cobham Rolls-Royce Smiths Aerospace Country UK UK UK BAE SYSTEMS Alenia Aeronautics UK Italy Toray Industries Japan © 2008 Prentice Hall, Inc. Component Fuel pumps and valves Engines Central computer system Electronics Upper center fuselage & horizontal stabilizer Carbon fiber for wing and tail units 2– 9
Some Boeing Suppliers (787) Firm Fuji Heavy Industries Kawasaki Heavy Industries Country Japan Component Center wing box Japan Teijin Seiki Mitsubishi Heavy Industries Chengdu Aircraft Group Hafei Aviation Japan Forward fuselage, fixed section of wing, landing gear well Hydraulic actuators Wing box China Rudder China Parts © 2008 Prentice Hall, Inc. 2 – 10
Some Boeing Suppliers (787) Firm Korean Aviation Saab © 2008 Prentice Hall, Inc. Country South Korea Sweden Component Wingtips Cargo access doors 2 – 11
Global Strategies þ Boeing – sales and production are worldwide þ Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution þ Sony – purchases components from suppliers in Thailand, Malaysia, and around the world © 2008 Prentice Hall, Inc. 2 – 12
Global Strategies þ Volvo – considered a Swedish company but it is (was) controlled by an American company, Ford. Now it belongs to Geely, a Chinese company. The current Volvo S 40 is assembled in Belgium, South Africa, malaysia and China and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe. © 2008 Prentice Hall, Inc. 2 – 13
Global Strategies q 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 Globalization means that producing locally and exporting is not a viable business model any more for many industries © 2008 Prentice Hall, Inc. 2 – 14
Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, etc. ) Reasons 2. Improve supply chain 3. Improve products 4. Understand markets Intangible 5. Learn to improve operations Reasons 6. Attract and retain global talent © 2008 Prentice Hall, Inc. 2 – 15
1. Reduce Costs þ Foreign locations with lower wage rates and tariffs can lower direct and indirect costs þ Maquiladoras (free trade zones-Mexico) þ World Trade Organization (WTO) þ Trade blocs & agreements (reduced cost of operating) þ North American Free Trade Agreement (NAFTA) þ Asia-Pacific Economic Cooperation(APEC-21 countries) þ South East Asia Treaty Org(SEATO-8 countries þ MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay þ European Union (EU) Ex: Many U. S. businesses have their call centers in India © 2008 Prentice Hall, Inc. 2 – 16
2. Improve the Supply Chain þ Locating facilities closer to unique resources þ Auto design to California þ Athletic shoe production to China (it was South Korea before) þ Perfume manufacturing in France © 2008 Prentice Hall, Inc. 2 – 17
3. Provide Better Goods and Services þ Objective and subjective characteristics of goods and services © 2008 Prentice Hall, Inc. þ On-time deliveries þ Cultural variables (customized goods & services to meet unique cultural needs) (Kıble indicators in Honda for Arab countries) þ Improved customer service (reduce response time) 2 – 18
4. Understand Markets þ Interacting with foreign customers and suppliers can lead to new opportunities þ Cell phone design from Europe (Nokia) þ Cell phone fads (accessories) from Japan and Korea • a device which converts your rear-view mirror into a display for the phone. So if someone is calling you, just look at the number on the mirror while you drive. • Sony Ericsson has launched stereophonic speakers called MDS-65, which can be attached to the phone and give the effect of a mini home theatre. • just look at all the accessories for the Ipod and the Iphone. þ Extend the product life cycle © 2008 Prentice Hall, Inc. 2 – 19
5. Learn to Improve Operations þ Remain open to the free flow of ideas þ General Motors partnered with a Japanese auto manufacturer (Toyota) to learn (NUMMI-Calif. ) https: //hbr. org/2009/09/nummi-what-toyota-learned © 2008 Prentice Hall, Inc. þ benchmarking - first practised by Xerox Corp. þ Equipment and layout have been improved using Scandinavian ergonomic competence þ TAV –- Tepe-Akfen-Vie (Tepe learned airport operations from Vie) 2 – 20
6. Attract and Retain Global Talent þ Offer better employment opportunities þ Better growth opportunities and insulation against unemployment þ Relocate unneeded personnel to more prosperous locations during economic downturns (flexibility) þ Incentives for people who like to travel © 2008 Prentice Hall, Inc. 2 – 21
Cultural and Ethical Issues þ Cultures can be quite different þ Attitudes can be quite different towards þ Punctuality þ Lunch breaks þ Environment þ Intellectual property © 2008 Prentice Hall, Inc. þ Thievery þ Bribery þ Child labor My Saudi Arabian experience with punctuality! 2 – 22
Companies Want To Consider þ National literacy rate þ Rate of innovation þ Rate of technology change þ Number of skilled workers þ Political stability þ Product liability laws þ Export restrictions þ Variations in language © 2008 Prentice Hall, Inc. þ Work ethic þ Tax rates þ Inflation þ Availability of raw materials þ Interest rates þ Population þ Number of miles of highway þ Phone system 2 – 23
Match Product & Parent (Kimin eli kimin cebinde? ) þ Braun Household Appliances þ Firestone Tires þ Godiva Chocolate þ Haagen-Dazs Ice Cream þ Jaguar Autos þ MGM Movies þ Lamborghini Autos þ Alpo Petfoods © 2008 Prentice Hall, Inc. 1. Volkswagen 2. Bridgestone 3. Campbell Soup 4. Ford Motor Company 5. Gillette 6. Nestlé 7. Pillsbury 8. Sony 2 – 24
Match Product & Parent (Kimin eli kimin cebinde? ) þ Braun Household Appliances þ Firestone Tires þ Godiva Chocolate þ Haagen-Dazs Ice Cream þ Jaguar Autos þ MGM Movies þ Lamborghini Autos þ Alpo Petfoods © 2008 Prentice Hall, Inc. 1. Volkswagen 2. Bridgestone 3. Ülker Group 4. Ford Motor Company 5. Gillette 6. Nestlé 7. Pillsbury 8. Sony 2 – 25
Match Product & Country þ Braun Household Appliances þ Firestone Tires þ Godiva Chocolate þ Haagen-Daz Ice Cream þ Jaguar Autos þ MGM Movies þ Lamborghini Autos 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland þ Alpo Pet Foods © 2008 Prentice Hall, Inc. 2 – 26
Match Product & Country þ Braun Household Appliances þ Firestone Tires þ Godiva Chocolate þ Haagen-Daz Ice Cream þ Jaguar Autos þ MGM Movies þ Lamborghini Autos þ Alpo Pet Foods © 2008 Prentice Hall, Inc. 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland 6. Turkey 7. India 2 – 27
Developing Missions and Strategies üMission: overall purpose of an organization (misyon; varoluş nedeni). üThe mission of an organization defines its reason for existence. “Why are we in business? ” üMission statements tell an organization where it is going üMission of the organization plus mission of the functional areas (prod, mktg, finance, R&D, etc) © 2008 Prentice Hall, Inc. 2–
Developing Missions and Strategies ü The strategy is an organization’s action plan to achieve its mission and goals ü It is a long term plan © 2008 Prentice Hall, Inc. 2 – 29
Developing Missions and Strategies ü Mission statements tell an organization where it is going ü The strategy tells the organization how to get there © 2008 Prentice Hall, Inc. 2 – 30
Fed. Ex’s Mission Fed. Ex 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 – 31
Merck’s Mission 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 – 32
Hard Rock Cafe’s Mission 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 – 33
Arnold Palmer Hospital for Children provides state-of-the-art, family centered healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope. . Figure 2. 2 © 2008 Prentice Hall, Inc. 2 – 34
TAI’s Mission (old version) ü TAI is a company of dedicated, dynamic and resourceful people searching for excellence and continued growth in the field of aerospace. Our mission is to fulfil the aerospace requirements of our nation and world markets with commitment to high quality, value and on time delivery. © 2008 Prentice Hall, Inc. 2 – 35
TAI’s Mission (current version) ü With our great leader Atatürk’s vision: “The Future is in the Skies” and our nation’s eagerness to “Build its own aircraft”; TAI has dedicated itself to be in the skies and space and be pioneers in developing Turkey’s aviation and space industry. Mission statements may change over time. . © 2008 Prentice Hall, Inc. 2 – 36
TAI’s Mission (most current version) © 2008 Prentice Hall, Inc. 2 – 37
NETAŞ’s Mission To provide excellent telecommunication solutions within the framework of Total Quality Management philosophy. © 2008 Prentice Hall, Inc. 2 – 38
Arçelik’s Mission Fully satisfying customer expectations and requirements is the guiding mission of Arçelik. In order to achieve and maintain the high standards it has, Arçelik has a continual programme of investment which encompasses plants, manufacturing equipment, research & development and most importantly personnel. © 2008 Prentice Hall, Inc. 2 – 39
Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Mission Customers Public Image Benefit to Society © 2008 Prentice Hall, Inc. Benefit to stockholders 2 – 40
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 – 41
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 – 42
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 – 43
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. 3 © 2008 Prentice Hall, Inc. 2 – 44
Strategic Process Organization’s Mission Functional Area Missions Marketing © 2008 Prentice Hall, Inc. Operations Finance/ Accounting 2 – 45
Strategy þ Action plan to achieve mission þ Functional areas have strategies þ Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses © 2008 Prentice Hall, Inc. 2 – 46
Strategies for Competitive Advantage (OM) þ Compete on differentiation – better, or at least different þ Compete on cost – cheaper þ Compete on response – rapid response (hızlı yanıt, tepkime) þ My idea : Maybe a fourth one is quality © 2008 Prentice Hall, Inc. 2 – 47
Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value þ Kimberly Clark’s Safeskin gloves – leading edge products þ Walt Disney Magic Kingdom theme park – experience differentiation þ Hard Rock Cafe – dining experience þ Tschibo stores – different concept © 2008 Prentice Hall, Inc. 2 – 48
Competing on Differentiation • Honda cars with Qiblah (Kıble) indicator sold in Saudi Arabia and Gulf countries • Prayer carpets with built-in compass made in Taiwan and sold in Arab countries • Cell phones camera FM video games GPS wi-fi other applications • Iphone and Ipad with all those wonderful applications • Cameras with built in wi-fi • The list goes on and on…. © 2008 Prentice Hall, Inc. 2 – 49
Competing on Cost Provide the maximum value as perceived by customer. Does not imply low quality. þ Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment þ Pegasus Airlines in Turkey þ Wal-Mart – small overheads, decreased shrinkage, distribution costs þ A 101 Supermarkets in Turkey – low cost retail operation Low-cost leadership © 2008 Prentice Hall, Inc. 2 – 50
Competing on Response þ Flexibility is matching market changes in design innovation and volumes þ A way of life at Hewlett-Packard, Apple, samsung, others þ Reliability is meeting schedules þ German machine industry þ Timeliness is quickness in design, production, and delivery þ Johnson Electric, Bennigan’s(restaurant), Motorola, Domino’s Pizza © 2008 Prentice Hall, Inc. 2 – 51
Competing on Response Examples for Quick Response: ü Domino’s Pizza “Türkiye’nin en sevdiği pizzaları hazırlayan Domino’s Pizza olarak evlere serviste yepyeni bir dönem başlatıyoruz. Ülkemizde 30 dakikada teslim garantisi veren tek firma olan Domino’s Pizza bugüne dek "eğer geç kalırsak, sonraki siparişinizde bir pizzanız hediye" diyorduk. Şimdi de yepyeni bir söz daha veriyor ve “eğer 30 dakikada gelemezsek siparişinizdeki kapınızda hemen bir pizzanın ücretini almıyoruz” diyoruz. ” ü Tansaş 3 dakika içinde yeni bir kasanın açılması garantisi © 2008 Prentice Hall, Inc. 2 – 52
OM’s Contribution to Strategy 10 Operations Decisions Product Quality Process Location Layout Human resource Approach DIFFERENTIATION Innovative design … Broad product line … After-sales service … Experience … COST LEADERSHIP Low overhead … Effective capacity use … Inventory management … Supply chain Inventory Scheduling Maintenance © 2008 Prentice Hall, Inc. RESPONSE Flexibility … Reliability … Quickness … Example Competitive Advantage Safeskin’s innovative gloves Fidelity Security’s mutual funds Caterpillar’s heavy equipment service Hard Rock Café’s dining experience Franz-Colruyt’s warehouse-type stores Differentiation (better) Southwest Airline’s aircraft utilization Wal Mart’s sophisticated distribution system Hewlett-Packard’s response to volatile world market Fed. Ex’s “absolutely, positively, on time” Pizza Hut’s 5 -minute guarantee at lunchtime Response (faster) Cost leadership (cheaper) Figure 2. 4 2 – 53
Issues In Operations Strategy Some alternative perspectives in establishing and implementing a strategy: Ø Resources view Ø Value Chain analysis Ø Porter’s Five Forces model Ø Operating in a system with many external factors Ø Constant change © 2008 Prentice Hall, Inc. Ø pg. 74 text OMIT 2 – 54
1. Elements of Operations Management Strategy þ Low-cost product þ Product-line breadth (ürün yelpazesi (gamı) genişliği) þ Technical superiority þ Product characteristics/differentiation þ Continuing product innovation þ Low-price/high-value offerings þ Efficient, flexible operations adaptable to consumers þ Engineering research development þ Location þ Scheduling © 2008 Prentice Hall, Inc. 2 – 55
2. Preconditions to strategy development One must understand: þ Strengths and weaknesses of competitors and possible new entrants into the market þ Current and prospective environmental, technological, legal, and economic issues þ The product life cycle þ Resources available within the firm and within the OM function þ Integration of OM strategy with company’s strategy and with other functional areas © 2008 Prentice Hall, Inc. 2 – 56
3. Dynamics of Strategic Change Strategies change for two reasons: þ Changes within the organization þ þ Personnel Finance Technology Product life þ Changes in the environment þ Microsoft (SW hardware) þ Paşabahçe Şişe Cam (product + delivery + service) © 2008 Prentice Hall, Inc. 2 – 57
Product Life Cycle Introduction Company Strategy/Issues sales volume Growth Best period to increase market share Practical to change price or quality image R&D engineering is critical © 2014 Pearson Education Poor time to change image, price, or quality Cost control critical Competitive costs become critical Defend market position Drive-through Internet search engines restaurants DVDs i. Pods Boeing 787 3 -D game players Decline Strengthen niche Xbox 360 Sales Maturity 3 D printers Electric vehicles time Analog TVs Figure 2. 5 2 - 58
Product Life Cycle Introduction OM Strategy/Issues Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Growth Maturity Forecasting critical Standardization Product and process reliability Competitive product improvements and options Fewer product changes, more minor changes Increase capacity Shift toward product focus Enhance distribution Long production runs Product improvement and cost cutting Optimum capacity Increasing stability of process Decline Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2. 5 © 2014 Pearson Education 2 - 59
SWOT Analysis Mission Internal Strengths External Opportunities Analysis Internal Weaknesses External Threats Strategy © 2008 Prentice Hall, Inc. Competitive Advantage 2 – 60
Strategy Development Process Environmental & Internal 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, aftersale service, broad product lines. © 2008 Prentice Hall, Inc. Figure 2. 6 2 – 61
Strategy Development and Implementation þ Identify key (critical) success factors (KSF’s) þ Build and staff the organization þ 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 – 62
Key (critical) success factors (KSF) ü Activities or factors that are of key importance for achieving competitive advantage ü You have to get them right to survive and achieve goals Mc. Donald’s – efficient layout, play area for children, efficient kitchen Hes Kablo – quality (purity) of fiber optic cable www. hes. com. tr © 2008 Prentice Hall, Inc. 2 – 63
Key (critical) Success Factors Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Production/Operations Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Decisions Sample Options Product Quality Customized, or standardized 5 Define customer expectations and how to achieve them 6, S 6 Facility size, technology, capacity 7, S 7 Near supplier or near customer 8 Work cells or assembly line 9 Specialized or enriched jobs 10, Single or multiple suppliers 11, S 11 When to reorder, how much to keep on hand 12, 14, 16 Stable or fluctuating production rate 13, 15 Repair as required or preventive maintenance 17 Figure 2. 7 Process Location Layout Human resource Supply chain Inventory Schedule Maintenance © 2008 Prentice Hall, Inc. Chapter 2 – 64
Core competencies Temel beceriler (yetenekler) ü A set of skills, talents and activites that a firm does particularly well. ü They allow a firm to set itself apart from competitors and gain competitive advantage. IMPORTANT – KSF’s and Core competencies must be supported by related activities activity mapping © 2008 Prentice Hall, Inc. 2 – 65
Activity mapping ü A graphical link of ücompetitive advantage üKSF’s üsupporting activities ü Next an example from airline industry § Southwest airlines § Pegasus Airlines © 2008 Prentice Hall, Inc. 2 – 66
Activity Mapping- Southwest Airlines KSF’s Courteous, but Limited Passenger Service Lean, Productive Employees Short Haul, Point-to. Point Routes, Often to Secondary Airports Competitive Advantage: Low Cost High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 67
Activity Mapping- Southwest Activity Mapping Airlines Courteous, but Limited Passenger Service Lean, Productive Employees Short Haul, Point-to. Point Routes, Often to Secondary Airports Automated ticketing machines Competitive Advantage: No seat assignments Low Cost No baggage transfers High Aircraft Utilization No meals (peanuts) Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 68
Activity Mapping- Southwest Activity Mapping Airlines Courteous, but Limited Passenger Service No meals (peanuts) Lean, Lower gate costs at Productive secondary airports Employees Short Haul, Point-to. Point Routes, Often to Secondary Airports High number of flights Competitive Advantage: reduces employee idle time Low Cost between flights High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 69
Activity Mapping- Southwest Activity Mapping Airlines Courteous, but Limited Passenger Service Lean, Productive Employees Short Haul, Point-to. Point Routes, Often to Secondary Airports High number of flights Competitive Advantage: reduces employee idle time Low Cost between flights High Saturate a Aircraft lowering Utilization city with flights, administrative Standardized costs (advertising, HR, etc. ) Fleet per passenger for of Boeing 737 that city Aircraft Frequent, Reliable Schedules Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 70
Activity Mapping- Southwest Activity Mapping Airlines Pilot training required on Courteous, but only one type of aircraft Limited Passenger Service Reduced maintenance inventory required because Haul, Point-to. Lean, Short of only one type of aircraft Routes, Often to Productive Point Employees Secondary Airports Excellent supplier relations with Boeing has aided Competitive Advantage: financing Low Cost High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 71
Activity Mapping- Southwest Activity Mapping Airlines Courteous, but Limited Passenger Reduced maintenance Service Lean, Productive Flexible union Employees inventory required because of only one type of aircraft Point-to. Short Haul, Point Routes, Often to Flexible employees and Secondary Airports standard planes aid contracts Competitive Advantage: scheduling Low Cost Maintenance personnel trained only one type of High Frequent, Aircraft Reliable aircraft Utilization Standardized 20 -minute gate Fleet of Boeing 737 Aircraft Schedules turnarounds Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 72
Activity Mapping- Southwest Activity Mapping Airlines Automated ticketing Courteous, but machines Limited Passenger Service Empowered employees Lean, Productive Employees High Aircraft Utilization High employee Short Haul, Point-to. Point compensation Routes, Often to Secondary Airports Hire for attitude, then train Competitive Advantage: High level Low Cost of stock ownership Frequent, High number of flights Reliable reduces employee idle time Schedules Standardized Fleetbetween flights of Boeing 737 Aircraft Figure 2. 8 © 2008 Prentice Hall, Inc. 2 – 73
Implementing Strategic Decisions TABLE 2. 1 Operations Strategies of Two Drug Companies BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. COMPETITIVE ADVANTAGE 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 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, shortrun production; focus on high utilization Location Still located in city where it was founded Recently moved to low-tax, low-laborcost environment © 2014 Pearson Education 2 - 74
Implementing Strategic Decisions TABLE 2. 1 Operations Strategies of Two Drug Companies BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. COMPETITIVE ADVANTAGE PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY Layout supports automated productfocused 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 © 2014 Pearson Education 2 - 75
Strategic Planning, Core Competencies, and Outsourcing ▶ Outsourcing – transferring activities that traditionally been internal to external suppliers ▶ Core competencies and non-core activities. More non-core activities are outsourced. ▶ Accelerating due to ▶ Increased expertise ▶ More reliable and cheaper transportation ▶ Rapid development and deployment of advancements in telecommunications and computers ▶ Typical make-or-buy decision © 2014 Pearson Education 2 - 76
Strategic Planning, Core Competencies, and Outsourcing ▶ Subcontracting - contract manufacturing ▶ Outsourced activities ► ► ► Legal services Travel services Payroll © 2014 Pearson Education ► Production ► Surgery 2 - 77
Strategic Planning, Core Competencies, and Outsourcing ▶ Apple example ▶ Core competency: creativity, innovation and product design ▶ Outsource manufacturing ▶ Fox. Conn manufacturing plant in China and elsewhere ▶ http: //en. wikipedia. org/wiki/Foxconn © 2014 Pearson Education 2 - 78
Theory of Comparative Advantage ▶ If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work ▶ Purchasing firm focuses on core competencies ▶ Basic idea behind outsourcing © 2014 Pearson Education 2 - 79
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 © 2014 Pearson Education 2 - 80
Rating Outsourcing Providers ▶ Insufficient analysis most common reason for failure ▶ Factor rating method ▶ Points and weights assigned for each factor to each © 2014 Pearson Education 2 - 81
Rating Provider Selection Criteria TABLE 2. 3 Factor Ratings Applied to National Architects’s Potential IT Outsourcing Providers OUTSOURCING PROVIDERS FACTOR (CRITERION) IMPORTANCE WEIGHTS BIM (U. S. ) S. P. C. (INDIA) TELCO (ISRAEL) 1. Can reduce operating costs . 2 3 3 5 2. Can reduce capital investment . 2 4 3 3 3. Skilled personnel . 2 5 4 3 4. Can improve quality . 1 4 5 2 5. Can gain access to technology not in company . 1 5 3 5 6. Can create additional capacity . 1 4 2 4 7. Aligns with policy/philosophy/culture . 1 2 3 5 1. 0 3. 9 3. 3 3. 8 Totals Score for BIM = (. 2 * 3) + (. 2 * 4) + (. 2 * 5) + (. 1 * 4) + (. 1 * 5) + (. 1 * 4 © 2014 Pearson Education 2 - 82
OMIT THE FOLLOWING MATERIAL Text : pp. 83 -84 © 2014 Pearson Education 2 - 83
Strategy Cost Reduction Considerations High Four International Operations Strategies International þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 84
Four International Operations Strategies Cost Reduction Considerations High International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 85
Four International Global Operations Strategies Strategy High Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Examples Caterpillar U. S. Steel Otis Harley Davidson Elevator International Strategy þ Import/export or license existing product Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 86
Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 87
Four. Multidomestic International Operations Strategies Strategy High þ Use existing þ Standardized product domestic model þ Economies of scale þ Cross-cultural learning globally Examples Texas þ Franchise, joint Instruments Caterpillar Otis Elevator ventures, subsidiaries Cost Reduction Considerations Global Strategy International Strategy Examples Heinz Examples Mc. Donald’s U. S. Steel Harley Davidson The Body Shop Hard Rock Cafe þ Import/export or license existing product Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 88
Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 89
Four International Transnational Operations Strategies Strategy High þ Move material, people, ideas Examples across national Texas Instruments Caterpillar boundaries Otis Elevator þ Economies of scale þ Cross-cultural International Strategy Multidomestic Strategy þ Use existing learning þ Import/export or domestic model globally Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning license existing product Examples Coca-Cola Nestlé Examples U. S. Steel Harley Davidson Low þ Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 90
Four International Operations Strategies High Transnational Strategy þ Standardized product þ Economies of scale þ Cross-cultural learning Cost Reduction Considerations Global Strategy þ Move material, people, ideas across national boundaries þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy Examples Coca-Cola Nestlé þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations © 2008 Prentice Hall, Inc. (Quick Response and/or Differentiation) 2 – 91
Ranking Corruption Rank Country 2006 CPI Score (out of 10) 1 Finland 9. 6 Least Corrupt 1 Iceland 9. 6 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 Most 70 Brazil, China, Mexico 3. 3 Corrupt 121 Russia 2. 5 60 Turkey 3. 8 Table 8. 2 2012 Rank : 54 ; 2015 rank: 66/168 Denmark #1 © 2008 Prentice Hall, Inc. 2 – 92
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