Operations Management Operations Strategy in a Global Environment Chapter 2 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 1 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Outline ¨ A GLOBAL VIEW OF OPERATIONS ¨ DEVELOPING MISSIONS AND STRATEGIES ¨ ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS ¨ Differentiation, Cost, Response ¨ ISSUES IN OPERATIONS STRATEGY ¨ Research, Preconditions, Dynamics ¨ STRATEGY DEVELOPMENT AND IMPLEMENTATION Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 2 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Outline - Continued GLOBAL OPERATIONS STRATEGY OPTIONS ¨ International Strategy ¨ Multidomestic Strategy ¨ Global Strategy ¨ Transnational Strategy Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 3 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Learning Objectives When you complete this chapter, you should be able to : Identify or Define: ¨ Mission ¨ Strategy ¨ Ten Decisions of OM ¨ Multinational Corporations Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 4 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Learning Objectives Continued Describe or Explain: ¨ Specific approaches used by OM to achieve strategies ¨ Differentiation ¨ Low Cost ¨ Response ¨ Four Global Operations Strategies ¨ Why Global Issues are Important Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 5 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 6 Argentina, Poland, China, and Thailand Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Boeing Suppliers (777) Firm Country Parts Alenia Italy Wing flaps Aero. Space Technologies CASA Fuji Australia Rudder Spain Japan Ailerons Landing gear doors, wing section GEC Avionics Korean Air Menasco Aerospace United Kingdom Korea Canada Flight computers Flap supports Landing gears Short Brothers Ireland Landing gear doors Singapore Aerospace Singapore Landing gear doors Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 7 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Global Organizations, Agreements ¨ Free trade zones receive preferential tariff treatment. ¨ World Trade Organization (WTC) lowers barriers to free flow of goods across borders. ¨ North American Free Trade Agreement (NAFTA): a free trade agreement between Canada, Mexico, USA. ¨ European Union (EU)-customs union Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 8 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 9 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
¨ Improve SC: locating facilities in countries where unique resources, i. e. , expertise, labor, raw material exist. ¨ Provide better goods and services -better understanding of culture leads to more efficient customization -reduce response time to meet customer’s changing product and service requirements. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 10 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
¨ Attract new markets-international firms find opportunities for new products and services. -increase sales -diversify their customer base -add production flexibility to switch b/w good and bad economies. -expand life cycle Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 11 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 12 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 ¨ export restrictions ¨ similarity in language Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 13 ¨ work ethic ¨ tax rates ¨ inflation ¨ availability of raw materials ¨ interest rates ¨ population ¨ number of miles of highway © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Cultural and Ethical Issues ¨ Cultures differ! Some accept/expect: ¨ variations in punctuality ¨ long lunch hours ¨ expectation of thievery ¨ Bribery, child labor ¨ little protection of intellectual property ¨ Requirement for common laws and regulations for global uniformity. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Developing Missions and Strategies Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 15 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Mission Where are we going? What do we provide society? What’s our purpose? What’s our reason for being? • Provides boundaries & focus for organizations • Functional areas have supporting missions for the company mission. • Supporting missions for 10 OM 16 functions Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Mission of 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 17 transaction. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 18 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 19 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Strategy ¨ Mission - where are we going? ¨ Strategy - how can we get there? ¨ Provides an action plan Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 20 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Strategy Process Company Mission Business Strategy Functional Area mission/strategies Marketing Decisions Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Operations Decisions 21 Fin. /Acct. Decisions © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Concepts of a mission Firms achieve mission in 3 conceptual ways: 1) Product Differentiation 2) Low cost 3) Quick response Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 22 Competitive advantage © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Competing on Differentiation is providing uniqueness Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value Limited by imagination Ex: “Experience differentiation” in Magic Kingdom, Hard Rock Cafe, Migros Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 23 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Competing on Cost Provide the maximum value as perceived by customer Does not imply low value or low quality Effective use of resources to decrease costs Ex: Reduced warehousing costs, direct shipment from manufacturer in 24 Wallmart Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Competing on Response ¨ Flexible response: is the ability to match design/volume changes in market ex: HP ¨ Reliability of scheduling: ex: German M/C industry ¨ Quickness in design, production, delivery Requires institutionalization within the 25 firm of the ability to respond Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 26 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Operation s Decisions Product Quality Process OM’s Contribution to Strategy Specific Strategy Used Example s FLEXIBILITY Sony’s constant innovation of new products Design HP’s ability to follow the printer market Volume Southwest Airlines No-frills service Location Layout LOW COST DELIVERY Pizza Hut’s five-minute guarantee at lunchtime. Speed Dependability Federal Express’s “absolutely, positively on time” Human Resource Supply Chain Maintenance Differentiation (Better) QUALITY Conformance Motorola’s automotive products ignition systems Motorola’s pagers Performance Inventory Scheduling Competiti ve Advantag e Cost leadership (Cheaper) Response (Faster) IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE BROAD PRODUCT LINE Fidelity Security’s broad line of mutual funds Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 27 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Goods & Services and the 10 OM Decisions Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 28 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Goods & Services and the 10 OM Decisions – Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 29 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Goods & Services and the 10 OM Decisions – Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 30 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Goods & Services and the 10 OM Decisions – Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 31 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Ex: How to find Process Design Strategy? High Customization at high Volume Process-focused Variety of Products Job Shops (Print shop, emergency room , machine shop, Repetitive (modular) fine dining focus Mass Customization PC) (Dell Computer’s Assembly line (Cars, appliances, TVs, fast-food restaurants) Moderate Product-focused Continuous (steel, beer, paper, bread, institutional kitchen) Low Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Moderate 32 Volume High © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Operations Strategies for Two Drug Companies Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 33 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Operations Strategies for Two Drug Companies Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 34 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Operations Strategies for Two Drug Companies Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 35 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Operations Strategies for Two Drug Companies Continued Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 36 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Some Multinational Corporations Company Home Country % Sales % Assets % Foreign Workforce Outside Home Country Citicorp USA 34 46 NA Colgate. Palmolive USA 72 63 NA Dow Chemical Gillette USA 60 50 NA USA 62 53 NA Honda Japan 63 36 NA IBM USA 57 47 51 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 37 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Some Multinational Corporations Company Home Country % Sales Outside Home Country % Assets % Foreign Outside Workforce Home Country ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Netherlands 94 Electronics Siemens Germany 51 85 82 NA 38 Unilever 70 64 Britain & Netherlands Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 9 5 38 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Issues in Operations Strategy ¨ Characteristics that impact strategic OM decisions ¨ Preconditions that should exist to develop an operations strategy ¨ Dynamics of developed strategies: strategies change Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 39 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Characteristics of high ROI firms From the PIMS study of the Strategic Planning Institute ¨ High quality product ¨ High capacity utilization ¨ High operating efficiency (expected/actual employee productivity) ¨ Low investment intensity (capital required/produce 1 dollar sales) ¨ Low direct cost per unit (relative to the competitors’ value) Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 40 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Preconditions To Implement a Strategy Operations manager must understand that the firm is operating in an open system. ¨ ¨ ¨ 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. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 41 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Dynamics Strategies change because of two reasons: ¨ Changes in the organization: personnel, finance, technology, product life ¨ Changes in the environment Ex: Microsoft, impact of internet, changing demand Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 42 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Strategy and Issues During a Product’s Life Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 43 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 ¨ OM Strategy & High skilled-labor content High production costs Issues Limited number of models Utmost attentions to quality Quick elimination of market-revealed design © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. Power. Point presentation to accompany defects 44 07458 Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 45 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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 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 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. Power. Point presentation to accompany compromises 46 07458 Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e
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 Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 47 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Strategy Development Process Environmental Analysis Identify SWOT. Understand environment, customer, industry, competitors Determine Corporate Mission Form a Strategy Build a strategy such as low price, flexibility, quick delivery, dependability, after sale service, broad product lines Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 48 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
SWOT Analysis to Strategy Formulation Mission Internal Strengths External Opportunities Strategy Internal Weaknesses Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Competitive Advantage 49 External Threats © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Identifying Critical Success Factors Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions Chapter Finance/Accounti ng Production/Operatio ns Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Sample Option Product Customized, or standardized 5 Quality Define customer expectations and how to achieve them 6, S 6 Process Facility size, technology, capacity 7, S 7 Location Near supplier or customer 8 Layout Work cells or assembly line 9 Power. Point presentation to accompany © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 50 Human resource of Operations Specialized or enriched jobs 07458 Heizer/Render – Principles Management, 5 e, and Operations Management, 10, S 10 7 e
Southwest Airline’s Low Cost Competitive Advantage Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 51 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
How It Works Company Mission t Business Strategy Functional Area Strategies Marketing Decisions Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Operations Decisions 52 Fin. /Acct. Decisions © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Global Operations Strategy Options ¨ International Strategy ¨ Multidomestic Strategy ¨ Global Strategy ¨ Transnational Strategy Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 53 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Four International Operations Strategies Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 54 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
International Strategy Global markets are penetrated using exports and licenses Least advantageous with little local responsiveness (expost from home country) little cost advantage (use existing facility in home country). Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 55 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Multidomestic Strategy Operating decisions are decentralized to each country to enhance local responsiveness Advantage is to maximize competitive response for the local market. But no cost advantage. Ex: Mc Donald’s call itself multilocal Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 56 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Global Strategy Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities. Appropriate when strategic focus is cost reduction. Not recommended when there is also concerns about high responsiveness. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 57 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
Transnational Strategies Combines the benefits of global-scale efficiencies with the benefits of local responsiveness. Recognizes that core competence is not only in the local country. Material, people and ideas cross national boundaries! Firms can pursue all strategies of cost, response and differentiation. Neither centralized, nor decentralized Resources and activities are dispersed, but specialized in a flexible interdependent 58 network. Power. Point presentation to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458
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