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Chapter 2

Operations Strategy in a
Global Environment

2–1
Global Strategies
 Boeing – sales and production are
worldwide
 Benetton – moves inventory to stores
around the world faster than its
competition by building flexibility into
design, production, and distribution
 Sony – purchases components from
suppliers in Thailand, Malaysia, and
around the world

2–2
Global Strategies
 Volvo – considered a Swedish company
but it is controlled by an American
company, Ford. The current Volvo S40 is
built in Belgium and shares its platform
with the Mazda 3 built in Japan and the
Ford Focus built in Europe.
 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

2–3
Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Citicorp USA 34 46 NA
Colgate- USA 72 63 NA
Palmolive
Dow USA 60 50 NA
Chemical
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51

2–4
Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

ICI Britain 78 50 NA
Nestle Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Unilever Britain & 95 70 64
Netherlands

2–5
Boeing Suppliers (787)
Firm Country Component
Dassault France Design and
PLM software
Messier-Bugatti France Landing gear
Thales France Electrical power
conversion system
and integrated
standby flight display
Diehl Germany Interior lighting
FR-HiTemp UK Fuel pumps
and valves
Smiths Aerospace UK Central computer
system
2–6
Boeing Suppliers (787)
Firm Country Component
BAE SYSTEMS UK Electronics
Alenia Aeronautics Italy Upper center
fuselage &
horizontal stabilizer
Toray Industries Japan Carbon fiber for
wing and tail units
Fuji Heavy Japan Center wing box
Industries
Kawasaki Heavy Japan Forward fuselage,
Industries fixed section of wing,
landing gear well

2–7
Boeing Suppliers (787)
Firm Country Component
Teijin Seiki Japan Hydraulic actuators
Mitsubishi Heavy Japan Wing box
Industries
Chengdu Aircraft China Rudder
Group
Hafei Aviation China Parts

2–8
Reasons to Globalize
Reasons to Globalize

Tangible  Reduce costs (labor, taxes, tariffs, etc.)


Reasons  Improve supply chain
 Provide better goods and services
 Understand markets
Intangible  Learn to improve operations
Reasons  Attract and retain global talent

Figure 2.1
2–9
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different towards

 Punctuality  Thievery
 Lunch breaks  Bribery
 Environment  Child labor
 Intellectual
property
2 – 10
You May Wish To Consider
 National literacy rate  Work ethic
 Rate of innovation  Tax rates
 Rate of technology  Inflation
change
 Availability of raw
 Number of skilled
materials
workers
 Political stability  Interest rates
 Product liability laws  Population
 Export restrictions  Number of miles of
highway
 Variations in language
 Phone system

2 – 11
Developing Missions and
Strategies

Mission statements tell an


organization where it is going

The Strategy tells the


organization how to get there

2 – 12
Mission
 Mission - where are
you going?
 Organization’s
purpose for being
 Answers ‘What do we
provide society?’
 Provides boundaries
and focus

2 – 13
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.

Figure 2.2
2 – 14
Factors Affecting Mission
Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society
2 – 15
Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

2 – 16
Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

2 – 17
Strategies for Competitive
Advantage

 Differentiation – better, or at least


different
 Cost leadership – cheaper
 Quick response – more
responsive

2 – 18
Competing on
Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything
that impacts customer’s perception of
value
 Safeskin gloves – leading edge products
 Walt Disney Magic Kingdom –
experience differentiation
 Hard Rock Cafe – theme experience
2 – 19
Competing on Cost
Provide the maximum value as
perceived by customer. Does not
imply low quality.
 Southwest Airlines – secondary
airports, no frills service, efficient
utilization of equipment
 Wal-Mart – small overheads, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers
2 – 20
Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness in design,
production, and delivery
 Johnson Electric, Bennigan’s, Motorola

2 – 21
OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage

Product FLEXIBILITY
Sony’s constant innovation
Quality of new products………………………………....Design
HP’s ability to follow
the printer market………………………………Volume
Process
Southwest Airlines No-frills service……..…..LOW COST
Location
DELIVERY
Pizza Hut’s five-minute Differentiation
Layout guarantee at lunchtime…………………..…..……..Speed (Better)
Federal Express’s “absolutely,
positively on time”………………………..….Dependability
Human
resource QUALITY Response
Motorola’s automotive products (Faster)
ignition systems…………………………......Conformance Cost
Supply-chain
Motorola’s pagers………………………..….Performance leadership
(Cheaper)
Inventory IBM’s after-sale service
on mainframe computers……....AFTER-SALE SERVICE
Scheduling Fidelity Security’s broad
line of mutual funds………….BROAD PRODUCT LINE
Maintenance Figure 2.4
2 – 22
10 Strategic OM Decisions

 Goods and service  Human resource


design and job design
 Quality  Supply-chain
 Process and management
capacity design  Inventory
 Location selection  Scheduling
 Layout design  Maintenance

2 – 23
Process Design
High Process-focused Mass Customization
JOB SHOPS Customization at high
(Print shop, emergency Volume
room, machine shop, (Dell Computer’s PC)
Variety of Products

fine dining Repetitive (modular)


focus
ASSEMBLY LINE
Moderate (Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, paper,
bread, institutional
kitchen)

Low

Low Moderate High


Volume
2 – 24
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage

Product Heavy R&D; labs; focus on Low R&D; focus on


Selection and development in a broad development of generic
Design range of drug categories drugs

Quality Major priority, exceed Meets regulatory


regulatory requirements requirements on a country
by country basis

Table 2.2
2 – 25
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage

Process Product and modular Process focused; general


process; long production processes; job shop
runs in specialized facilities;approach, short production
build capacity ahead of runs; focus on high
demand utilization

Location Still located in the city Recently moved to low-tax,


where it was founded low-labor-cost environment

Table 2.2
2 – 26
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage

Scheduling Centralized production Many short-run products


planning complicate scheduling

Layout Layout supports automated Layout supports process-


product-focused production focused job shop practices

Table 2.2
2 – 27
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage

Human Hire the best; nationwide Very experienced top


Resources searches executives; other personnel
paid below industry
average

Supply Chain Long-term supplier Tends to purchase


relationships competitively to find
bargains

Table 2.2
2 – 28
Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage

Inventory High finished goods Process focus drives up


inventory to ensure all work-in-process inventory;
demands are met finished goods inventory
tends to be low

Maintenance Highly trained staff; Highly trained staff to meet


extensive parts inventory changing demand

Table 2.2
2 – 29
Managing Global Service
Operations
Probably requires a different
perspective on:
 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling

2 – 30
Strategic Options to Gain a
Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
2 – 31
Elements of Operations
Management Strategy
 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 – 32
Preconditions
One must understand:
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas

2 – 33
Dynamics of
Strategic Change
 Changes within the organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment

2 – 34
Product Life Cycle
Introduction Growth Maturity Decline
Best period to Practical to change Poor time to Cost control
Company Strategy/Issues

increase market price or quality change image, critical


share image price, or quality

R&D engineering is Strengthen niche Competitive costs


critical become critical
Defend market
position
CD-ROM Fax machines

Internet Drive-through
restaurants
Color printers
Sales
3 1/2”
Floppy
Flat-screen disks
monitors DVD

Figure 2.5
2 – 35
Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting Standardization Little product
and critical Less rapid differentiation
development Product and product changes Cost
OM Strategy/Issues

critical process – more minor minimization


Frequent reliability changes Overcapacity
product and Competitive Optimum in the
process design product capacity industry
changes improvements Increasing Prune line to
Short production and options stability of eliminate
runs Increase capacity process items not
High production returning
Shift toward Long production
costs good margin
product focus runs
Limited models Reduce
Enhance Product
capacity
Attention to distribution improvement and
quality cost cutting

Figure 2.5
2 – 36
Strategy Development and
Implementation
 Identify critical success factors
 Build and staff the organization
 Integrate OM with other activities

The operations manager’s job is to implement


an OM strategy, provide competitive
advantage, and increase productivity

2 – 37
Strategy Development Process

Environmental 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, after-sale service,
broad product lines.

Figure 2.6 2 – 38
SWOT Analysis

Mission

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses Threats
Strategy

2 – 39
Activity Mapping
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-


Productive Point Routes, Often to
Employees Secondary Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
2 – 40
Four International
Operations Strategies
High
Global Strategy Transnational Strategy
 Standardized product  Move material, people, ideas
Cost Reduction Considerations

 Economies of scale across national boundaries


 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

International Strategy Multidomestic Strategy


 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 41