Operations

Management
Operations Strategy in a Global
Environment
Chapter 2
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 Outline
 GLOBAL COMPANY PROFILE: BOEING
 DEVELOPING MISSIONS AND STRATEGIES
 Mission
 Strategy
 ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
 Competing on Differentiation
 Competing on Cost
 Competing on Response
 TEN STRATEGIC OM DECISIONS
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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

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 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

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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
 GM is building four similar plants in Argentina,
Poland, China, and Thailand
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 Management Issues in
Global Operations

Global Strategic Context

 Differentiation
 Cost leadership
 Response

Supply Chain Location Logistics

Management Decisions Management

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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 cross-border
transactions
 Multinational Corporation - has extensive involvement in
international business, owning or controlling facilities in
more than one country

 Global company - integrates operations from different

countries, and views world as a single marketplace
 Transnational company - seeks to combine the benefits of
global-scale efficiencies with the benefits of local
responsiveness
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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
Attract and retain global talent
Intangible

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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

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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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 You May Wish To Consider

 national literacy rate  work ethic

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

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 Ranking Corruption
1. Finland 9.7
2.
… Denmark & New Zealand (Tie) 9.5
7.
… Canada 9.0
10.
… United Kingdom 8.7
16.
… United States 7.7
18.
… Germany & Israel (Tie) 7.3
20.
… Japan 7.1
31.
… Italy 5.2
59.
… China 3.5
62. Egypt 3.4
…
71. India & Russia (Tie) 2.7
…
101. Nigeria 1.6
102. Bangladesh 1.2
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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 to reach global customers

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

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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
the organization

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 Developing Missions and
Strategies

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 Mission

 Mission - where are you

going?
 Organization’s 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-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.

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 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

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 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.

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 Factors Affecting Mission

Philosophy &
Values

Profitability
Environment
& Growth
Mission

Customers Public Image

Benefit to
Society

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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 © 1995 Corel Corp.

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 Strategy Process
Company
Mission

Business
Strategy

Functional
Functional Area
Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions 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 customer’s
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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 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Quality FLEXIBILITY
Sony’s constant innovation of new products Design
Product HP’s ability to follow the printer market Volume

Process Southwest Airlines No-frills service LOW COST

Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
Layout Federal Express’s “absolutely, positively on time” Dependability Differentiation
(Better)
Human Resource
QUALITY
Motorola’s automotive products ignition systems Conformance Response
Supply Chain Cost (Faster)
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

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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
 Maintenance

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 Goods & Services and the 10 OM
Decisions
Operations Goods Services
Decisions
Goods & Product is usually Product is usually
services tangible intangible
decisions
Quality Objective quality Subjective quality
standards standards
Process Customer not involved Customer may be directly
and in most of process involved in process.
capacity Capacity must match
design demand to avoid lost sales
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 Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Location May need to be near raw Product is usually
Selection materials or labor force intangible
Layout Layout can enhance Subjective quality
Design production efficiency standards
Human Workforce focused on Customer may be directly
Resources technical skills. involved in process.
and Job Labor standards consistent. Capacity matches
Design Output-based wage system. demand to avoid lost
sales

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 Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Supply chain Supply-chain Supply-chain relationships
management relationships critical to important, not necessarily
final product critical
Inventory Raw materials, work- Most services cannot be
in-process, and stored
finished goods
Scheduling Ability to convert Primarily concerned with
inventory may allow meeting the customer's
leveling of production immediate schedule
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Principles of Operations Management, 5e, and Operations
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 Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Maintenance Maintenance is often Maintenance is often
preventive and takes "repair" and takes place at
place at the production the customer's site
site

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

Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low Moderate High
Volume
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 Preconditions -
To Implement a Strategy
One must understand:
 Strengths & weaknesses of competitors and new
entrants into the market
 Current and prospective environmental, legal, and
economic issues
 The notion of product life cycle
 Resources available with the firm and within the OM
function
 Integration of OM strategy with company strategy and
with other functions.
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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 External
Strengths Opportunities
Strategy

Internal External
Weaknesses Threats
Competitive
Advantage
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 Identifying
Critical Success Factors
Marketing Finance/Accounting Production/Operations
Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

Decisions Sample Option Chapter

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

Short haul, point-to-point

Lean, productive
routes, often to secondary
employees
Competitive Advantage: airports
Low Cost
High aircraft Frequent, reliable
utilization schedules
Standardized fleet of
Boeing 737 aircraft

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

No seat assignments
No baggage transfers
Automated ticketing machines
No meals

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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

Lower gate costs at

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

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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

High number of flights reduces

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

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

Standardized fleet of
Boeing 737 aircraft

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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

Flexible employees and

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

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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

High level of stock ownership

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

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

Lean, productive Short haul, point-to-point

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

High aircraft Frequent, reliable

utilization schedules
Standardized fleet of
Boeing 737 aircraft

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 Southwest Airline’s Low Cost
Competitive Advantage

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 Vanguard’s Activity System
A broad array of mutual
funds excluding some fund
categories
Very low
Efficient investment
expenses
management approach
passed on to
offering good consistent
client
performance
Strict cost
control

Direct Straightforward client

distributions communication and
education

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 How It Works

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

Business
Strategy

Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

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 Four International Operations
Strategies

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 Multidomestic Strategy

Operating decisions are decentralized to each

country to enhance local responsiveness

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 Global Strategy

Operating decisions are centralized and

headquarters coordinates the standardization
and learning between facilities

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 Transnational Strategies

Combines the benefits of global-scale efficiencies

with the benefits of local responsiveness

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 International Strategy

Global markets are penetrated using exports and

licenses

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