© 2008 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Operations Strategy in a...

© 2008 Prentice Hall, Inc. 2 – 1

Operations ManagementOperations ManagementChapter 2 – Chapter 2 – Operations Strategy in Operations Strategy in a Global Environmenta Global Environment

Delivered by:Delivered by: Eng.Mosab I. TabashEng.Mosab I. Tabash


OutlineOutline

Global Company Profile: BoeingGlobal Company Profile: Boeing

A Global View of OperationsA Global View of OperationsCultural and Ethical IssuesCultural and Ethical Issues

Developing Missions And Developing Missions And StrategiesStrategiesMissionMission

StrategyStrategy


Outline Outline –– Continued Continued

Achieving Competitive Advantage Achieving Competitive Advantage Through OperationsThrough OperationsCompeting On DifferentiationCompeting On Differentiation

Competing On CostCompeting On Cost

Competing On ResponseCompeting On Response

Ten Strategic OM DecisionsTen Strategic OM Decisions



Issues In Operations StrategyIssues In Operations StrategyResearchResearch

PreconditionsPreconditions

DynamicsDynamics



Strategy Development and Strategy Development and ImplementationImplementationCritical Success Factors and Core Critical Success Factors and Core

CompetenciesCompetencies

Build and Staff the OrganizationBuild and Staff the Organization

Integrate OM with Other ActivitiesIntegrate OM with Other Activities


Global Operations Strategy Global Operations Strategy OptionsOptions International StrategyInternational Strategy

Multidomestic StrategyMultidomestic Strategy

Global StrategyGlobal Strategy

Transnational StrategyTransnational Strategy


Global StrategiesGlobal Strategies

Boeing – sales and production are Boeing – sales and production are worldwideworldwide

Sony – purchases components from Sony – purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world


Global StrategiesGlobal Strategies

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

Haier – A Chinese company, Haier – A Chinese company, produces compact refrigerators (it produces compact refrigerators (it has one-third of the US market) has one-third of the US market)


Some Multinational Some Multinational CorporationsCorporations

% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside

HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce

CiticorpCiticorp USAUSA 3434 4646 NANA

Colgate-Colgate- USAUSA 7272 6363 NANAPalmolivePalmolive

Dow Dow USAUSA 6060 5050 NANAChemicalChemical

GilletteGillette USAUSA 6262 5353 NANA

HondaHonda JapanJapan 6363 3636 NANA

IBMIBM USAUSA 5757 4747 5151


Defining Global OperationsDefining Global Operations

• International business - engages in cross-border International business - engages in cross-border transactionstransactions

• Multinational Corporation - has Multinational Corporation - has extensiveextensive involvement in international business, owning or involvement in international business, owning or controlling facilities in more than one countrycontrolling facilities in more than one country

• Global company - integrates operations from Global company - integrates operations from different countries, and views world as a single different countries, and views world as a single marketplacemarketplace

• Transnational company - seeks to combine the Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of global-scale efficiencies with the benefits of local responsivenessbenefits of local responsiveness


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize

1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)

2.2. Improve supply chainImprove supply chain

3.3. Provide better goods and servicesProvide better goods and services

4.4. Understand marketsUnderstand markets

5.5. Learn to improve operationsLearn to improve operations

6.6. Attract and retain global talentAttract and retain global talent

Tangible Tangible ReasonsReasons

Intangible Intangible ReasonsReasons


Reduce CostsReduce Costs

Foreign locations with lower wage Foreign locations with lower wage rates can lower direct and indirect rates can lower direct and indirect costscostsWorld Trade Organization (WTO)World Trade Organization (WTO)

North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)

APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR

European Union (EU)European Union (EU)


Improve the Supply ChainImprove the Supply Chain

Locating facilities closer to Locating facilities closer to unique resourcesunique resourcesAuto design to CaliforniaAuto design to California

Athletic shoe production to ChinaAthletic shoe production to China

Perfume manufacturing in FrancePerfume manufacturing in France


Provide Better Goods Provide Better Goods and Servicesand Services

Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservicesOn-time deliveriesOn-time deliveries

Cultural variablesCultural variables

Improved customer serviceImproved customer service


Understand MarketsUnderstand Markets

Interacting with foreign customers Interacting with foreign customers and suppliers can lead to new and suppliers can lead to new opportunitiesopportunitiesCell phone Cell phone

design from design from EuropeEurope

Cell phone Cell phone fads from fads from JapanJapan

Extend the product life cycleExtend the product life cycle


Learn to Improve OperationsLearn to Improve Operations

Remain open to the free flow of Remain open to the free flow of ideasideasGeneral Motors partnered with a General Motors partnered with a

Japanese auto manufacturer to Japanese auto manufacturer to learnlearn

Equipment and layout have been Equipment and layout have been improved using ergonomic improved using ergonomic competencecompetence


Attract and Retain Global Attract and Retain Global TalentTalent

Offer better employment Offer better employment opportunitiesopportunitiesBetter growth opportunities and Better growth opportunities and

insulation against unemploymentinsulation against unemployment

Relocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locations

Incentives for people who like to Incentives for people who like to travel travel


Cultural and Ethical IssuesCultural and Ethical Issues

Cultures can be quite differentCultures can be quite different

Attitudes can be quite different Attitudes can be quite different towards towards

PunctualityPunctuality

EnvironmentEnvironment


Developing Missions and Developing Missions and StrategiesStrategies

MissionMission statements tell an statements tell an organization where it is goingorganization where it is going

The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there


MissionMission

Mission - where are Mission - where are you going?you going?Organization’s Organization’s

purpose for beingpurpose for being

Answers ‘What do Answers ‘What do we provide society?’we provide society?’

Provides boundaries Provides boundaries and focusand focus


Benefit to Society

Mission

Factors Affecting MissionFactors Affecting Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image


Sample MissionsSample Missions

Sample Company MissionSample Company Mission

To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.

Sample Operations Management MissionSample Operations Management Mission

To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.

Figure 2.3Figure 2.3



Islamic university missionIslamic university mission


Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission


StrategyStrategy

Action plan to Action plan to achieve missionachieve mission

Functional areas Functional areas have strategieshave strategies

Strategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses


Strategies for Competitive Strategies for Competitive AdvantageAdvantage

Differentiation – better, or at least Differentiation – better, or at least differentdifferent

Cost leadership Cost leadership –– cheaper cheaper

Response – rapid responseResponse – rapid response


Competing on Competing on DifferentiationDifferentiation

Uniqueness can go beyond both the Uniqueness can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything

that impacts customer’s perception of that impacts customer’s perception of valuevalue

Safeskin gloves – leading edge productsSafeskin gloves – leading edge products

Walt Disney Magic Kingdom – Walt Disney Magic Kingdom – experience differentiationexperience differentiation

Hard Rock Cafe – dining experienceHard Rock Cafe – dining experience


Competing on CostCompeting on Cost

Provide the maximum value as Provide the maximum value as perceived by customer. Does not perceived by customer. Does not

imply low quality.imply low quality.

Southwest Airlines – secondary Southwest Airlines – secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipment

Wal-Mart – small overheads,, Wal-Mart – small overheads,, distribution costsdistribution costs

Franz Colruyt – no bags, low light, no Franz Colruyt – no bags, low light, no music, doors on freezersmusic, doors on freezers


Competing on ResponseCompeting on Response

Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes

Reliability is meeting schedulesReliability is meeting schedules German machine industryGerman machine industry

Timeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery Johnson Electric, Johnson Electric,

Bennigan’s, MotorolaBennigan’s, Motorola


10 Strategic OM Decisions10 Strategic OM Decisions

1.1. Goods and Goods and service design service design

2.2. Quality Quality

3.3. Process and Process and capacity designcapacity design

4.4. Location Location selectionselection

5.5. Layout designLayout design

6.6. Human resources Human resources and job designand job design

7.7. Supply chain Supply chain managementmanagement

8.8. InventoryInventory

9.9. SchedulingScheduling

10.10. MaintenanceMaintenance


Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions

OperationsOperationsDecisionsDecisions GoodsGoods ServicesServices

Goods and Goods and service service designdesign

Product is usually Product is usually tangibletangible

Product is not Product is not tangibletangible

QualityQuality Many objective Many objective standardsstandards

Many subjective Many subjective standardsstandards

Process Process and and capacity capacity designdesign

Customers not Customers not involvedinvolved

Customer may be Customer may be directly involveddirectly involved

Capacity must Capacity must match demandmatch demand

Table 2.1Table 2.1




Location Location selectionselection

Near raw Near raw materials and materials and laborlabor

Near customersNear customers

Layout Layout designdesign

Production Production efficiencyefficiency

Enhances product Enhances product and productionand production

Human Human resources resources and job and job designdesign

Technical skills, Technical skills, consistent labor consistent labor standards, output standards, output based wagesbased wages

Interact with Interact with customers, labor customers, labor standards varystandards vary

Table 2.1Table 2.1




Supply Supply chain chain

Relationship Relationship critical to final critical to final productproduct

Important, but Important, but may not be may not be criticalcritical

InventoryInventory Raw materials, Raw materials, work-in-process, work-in-process, and finished and finished goods may be goods may be heldheld

Cannot be storedCannot be stored

SchedulingScheduling Level schedules Level schedules possiblepossible

Meet immediate Meet immediate customer demandcustomer demand

Table 2.1Table 2.1




MaintenanceMaintenance Often preventive Often preventive and takes place and takes place at production siteat production site

Often “repair” and Often “repair” and takes place at takes place at customer’s sitecustomer’s site

Table 2.1Table 2.1


Managing Global Service Managing Global Service OperationsOperations

Capacity planningCapacity planning

Location planningLocation planning

Facilities design and layoutFacilities design and layout

SchedulingScheduling

Requires a different perspective on:Requires a different perspective on:



Capacity is the highest reasonable output rate Capacity is the highest reasonable output rate which can be achieved with the current product which can be achieved with the current product specifications, workforce, plant and equipment.specifications, workforce, plant and equipment.

Two distinct ways to view capacity.Two distinct ways to view capacity.

• Design capacityDesign capacity

• Effective capacityEffective capacity

What is the difference ?What is the difference ?



• Design capacity is the maximum possible rate Design capacity is the maximum possible rate of output that can be achieved .of output that can be achieved .

• Effective capacity is the rate of output that a Effective capacity is the rate of output that a firm is capable of achieving. Given process firm is capable of achieving. Given process limitation such as preventive limitation such as preventive maintenance ,downtime, setup timemaintenance ,downtime, setup time . .

• Actual output rate will be less than effective Actual output rate will be less than effective capacity when production losses ,like what capacity when production losses ,like what losses?losses?


How to calculate design, effective How to calculate design, effective capacity ,efficiency and utilizationcapacity ,efficiency and utilization

• Suppose that a small machine shop, designed to Suppose that a small machine shop, designed to operate one shift per day, five days per week, can operate one shift per day, five days per week, can produce 500 units per shift with its current equipment produce 500 units per shift with its current equipment and workforce.and workforce.

What is design capacity?What is design capacity?

What is effective capacity if 10 percent of productive What is effective capacity if 10 percent of productive time used for preventive maintenance and setup time used for preventive maintenance and setup time?time?

If actual output 2000 units/week. Calculate efficiency If actual output 2000 units/week. Calculate efficiency and utilization ? and utilization ?


CalculationsCalculationsDesign capacity:Design capacity:

(500 units/shift)(500 units/shift)**(1 shift/day)(5 days/week)=2500 (1 shift/day)(5 days/week)=2500 units/weekunits/week

Effective capacity = 0.9*2500= 2250 units/weekEffective capacity = 0.9*2500= 2250 units/week

Efficiency=actual output/effective capacityEfficiency=actual output/effective capacity

= 2000/2250= 88.9%= 2000/2250= 88.9%

Utilization =Utilization =actual output/design capacityactual output/design capacity

= 2000/2500=80%= 2000/2500=80%

Which we can improve design or effective capacity?Which we can improve design or effective capacity?


Process DesignProcess Design

LowLow ModerateModerate HighHighVolumeVolume

HighHigh

ModerateModerate

LowLow

Var

iety

of

Pro

du

cts

Var

iety

of

Pro

du

cts

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances,

TVs, Product focused

CONTINUOUS(steel, beer, paper,

bread,

Mass CustomizationCustomization at high

Volume(Dell Computer’s PC,


Issues In Operations StrategyIssues In Operations Strategy

Research about effective Research about effective operations management operations management strategiesstrategies

Preconditions for developing Preconditions for developing effective OM strategieseffective OM strategies

The dynamics of OM strategy The dynamics of OM strategy developmentdevelopment


Characteristics of Characteristics of High ROI FirmsHigh ROI Firms

High product quality High product quality

High capacity utilizationHigh capacity utilization

High operating efficiencyHigh operating efficiency

Low investment intensityLow investment intensity

Low direct cost per unitLow direct cost per unit

From the PIMS program of the Strategic Planning InstituteFrom the PIMS program of the Strategic Planning Institute


Strategic Options to Gain a Strategic Options to Gain a Competitive AdvantageCompetitive Advantage

28% - Operations Management28% - Operations Management

18% - Marketing/distribution18% - Marketing/distribution

17% - Momentum/name recognition17% - Momentum/name recognition

16% - Quality/service16% - Quality/service

14% - Good management14% - Good management

4% - Financial resources4% - Financial resources

3% - Other3% - Other


PreconditionsPreconditions

Strengths and weaknesses of competitors and Strengths and weaknesses of competitors and possible new entrants into the marketpossible new entrants into the market

Current and prospective environmental, Current and prospective environmental, technological, legal, and economic issuestechnological, legal, and economic issues

The product life cycleThe product life cycle

Resources available within the firm and within Resources available within the firm and within the OM functionthe OM function

Integration of OM strategy with company’s Integration of OM strategy with company’s strategy and with other functional areasstrategy and with other functional areas

One must understand:One must understand:

45

is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within corporation.

Environmental Scanning

46

The Components of a Company’s Macro-Environment

MACROENVIRONMENT

Legislation and

Regulation

Societal Values

and LifestylesPopulatio

n

Demographics

Technology

The Economy at Large

COMPANY

Suppliers Substitutes

Buyers

NewEntrants

Rival Firms

IMMEDIATE INDUSTRY

AND COMPETITIVE ENVIRONMENT

47

PEST analysis

•What environmental factors are effecting organization?

•Which of these are the most important at the present time?

•Whish of these can become important in

the next few years?

48

The Five-Forces Model of Competition (Porter’s approach)

Potential development of substitute products

Rivalry among competing firms

Bargaining power of suppliers

Potential entry of new competitors

Bargaining power of consumers


Dynamics of Dynamics of Strategic ChangeStrategic Change

Changes within the organizationChanges within the organization PersonnelPersonnel FinanceFinance TechnologyTechnology Product lifeProduct life

Changes in the environmentChanges in the environment


Product Life CycleProduct Life Cycle

Best period to Best period to increase market increase market shareshare

R&D engineering is R&D engineering is criticalcritical

Practical to change Practical to change price or quality price or quality imageimage

Strengthen nicheStrengthen niche

Poor time to Poor time to change image, change image, price, or qualityprice, or quality

Competitive costs Competitive costs become criticalbecome criticalDefend market Defend market positionposition

Cost control Cost control criticalcritical

Introduction Growth Maturity Decline

Co

mp

an

y S

tra

teg

y/Is

sue

sC

om

pa

ny

Str

ate

gy/

Issu

es


Internet search enginesInternet search engines

SalesSales

Xbox 360Xbox 360

Drive-through Drive-through restaurantsrestaurants

CD-ROMsCD-ROMs

3 1/2” 3 1/2” Floppy Floppy disksdisks

LCD & plasma TVsLCD & plasma TVsAnalog TVsAnalog TVs

iPodsiPods


Product Life CycleProduct Life Cycle

Product design Product design and and development development criticalcritical

Frequent Frequent product and product and process design process design changeschanges

Short production Short production runsruns

High production High production costscosts

Limited modelsLimited models

Attention to Attention to qualityquality

Introduction Growth Maturity Decline

OM

Str

ate

gy

/Issu

es

OM

Str

ate

gy

/Issu

es

Forecasting Forecasting criticalcritical

Product and Product and process process reliabilityreliability

Competitive Competitive product product improvements improvements and optionsand options

Increase capacityIncrease capacity

Shift toward Shift toward product focusproduct focus

Enhance Enhance distributiondistribution

StandardizationStandardization

Less rapid Less rapid product changes product changes – more minor – more minor changeschanges

Optimum Optimum capacitycapacity

Increasing Increasing stability of stability of processprocess

Long production Long production runsruns

Product Product improvement and improvement and cost cuttingcost cutting

Little product Little product differentiationdifferentiation

Cost Cost minimizationminimization

Overcapacity Overcapacity in the in the industryindustry

Prune line to Prune line to eliminate eliminate items not items not returning returning good margingood margin

Reduce Reduce capacitycapacity



Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission


Strategy Development ProcessStrategy Development Process

Determine Corporate MissionState the reason for the firm’s existence and identify the

value it wishes to create.

Form a StrategyBuild a competitive advantage, such as low price, design, or

volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.

Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.



Strategy Development and Strategy Development and ImplementationImplementation

Identify critical success factorsIdentify critical success factors

Build and staff the organizationBuild and staff the organization

Integrate OM with other activitiesIntegrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity


Four International Four International Operations StrategiesOperations Strategies

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HighHigh

LowLow

HighHighLowLow

Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy



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HighHigh

LowLow

HighHighLowLow






International StrategyInternational Strategy




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Red

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HighHigh

LowLow

HighHighLowLow


Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy



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Red

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HighHigh

LowLow

HighHighLowLow


Standardized product Economies of scale Cross-cultural learning


Global Strategy












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HighHigh

LowLow

HighHighLowLow


Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy



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HighHigh

LowLow

HighHighLowLow




Global Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe







subsidiaries






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HighHigh

LowLow

HighHighLowLow


Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy



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HighHigh

LowLow

HighHighLowLow




Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé






subsidiaries


© 2008 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Operations Strategy in a...

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