2. OM Strategy Chapter 2.ppt

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Heizer, Render, Griffin Operations Management Canadian Edition

Chapter 2: Operations Strategy in a Global Environment

Copyright © 2014 Pearson Canada Inc

Slides adapted for Canada by Mats Gerschman

2 - 2Copyright © 2014 Pearson Canada Inc

OutlineOutline Global Company Profile: Boeing A Global View of Operations Developing Missions and

Strategies Achieving Competitive Advantage

Through Operations Ten Strategic OM Decisions


Outline Outline –– Continued Continued Issues in Operations Strategy Strategy Development and

Implementation Global Operations Strategy

Options


Learning ObjectivesLearning Objectives

1. Define mission and strategy2. Identify and explain three strategic

approaches to competitive advantage

3. Identify and define the 10 decisions of operations management

When you complete this chapter you When you complete this chapter you should be able to:should be able to:


Learning ObjectivesLearning Objectives

4. Understand the significance of key success factors and core competencies

5. Identify and explain four global operations strategy options

When you complete this chapter you When you complete this chapter you should be able to:should be able to:


Some Boeing Suppliers (787)Some Boeing Suppliers (787)Firm Country ComponentLatecoere France Passenger doorsLabinel France WiringDassault France Design and

PLM softwareMessier-Bugatti France Electric brakesThales France Electrical power

conversion system and integrated standby flight display

Messier-Dowty France Landing gear structureDiehl Germany Interior lighting


Some Boeing Suppliers (787)Some Boeing Suppliers (787)Firm Country Component

Rolls-Royce UK Engines

BAE SYSTEMS UK ElectronicsAlenia Aeronautics Italy Upper centre

fuselage and horizontal stabilizer

Kawasaki Heavy Japan Forward fuselage, Industries fixed section of wing,

landing gear wellToray Industries Japan Carbon fibre for

wing and tail unitsChengdu Aircraft China Rudder Group


Global StrategiesGlobal 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


Global StrategiesGlobal Strategies Volvo – a Swedish company, it was

controlled by an American company, Ford, and is now owned by Geely of China. 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


35 –

30 –

25 –

20 –

15 –

10 –

5 –

0 –| | | | | | | | | | |1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*)

Year

Perc

ent

Growth of World TradeGrowth of World Trade

Figure 2.1

Collapse of the Berlin Wall


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize1. Reduce costs (labour, taxes, tariffs, etc.)2. Improve the supply chain3. Provide better goods and services4. Understand markets5. Learn to improve operations6. Attract and retain global talent

Tangible Reasons

Intangible Reasons


Reduce CostsReduce Costs Foreign locations with lower wage

rates can lower direct and indirect costs Maquiladoras World Trade Organization (WTO) North American Free Trade

Agreement (NAFTA) APEC, SEATO, MERCOSUR, CAFTA European Union (EU)


Improve the Supply ChainImprove the Supply Chain

Locating facilities closer to unique resources Metal companies to Northern

Ontario Auto design to California Athletic shoe production to China Perfume manufacturing in France


Provide Better Goods Provide Better Goods and Servicesand Services

Objective and subjective characteristics of goods and services On-time deliveries Cultural variables Improved customer service


Understand MarketsUnderstand Markets Interacting with foreign customers

and suppliers can lead to new opportunities Cell phone design from Europe Cell phone fads from Japan Extend the product life cycle


Learn to Improve Learn to Improve OperationsOperations

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

Japanese auto manufacturer to learn new approaches to production and inventory control

Equipment and layout have been improved using Scandinavian ergonomic competence


Attract and Retain Global Attract and Retain Global TalentTalent

Offer better employment opportunities Better growth opportunities and

insulation against unemployment Relocate unneeded personnel to

more prosperous locations


Cultural and Ethical IssuesCultural and Ethical Issues Cultures can be quite different Attitudes can be quite different

towards Punctuality Lunch breaks Environment Intellectual

property

Thievery Bribery Child labour


Companies Want To ConsiderCompanies Want To Consider National literacy rate Rate of innovation Rate of technology

change Number of skilled

workers Political stability Product liability laws Export restrictions Variations in language

Work ethic Tax rates Inflation Availability of raw

materials Interest rates Population Number of miles of

highway Phone system


Developing Missions and Developing Missions and StrategiesStrategies

MissionMission statements tell an organization where it is going

The StrategyStrategy tells the organization how to get there

2 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall

MissionMission

Mission - where are you going? Organization’s

purpose for being Answers ‘What do

we provide society?’ Provides boundaries

and focus

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Telfer School of Telfer School of Management VisionManagement Vision

The Telfer School of Management at the University of Ottawa aims to be recognized as a leading institution for management education and innovative research. Through its academic programs, offered in both English and French, the Telfer School seeks to prepare its students to assume leadership positions in today’s global economy and to instill in them the highest standards of integrity, ethics and social consciousness.

© 2011 Pearson Education, Inc. publishing as Prentice Hall

2 - 23

Telfer School of Telfer School of Management MissionManagement Mission

The Telfer School of Management seeks to provide its students with: Strong analytical, communication and

leadership skills; The ability to perform in a culturally

diverse workplace; The capability to apply and integrate

knowledge from the core disciplines of management.


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Telfer School of Telfer School of Management MissionManagement Mission

The Telfer School of Management seeks to add value to external stakeholders by:

Leveraging the unique resources of the National Capital Region to undertake and disseminate basic and applied research in distinctive areas of management of relevance to national and international organizations.

Engaging in activities that build and strengthen partnerships with its many constituents in the technology, health, non-profit and governmental sectors across Canada and internationally.



Royal Canadian Mounted Royal Canadian Mounted PolicePolice

The RCMP is Canada’s national police service. Proud in our traditions and

confident in meeting future challenges, we commit to preserve peace, uphold the law and provide quality service in

partnership with our communities.

Figure 2.2


Hard Rock CafeHard Rock Cafe

Our Mission: To spread the spirit of rock ’n’ roll by creating authentic

experiences that rock

Figure 2.2


Arnold Palmer HospitalArnold Palmer Hospital

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


Benefit to Society

Mission

Factors Affecting MissionFactors Affecting MissionPhilosophy and Values

Profitability and GrowthEnvironment

Customers Public Image


Sample MissionsSample 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



Figure 2.3

Sample OM Department MissionsProduct 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, design, and 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

Sample OM Department MissionsLocation 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

Sample OM Department MissionsSupply-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.


StrategyStrategy Action plan to

achieve mission Functional areas

have strategies Strategies exploit

opportunities and strengths, neutralize threats, and avoid weaknesses

2 - 34ADM 3301 ~ Rim Jaber

STRATEGY PROCESSSTRATEGY PROCESSCompanyMission

BusinessStrategy

Functional AreaStrategies

MarketingDecisions

OperationsDecisions

SW OTAnalysis

EnvironmentalAnalysis

Fin./Acct.Decisions


Strategies for Competitive Strategies for Competitive AdvantageAdvantage

Differentiation – better, or at least different

Cost leadership – cheaper Response – rapid response


Competing on Competing on DifferentiationDifferentiation

Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customers’ perception

of value Safeskin gloves – leading edge products Walt Disney Magic Kingdom –

experience differentiation Hard Rock Café – dining experience


Competing on CostCompeting on CostProvide the maximum value as

perceived by customer. Does not imply low quality.

Porter Airlines – secondary airports, few fare options, smaller crews, no expensive ticket offices

Walmart – small overhead, shrinkage, distribution costs

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


Competing on ResponseCompeting on Response Flexibility is matching market changes in

design innovation and volumes A way of life at Hewlett-Packard

Reliability is meeting schedules German machine industry

Timeliness is quickness in design, production, and delivery Johnson Electric, Pizza Hut, Motorola


OM’s Contribution to StrategyOM’s Contribution to Strategy

Figure 2.4


Ten Strategic OM DecisionsTen Strategic OM Decisions

1. Goods and service design

2. Quality 3. Process and

capacity design4. Location

selection5. Layout design

6. Human resources and job design

7. Supply-chain management

8. Inventory9. Scheduling10. Maintenance


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

OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesGoods and service design

Product is usually tangible

Product is not tangible

Quality Many objective standards

Many subjective standards

Process and capacity design

Customer not involved

Customer may be directly involvedCapacity must match demand

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesLocation selection

Near raw materials and labour

Near customers

Layout design

Production efficiency

Enhances product and production

Human resources and job design

Technical skills, consistent labour standards, output based wages

Interact with customers, labour standards vary

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesSupply chain

Relationship critical to final product

Important, but may not be critical

Inventory Raw materials, work-in-process, and finished goods may be held

Cannot be stored

Scheduling Level schedules possible

Meet immediate customer demand

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesMaintenance Often preventive

and takes place at production site

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

Table 2.1


Managing Global Service Managing Global Service OperationsOperations

Capacity planning Location planning Facilities design and layout Scheduling

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


Operations Strategies of Operations Strategies of Two Drug CompaniesTwo Drug Companies

Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.

Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost

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 Major priority, exceed regulatory requirements

Meets regulatory requirements on a country by country basis

Table 2.2





Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand

Process focused; general processes; “job shop” approach, short-run production; focus on high utilization

Location Still located in the city where it was founded

Recently moved to low-tax, low-labor-cost environment

Table 2.2





Scheduling Centralized production planning

Many short-run products complicate scheduling

Layout Layout supports automated product-focused production

Layout supports process-focused “job shop” practices

Table 2.2





Human Resources

Hire the best; nationwide searches

Very experienced top executives; other personnel paid below industry average

Supply Chain Long-term supplier relationships

Tends to purchase competitively to find bargains

Table 2.2





Inventory High finished goods inventory to ensure all demands are met

Process focus drives up work-in-process inventory; finished goods inventory tends to be low

Maintenance Highly trained staff; extensive parts inventory

Highly trained staff to meet changing demand

Table 2.2


Issues In Operations StrategyIssues In Operations Strategy

Resources view Value-chain analysis Porter’s five forces model Operating in a system with many

external factors Constant change


Product Life CycleProduct Life CycleBest period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Com

pany

Str

ateg

y/Is

sues

Figure 2.5

Internet search engines

Sales

Drive-thru restaurants

CD-ROMs

Analogue TVs

iPods

Boeing 787

LCD and plasma TVs

Twitter

Avatars

Xbox 360


Product Life CycleProduct Life CycleProduct design and development criticalFrequent product and process design changesShort production runsHigh production costsLimited modelsAttention to quality

Introduction Growth Maturity Decline

OM

Str

ateg

y/Is

sues

Forecasting criticalProduct and process reliabilityCompetitive product improvements and optionsIncrease capacityShift toward product focusEnhance distribution

StandardizationFewer product changes, more minor changesOptimum capacityIncreasing stability of processLong production runsProduct improvement and cost cutting

Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returning good marginReduce capacity

Figure 2.5


Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission


Strategy Development ProcessStrategy Development Process

Determine the 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.

Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.

Figure 2.6


Strategy Development and Strategy Development and ImplementationImplementation

Identify key 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


Key Success FactorsKey Success Factors

Production/Operations

Figure 2.7

Marketing

ServiceDistributionPromotionChannels of distributionProduct positioning (image, functions)

Finance/Accounting

LeverageCost of capitalWorking capitalReceivablesPayablesFinancial controlLines of credit

Decisions Sample Options Chapter

ProductQualityProcessLocationLayoutHuman resourceSupply chainInventoryScheduleMaintenance

Customized or standardizedDefine customer expectations and how to achieve themFacility size, technology, capacityNear supplier or near customerWork cells or assembly lineSpecialized or enriched jobsSingle or multiple suppliersWhen to reorder, how much to keep on handStable or fluctuating production rateRepair as required or preventive maintenance

56, S67, S7

89

1011, S11

12, 14, 1613, 15

17

Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas

2 - 58ADM 3301 ~ Rim Jaber

THE PLANNING THE PLANNING CONTINUUMCONTINUUM

Strategic planning Tactical Planninglong time horizonless certaintyless structuredpoorly defined information requirementsirreversible impactfocus on the whole

short time horizonmore certaintymore structuredwell-defined information requirementsreversible impactfocus on parts


Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing

737 Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Activity Mapping atActivity Mapping atSouthwest AirlinesSouthwest Airlines




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Automated ticketing machinesNo seat assignmentsNo baggage transfersNo meals (peanuts)




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

No meals (peanuts)Lower gate costs at secondary airports

High number of flights reduces employee idle time

between flights




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

High number of flights reduces employee idle time

between flightsSaturate a city with flights,

lowering administrative costs (advertising, HR, etc.) per passenger for that cityPilot training required on only one type of aircraftReduced maintenance

inventory required because of only one type of aircraft




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Pilot training required on only one type of aircraftReduced maintenance

inventory required because of only one type of aircraftExcellent supplier relations

with Boeing has aided financing




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Reduced maintenance inventory required because of only one type of aircraft

Flexible employees and standard planes aid

schedulingMaintenance personnel trained only one type of

aircraft20-minute gate turnarounds

Flexible union contracts




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Automated ticketing machines

Empowered employeesHigh employee compensation

Hire for attitude, then trainHigh level of stock

ownershipHigh number of flights

reduces employee idle time between flights


Four International Four International Operations StrategiesOperations StrategiesC

ost R

educ

tion

Con

side

ratio

ns

High

Low

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

International StrategyImport/export or

license existing product

ExamplesU.S. SteelHarley Davidson

Figure 2.9



ost R

educ

tion

Con

side

ratio

ns

High

Low



Standardized productEconomies of scaleCross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

International StrategyImport/export or

license existing product


Figure 2.9



ost R

educ

tion

Con

side

ratio

ns

High

Low



Standardized product Economies of scale Cross-cultural learning


Global Strategy

International Strategy

Import/export or license existing product


Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Café

Figure 2.9



ost R

educ

tion

Con

side

ratio

ns

High

Low



Standardized product Economies of scale Cross-cultural learning


Global Strategy Transnational Strategy Movement of material, people,

ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé

International Strategy

Import/export or license existing product


Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9


Ethics: Ranking CorruptionEthics: Ranking CorruptionRank Country 2011 CPI Score (out of

10)1 New Zealand 9.52 Denmark, Finland 9.45 Singapore 9.26 Norway 9.08 Australia, Switzerland 8.810 Canada 8.712 Hong Kong 8.414 Germany, Japan 8.016 UK 7.824 USA 7.132 Taiwan 6.143 South Korea 5.460 Malaysia 4.375 China 3.6112 Vietnam 2.9143 Russia 2.4

Least Corrupt

Most Corrupt

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SummarySummary Global operations provide challenges and

opportunities Organizations identify their strengths and

weaknesses Missions and strategies are then developed Competitive advantages can be achieved

from global operations OM managers have huge impact on the

decision making

Copyright © 2014 Pearson Canada Inc

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