Operations Strategy in a Global Environment
2 The Global Environment and Operations Strategy PowerPoint presentation to accompany Heizer and Render Operations Management, 10e, Global Edition Principles of Operations Management, 8e, Global Edition PowerPoint slides by Jeff Heyl © 2011 Pearson Education 2-1 Outline Global Company Profile: Boeing A Global View of Operations Developing Missions And Strategies Achieving Competitive Advantage Through Operations strategy (differentiation ,cost ,and response) Ten Strategic OM Decisions Strategy Development and Implementation Global Operations Strategy options (international – multinational – global - transnational ) © 2011 Pearson Education 2-2 Learning Objectives By the end of this chapter you should be able to: 1. Define mission and strategy 2. Identify and explain three strategic approaches to competitive advantage 3. Identify and define the 10 decisions of OM 4. Understand the significant key success factors and core competencies 5. Identify and explain four global operations strategy options © 2011 Pearson Education 2-3 Global company Some Boeing Suppliers (787) Firm Latecoere Labinel Dassault Country France France France Messier-Bugatti Thales France France Messier-Dowty Diehl France Germany © 2011 Pearson Education Component Passenger doors Wiring Design and PLM software Electric brakes Electrical power conversion system and integrated standby flight display Landing gear structure Interior lighting 2-4 Some Boeing Suppliers (787) Firm Cobham Rolls-Royce Smiths Aerospace Country UK UK UK BAE SYSTEMS Alenia Aeronautics UK Italy Toray Industries Japan © 2011 Pearson Education Component Fuel pumps and valves Engines Central computer system Electronics Upper center fuselage & horizontal stabilizer Carbon fiber for wing and tail units 2-5 Some Boeing Suppliers (787) Firm Fuji Heavy Industries Kawasaki Heavy Industries Country Japan Component Center wing box Japan Teijin Seiki Mitsubishi Heavy Industries Japan Japan Forward fuselage, fixed section of wing, landing gear well Hydraulic actuators Wing box Hafei Aviation China Parts © 2011 Pearson Education 2-6 Some Boeing Suppliers (787) Firm Korean Aviation Saab © 2011 Pearson Education Country South Korea Sweden Component Wingtips Cargo access doors 2-7 Global Strategies Benetton – moves inventory to stores around the world faster than its competitors by building flexibility into design, production, and distribution Sony – purchases components from suppliers in Thailand, Malaysia, and around the world Volvo – considered a Swedish company but until recently was controlled by an American company ( Ford). © 2011 Pearson Education 2-8 Growth of World Trade 35 – 30 – Percent 25 – Collapse of the Berlin Wall 20 – 15 – 10 – 5– | | | | | | | | | | 0 –| 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*) Year Figure 2.1 © 2011 Pearson Education 2-9 Reasons to Globalize Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, etc.) Reasons 2. Improve supply chain 3. Provide better goods and services 4. Understand markets Intangible 5. Learn to improve operations Reasons 6. Attract and retain global talent 7. Cultural and Ethical Issues © 2011 Pearson Education 2 - 10 Reduce Costs Foreign locations with lower wage rates can lower direct and indirect costs (salary-electricity ….etc) © 2011 Pearson Education 2 - 11 Improve the Supply Chain Locating facilities closer to unique resources Auto design to California Sport shoe production to China Perfume manufacturing in France © 2011 Pearson Education 2 - 12 Provide Better Goods and Services Satisfy the different needs of goods and services On-time deliveries Cultural variation Improved customer service © 2011 Pearson Education 2 - 13 Understand 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 © 2011 Pearson Education 2 - 14 Learn to Improve Operations Remain open to the free flow of ideas General Motors partnered with a Japanese auto manufacturer to learn new approaches for production and inventory control © 2011 Pearson Education 2 - 15 Cultural and Ethical Issues Cultures and attitude can be quite different towards Child labor Lunch breaks Environment Intellectual property © 2011 Pearson Education 2 - 16 Many factors must be Considered National literacy rate Work ethic Rate of innovation Tax rates Rate of technology change Inflation Number of skilled workers Political stability Product liability laws Export restrictions Availability of raw materials Interest rates Population Phone system Variations in language © 2011 Pearson Education 2 - 17 Developing Missions and Strategies The Mission statements tell an organization where it is going While The Strategy tells the organization how to get there © 2011 Pearson Education 2 - 18 Mission Mission - where are you going? Organization’s purpose for being Answers ‘What do we provide society?’ © 2011 Pearson Education 2 - 19 Merck Our mission 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 advanced opportunities and investors with a superior rate of return. Figure 2.2 © 2011 Pearson Education 2 - 20 Palmer Hospital Palmer Hospital for Children provides state-of-the-art, family centred healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope. Figure 2.2 © 2011 Pearson Education 2 - 21 Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Mission Customers Public Image Benefit to Society © 2011 Pearson Education 2 - 22 Sample Missions Company Mission To manufacture and service an innovative, growing, and profitable worldwide successful communications business that exceeds our customers’ expectations. Operations Management Mission To produce products consistent with the company’s mission as the worldwide low-cost manufacturer. Figure 2.3 © 2011 Pearson Education 2 - 23 Sample Missions Sample OM Department Missions Product 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, 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 © 2011 Pearson Education 2 - 24 Sample Missions Sample OM Department Missions Location 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 resources 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 © 2011 Pearson Education 2 - 25 Sample Missions Sample OM Department Missions Supply-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 productivity and timely customer delivery through effective scheduling. Maintenance To achieve high utilization of facilities and equipment by effective maintenance of facilities and equipment. Figure 2.3 © 2011 Pearson Education 2 - 26 Strategic Process Organization’s Mission Functional Area Missions Marketing © 2011 Pearson Education Operations Finance/ Accounting 2 - 27 Strategy Action plan to achieve mission Functional areas have strategies Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses © 2011 Pearson Education 2 - 28 Strategies for Competitive Advantage Differentiation – better, or at least different Cost leadership – cheaper Flexibility -rapid response © 2011 Pearson Education 2 - 29 Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value Safe skin innovative gloves – leading edge products Walt Disney Magic Kingdom – experience differentiation Hard Rock Cafe – dining experience © 2011 Pearson Education 2 - 30 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 overhead, shrinkage, distribution costs Franz Colruyt – no bags, low light, no music, doors on freezers © 2011 Pearson Education 2 - 31 Competing on flexibility 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 Pizza Hut, Motorola © 2011 Pearson Education 2 - 32 OM’s Contribution to Strategy 10 Operations Decisions Product Quality Approach DIFFERENTIATION Innovative design … Broad product line … After-sales service … Experience … Process COST LEADERSHIP Low overhead … Location Layout Effective capacity use … Human resource Inventory management … Supply chain RESPONSE Flexibility … Inventory Reliability … Scheduling Quickness … Maintenance © 2011 Pearson Education Example Competitive Advantage Safeskin’s innovative gloves Fidelity Security’s mutual funds Caterpillar’s heavy equipment service Hard Rock Café’s dining experience Franz-Colruyt’s warehouse-type stores Differentiation (better) Southwest Airline’s aircraft utilization Wal Mart’s sophisticated distribution system Hewlett-Packard’s response to volatile world market FedEx’s “absolutely, positively, on time” Pizza Hut’s 5-minute guarantee at lunchtime Response (faster) Cost leadership (cheaper) Figure 2.4 2 - 33 Ten strategic OM decisions OM decision concept Product design Designing goods and services defines much of the transformation process ; it usually determine the lower limits of cost and the upper limits of quality Quality The customer’s quality expectation must be determined so that policies and procedures established to identify and achieve that quality Process & Capacity design Process decision commit management to specific technology , quality , human resources use , and maintenance, that expenses determine much of the firm’s basic cost Location selection this decision may determine the firm’s ultimate success Any error decision may overwhelm any other efficiencies layout design Material flows , capacity needs, personnel levels, technology decisions and inventory requirement influence layout 2 - 34 Ten strategic OM decisions Human resources & job design Providing the quality of work life , determine the talented and skills people Supply chain management Determine what is to be made and what is to be purchased (quality – delivery - innovation) . Mutually trust between buyer and supplier is necessary for effective purchasing Inventory Suppliers, production schedules and human resource planning are considered for more inventory efficiency Scheduling The demands on human resources and facilities must be determined and controlled for developing the feasible and efficient schedules Maintenance Decisions must be made regarding desired levels of reliability and stability . Systems must be established to maintain that reliability & stability 2 - 35 © 2011 Pearson Education Goods and Services and the 10 OM Decisions Operations Decisions Product design Quality Process and capacity design © 2011 Pearson Education Goods Services product is usually product is not tangible tangible Many objective (battery life )standards Customers is not involved Many subjective standards (nice colour) Customer must directly involved Capacity may or may not match demand Capacity must match demand Table 2.1 2 - 36 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Location Near raw materials and Near customers selection labor Layout design Enhances production efficiency Enhances product and production Human resources and job design Workforce focused on technical skills, consistent labor standards, output based wages Workforce must be able to interact with customers, labor standards vary depending on customer requirements Table 2.1 © 2011 Pearson Education 2 - 37 Goods and Services and the 10 OM Decisions Operations Decisions Goods Supply chain Relationship management critical to final product Services Important, but may not be critical Inventory Raw materials, work-in-process, and finished goods may be inventoried Cannot be stored Scheduling Level schedules possible Meet immediate customer demand © 2011 Pearson Education Table 2.1 2 - 38 Goods and Services and the 10 OM Decisions Operations Decisions Goods Services Maintenance Often preventive Often “repair” and and takes place takes place at at production site customer’s site © 2011 Pearson Education Table 2.1 2 - 39 Issues In Operations Strategy Resources view Value Chain analysis Porter’s Five Forces model Organization’s operating system Constant change © 2011 Pearson Education 2 - 40 (1)Resource View a view in which managers thinking in terms of financial ,physical, human and technological resources available and ensuring that the potential strategy is compatible with those resources. Mangers evaluate these resources in order to achieve competitive advantages © 2011 Pearson Education 2 - 41 (2)Value –chain analysis A way to identify the elements in the products /services chain that uniquely add value . It is used to identify activities that represent strengths, or opportunities for developing competitive advantages The areas where the firm can add its unique values through product research , design , human resources, supply chain management , quality management , process innovation © 2011 Pearson Education 2 - 42 (3) Porter’s Five Forces Model According to Porter there are 5 potential competing forces:1. Immediate rivals 2. Potential entrants 3. Customers 4. Suppliers 5. Substitute products © 2011 Pearson Education 2 - 43 ( 4) Organization’s operating system The firm is operating in a system with many external factors Political , cultural , legal, product life cycle ...etc are in flux The internal changes combined with the external changes require strategies that are dynamic As example the following figure shows us how the changes in the product lifecycle can affect the OM strategy © 2011 Pearson Educatione 2 - 44 Product Life Cycle Company Strategy/Issues Introduction Growth Best period to increase market share Practical to change price or quality image R&D engineering is critical Strengthen niche Maturity Decline Poor time to change image, price, or quality Cost control critical Competitive costs become critical Drive-through Defend market Internet search engines restaurants position iPods Xbox 360 Sales CD-ROMs LCD & plasma TVs Avatars Boeing 787 Ana log TVs Twitter Figure 2.5 © 2011 Pearson Education 2 - 45 Product Life Cycle OM Strategy/Issues Introduction Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Growth Forecasting critical Product and process reliability Competitive product improvements and options Maturity Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Increase capacity Long production Shift toward runs product focus Product Enhance distribution improvement and cost cutting Decline Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2.5 © 2011 Pearson Education 2 - 46 (5) SWOT Analysis A method of determine, internal (Strengths& Weakness) and external (Opportunities & Threats) The purpose of this analysis is to maximize the strengths & opportunity and minimize or avoid the weakness & threats According to this analysis strategy will be performed as shown by the following figure © 2011 Pearson Education 2 - 47 SWOT Analysis Mission Internal Strengths External Opportunities Analysis Internal Weaknesses External Threats Strategy © 2011 Pearson Education 2 - 48 Strategy Development Process Analyze the Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Determine the 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, aftersale service, broad product lines. Figure 2.6 © 2011 Pearson Education 2 - 49 OM Strategy Development and Implementation 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 © 2011 Pearson Education 2 - 50 Key Success Factors Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance © 2011 Pearson Education Finance/Accounting Production/Operations Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Sample Options Customized, or standardized Define customer expectations and how to achieve them Facility size, technology, capacity Near supplier or near customer Work cells or assembly line Specialized or enriched jobs Single or multiple suppliers When to reorder, how much to keep on hand Stable or fluctuating production rate Repair as required or preventive maintenance Chapter 5 6, S6 7, S7 8 9 10 11, S11 12, 14, 16 13, 15 17 Figure 2.7 2 - 51 Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Lean, Productive Employees Short Haul, Point-toPoint Routes, Often to Secondary Airports Competitive Advantage: Low Cost High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2.8 © 2011 Pearson Education 2 - 52 Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Lean, Productive Employees Short Haul, Point-toPoint Routes, Often to Secondary Airports Automated ticketing machines Competitive Advantage: No seat assignments Low Cost No baggage transfers High Aircraft Utilization No meals (peanuts) Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2.8 © 2011 Pearson Education 2 - 53 Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service No meals (peanuts) Lean, Lower gate costs at Productive secondary airports Employees Short Haul, Point-toPoint Routes, Often to Secondary Airports High number of flights Competitive Advantage: reduces employee idleCost time Low between flights High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2.8 © 2011 Pearson Education 2 - 54 Activity Mapping at Southwest Airlines Courteous, but High number of flights Limited Passenger reduces employee idle time Service between flights Lean, Saturate a city with flights, Productive lowering administrative Employees Short Haul, Point-toPoint Routes, Often to Secondary Airports costs (advertising, HR, etc.) Competitive Advantage: per passenger for that city Low Cost Pilot training required on Highonly one type of aircraft Aircraft Reduced maintenance Utilization Standardized inventory required because Fleet of Boeing of only one type737 ofAircraft aircraft Frequent, Reliable Schedules Figure 2.8 © 2011 Pearson Education 2 - 55 Activity Mapping at Southwest Airlines Pilot training required on Courteous, butaircraft onlyLimited one type of Passenger Service Reduced maintenance inventory required because Lean, Short Haul, Point-toProductive of only one type of aircraft Point Routes, Often to Employees Secondary Airports Excellent supplier relations with Boeing has aided Competitive Advantage: financing Low Cost High Aircraft Utilization Standardized Fleet of Boeing 737 Aircraft Frequent, Reliable Schedules Figure 2.8 © 2011 Pearson Education 2 - 56 Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Reduced maintenance Service Lean, Productive Employees High Aircraft Utilization inventory required because of only one type of aircraft Short Haul, Point-toPoint Routes, Often to Flexible employeesSecondary and Airports standard planes aid Competitive Advantage: scheduling Low Cost Maintenance personnel trained only one type of Frequent, Reliable aircraft Schedules Standardized 20-minute gate turnarounds Fleet of Boeing 737 Aircraft Figure 2.8 © 2011 Pearson Education 2 - 57 Activity Mapping at Southwest Airlines Automated ticketing Courteous, but machines Limited Passenger Service Empowered employees Lean, Productive Employees High employee Short Haul, Point-toPoint Routes, Often to compensation Secondary Airports Hire for attitude, then train Competitive Advantage: High level of stock Low Cost ownership High Aircraft Utilization High number of flightsFrequent, Reliable reduces employee idle time Schedules Standardized Fleetbetween of Boeing flights 737 Aircraft Figure 2.8 © 2011 Pearson Education 2 - 58 International business & A multinational corporation (MNC) International business is a firm that engage in cross- border transactions. A multinational corporation (MNC) is a firm with extensive international business involvement MNCs buy resources , create goods & service and sell the production in a variety of countries IBM is a good example of an MNC that imports electronic components to the USA from over 50 countries and exports components to over 130 countries , it has facilities in 45 countries and earns more than half its sales and profits abroad © 2011 Pearson Education 2 - 59 International Operations Strategies According to local responsiveness and cost reduction, four operations strategies have been performed for the global and MNCs 1. International strategy 2. Multinational strategy 3. Global strategy 4. Transnational strategy © 2011 Pearson Education 2 - 60 International Strategy (little local responsiveness and little cost advantages ) It depends on using the exports and license to penetrate the global market It is the least advantages with little local responsiveness and little cost advantages It is the easiest strategy © 2011 Pearson Education 2 - 61 Multi-Domestic Strategy (significant local responsiveness but little cost advantages ) Organizationally , these organization are typically subsidiaries , franchise ,or joint ventures The advantages of this strategy is maximizing the responsiveness for the local market The disadvantages , it has no cost advantages © 2011 Pearson Education 2 - 62 Global Strategy (little local responsiveness but significant cost advantages) It has a high degree of centralization with headquarters coordinating the organization by which it can achieve the economic of scale This strategy is appropriate for cost reduction While it has no recommended when the demand for local responsiveness is high © 2011 Pearson Education 2 - 63 Transnational Strategy (significant local responsiveness and significant cost advantages) It exploits the economic of scale and learning as well as high responsiveness Its basic “ core competence doesn’t reside in just the home country but can exist anywhere in the world” These firms have the potential to pursue all three operation strategies (differentiation- low cost – response ) © 2011 Pearson Education 2 - 64 Four International Operations Strategies International Strategy Cost Reduction Considerations High Figure 2.9 Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 65 Four International Operations Strategies High Cost Reduction Considerations Figure 2.9 International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 66 High Four International Operations GlobalStrategies Strategy Figure 2.9 Cost Reduction Considerations Standardized product Economies of scale Cross-cultural learning International Strategy Import/export or Examples license existing product Texas Instruments Examples U.S.Caterpillar Steel Harley Davidson Otis Elevator Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 67 Four International Operations Strategies High Figure 2.9 Cost Reduction Considerations Global Strategy Standardized product Economies of scale Cross-cultural learning Examples: Texas Instruments Caterpillar Otis Elevator International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 68 High Four International Multidomestic Operations Strategies Strategy Figure 2.9 Cost Reduction Considerations Global Strategy Use existing Standardized product Economies of scale domestic model Cross-cultural learning Examples:globally Texas Instruments Caterpillar Franchise, joint Otis Elevator ventures, subsidiaries International Strategy Import/export or license existing product Low Low Examples Heinz Examples U.S. Steel McDonald’s Harley Davidson The Body Shop Hard Rock Cafe High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 69 Four International Operations Strategies High Figure 2.9 Cost Reduction Considerations Global Strategy Standardized product Economies of scale Cross-cultural learning Examples: Texas Instruments Caterpillar Otis Elevator Import/export or license existing product Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples U.S. Steel Harley Davidson Examples Heinz The Body Shop McDonald’s Hard Rock Cafe International Strategy Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 70 High Four International Operations Strategies Transnational Figure 2.9 Strategy Global Strategy Cost Reduction Considerations Move material, people, ideas Examples: Texas across Instruments national Caterpillar Otis Elevator boundaries Economies of scale Multidomestic Strategy International Strategy Cross-cultural Use existing domestic model globally Import/export or Franchise, joint ventures, learning license existing subsidiaries product Standardized product Economies of scale Cross-cultural learning Examples Coca-Cola Nestlé Examples U.S. Steel Harley Davidson Low Low Examples Heinz The Body Shop McDonald’s Hard Rock Cafe High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 71 Four International Operations Strategies High Cost Reduction Considerations Figure 2.9 Global Strategy Transnational Strategy Standardized product Economies of scale Cross-cultural learning Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Examples: Texas Instruments Caterpillar Otis Elevator Examples Coca-Cola Nestlé Import/export or license existing product Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples U.S. Steel Harley Davidson Examples Heinz The Body Shop McDonald’s Hard Rock Cafe International Strategy Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) © 2011 Pearson Education 2 - 72
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