Operations Management (OPM530) - C2 Operations Strategy

Operations
Management
Operations Strategy &
Competitiveness
Chapter 2
Prepared by: Shatina Saad OPM 533
2-1
Outline
♦ DEVELOPING MISSIONS AND
STRATEGIES
♦ Mission
♦ Strategy
♦ ACHIEVING COMPETITIVE
ADVANTAGE THROUGH
OPERATIONS
♦ Competing on Differentiation
♦ Competing on Cost
♦ Competing on Response
2-2
Outline - Continued
♦ ISSUES IN OPERATIONS STRATEGY
♦ Research
♦ Preconditions
♦ Dynamics
♦ STRATEGY DEVELOPMENT AND
IMPLEMENTATION
♦ Identify Critical Success Factors
♦ A Global view of Operations Cultural and
Ethical Issues
♦ Build and Staff the Organization
♦ Integrate OM with Other Activities
♦ GLOBAL OPERATIONS STRATEGY
OPTIONS
♦ International Strategy
Prepared
Multidomestic
♦ by: Shatina Saad
Strategy
2-3 OPM 533
♦
Learning Objectives
When you complete this chapter, you
should be able to :
Identify or Define:
♦ Mission
♦ Strategy
♦ Ten Decisions of OM
♦ Multinational Corporations
Describe or Explain:
♦ Specific approaches used by OM to
achieve strategies
♦ Differentiation
♦ Low Cost
♦ Response
♦ Four Global Operations Strategies
♦ Why
Prepared by: Global Issues2-4
Shatina Saad are Important OPM 533
Developing Missions
and Strategies

2-5
Mission
♦ Mission - where are

you going?
♦ Organization’s purpose
for being
♦ Provides boundaries &
focus
♦ Answers ‘What do we
provide society?’
© 1995 Corel Corp.

2-6
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 the2-7public. We will striveOPM 533
Prepared by: Shatina Saad
Factors Affecting
Mission
Philosophy &
Values
Profitability
Environment
& Growth
Mission
Customers Public Image

Benefit to
Society

2-8
Mission/Strategy
♦ Mission - where you are going
♦ Strategy - how you are going to

get there; an action plan

2-9
Strategy
♦ Action plan to
achieve mission
♦ Shows how mission
will be achieved
♦ Company has a
business strategy
♦ Functional areas
have strategies © 1995 Corel Corp.

2-10
Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing Operations Fin./Acct.

Decisions Decisions Decisions

2-11
Strategies for
Competitive Advantage
♦ Differentiation
♦ Cost leadership
♦ Quick response

2-12
Competing on
Differentiation
Uniqueness can go beyond both the

physical characteristics and
service attributes to encompass
everything that impacts
customer’s perception of value

2-13
Competing on Cost
Provide the maximum value as

perceived by customer
Does not imply low value or low

quality

2-14
Competing on
Response
♦ Flexibility
♦ Reliability
♦ Timeliness
Requires institutionalization within

the firm of the ability to respond

2-15
Competing, Regardless of
the Basis,
Requires the institutionalization

within the firm of the ability to
change, and to adapt

2-16
OM’s Contribution to
Strategy
Operatio Specific Competi
ns Exampl Strategy tive
Decision es Used Advanta
Quality
s FLEXIBILITY ge
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 lunchtimeSpeed
Layout Federal Express’s “absolutely, positively on Dependability
time” Differentiation
(Better)
Human QUALITY
Conformance
Motorola’s automotive products ignition systems Respons
Resource Cost e
Motorola’s pagers Performance leadership (Faster)
Supply Chain (Cheaper)
IBM’s after-sale service on mainframe computers

Inventory AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual BROAD

funds PRODUCT LINE
Scheduling
Maintenance
2-17
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
♦
2-18 MaintenanceOPM 533
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
2-19
10 OM Decisions –
Continued
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 J ob Labor standards consistent. Capacity matches
Design Output-based wage system. demand to avoid lost
sales

2-20
10 OM Decisions –
Continued
Decisions
Supply chain Supply-chain Supply-chain relationships
management relationships critical to important, not necessarily
final product critical
Inventory Rawmaterials, 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
rates
2-21 OPM 533
10 OM Decisions –
Continued
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

2-22
Process Design
Customization at
High Process-focused high Volume
Job Shops Mass
(Print shop, emergency Customization
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
Variety of Products
fine dining
focus
Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer,
paper, bread,
institutional
Low kitchen)
Low Moderate High
Volume
2-23
Characteristics of High
ROI Firms
♦ High quality product
♦ High capacity utilization
♦ High operating effectiveness
♦ Low investment intensity
♦ Low direct cost per unit
From the PIMS study of the

Strategic Planning
Institute
2-24
Strategic Options
Managers Use to Gain
♦ 28% - Operations Management
♦ 18% - Marketing/distribution
♦ 17% - Momentum/name
recognition
♦ 16% - Quality/service
♦ 14% - Good management
♦ 4% - Financial resources
♦ 3% - Other
2-25
Strategic Options
Managers Use to Gain
♦ 28% Operations Management
♦ Low- cost product
♦ Product-line breadth
♦ Technical superiority
♦ Product characteristics/differentiation
♦ Continuing product innovation
♦ Low-price/high-value offerings
♦ Efficient, flexible operations adaptable
to consumers
♦ Engineering research development
♦ Location
♦ Scheduling

2-26
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.
2-27
Impetus for Strategy
Change
♦ Changes in the organization

♦ Stages in the product life cycle
♦ Changes in the environment

2-28
Stages in the Product
Life Cycle
Introduction
Growth
Growth
rate
Maturity
Decline

2-29
Strategy & Issues During
Product Life
Introduction
♦ Company Best period to increase market share
Strategy R&D engineering are critical
& Issues
Product design and development are
critical
Frequent product and process design
changes
♦ OM Over-capacity
Strategy Short production runs
High skilled-labor content
& Issues
High production costs
Limited number of models
Utmost attentions to quality
Prepared by: Shatina Saad Quick elimination
2-30 of market-revealed
OPM 533
design defects
Product Life
Growth
Company Practical to change prices or quality

Strategy image
Marketing is critical
& Issues Strengthen niche
Forecasting is critical
OM Strategy Product and process reliability
& Issues Competitive product improvements
and options
Shift toward product oriented
Enhance distribution

2-31
Product Life
Maturity
Poor time to increase market share
Company Competitive costs become critical
Strategy Poor time to change price, image, or quality
Defend position via fresh promotional and
& Issues distribution approaches
Standardization
Less rapid product changes and more minor
annual model changes
OM Strategy Optimum capacity
Increasing stability of manufacturing
& Issues process
Lower labor skills
Long production runs
Attention to product improvement and cost
Prepared by: Shatina Saad cutting 2-32 OPM 533
Re-examination of necessity of design

Product Life
Decline
Company Cost control critical to market share

Strategy
& Issues
Little product differentiation
Cost minimization
OM Strategy Overcapacity in the industry
& Issues Prune line to eliminate items not
returning
Good margin
Reduce capacity

2-33
Strategy and Issues
During a Product’s Life

2-34
Strategy Development
and Implementation
♦ Identify critical success factors

♦ Build and staff the organization

2-35
SWOT Analysis Process
♦ Environmental Analysis
♦ Determine Corporate Mission
♦ Form a Strategy
2-36
SWOT Analysis to
Strategy Formulation
Mission
Internal External
Strengths Opportunities
Strategy
Internal External
Weaknesses Threats
Competitive
Advantage
2-37
Identifying
Critical Success Factors
Marketing Finance/Accou Production/Oper
Service nting ations
Distribution Leverage
Promotion Cost of capital
Channels of Working capital
distribution Receivables
Product Payables
positioning Financial control
(image, Lines of credit
functions)
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 2-38 jobs
10, S10
Southwest Airline’s Low
Cost Competitive
Advantage
Courteous, but
limited
passenger
service
Short haul, point-
Lean,
to-point routes,
productive
Competitive often to secondary
employees
airports
Advantage:
Low Cost
High Frequent,
aircraft reliable
utilizatio Standardized
schedules
n fleet of Boeing
737 aircraft
2-39
Cost Competitive
Advantage
Courteous, but
limited
passenger
service
No seat assignments
No baggage transfers
Automated ticketing machines
No meals

2-40
Cost Competitive
Advantage
Lower gate
costs at Short haul, point-
secondary to-point routes,
airports often to secondary
airports
High number of
flights, reduces
employee idle
time between
flights
2-41
Cost Competitive
Advantage
High number of
flights reduces
employee idle time
between flights
Saturate a city with Frequent,
flights lowering reliable
administrative costs schedules
per passenger for
Prepared by: that city
Shatina Saad OPM 533
2-42
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
2-43
Cost Competitive
Advantage
Flexible employees and
standard planes aids
scheduling
Flexible union
contracts
Maintenance personnel
High trained on only one
aircraft
type of aircraft
utilizatio
n 20 minute gate
turnarounds OPM 533
2-44
Cost Competitive
Advantage
High level of stock ownership
Hire for attitude, then train
High employee compensation
Lean, Empowered employees
productive Automated ticket machines
employees

2-45
Cost Competitive
Advantage
Courteous, but
limited
passenger
service
Lean, Short haul, point-
productive to-point routes,
employees Competitive often to secondary
Advantage: airports
Low Cost
High Frequent,
aircraft reliable
utilizatio Standardized schedules
n fleet of Boeing
737 aircraft
2-46
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
2-47
♦ GM is building four similar plants in
Management Issues in
Global Operations
Global Strategic
Context
♦ Differentiation
♦ Cost leadership
♦ Response
Supply Chain Location Logistics

Manageme Decisions Managem
nt ent

2-48
Supply-Chain
Management
♦ Sourcing
♦ Vertical integration
♦ Make-or-buy decisions
♦ Partnering

2-49
Location Decisions
♦ Country-related issues
♦ Product-related issues
♦ Government policy/political risk
♦ Organizational issues

2-50
Materials Management
♦ Flow of materials
♦ Transportation options and speed
♦ Inventory levels
♦ Packaging
♦ Storage

2-51
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
2-52
efficiencies with the benefits of local
Reasons to Globalize
Operations
Tangible
♦ Reduce costs (labor, taxes,
tariffs, etc.)
♦ Improve the supply chain
♦ Provide better goods and
services
♦ Attract new markets
♦
Intangible Learn to improve operations
♦ Attract and retain global talent
2-53
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
♦ AFTA – a free trade agreement among
the Asian countries
2-54
Free trade may
take us into the era of the floating
factory - a six person crew will
take a factory from port to port in
order to obtain the best market,
material, labor and tax advantages

2-55
Achieving Global
Operations
-Four Considerations-
♦ Global product design
♦ Global process design and
technology
♦ Global factory location analysis
♦ Impact of Culture and Ethics

2-56
Global
Product Design
♦ Remember social and cultural

differences
♦ packaging and marketing can help
make product seem “domestic” but -
♦ “liter”
versus “quart”
♦ “sweetness” and “taste”

2-57
Global
Process Design and
Technology
♦ Information technology enables
management of integrated,
globally dispersed operation
♦ Texas Instruments: 50 plants in
19 countries
♦ Hewlett-Packard - product
development teams in U.S., Japan,
Great Britain, and Germany
♦ Reduces time-to-market
2-58
Global
Facility Location
Analysis
Using CSFs for Country
Selection
♦ Select CSFs based on parent
organization;’s strategic or
operations objectives
♦ Obtain country-specific
information on the CSFs
♦ Evaluate each country’s CSFs
using a 1 (bad) to 5 (good) rating
scale
2-59 OPM 533
You May Wish To
Consider
♦ national literacy ♦ work ethic
rate ♦ tax rates
♦ rate of innovation ♦ inflation
♦ rate of technology ♦ availability of raw
change materials
♦ number of skilled ♦ interest rates
workers ♦ population
♦ stability of ♦ number of miles of
government highway
♦ product liability laws
♦ export restrictions 2-60
Global
Impact of Culture and
Ethics
♦ Cultures differ! Some
accept/expect:
♦ variations in punctuality
♦ long lunch hours
♦ expectation of thievery
♦ bribery
♦ little protection of intellectual property

2-61
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 2-62 to reach global
Managing Global
Service Operations
Must take a different perspective on

♦ Capacity planning
♦ Location Planning
♦ Facilities design and layout
♦ Scheduling

2-63
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
2-64 OPM 533
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 2-65
organization OPM 533
Four International
Operations Strategies

2-66
Match Product &
Parent
♦ Arrow shirts 1. Volkswagen
♦ Braun Household 2. Bidermann International
Appliances
3. Bridgestone
♦ Burger King
4. Campbell Soup
♦ Firestone Tires
♦ Godiva Chocolate 5. Credit Lyonnais
♦ Haagen_dazs Ice Cream 6. Ford Motor Company
♦ Jaguar Autos 7. Gillette
♦ MGM Movies 8. Grand Metropolitan
♦ Lamborghini Autos 9. Michelin
♦ Goodrich Tires 10. Nestlé
♦ Alpo Petfoods

2-67
Match Product &
Country
♦ Arrow shirts 1. France
♦ Braun Household 2. Great Britain
Appliances
3. Germany
♦ Burger King
4. Japan
♦ Firestone Tires
5. United States
♦ Godiva Chocolate
♦ Haagen_Dazs Ice Cream 6. Switzerland
♦ Jaguar Autos
♦ MGM Movies
♦ Lamborghini Autos
♦ Goodrich Tires
♦ Alpo Petfoods

2-68

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Operations

Prepared by: Shatina Saad OPM 533

♦ Mission - where are

© 1995 Corel Corp.

Prepared by: Shatina Saad OPM 533

Customers Public Image

Prepared by: Shatina Saad OPM 533

♦ Mission - where you are going

♦ Strategy - how you are going to

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Marketing Operations Fin./Acct.

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Uniqueness can go beyond both the

Prepared by: Shatina Saad OPM 533

Provide the maximum value as

Does not imply low value or low

Prepared by: Shatina Saad OPM 533

Requires institutionalization within

Prepared by: Shatina Saad OPM 533

Requires the institutionalization

Prepared by: Shatina Saad OPM 533

Process Southwest Airlines No-frills service LOW COST

IBM’s after-sale service on mainframe computers

Fidelity Security’s broad line of mutual BROAD

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

From the PIMS study of the

Prepared by: Shatina Saad OPM 533

♦ Changes in the organization

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Company Practical to change prices or quality

Prepared by: Shatina Saad OPM 533

Re-examination of necessity of design

Company Cost control critical to market share

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

♦ Identify critical success factors

Prepared by: Shatina Saad OPM 533

♦ Determine Corporate Mission

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Supply Chain Location Logistics

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

♦ Global company - integrates operations

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

♦ Remember social and cultural

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

♦ Determine if sufficient people or

Must take a different perspective on

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

Prepared by: Shatina Saad OPM 533

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