Operations Strategy in a

2 Global Environment

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl

© 2011 Pearson Education, Inc. publishing as Prentice Hall 2-1

 Global 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

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 Global Strategies
 Volvo – considered a Swedish company
but until recently was controlled by an
American company, Ford. 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.
 Haier – A Chinese company, produces
compact refrigerators (it has one-third of
the US market) and wine cabinets (it has
half of the US market) in South Carolina

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 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

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 Reduce 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)

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 Improve the Supply Chain
 Locating facilities closer to
unique resources
 Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France

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 Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
 On-time deliveries
 Cultural variables
 Improved customer service

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 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

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 Learn to Improve
Operations
 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

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 Attract and Retain Global
Talent
 Offer better employment
opportunities
 Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations

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 Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different
towards
 Punctuality  Thievery
 Lunch breaks  Bribery
 Environment  Child labor
 Intellectual
property

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 Companies Want To Consider
 National literacy rate  Work ethic
 Rate of innovation  Tax rates
 Rate of technology  Inflation
change  Availability of raw
 Number of skilled materials
workers  Interest rates
 Political stability  Population
 Product liability laws  Number of miles of
 Export restrictions highway
 Variations in language  Phone system

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 Developing Missions and
Strategies
Mission statements tell an
organization where it is going

The Strategy tells the

organization how to get there

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 Mission

 Mission - where are

you going?
 Organization’s
purpose for being
 Answers ‘What do
we provide society?’
 Provides boundaries
and focus

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 Factors Affecting Mission
Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society

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 Sample 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
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 Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

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 Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

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 Strategies for Competitive
Advantage

 Differentiation – better, or at
least different
 Cost leadership – cheaper
 Response – rapid response

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 Competing on
Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything
that impacts customer’s perception
of value
 Safeskin gloves – leading edge products
 Walt Disney Magic Kingdom –
experience differentiation
 Hard Rock Cafe – dining experience

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 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

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 Competing 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

© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 22

 OM’s Contribution to Strategy
10 Operations Competitive
Decisions Approach Example Advantage

Product DIFFERENTIATION
Innovative design … Safeskin’s innovative gloves
Broad product line … Fidelity Security’s mutual
Quality funds
After-sales service … Caterpillar’s heavy equipment
service
Process Experience … Hard Rock Café’s dining
experience
Location
COST LEADERSHIP Differentiation
Low overhead … Franz-Colruyt’s warehouse-
Layout type stores (better)
Effective capacity
use … Southwest Airline’s
Human aircraft utilization
resource Inventory
Response
management … Wal Mart’s sophisticated (faster)
distribution system Cost
Supply chain
leadership
RESPONSE (cheaper)
Inventory Flexibility … Hewlett-Packard’s response to
volatile world market
Reliability … FedEx’s “absolutely,
Scheduling
positively, on time”
Quickness … Pizza Hut’s 5-minute guarantee
Maintenance Figure 2.4
at lunchtime
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 Managing Global Service
Operations
Requires a different perspective on:

 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling

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 Process Design
High Process-focused Mass Customization
JOB SHOPS Customization at high
(Print shop, emergency Volume
room, machine shop, (Dell Computer’s PC,
Variety of Products

fine-dining Repetitive (modular) cafeteria)

restaurant) focus
ASSEMBLY LINE
Moderate (Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(Steel, beer, paper,
bread, institutional
kitchen)

Low

Low Moderate High

Volume
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 Issues In Operations Strategy

 Resources view
 Value Chain analysis
 Porter’s Five Forces model
 Operating in a system with many
external factors
 Constant change

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 Product Life Cycle
Introduction Growth Maturity Decline
Best period to Practical to change Poor time to Cost control
Company Strategy/Issues

increase market price or quality change image, critical

share image price, or quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position Drive-through
Internet search engines restaurants
CD-ROMs
iPods LCD &
Xbox 360 plasma TVs
Sales
Avatars

Boeing 787 Analog

TVs
Twitter
Figure 2.5
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 27
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting Standardization Little product
and critical Fewer product differentiation
development
Product and changes, more Cost
OM Strategy/Issues

critical
process minor changes minimization
Frequent reliability
Optimum Overcapacity
product and
Competitive capacity in the
process design
product industry
changes Increasing
improvements
stability of Prune line to
Short production and options process eliminate
runs
Increase capacity items not
Long production
High production returning
Shift toward runs
costs good margin
product focus Product
Limited models Reduce
Enhance improvement and
capacity
Attention to distribution cost cutting
quality

Figure 2.5
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 28
 SWOT Analysis

Mission

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses Threats
Strategy

© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 29

 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, after-
sale service, broad product lines.

Figure 2.6
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 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, Inc. publishing as Prentice Hall 2 - 31

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

Marketing Finance/Accounting Production/Operations

Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

Decisions Sample Options 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 near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17

© 2011 Pearson Education, Inc. publishing as Prentice Hall Figure 2.7 2 - 32

 Four International
Operations Strategies
High International Figure 2.9

Strategy
Cost Reduction Considerations

 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, Inc. publishing as Prentice Hall 2 - 33
 Four International
Operations Strategies
High Figure 2.9
Cost Reduction Considerations

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, Inc. publishing as Prentice Hall 2 - 34
 Four International
Operations
GlobalStrategies
High Figure 2.9
Strategy
 Standardized
Cost Reduction Considerations

product
 Economies of scale
 Cross-cultural
learning
International Strategy

Examples
 Import/export or
license existing
Texas Instruments
product

U.S.Caterpillar
Examples
Steel

Otis Elevator
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 35
 Four International
Operations Strategies
High Figure 2.9
Global Strategy
Cost Reduction Considerations

 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, Inc. publishing as Prentice Hall 2 - 36
 Four International
Operations Strategies
Multidomestic
Strategy
High Figure 2.9

 Use existing
Global Strategy
Cost Reduction Considerations

 Standardized product
domestic
 Economies of scale
 Cross-cultural learning
model
Examples:globally

 Franchise, joint
Texas Instruments
Caterpillar
Otis Elevator
ventures,
subsidiaries
International Strategy

Examples
 Import/export or
license existing
product
Heinz
Examples
McDonald’s
U.S. Steel
Harley Davidson

Low The Body Shop

Low Hard Rock Cafe High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 37
 Four International
Operations Strategies
High Figure 2.9
Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
Texas Instruments
Caterpillar
Otis Elevator

Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
 Franchise, joint ventures,
license existing
product subsidiaries

Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 38
 Four International
Operations Strategies
Transnational
High Figure 2.9
Strategy
Global Strategy

 Move material,
Cost Reduction Considerations

 Standardized product
 Economies of scale

people,
 Cross-cultural learning

Examples:
ideas
Texas across
Instruments national
Caterpillar
boundaries
Otis Elevator

 Economies of scale
 Cross-cultural
Multidomestic Strategy
International Strategy  Use existing
domestic model globally
learning
 Import/export or
license
product
existing
 Franchise, joint ventures,
subsidiaries

Examples
Examples
Examples
U.S. Steel Heinz The Body Shop
McDonald’s Hard Rock Cafe
Coca-Cola
Harley Davidson

Low
Nestlé
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 39
 Four International
Operations Strategies
High Figure 2.9
Global Strategy Transnational Strategy
Cost Reduction Considerations

 Standardized product  Move material, people, ideas

 Economies of scale across national boundaries
 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples:
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
 Franchise, joint ventures,
license existing
product subsidiaries

Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 - 40