Operations Management (opm530) -c2 Operations Strategy

Operations Management Operations Strategy & Competitiveness Chapter 2 Prepared by: Shatina Saad

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Outline ♦ DEVELOPING MISSIONS AND STRATEGIES ♦ Mission ♦ Strategy ♦ ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS ♦ Competing on Differentiation ♦ Competing on Cost ♦ Competing on Response 2-2 Prepared by: Shatina Saad

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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 Shatina Saad ♦ by: 2-3 Multidomestic Strategy ♦ ♦

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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 Global Issues2-4 are Important Prepared by: Shatina Saad ♦

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Developing Missions and Strategies

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Mission ♦ Mission - where are you going? ♦ ♦ ♦

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

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Mission of FedEx FedEx is committed to our People-ServiceProfit 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 Prepared by: Shatina Saad each other and the2-7public. We will striveOPM 533

Factors Affecting Mission Philosophy & Values Profitability & Growth

Environment Mission Customers

Public Image Benefit to Society

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Mission/Strategy ♦ Mission - where you are going ♦ Strategy - how you are going to get there; an action plan

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Strategy ♦ Action plan to achieve mission ♦ Shows how mission will be achieved ♦ Company has a business strategy ♦ Functional areas have strategies Prepared by: Shatina Saad

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© 1995 Corel Corp.

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Strategy Process Company Mission Business Strategy Functional Functional Area Area Strategies Marketing Decisions Prepared by: Shatina Saad

Operations Decisions 2-11

Fin./Acct. Decisions OPM 533

Strategies for Competitive Advantage ♦ Differentiation ♦ Cost leadership ♦ Quick 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

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Competing on Cost Provide the maximum value as perceived by customer Does not imply low value or low quality

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Competing on Response ♦ Flexibility ♦ Reliability ♦ Timeliness Requires institutionalization within the firm of the ability to respond

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Competing, Regardless of the Basis, Requires the institutionalization within the firm of the ability to change, and to adapt

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OM’s Contribution to Strategy

Operatio ns Decision Quality s

Specific Strategy Used

Exampl es

FLEXIBILITY

Competi tive Advanta ge

Sony’s constant innovation of new products Design Volume

Product HP’s ability to follow the printer market Process Southwest Airlines No-frills service Location

LOW COST DELIVERY

Pizza Hut’s five-minute guarantee at lunchtime Speed time” Layout Federal Express’s “absolutely, positively on Dependability

Human

QUALITY

Conformance Motorola’s automotive products ignition systems Resource Motorola’s pagers

Performance

Supply Chain

Differentiation (Better) Respons Cost e leadership (Faster) (Cheaper)

IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE Inventory Fidelity Security’s broad line of mutual BROAD funds PRODUCT LINE

Scheduling

Maintenance

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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 ♦ MaintenanceOPM 533 Prepared by: Shatina Saad 2-18

Goods & Services and the 10 OM Decisions Operations Decisions

Goods

Services

Goods & services decisions Quality

Product is usually tangible

Product is usually intangible

Objective quality standards

Subjective quality standards

Process and capacity design

Customer not involved Customer may be directly in most of process involved in process. Capacity must match demand to avoid lost sales

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Goods & Services and the 10 OM Decisions – Continued Operations Decisions Location Selection Layout Design Human Resources and J ob Design

Goods

Services

May need to be near raw materials or labor force

Product is usually intangible

Layout can enhance production efficiency

Subjective quality standards

Workforce focused on technical skills. Labor standards consistent. Output-based wage system.

Customer may be directly involved in process. Capacity matches demand to avoid lost sales

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Goods & Services and the 10 OM Decisions – Continued Operations Decisions

Goods

Services

Supply-chain relationships Supply chain Supply-chain management relationships critical to important, not necessarily

Inventory

final product

critical

Rawmaterials, workin-process, and finished goods

Most services cannot be stored

Ability to convert Primarily concerned with inventory may allow meeting the customer's leveling of production immediate schedule rates OPM 533 Prepared by: Shatina Saad 2-21

Scheduling

Goods & Services and the 10 OM Decisions – Continued Operations Decisions

Goods

Services

Maintenance Maintenance is often

Maintenance is often preventive and takes "repair" and takes place at place at the production the customer's site site

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Process Design High

Customization at high Volume

Process-focused

Job Shops

Mass Customization (Dell Computer’s PC)

Variety of Products

(Print shop, emergency room , machine shop, Repetitive (modular) fine dining focus

Assembly line

Moderate

(Cars, appliances, TVs, fast-food restaurants) Product-focused

Continuous (steel, beer, paper, bread, institutional kitchen)

Low Low Prepared by: Shatina Saad

Moderate

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High OPM 533

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 Prepared by: Shatina Saad

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Strategic Options Managers Use to Gain Competitive Advantage ♦ 28% - Operations Management ♦ 18% - Marketing/distribution ♦ 17% - Momentum/name recognition ♦ 16% - Quality/service ♦ 14% - Good management ♦ 4% - Financial resources ♦ 3% - Other Prepared by: Shatina Saad

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Strategic Options Managers Use to Gain Competitive Advantage ♦ 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 ♦ ♦ ♦ ♦ ♦ ♦ ♦

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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. ♦

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Impetus for Strategy Change ♦ Changes in the organization ♦ Stages in the product life cycle ♦ Changes in the environment

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Stages in the Product Life Cycle Growth rate

Introduction Growth

Maturity Decline

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Strategy & Issues During Product Life Introduction

♦ Company Strategy & Issues

♦ OM Strategy & Issues

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Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality OPM 533 Quick elimination of market-revealed 2-30 design defects

Strategy & Issues During Product Life Growth

Company Strategy & Issues OM Strategy & Issues

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Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution 2-31

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Strategy & Issues During Product Life Maturity

Company Strategy & Issues

OM Strategy & Issues

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

Strategy & Issues During Product Life Decline

Company Strategy & Issues OM Strategy & Issues

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Cost control critical to market share

Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity 2-33

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Strategy and Issues During a Product’s Life

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Strategy Development and Implementation ♦ Identify critical success factors ♦ Build and staff the organization

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SWOT Analysis Process ♦ Environmental Analysis

♦ Determine Corporate Mission ♦ Form a Strategy Prepared by: Shatina Saad

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SWOT Analysis to Strategy Formulation Mission Internal Strengths

External Opportunities Strategy

Internal Weaknesses

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Competitive Advantage 2-37

External Threats

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Identifying Critical Success Factors Finance/Accou nting

Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Decisions

Production/Oper ations

Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit

Sample Option Chapter

Product

Customized, or standardized 5

Quality achieve them Process

Define customer expectations and how to 6, S6 Facility size, technology, capacity 7, S7 Location Near supplier or customer 8 Layout Work cells or assembly line 9 Prepared by: Shatina Saad 2-38 Human resource Specialized or enriched jobs 10, S10

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Southwest Airline’s Low Cost Competitive Advantage Courteous, but Lean, productive employees High aircraft utilizatio n Prepared by: Shatina Saad

limited passenger service

Competitive Advantage: Low Cost Standardized fleet of Boeing 737 aircraft 2-39

Short haul, pointto-point routes, often to secondary airports Frequent, reliable schedules OPM 533

Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals

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Southwest Airline’s Low Cost Competitive Advantage Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights Prepared by: Shatina Saad

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Short haul, pointto-point routes, often to secondary airports

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Southwest Airline’s Low Cost Competitive Advantage High number of flights reduces employee idle time between flights Saturate a city with flights lowering administrative costs per passenger for city Prepared by: that Shatina Saad 2-42

Frequent, reliable schedules OPM 533

Southwest Airline’s Low 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 Prepared by: Shatina Saad

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Southwest Airline’s Low 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 20 minute gate n turnarounds Prepared by: Shatina Saad 2-44

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Southwest Airline’s Low Cost Competitive Advantage High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Lean, productive Automated ticket machines

employees

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Southwest Airline’s Low Cost Competitive Advantage Courteous, but Lean, productive employees

High aircraft utilizatio n Prepared by: Shatina Saad

limited passenger service

Competitive Advantage: Low Cost Standardized fleet of Boeing 737 aircraft 2-46

Short haul, pointto-point routes, often to secondary airports Frequent, reliable schedules OPM 533

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 Prepared by: Shatina Saad

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Management Issues in Global Operations Global Strategic Context Differentiation ♦ Cost leadership ♦ Response ♦

Supply Chain Manageme nt

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Location Decisions

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Logistics Managem ent

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

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

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

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Defining Global Operations ♦ International business - engages in crossborder 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 Prepared by: Shatina Saad 2-52 efficiencies with the benefits of local

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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 Prepared by: Shatina Saad

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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 Prepared by: Shatina Saad

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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

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

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Global Product Design ♦ Remember social and cultural differences ♦

packaging and marketing can help make product seem “domestic” but ♦ “liter”

versus “quart” ♦ “sweetness” and “taste”

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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 Prepared by: Shatina Saad

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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 Prepared by: Shatina Saad

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You May Wish To Consider ♦ national literacy rate ♦ rate of innovation ♦ rate of technology change ♦ number of skilled workers ♦ stability of government ♦ product liability laws Prepared by: Shatina Saad ♦ export restrictions 2-60

♦ work ethic ♦ tax rates ♦ inflation ♦ availability of raw materials ♦ interest rates ♦ population ♦ number of miles of highway OPM 533

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 ♦

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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 Prepared by: Shatina Saad

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Managing Global Service Operations Must take a different perspective on ♦ Capacity planning ♦ Location Planning ♦ Facilities design and layout ♦ Scheduling

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Some Definitions ♦ International business ♦

A firm that engages in crossborder transactions.

♦ Multinational Corporation (MNC) A firm that has extensive involvement in international business, owning or controlling facilities in more than one country Prepared by: Shatina Saad 2-64 ♦

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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 OPM 533 Prepared by: Shatina Saad everywhere in the 2-65 organization

Four International Operations Strategies

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Match Product & Parent

♦ Arrow shirts ♦ Braun Household Appliances ♦ Burger King ♦ Firestone Tires ♦ Godiva Chocolate ♦ Haagen_dazs Ice Cream ♦ Jaguar Autos ♦ MGM Movies ♦ Lamborghini Autos ♦ Goodrich Tires ♦ Alpo Petfoods

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1. Volkswagen 2. Bidermann International 3. Bridgestone 4. Campbell Soup 5. Credit Lyonnais 6. Ford Motor Company 7. Gillette 8. Grand Metropolitan 9. Michelin 10. Nestlé

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Match Product & Country

♦ Arrow shirts ♦ Braun Household Appliances ♦ Burger King ♦ Firestone Tires ♦ Godiva Chocolate ♦ Haagen_Dazs Ice Cream ♦ Jaguar Autos ♦ MGM Movies ♦ Lamborghini Autos ♦ Goodrich Tires ♦ Alpo Petfoods

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1. 2. 3. 4. 5. 6.

France Great Britain Germany Japan United States Switzerland

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