2 - 1© 2011 pearson education, inc. publishing as prentice hall 2 2 operations strategy in a global...

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

22 Operations Strategy in a Global Environment

Operations Strategy in a Global Environment

PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer and Render Heizer and Render Operations Management, 10e Operations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e

PowerPoint slides by Jeff Heyl


Global StrategiesGlobal Strategies

Boeing – Headquartered in Chicago, Boeing employs more than 170,000 people across the United States and in 70 countries. Its sales and production are worldwide.

Benetton –The Italian-based fashion designer and manufacturer has over 6,000 retail stores in more than 83 countries on every continent. Using Computer-Aided Design (CAD) of garments along with computerized garment cutting and assembly is the secret to a fast and flexible manufacturing operation.

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world


Global StrategiesGlobal 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


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize

1. Reduce costs (labor, taxes, tariffs, etc.)2. Improve 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 Maquiladora (Mexican border export

zone, populated by foreign owned factories)

World Trade Organization (WTO)

North American Free Trade Agreement (NAFTA) - Between Canada, Mexico and U.S.

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Reduce CostsReduce Costs

APEC (Asia-Pacific Economic Cooperation between the US, Canada, Japan, South Korea, Australia, New Zealand, China, Taiwan, Hong Kong, and members of ASEAN)

SEATO (Australia, New zealand, Japan, HongKong, South Korea, Chile and New Guinea)

MERCOSUR (Argentina, Brazil, Paraguay and Uruguay

European Union (EU)


Improve the Supply ChainImprove the Supply Chain

Locating facilities closer to unique resources 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

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Reasons to GlobalizeReasons to GlobalizeUnderstand MarketsUnderstand Markets

Interacting with foreign customers and suppliers can lead to new opportunities

Whirlpool

refrigerators

sold in Bangkok

are bright colors.

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


Reconciling Differences in Cultural and Social Reconciling Differences in Cultural and Social Behavior is key to the success of GLOBALIZATION Behavior is key to the success of GLOBALIZATION

EFFORTSEFFORTS

Cultures can be quite different

Attitudes can be quite different towards Punctuality

Lunch breaks

Environment

Intellectual property

Thievery

Bribery

Child labor


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

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Developing Missions and Developing Missions and StrategiesStrategies

Developing a good strategy is difficult, but it is much easier if the mission has been well defined.

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The Mission of İzmir The Mission of İzmir University of EconomicsUniversity of Economics

To educate and equip qualified students with leadership attributes, entrepreneurial capabilities, critical thinking skills and the ability to contribute valuable research in a variety of sciences.

2 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson Education, Inc. publishing as Prentice Hall

MISSION:MISSION:Hard Rock CafeHard Rock Cafe

To spread the spirit of Rock ’n’ Roll by delivering an exceptional entertainment

and dining experience. We are committed to being an important,

contributing member of our community and offering the Hard Rock family a fun,

healthy, and nurturing work environment while ensuring our long-

term success.

Figure 2.2Figure 2.2


Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission


StrategyStrategy

Action plan to achieve mission

Functional areas have strategies

Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses


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 customer’s perception

of value

Handmade Silk Turkish Rugs

Walt Disney Magic Kingdom – experience differentiation

Hard Rock Cafe – dining experience


Competing on CostCompeting 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 overheads, direct shipments from manufacturers, reduced distribution costs with faster transportation

Pegasus Airlines -

2 - 22

Competing on ResponseCompeting on Response::Flexible, Reliable and Quick ResponseFlexible, Reliable and Quick Response

Flexibility is matching market changes in design innovation and volumes Products of Hewlett-Packard have a life cycle

of months Reliability is in meeting schedules

German machine industry Quickness

in design, production, and delivery Benetton, Motorola


OM’s Contribution to StrategyOM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATIONInnovative design … Safeskin’s innovative gloves Broad product line … Fidelity Security’s mutual

funds After-sales service … Caterpillar’s heavy equipment

service Experience … Hard Rock Café’s dining

experience

COST LEADERSHIP Low overhead … Franz-Colruyt’s warehouse-

type stores Effective capacity use … Southwest Airline’s

aircraft utilization Inventory management … Wal Mart’s sophisticated

distribution system

RESPONSE Flexibility … Hewlett-Packard’s response to

volatile world market Reliability … FedEx’s “absolutely,

positively, on time” Quickness … Pizza Hut’s 5-minute guarantee

at lunchtime

Figure 2.4

10 Operations CompetitiveDecisions Approach Example Advantage

Response(faster)

Cost leadership(cheaper)

Differentiation(better)

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Strategy Development for a culinary Strategy Development for a culinary school graduate who wants to open an school graduate who wants to open an

outstanding French fine dining outstanding French fine dining restaurant (DIFFERENTIATION)restaurant (DIFFERENTIATION)

Product design (Menus, meals)Product design (Menus, meals)

Location planningLocation planning

Facilities design and layoutFacilities design and layout

Human Resources, Human Resources, SchedulingScheduling

See example 1, pg. 71See example 1, pg. 71Requires a different perspective on:Requires a different perspective on:


Process DesignProcess Design

Low Moderate HighVolume

High

Moderate

Low

Var

iety

of

Pro

du

cts

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,

fine-diningrestaurant)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances,

TVs, fast-food restaurants) Product focused

CONTINUOUS(Steel, beer, paper, bread, institutional

kitchen)

Mass CustomizationCustomization at high

Volume(Dell Computer’s PC,

cafeteria)

2 - 26

Mass CustomizationMass Customization

The use of flexible computer-aided manufacturing systems to produce custom output.

Combines the low unit costs of mass production processes with the flexibility of individual customization.


Issues In Operations StrategyIssues In Operations Strategy Resources view

Porter’s Value Chain analysis to identify opportunities for competitive advantage

Porter’s Five Forces model to analyze competitors (1. immediate rivals, 2. potential entrants, 3. customers, 4. suppliers, 5. substitute products)

External factors (political, economical factors)

Product Life Cycle


Product Life CycleProduct Life Cycle

Best 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

Co

mp

an

y S

tra

teg

y/Is

sue

s

Figure 2.5

Internet search engines

Sales

Drive-through restaurants

CD-ROMs

Analog TVs

iPods

Boeing 787

LCD & plasma TVs

Twitter, iphone5

Avatars

Xbox 360


Product Life CycleProduct Life Cycle

Product design and development critical

Frequent product and process design changes

Short production runs

High production costs

Limited models

Attention to quality

Introduction Growth Maturity Decline

OM

Str

ate

gy

/Issu

es

Forecasting critical

Product and process reliability

Competitive product improvements and options

Increase capacity

Shift toward product focus

Enhance distribution

Standardization

Fewer product changes, more minor changes

Optimum capacity

Increasing stability of process

Long production runs

Product improvement and cost cutting

Little product differentiation

Cost minimization

Overcapacity in the industry

Prune line to eliminate items not returning good margin

Reduce capacity

Figure 2.5


Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

2 - 31

Nike SWOT AnalysisNike SWOT AnalysisStrengths

- strong at research and development.

- Nike is a global brand.

Opportunities

- to develop new products such as sunglasses and jewellery.

Weaknesses

- The retail sector is very price sensitive.

Threats

- The market for sports shoes and garments is very competitive. Consumers are shopping around for a better deal.

2 - 32

SWOT Analysis SWOT Analysis

SWOT AnalysisSWOT Analysis, which is , which is a key tool in the strategic planning process can also be applied to personal career planning.


Strategy Development ProcessStrategy Development Process

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.

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 - 36

Strategy Development and Strategy Development and ImplementationImplementation

Only by identifying Key Success Factors(KSFs) and Core Competencies can an organization achieve sustainable competitive advantage.

One of the KSFs for McDonads is layout.

Core Competency for Honda is its gas-powered engines.

2 - 37

GLOBAL OPERATIONS GLOBAL OPERATIONS STRATEGY OPTIONSSTRATEGY OPTIONS

Operations managers of international and multinational companies (IBM is a multinational company)approach global opportunies with one of four operations strategies:

1. International Strategy

2.Global Strategy

3.Multidomestic Strategy

4.Transnational Strategy

© 2011 Pearson Education, Inc. publishing as Prentice Hall


Four International Four International Operations StrategiesOperations StrategiesC

ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

Figure 2.9

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low






Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low






Figure 2.9

Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low



Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy




Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy




Figure 2.9

Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy






subsidiaries


Figure 2.9

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé






subsidiaries


Figure 2.9

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