ch2_globalenvironment

CHAPTER 2OPERATIONS STRATEGY IN GLOBAL ENVIRONMENT

BMGMT 1201 Operation Management 1

Outline

• GLOBAL COMPANY PROFILE: BOEING• DEVELOPING MISSIONS AND STRATEGIES

– Mission– Strategy

• ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS– Competing on Differentiation– Competing on Cost– Competing on Response

• TEN STRATEGIC OM DECISIONS


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


Outline - Continued

• GLOBAL OPERATIONS STRATEGY OPTIONS– International Strategy– Multidomestic Strategy– Global Strategy– Transnational Strategy


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

• GM is building four similar plants in Argentina, Poland, China, and Thailand


Management Issues in Global Operations

Global Strategic Context– Differentiation– Cost leadership– Response


Logistics Management

Location Decisions

Supply Chain Management

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 efficiencies with the benefits of local responsiveness


Some Multinational Corporations


WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands 94 85 82

Siemens Germany 51 NA 38Electronics

Unilever Britain & Netherlands

95 70 64

Pontiac - the LeMans Included the Following

• About $6,000 heads to South Korea for auto’s assembly• $3,500 goes to Japan for engines, axles, and electronics• $1,500 goes to Germany for design• $800 goes to Taiwan, Singapore, and Japan for smaller

parts• $500 heads to England for marketing• $100 goes to Ireland for information technology• the rest $7,600, goes to GM and its US bankers,

insurance agents, and attorneys.


Reasons to Globalize Operations

• Reduce costs (labor, taxes, tariffs, etc.)• Improve the supply chain• Provide better goods and services• Attract new markets• Learn to improve operations• Attract and retain global talent


Tangible

Intangible

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


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


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 organization


Mission


• Mission - where are you going?– Organization’s purpose for

being– Provides boundaries & focus– Answers ‘What do we

provide society?’

© 1995 Corel Corp.

Sample Mission - Merck

The mission of Merck 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 advancement opportunities and investors with a superior rate of return


Mission/Strategy

• Mission - where you are going

• Strategy - how you are going to get there; an action plan


Strategy


• Action plan to achieve mission

• Shows how mission will be achieved

• Company has a business strategy

• Functional areas have strategies © 1995 Corel Corp.

Strategy Process


MarketingDecisions

OperationsDecisions

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaFunctional AreaStrategies

Strategies for Competitive Advantage

• Differentiation

• Cost leadership

• Quick response


Competing on Differentiation

Uniqueness can go beyond both the physical characteristics and service attributes to

encompass everything that impacts customer’s perception of value


Competing on Cost

Provide the maximum value as perceived by customer

Does not imply low value or low quality


Competing on Response

• Flexibility• Reliability• Timeliness

Requires institutionalization within the firm of the ability to respond


Competing, Regardless of the Basis,

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


OM’s Contribution to Strategy


Response(Faster)

Quality

Product

Process

Location

Layout

Human Resource

Supply Chain

Inventory

Scheduling

Maintenance

HP’s ability to follow the printer market

Differentiation(Better)

Cost leadership(Cheaper)

Southwest Airlines No-frills service

Sony’s constant innovation of new products

Pizza Hut’s five-minute guarantee at lunchtimeFederal Express’s “absolutely, positively on time”

Motorola’s automotive products ignition systemsMotorola’s pagers

IBM’s after-sale service on mainframe computers

Fidelity Security’s broad line of mutual funds

FLEXIBILITYDesignVolume

LOW COST

DELIVERYSpeedDependability

QUALITYConformance

Performance

AFTER-SALE SERVICE

BROAD PRODUCT LINE

Operations Decisions Examples Specific

Strategy UsedCompetitive Advantage

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• Maintenance


Goods & Services and the 10 OM Decisions


Operations Decisions

Goods Services

Goods & services decisions

Product is usually tangible

Product is usually intangible

Quality Objective quality standards

Subjective quality standards

Process and capacity design

Customer not involved in most of process

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

Goods & Services and the 10 OM Decisions – Continued



Goods Services

Location Selection

May need to be near raw materials or labor force

Product is usually intangible

Layout Design

Layout can enhance production efficiency

Subjective quality standards

Human Resources and Job Design

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




Goods Services

Supply chain management

Supply-chain relationships critical to final product

Supply-chain relationships important, not necessarily critical

Inventory Raw materials, work-in-process, and finished goods

Most services cannot be stored

Scheduling Ability to convert inventory may allow leveling of production rates

Primarily concerned with meeting the customer's immediate schedule




Goods Services

Maintenance Maintenance is often preventive and takes place at the production site

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

Process Design


Low Moderate HighVolume

High

Moderate

Low

Varie

ty o

f Pro

duct

s

Process-focusedJob Shops

(Print shop, emergencyroom , machine shop,

fine diningRepetitive (modular)

focusAssembly line

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

Continuous(steel, beer, paper, bread, institutional

kitchen)

Mass Customization

Customization at high Volume

(Dell Computer’s PC)

Operations Strategies for Two Drug Companies


Brand Name Drugs, Inc.

Generic Drug Corp.

Product Selection and Design

Heavy R & D; Extensive labs; focus on development in broad range of \drug categories

Low R & D investment; focus on development of generic drugs

Quality Quality is a major priority; Standards exceed regulatory requirements

Meets regulatory requirements on a country-by-country basis as necessary

Operations Strategies for Two Drug Companies - Continued



Generic Drug Corp.

Process Product & modular production processes Long product runs in specialized facilities Build capacity ahead of demand

Process focused General production processes; “Job Shop” approach, short run; Focus on high utilization

Location Still located in city in which it was founded

Recently moved to low tax, low labor cost environment

Scheduling Central production planning

Many short run products complicate scheduling




Generic Drug Corp.

Human Resources

Hires the best; nation-wide searches

Very experienced top executives provide direction; other personnel paid below average

Supply Chain

Long term supplier relationship

Tends to purchase competitively to find bargains

Inventory Maintains high finished goods inventory, primarily to ensure all demands are met

Process focus drives up WIP inventory. Finished goods inventory tends to be low




Generic Drug Corp.

Maintenance Highly trained staff; Extensive parts inventory

Highly trained staff to meet challenging demands

Strategic Options Managers Useto Gain Competitive Advantage

• 28% - Operations Management• 18% - Marketing/distribution• 17% - Momentum/name recognition• 16% - Quality/service• 14% - Good management• 4% - Financial resources• 3% - Other


Stages in the Product Life Cycle


Introduction

Growth

Maturity

Decline

Grow

th ra

te

Strategy & Issues During Product Life

• Company Strategy & Issues

• OM Strategy & Issues


Best period to increase market shareR&D engineering are critical

Product design and development are criticalFrequent product and process design changesOver-capacityShort production runsHigh skilled-labor contentHigh production costsLimited number of modelsUtmost attentions to qualityQuick elimination of market-revealed design

defects

Introduction


Company Strategy

& Issues

OM Strategy & Issues


Practical to change prices or quality imageMarketing is criticalStrengthen niche

Forecasting is criticalProduct and process reliabilityCompetitive product improvements and

optionsShift toward product orientedEnhance distribution

Growth


Company Strategy

& Issues



Poor time to increase market shareCompetitive costs become criticalPoor time to change price, image, or qualityDefend position via fresh promotional and distribution

approaches

StandardizationLess rapid product changes and more minor annual model

changesOptimum capacityIncreasing stability of manufacturing processLower labor skillsLong production runsAttention to product improvement and cost cuttingRe-examination of necessity of design compromises

Maturity


Company Strategy & Issues



Cost control critical to market share

Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returningGood marginReduce capacity

Decline

SWOT Analysis to Strategy Formulation


Strategy

Mission

ExternalOpportunities

InternalStrengths

InternalWeaknesses

ExternalThreats

CompetitiveAdvantage

Multidomestic Strategy

Operating decisions are decentralized to each country to enhance local responsiveness


Global Strategy

Operating decisions are centralized and headquarters coordinates the standardization

and learning between facilities


Transnational Strategies

Combines the benefits of global-scale efficiencies with the benefits of local

responsiveness


ch2_globalenvironment

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