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Operations Operations ManagementManagement

Operations Strategy Operations Strategy Chapter 2Chapter 2

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OutlineOutline Missions and Strategies. Achieving Competitive Advantage:

Differentiation. Cost. Response.

Life Cycle. Global Strategies.

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MissionMission Mission - “Where are you going?”

Mission statement:

States organization’s purpose for being.

Provides boundaries & focus.

Answers ‘How can we satisfy people’s needs?’

Published.

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Mission Statement - MerckMission Statement - Merck

The mission of Merck is to provide:

(1) Society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs,

(2) Employees with meaningful work and advancement opportunities, and

(3) Investors with a superior rate of return.

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Mission Statement - COBAMission Statement - COBA To provide students with a high quality

business education that prepares them to become productive contributors and leaders...

To conduct research…[to] extend and expand existing levels of knowledge and understanding…

To serve the university, the citizens of Missouri, and the St. Louis business community through useful outreach programs...

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Mission & StrategyMission & Strategy

Mission - “Where are you going?”

Strategy - “How are you going to get there?”

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StrategyStrategy

Action plan to achieve mission.

Exploits strengths and opportunities, avoid weaknesses.

Functional areas have strategies.

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Strategy ProcessStrategy Process

Marketing

StrategyOperations

Strategy

Fin./Acct.

Strategy

CompanyMission

BusinessStrategy

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Operations StrategyOperations Strategy

Should include measurable goals: Product quality. Customer wait time. Delivery times. Safety. Equipment down time. Employment and/or layoffs. Satisfied customers.

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Competitive Advantage Through:Competitive Advantage Through:

Differentiation. Better!

Cost leadership. Cheaper!

Quick response. Faster!

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Competing on DifferentiationCompeting on Differentiation

Better physical characteristics and service attributes.

Can encompass everything that impacts customer’s perception of value: Higher quality. More convenient. Better service. Broader product line. Innovative products/services.

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Competing on CostCompeting on Cost

Maximum value as perceived by customer.

Does not imply low value or low quality.

Usually results in a narrow range of products or services.

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Competing on ResponseCompeting on Response

Flexible to match changes in marketplace.

Reliable scheduling.

Rapid design, development, delivery, etc.

Requires institutionalization within the firm of the ability to respond.

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OM’s Contribution to StrategyOM’s Contribution to Strategy

Quality

Product

Process

Location

Layout

Human Resource

Supply Chain

Inventory

Scheduling

Maintenance

Differentiation(Better)

Response(Faster)Cost

leadership(Cheaper)

Federal Express’s “absolutely, positively on

time” delivery.

Sony’s constant innovation of new products.

Pizza Hut’s five-minute guarantee at lunch.

Southwest Airlines No-frills service.

Motorola’s high quality pagers.

IBM’s after-sale service.

Fidelity Security’s broad line of mutual funds.

Operations Decisions Examples Competitive

Advantage

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

Courteous, but limited passenger

serviceLean,

productive employees

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

High aircraft

utilizationStandardized fleet

of Boeing 737 aircraft

Frequent flights.

Competitive Advantage:

Low Cost

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive 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 Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

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

Lower gate costs at secondary airports.

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

Frequent flights.

Less employee idle time between flights.

Lower administrative costs per passenger.

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

Standardized fleet of Boeing 737

aircraft

Pilot and maintenance training on only one type of aircraft.

Easier scheduling with standard planes.

Reduced maintenance inventory.

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

High aircraft

utilization

Fast (15 minute) gate turnarounds.

Easier maintenance with only one type of aircraft.

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Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage

Lean, productive employees

High level of stock ownership.

Hire for attitude, then train.

Empowered employees.

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How Do These Organizations How Do These Organizations Compete?Compete?

UM - St. Louis.

Other area universities.

Boeing.

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Life CycleLife Cycle

Every product/service has a life cycle with four phases: Introduction.

Growth.

Maturity.

Decline.

Strategy changes as product/service moves through life cycle.

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Life CycleLife Cycle

Introduction Growth Maturity Decline

Increase market share.

Focus on R&D and product engineering.

Strengthen niche.

Focus on capacity and supply chain.

Declining market share.

Focus on cost control.

Defend market position.

Focus on optimization.

Sales

Time

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Strategy Issues During Life CycleStrategy Issues During Life Cycle

Design and re-design.

Short production runs.

High production costs.

Limited models.

Introduction Growth Maturity Decline

Sales

Forecasting critical.

Increase capacity.

Enhance distribution.

Optimum capacity.

Long production runs.

Product improvement and cost cutting.

Reduce capacity.

Minimize cost.

Eliminate items.

Time

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Global OrganizationsGlobal Organizations

CompanyHome

Country

% Sales Outside Home

Country

% Assets OutsideHome

Country

Colgate-Palmolive USA 72 63

Dow Chemical USA 60 50

Gillette USA 62 53

Honda Japan 63 36

IBM USA 57 47

Citicorp USA 34 46

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$20,000 for a Pontiac LeMans$20,000 for a Pontiac LeMans

$6,000 to South Korea for auto’s assembly. $3,500 to Japan for engines, axles, and electronics. $1,500 to Germany for design. $800 to Taiwan, Singapore, and Japan for parts. $600 to England & Ireland for marketing &

information technology. $7,600, to US (GM and its bankers, insurance

agents, and attorneys).

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Types of Global OperationsTypes of 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.

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Reasons to Globalize OperationsReasons to Globalize Operations

Reduce costs (especially labor). Provide better goods and services.

Improve operations. Improve the supply chain.

Attract new markets. Attract and retain global talent.

Tangible

Intangible

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Trade and TariffsTrade and Tariffs

Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment.

GATT - an international treaty to 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.

EU - a trade group across Europe.

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Global Product DesignGlobal Product Design

Different countries/regions require different versions of a product & different packaging.

Consider social and cultural differences: Language. Measures: “liter” versus “quart”. “sweetness” and “taste”

Coca-Cola for Mexico is different than for the USA.

Infrastructure: electricity, outlets, water quality, transportation networks, etc.

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Global OperationsGlobal Operations

Information technology (IT) enables management of operations around the globe.

Low labor cost outside USA lowers production cost. Examples: Manufacturing in China, Call centers in

Asia.

Offshore production may increase other costs (transportation, inventory, etc.) and may affect response and risk.

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Risks in Global Operations Risks in Global Operations

Changes in exchange rates.

Political and economic instability.

Disruptions of long supply chains. Natural disasters, disease.

War, riots, etc.

Tariffs and trade barriers.

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Impact of Culture and EthicsImpact of Culture and Ethics

Cultures differ in many ways! Some accept or expect:

Variations in punctuality. Long lunch hours. Many holidays. “Shrinkage” (theft). Bribery. Little protection of intellectual property.