Operations Management (OPM530) -C2 Operations Strategy

Prepared by: Shatina Saad OPM 5332-1

Operations Operations ManagementManagement

Operations Strategy & Operations Strategy & CompetitivenessCompetitiveness

Chapter 2Chapter 2


OutlineOutline 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 - ContinuedOutline - 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 Multidomestic Strategy Global Strategy Transnational Strategy


Learning ObjectivesLearning ObjectivesWhen 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 Issues are Important


Developing Missions and Developing Missions and StrategiesStrategies


MissionMission

Mission - where are you going? Organization’s purpose for being Provides boundaries & focus Answers ‘What do we provide

society?’

© 1995 Corel Corp.


Mission of FedExMission of FedExFedEx is committed to our People-Service-Profit 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 each other and the public.

We will strive to have a completely satisfied customer at the end of each transaction.


Factors Affecting MissionFactors Affecting Mission

Mission

Philosophy &Values

Profitability& Growth

Environment

Customers Public Image

Benefit toSociety


Mission/StrategyMission/Strategy

Mission - where you are going

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


StrategyStrategy

Action plan to achieve mission

Shows how mission will be achieved

Company has a business strategy

Functional areas have strategies © 1995 Corel Corp.


Strategy ProcessStrategy Process

MarketingDecisions

OperationsDecisions

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaFunctional AreaStrategies


Strategies for Competitive Strategies for Competitive AdvantageAdvantage

Differentiation

Cost leadership

Quick response


Competing on DifferentiationCompeting 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 CostCompeting on Cost

Provide the maximum value as perceived by customer

Does not imply low value or low quality


Competing on ResponseCompeting on Response

Flexibility Reliability Timeliness

Requires institutionalization within the firm of the ability to respond


Competing, Regardless of the Basis,Competing, Regardless of the Basis,

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


OM’s Contribution to StrategyOM’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

FLEXIBILITY

DesignVolume

LOW COST

DELIVERY

SpeedDependability

QUALITY

ConformancePerformance

AFTER-SALE SERVICE

BROAD PRODUCT LINE

Operations Decisions Examples Specific

Strategy UsedCompetitive Advantage


10 Strategic OM Decisions10 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


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 Goods & Services and the 10 OM DecisionsDecisions



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



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 DesignProcess 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)


Characteristics of High ROI FirmsCharacteristics 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


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

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


Strategic Options Managers Use Strategic Options Managers Use to Gain Competitive Advantageto 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


Preconditions -Preconditions -To Implement a StrategyTo 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.


Impetus for Strategy ChangeImpetus for Strategy Change

Changes in the organization Stages in the product life cycle Changes in the environment


Stages in the Product Life CycleStages in the Product Life Cycle

Introduction

Growth

Maturity

Decline

Gro

wth

rate


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

Strategy & Issues During Product LifeStrategy & Issues During Product Life

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

Company Strategy

& Issues


Growth



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

Company Strategy

& Issues


Maturity



Cost control critical to market share

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

Company Strategy & Issues


Decline


Strategy and Issues During a Strategy and Issues During a Product’s LifeProduct’s Life


Strategy Development and Strategy Development and ImplementationImplementation

Identify critical success factors Build and staff the organization


SWOT Analysis ProcessSWOT Analysis Process

Environmental Analysis

Determine Corporate Mission

Form a Strategy


SWOT Analysis to Strategy SWOT Analysis to Strategy FormulationFormulation

Strategy

Mission

ExternalOpportunities

InternalStrengths

InternalWeaknesses

ExternalThreats

CompetitiveAdvantage


Identifying Identifying Critical Success FactorsCritical Success Factors

Decisions Sample Option ChapterProduct Customized, or standardized 5Quality Define customer expectations and how to achieve them 6, S6Process Facility size, technology, capacity 7, S7Location Near supplier or customer 8Layout Work cells or assembly line 9Human resource Specialized or enriched jobs 10, S10Supply chain Single or multiple source suppliers 11, S11Inventory When to reorder, how much to keep on hand 12, 14,16Schedule Stable or fluctuating productions rate 13, 15Maintenance Repair as required or preventive maintenance 17

MarketingServiceDistributionPromotionChannels of distributionProduct positioning (image, functions)

Finance/AccountingLeverageCost of capitalWorking capitalReceivablesPayablesFinancial controlLines of credit

Production/Operations


Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage

Courteous, but limited passenger service

Lean, productive employees

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

airports

High aircraft utilization

Standardized fleet of Boeing 737 aircraft

Frequent, reliable schedules

Competitive Advantage:Low Cost




No seat assignmentsNo baggage transfersAutomated ticketing machinesNo meals




airports

Lower gate costs at secondary airports

High number of flights, reduces employee idle time between flights




High number of flights reduces employee idle time between flightsSaturate a city with flights lowering administrative costs per passenger for that city




Pilot training on only one type of aircraftReduced maintenance inventory required because of only one type of aircraftExcellent supplier relations with Boeing has aided financing




Flexible employees and standard planes aids schedulingFlexible union contractsMaintenance personnel trained on only one type of aircraft20 minute gate turnarounds




High level of stock ownershipHire for attitude, then trainHigh employee compensationEmpowered employeesAutomated ticket machines






airports




Competitive Advantage:Low Cost


Examples of Global StrategiesExamples 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 inManagement Issues in Global Operations Global Operations

Global Strategic Context Differentiation Cost leadership Response

Logistics Management

Location DecisionsSupply Chain Management


Supply-Chain ManagementSupply-Chain Management

Sourcing Vertical integration Make-or-buy decisions Partnering


Location DecisionsLocation Decisions

Country-related issues Product-related issues Government policy/political risk Organizational issues


Materials ManagementMaterials Management

Flow of materials Transportation options and speed Inventory levels Packaging Storage


Defining Global OperationsDefining 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


Reasons to Globalize OperationsReasons 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 TariffTrade 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


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


Achieving Global OperationsAchieving Global Operations-Four Considerations--Four Considerations-

Global product design Global process design and technology Global factory location analysis Impact of Culture and Ethics


GlobalGlobal Product Design Product Design

Remember social and cultural differences packaging and marketing can help make product seem

“domestic” but - “liter” versus “quart” “sweetness” and “taste”


GlobalGlobal Process Design and Technology 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


GlobalGlobal Facility Location Analysis Facility Location Analysis

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 Sum the ratings

Using CSFs for Country Selection


You May Wish To ConsiderYou May Wish To Consider

national literacy rate rate of innovation rate of technology change number of skilled workers stability of government product liability laws export restrictions similarity in language

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


GlobalGlobalImpact of Culture and EthicsImpact of Culture and Ethics

Cultures differ! Some accept/expect: variations in punctuality long lunch hours expectation of thievery bribery little protection of intellectual property


To Establish Global ServicesTo 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 to reach global customers


Managing Global Service Managing Global Service OperationsOperations

Must take a different perspective on Capacity planning Location Planning Facilities design and layout Scheduling


Some DefinitionsSome 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 StrategiesSome 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


Four International Operations Four International Operations StrategiesStrategies


Match Product & ParentMatch 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

1. Volkswagen2. Bidermann International3. Bridgestone4. Campbell Soup5. Credit Lyonnais6. Ford Motor Company7. Gillette8. Grand Metropolitan9. Michelin10. Nestlé


Match Product & CountryMatch 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

1. France2. Great Britain3. Germany4. Japan5. United States6. Switzerland

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Operations Management (OPM530) -C2 Operations Strategy