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Operations Operations ManagementManagement
Operations Strategy & Operations Strategy & CompetitivenessCompetitiveness
Chapter 2Chapter 2
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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
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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
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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
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Developing Missions and Developing Missions and StrategiesStrategies
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MissionMission
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 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.
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Factors Affecting MissionFactors Affecting Mission
Mission
Philosophy &Values
Profitability& Growth
Environment
Customers Public Image
Benefit toSociety
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Mission/StrategyMission/Strategy
Mission - where you are going
Strategy - how you are going to get there; an action plan
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StrategyStrategy
Action plan to achieve mission
Shows how mission will be achieved
Company has a business strategy
Functional areas have strategies © 1995 Corel Corp.
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Strategy ProcessStrategy Process
MarketingDecisions
OperationsDecisions
Fin./Acct.Decisions
CompanyMission
BusinessStrategy
Functional AreaFunctional AreaStrategies
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Strategies for Competitive Strategies for Competitive AdvantageAdvantage
Differentiation
Cost leadership
Quick response
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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
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Competing on CostCompeting on Cost
Provide the maximum value as perceived by customer
Does not imply low value or low quality
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Competing on ResponseCompeting on Response
Flexibility Reliability Timeliness
Requires institutionalization within the firm of the ability to respond
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Competing, Regardless of the Basis,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 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
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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
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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
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Operations Decisions
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
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Operations Decisions
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 and the 10 OM Goods & Services and the 10 OM Decisions – ContinuedDecisions – Continued
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Goods & Services and the 10 OM Goods & Services and the 10 OM Decisions – ContinuedDecisions – Continued
Operations Decisions
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
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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)
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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
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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
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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
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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.
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Impetus for Strategy ChangeImpetus 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 CycleStages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
Gro
wth
rate
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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
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Strategy & Issues During Product LifeStrategy & Issues During Product Life
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
OM Strategy & Issues
Growth
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Strategy & Issues During Product LifeStrategy & Issues During Product Life
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
OM Strategy & Issues
Maturity
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Strategy & Issues During Product LifeStrategy & Issues During Product Life
Cost control critical to market share
Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returningGood marginReduce capacity
Company Strategy & Issues
OM Strategy & Issues
Decline
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Strategy and Issues During a Strategy and Issues During a Product’s LifeProduct’s Life
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Strategy Development and Strategy Development and ImplementationImplementation
Identify critical success factors Build and staff the organization
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SWOT Analysis ProcessSWOT Analysis Process
Environmental Analysis
Determine Corporate Mission
Form a Strategy
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SWOT Analysis to Strategy SWOT Analysis to Strategy FormulationFormulation
Strategy
Mission
ExternalOpportunities
InternalStrengths
InternalWeaknesses
ExternalThreats
CompetitiveAdvantage
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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
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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
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
Courteous, but limited passenger service
No seat assignmentsNo baggage transfersAutomated ticketing machinesNo meals
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
Short haul, point-to-point routes, often to secondary
airports
Lower gate costs at secondary airports
High number of flights, reduces employee idle time between flights
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
Frequent, reliable schedules
High number of flights reduces employee idle time between flightsSaturate a city with flights lowering administrative costs per passenger for that city
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
Standardized fleet of Boeing 737 aircraft
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
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
High aircraft utilization
Flexible employees and standard planes aids schedulingFlexible union contractsMaintenance personnel trained on only one type of aircraft20 minute gate turnarounds
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Activity Mapping: Southwest Airline’s Activity Mapping: Southwest Airline’s Low Cost Competitive AdvantageLow Cost Competitive Advantage
Lean, productive employees
High level of stock ownershipHire for attitude, then trainHigh employee compensationEmpowered employeesAutomated ticket machines
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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
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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
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Management Issues inManagement Issues in Global Operations Global Operations
Global Strategic Context Differentiation Cost leadership Response
Logistics Management
Location DecisionsSupply Chain Management
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Supply-Chain ManagementSupply-Chain Management
Sourcing Vertical integration Make-or-buy decisions Partnering
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Location DecisionsLocation Decisions
Country-related issues Product-related issues Government policy/political risk Organizational issues
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Materials ManagementMaterials Management
Flow of materials Transportation options and speed Inventory levels Packaging Storage
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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
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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
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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
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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 OperationsAchieving Global Operations-Four Considerations--Four Considerations-
Global product design Global process design and technology Global factory location analysis Impact of Culture and Ethics
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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”
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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
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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
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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
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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
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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
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Managing Global Service Managing Global Service OperationsOperations
Must take a different perspective on Capacity planning Location Planning Facilities design and layout Scheduling
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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
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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
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Four International Operations Four International Operations StrategiesStrategies
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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
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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