ip 312 international strategy of global companies
TRANSCRIPT
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IP_312INTERNATIONAL STRATEGY
OF GLOBAL COMPANIES
Jaroslav Halí[email protected]
Spring Semester 2019-2020
© Copyright Pearsons Education 2014 – adjusted for VŠE Praha 2020
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Operations and
Productivity
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What Is Operations
Management?
Production is the creation of goods and services
Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs
into outputs
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Organizing to Produce
Goods and Services
▶ Essential functions:
1. Marketing – generates demand
2. Production/operations – creates
the product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
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The Supply Chain
▶A global network of organizations and activities that supply a firm with goods and services
▶Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.
Farmer Syrup Bottler Distributor Retailer
producer
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What Operations
Managers Do
Basic Management Functions
▶Planning
▶Organizing
▶Staffing
▶Leading
▶Controlling
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Ten Strategic Decisions
DECISION
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance
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The Strategic Decisions
1. Design of goods and services
▶ Defines what is required of operations
▶ Product design determines quality, sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality expectations
▶ Establish policies and procedures to identify and achieve that quality
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The Strategic Decisions
3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific technology, quality, resources, and investment.
4. Location strategy
▶ Nearness to customers, suppliers, and talent.
▶ Considering costs, infrastructure, logistics, and government.
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The Strategic Decisions
5. Layout strategy
▶ Integrate capacity needs, personnel levels, technology, and inventory
▶ Determine the efficient flow of materials, people, and information.
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with the required talent and skills.
▶ Integral and expensive part of the total system design.
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The Strategic Decisions
7. Supply-chain management
▶ Integrate supply chain into the firm’s strategy.
▶ Determine what is to be purchased, from whom, and under what conditions.
8. Inventory management
▶ Inventory ordering and holding decisions.
▶ Optimize considering customer satisfaction, supplier capability, and production schedules.
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The Strategic Decisions
9. Scheduling
▶ Determine and implement intermediate-and short-term schedules.
▶ Utilize personnel and facilities while meeting customer demands.
10. Maintenance
▶ Consider facility capacity, production demands, and personnel.
▶ Maintain a reliable and stable process.
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Significant Events in OM
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Eli Whitney
▶ Born 1765; died 1825
▶ In 1798, received government contract to make 10,000 muskets
▶ Showed that machine tools could make standardized parts to exact specifications
▶ Musket parts could be used in any musket
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Frederick W. Taylor
▶ Born 1856; died 1915
▶ Known as ‘father of scientific management’
▶ In 1881, as chief engineer for Midvale Steel, studied how tasks were done
▶ Began first motion and time studies
▶ Created efficiency principles
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Taylor’s Principles
Management Should Take More Responsibility for:
► Matching employees to right job
► Providing the proper training
► Providing proper work methods and tools
► Establishing legitimate incentives for work to be accomplished
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Frank & Lillian Gilbreth
▶ Frank (1868-1924); Lillian (1878-1972)
▶ Husband-and-wife engineering team
▶ Further developed work measurement methods
▶ Applied efficiency methods to their home and 12 children!
▶ Book & Movie: “Cheaper by the Dozen,” “Bells on Their Toes”
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▶ Born 1863; died 1947
▶ In 1903, created Ford Motor Company
▶ In 1913, first used moving assembly line to make Model T
▶ Unfinished product moved by conveyor past work station
▶ Paid workers very well for 1911 ($5/day!)
Henry Ford
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W. Edwards Deming
▶ Born 1900; died 1993
▶ Engineer and physicist
▶ Credited with teaching Japan quality control methods in post-WW2
▶ Used statistics to analyze process
▶ His methods involve workers in decisions
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Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources
such as labor and capital)
The objective is to improve productivity!
Important Note!Production is a measure of output only
and not a measure of efficiency
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Feedback loop
Outputs
Goods
and
services
Transformation
The U.S. economic system
transforms inputs to outputs at
about an annual 2.5% increase
in productivity per year. The
productivity increase is the
result of a mix of capital (38%
of 2.5%), labor (10% of 2.5%),
and management (52% of
2.5%).
The Economic System
Inputs
Labor,
capital,
management
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Improving Productivity at Starbucks
A team of 10 analysts continually look for ways to shave time. Some improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop Saved 14 seconds per drink
New espresso machines Saved 12 seconds per shot
Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years.
Productivity has improved by 27%, or about 4.5% per year.
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▶ Measure of process improvement
▶ Represents output relative to input
▶ Only through productivity increases can our standard of living improve
Productivity
Productivity =Units produced
Input used
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Productivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000
250
Labor Productivity
One resource input single-factor productivity
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Multi-Factor Productivity
Output
Labor + Material + Energy + Capital + Miscellaneous
Productivity =
► Also known as total factor productivity
► Output and inputs are often expressed in dollars
Multiple resource inputs multi-factor productivity
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
=Old labor
productivity
8 titles/day
32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs=
Old labor productivity
=New labor productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
14 titles/day
32 labor-hrs=
New labor productivity
= .4375 titles/labor-hr
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
=Old multifactor
productivity
8 titles/day
$640 + 400
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400=
Old multifactor productivity
= .0077 titles/dollar
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400=
Old multifactor productivity
=New multifactor
productivity
= .0077 titles/dollar
14 titles/day
$640 + 800
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=Old multifactor
productivity
=New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar
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Measurement Problems
1. Quality may change while the quantity of inputs and outputs remains constant
2. External elements may cause an increase or decrease in productivity
3. Precise units of measure may be lacking
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New Challenges in OM
▶ Global focus
▶ Supply-chain partnering
▶ Sustainability
▶ Rapid product development
▶ Mass customization
▶ Just-in-time performance
▶ Empowered employees
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Homework No. 1
Productivity Measurement
Productivity can be measured in a variety of ways, such as by labor, capital, energy,material usage, and so on. At Modern Lumber, Inc., Art Binley, president and producer ofapple crates sold to growers, has been able, with his current equipment, to produce 240crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 cratesper 100 logs. His labor-hours will increase by 8 hours per day. What will be the impact onproductivity (measured in crates per labor-hour) if the buyer is hired?
Art Binley has decided to look at his productivity from a multifactor (total factorproductivity) perspective. To do so, he has determined his labor, capital, energy, andmaterial usage and decided to use dollars as the common denominator. His total labor-hours are now 300 per day and will increase to 308 per day. His capital and energy costswill remain constant at $350 and $150 per day, respectively. Material costs for the 100 logsper day are $1‚000 and will remain the same. He pays an average of $10 per hour. Whatwill be the impact on productivity ?
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Project Management
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Management of Projects
1. Planning - goal setting, defining the project, team organization
2. Scheduling - relate people, money, and supplies to specific activities and activities to each other
3. Controlling - monitor resources, costs, quality, and budgets; revise plans and shift resources to meet time and cost demands
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Project Planning, Scheduling, and Controlling
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► Often temporary structure
► Uses specialists from entire company
► Headed by project manager
► Coordinates activities
► Monitors scheduleand costs
► Permanent structure called ‘matrix organization’
Project Organization
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TechnicianProject No. 2
ProjectManager
ElectricalEngineer
Computer Engineer
A Sample Project
Organization
TestEngineer
MechanicalEngineer
Project No. 1
ProjectManager
Technician
Marketing FinanceHuman
Resources DesignQuality
MgtProduction
President
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The Role ofthe Project Manager
Highly visibleResponsible for making sure that:
1. All necessary activities are finished in order and on time
2. The project comes in within budget
3. The project meets quality goals
4. The people assigned to the project receive motivation, direction, and information
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► Gantt chart
► Critical Path Method (CPM)
► Program Evaluation and Review Technique (PERT)
Project Management
Techniques
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A Simple Gantt Chart
Time
J F M A M J J A S
Design
Prototype
Test
Revise
Production
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Project Management Software
► There are several popular packages for managing projects
► Primavera
► MacProject
► MindView
► HP Project
► Fast Track
► Microsoft Project
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► Network techniques
► Developed in 1950s
► CPM by DuPont for chemical plants (1957)
► PERT by Booz, Allen & Hamilton with the U.S. Navy, for Polaris missile (1958)
► Consider precedence relationships and interdependencies
► Each uses a different estimate of activity times
PERT and CPM
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Six Steps PERT & CPM
1. Define the project and prepare the work breakdown structure
2. Develop relationships among the activities - decide which activities must precede and which must follow others
3. Draw the network connecting all of the activities
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Six Steps PERT & CPM
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network – this is called the critical path
6. Use the network to help plan, schedule, monitor, and control the project
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1. When will the entire project be completed?
2. What are the critical activities or tasks in the project?
3. Which are the noncritical activities?
4. What is the probability the project will be completed by a specific date?
Questions PERT & CPM
Can Answer
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5. Is the project on schedule, behind schedule, or ahead of schedule?
6. Is the money spent equal to, less than, or greater than the budget?
7. Are there enough resources available to finish the project on time?
8. If the project must be finished in a shorter time, what is the way to accomplish this at least cost?
Questions PERT & CPM
Can Answer
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
A comes before B, which comes before C
(a) A B CBA C
A and B must both be completed before C can start
(b)
A
CC
B
A
B
B and C cannot begin until A is completed
(c)
B
A
CA
B
C
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
C and D cannot begin until both A and B are completed
(d)
A
B
C
D B
A C
D
C cannot begin until both A and B are completedD cannot begin until B is completedA dummy activity is introduced in AOA
(e)
CA
B D
Dummy activity
A
B
C
D
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
B and C cannot begin until A is completedD cannot begin until both B and C are completedA dummy activity is again introduced in AOA
(f)
A
C
DB A B
C
D
Dummy activity
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AON Example
ACTIVITY DESCRIPTION
IMMEDIATE
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame A, B
E Build high-temperature burner C
F Install pollution control system C
G Install air pollution device D, E
H Inspect and test F, G
Milwaukee Paper Manufacturing’s Activities and Predecessors
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AON Network for Milwaukee Paper
G
E
F
H
CA
Start
DB
Arrows Show Precedence Relationships
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Determining the Project Schedule
Activity Format
A
Activity Name or Symbol
Earliest Start
ESEarliest FinishEF
Latest Start
LS Latest Finish
LF
Activity Duration
2
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Critical Path for
Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
10 13
8 13
4 8
D
4
3 7
C
2
2 4
B
3
0 3
Start
0
0
0
A
2
20
42
84
20
41
00
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Computing Slack Time
ACTIVIT
Y
EARLIEST
START
ES
EARLIES
T FINISH
EF
LATEST
START
LS
LATEST
FINISH
LF
SLACK
LS – ES
ON
CRITICAL
PATH
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
Milwaukee Paper’s Schedule and Slack Times
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Using Microsoft Project
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Homework No. 2
PERT/CPM of a Rock Fest Concert
1) Using PERT/CPM Project, enter the activities, durations,
and predecessors, and create the Network Diagram.
2) Identify the Critical path in your diagram.
Activity Description Predecessors Days Cost
AFinalize sites & facility
contracts28 $10,000
B Select Concert Promoter A 14 $7,500
C Hire Production Manager B 21 $5,000
Etc. …..
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Design of Goods
and Services
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Product Strategy Options
► Differentiation
► Shouldice Hospital
► Low cost
► Taco Bell
► Rapid response
► Toyota
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Product Life Cycle
Negative cash flow
Introduction Growth Maturity Decline
Sa
les, co
st,
an
d c
ash
flo
w
Cost of development and production
Cash flow
Net revenue (profit)
Sales revenue
Loss
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Life Cycle and Strategy
Introductory Phase
► Fine tuning may warrant unusual expenses for
1. Research
2. Product development
3. Process modification and enhancement
4. Supplier development
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Product Life Cycle
Growth Phase
► Product design begins to stabilize
► Effective forecasting of capacity becomes necessary
► Adding or enhancing capacity may be necessary
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Product Life Cycle
Maturity Phase
► Competitors now established
► High volume, innovative production may be needed
► Improved cost control, reduction in options, paring down of product line
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Product Life Cycle
Decline Phase
► Unless product makes a special contribution to the organization, must plan to terminate offering
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Product Life Cycle Costs
Costs incurred
Costs committed
Ease of change
Concept Detailed Manufacturing Distribution,
design design service,
prototype and disposal
Perc
ent of
tota
l cost
100 –
80 –
60 –
40 –
20 –
0 –
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Generating New Products
1. Understanding the customer
2. Economic change
3. Sociological and demographic change
4. Technological change
5. Political and legal change
6. Market practice, professional standards, suppliers, distributors
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Quality Function Deployment
1. Identify customer wants
2. Identify how the good/service will satisfy customer wants
3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows
5. Develop customer importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical attributes
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QFD House of Quality
Relationshipmatrix
How to satisfycustomer wants
Interrelationships
Com
pe
titive
a
sse
ssm
ent
Technicalevaluation
Target values
What the customer
wants
Customer importance
ratings
Weighted rating
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House of Quality Example
Your team has been charged with designing a new camera for Great Cameras, Inc.
The first action is to construct a House of Quality
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House
of Quality
Example
Low
ele
ctr
icity requir
em
ents
Alu
min
um
com
ponents
Auto
focus
Auto
exposure
Hig
h n
um
ber
of pix
els
Erg
onom
ic d
esig
n
Com
pany A
Com
pany B
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
Our importance ratings
G P
G P
F G
G P
P P
Target values(Technical attributes)
Technical evaluation
Company A 0.7 60% yes 1 ok G
Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
0.5
A
75
%
2’ t
o ∞
2 c
ircu
its
Fa
ilu
re 1
pe
r 1
0,0
00
Pa
ne
l ra
nkin
g
22 9 27 27 32 25
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Homework No. 3
Design of Goods and Services
You wish to compete in the super premium ice cream market.
The task is to determine the wants of the super premium
market and the attributes/hows to be met by their firm. Use the
house of quality concept.
Market research has revealed that customers feel four factors
are significant in making a buying decision. A “rich” taste is
most important followed by smooth texture, distinct
flavor, and a sweet taste.
From a production standpoint, important factors are the sugar
content, the amount of butterfat, low air content, and natural
flavors.
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Manufacturability andValue Engineering
► Benefits:
1. Reduced complexity of the product
2. Reduction of environmental impact
3. Additional standardization of components
4. Improvement of functional aspects of the product
5. Improved job design and job safety
6. Improved maintainability (serviceability) of the product
7. Robust design
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Cost Reduction of a Bracket via Value Engineering
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► Engineering drawing
► Shows dimensions, tolerances, and materials
► Shows codes for Group Technology
► Bill of Material
► Lists components, quantities and where used
► Shows product structure
Product Documents
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Engineering Drawings
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Bills of Material
Hard Rock Cafe’s Hickory BBQ Bacon Cheeseburger
DESCRIPTION QTY
Bun 1
Hamburger patty 8 oz.
Cheddar cheese 2 slices
Bacon 2 strips
BBQ onions 1/2 cup
Hickory BBQ sauce 1 oz.
Burger set
Lettuce 1 leaf
Tomato 1 slice
Red onion 4 rings
Pickle 1 slice
French fries 5 oz.
Seasoned salt 1 tsp.
11-inch plate 1
HRC flag 1
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Assembly Drawing
► Shows exploded view of product
► Details relative locations to show how to assemble the product
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Assembly Chart
1
2
3
4
5
6
7
8
9
10
11
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
R 209 Angle
R 207 Angle
Bolt w/nut
R 404 Roller
Lock washer
Part number tag
Box w/packing material
Bolts w/nuts (2)
SA1
SA2
A1
A2
A3
A4
A5
Leftbracket
assembly
Rightbracket
assembly
Poka-yoke inspection
Identifies the point of production where components flow into subassemblies and ultimately into the final product
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Homework No. 4
Prepare a bill-of-material for a ham and cheese
sandwich.
Prepare an assembly chart for a ham and cheese
sandwich.
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Location Strategies
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The Strategic Importance of
Location
The objective of location strategy is to maximize the benefit of location
to the firm
Options include
1. Expanding existing facilities
2. Maintain existing and add sites
3. Closing existing and relocating
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Location Decisions
Country Decision Key Success Factors
1. Political risks, government rules, attitudes, incentives
2. Cultural and economic issues
3. Location of markets
4. Labor talent, attitudes, productivity, costs
5. Availability of supplies, communications, energy
6. Exchange rates and currency risks
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Location DecisionsRegion/
Community Decision
Key Success Factors
1. Corporate desires
2. Attractiveness of region
3. Labor availability and costs
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and fiscal policies
7. Proximity to raw materials and customers
8. Land/construction costs
MN
WI
MI
IL INOH
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Location Decisions
Site Decision Key Success Factors
1. Site size and cost
2. Air, rail, highway, and waterway systems
3. Zoning restrictions
4. Proximity of services/ supplies needed
5. Environmental impact issues
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Factors That Affect
Location Decisions
► Labor productivity
► Wage rates are not the only cost
► Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)= Cost per unit
South Carolina
= $1.17 per unit$70
60 units
Mexico
= $1.25 per unit$25
20 units
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Factors That Affect
Location Decisions
► Exchange rates and currency risks
► Can have a significant impact on costs
► Rates change over time
► Costs
► Tangible - easily measured costs such as utilities, labor, materials, taxes
► Intangible - less easy to quantify and include education, public transportation, community, quality-of-life
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Factors That Affect
Location Decisions
► Political risk, values, and culture
► National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux
► Worker attitudes towards turnover, unions, absenteeism
► Globally cultures have different attitudes towards punctuality, legal, and ethical issues
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Ranking CorruptionRank Country 2012 CPI Score (out of 100)
1 Demark, Finland, New Zealand 90
4 Sweden 88
5 Singapore 87
6 Switzerland 86
7 Australia, Norway 85
9 Canada, Netherlands 84
13 Germany 79
14 Hong Kong 77
17 Japan, UK 74
19 USA 73
37 Taiwan 61
39 Israel 60
45 South Korea 56
80 China 39
123 Vietnam 31
133 Russia 28
Least Corrupt
Most Corrupt
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Factors That Affect
Location Decisions
► Proximity to markets
► Very important to services
► JIT systems or high transportation costs may make it important to manufacturers
► Proximity to suppliers
► Perishable goods, high transportation costs, bulky products
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Factors That Affect
Location Decisions
► Proximity to competitors (clustering)
► Often driven by resources such as natural, information, capital, talent
► Found in both manufacturing and service industries
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Clustering of Companies
INDUSTRY LOCATIONS
REASON FOR
CLUSTERING
Wine making Napa Valley (US)
Bordeaux region
(France)
Natural resources of land
and climate
Software firms Silicon Valley,
Boston, Bangalore
(India)
Talent resources of bright
graduates in
scientific/technical areas,
venture capitalists nearby
Clean energy Colorado Critical mass of talent and
information, with 1,000
companies
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Clustering of Companies
INDUSTRY LOCATIONS
REASON FOR
CLUSTERING
Theme parks
(Disney World,
Universal Studios,
and Sea World)
Orlando, Florida A hot spot for
entertainment, warm
weather, tourists, and
inexpensive labor
Electronics firms Northern Mexico NAFTA, duty free export to
U.S.
Computer hardware
manufacturers
Singapore, Taiwan High technological
penetration rate and per
capita GDP,
skilled/educated workforce
with large pool of engineers
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Clustering of Companies
INDUSTRY LOCATIONS
REASON FOR
CLUSTERING
Fast food chains
(Wendy’s,
McDonald’s, Burger
King, and Pizza
Hut)
Sites within 1 mile of
each other
Stimulate food sales, high
traffic flows
General aviation
aircraft (Cessna,
Learjet, Boeing,
Raytheon)
Wichita, Kansas Mass of aviation skills
Athletic footwear,
outdoor wear
Portland, Oregon 300 companies, many
owned by Nike, deep talent
pool and outdoor culture
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Factor-Rating Method► Popular because a wide variety of factors
can be included in the analysis
► Six steps in the method
1. Develop a list of relevant factors called key success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each location
6. Make a recommendation based on the highest point score
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Factor-Rating ExampleSCORES
(OUT OF 100) WEIGHTED SCORES
KSF WEIGHT FRANCE DENMARK FRANCE DENMARK
Labor availability
and attitude.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to-car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education and
health.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
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Locational
Cost-Volume Analysis
► An economic comparison of location alternatives
► Three steps in the method
1. Determine fixed and variable costs for each location
2. Plot the cost for each location
3. Select location with lowest total cost for expected production volume
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Locational Cost-Volume Analysis Example
Three locations:
Athens $30,000 $75 $180,000
Brussels $60,000 $45 $150,000
Lisbon $110,000 $25 $160,000
Fixed Variable TotalCity Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120
Expected volume = 2,000 units
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Locational Cost-Volume Analysis Example
–$180,000 –
–$160,000 –$150,000 –
–$130,000 –
–$110,000 –
––
$80,000 ––
$60,000 –––
$30,000 ––
$10,000 ––
Annual cost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Athens lowest cost
Brusselslowest cost
Lisbon lowest cost
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Center-of-Gravity Method
► Finds location of distribution center that minimizes distribution costs
► Considers
► Location of markets
► Volume of goods shipped to those markets
► Shipping cost (or distance)
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Center-of-Gravity Method
► Place existing locations on a coordinate grid
► Grid origin and scale is arbitrary
► Maintain relative distances
► Calculate x and y coordinates for ‘center of gravity’
► Assumes cost is directly proportional to distance and volume shipped
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Center-of-Gravity Method
STORE LOCATION
NUMBER OF CONTAINERS
SHIPPED PER MONTH
Chicago 2,000
Pittsburgh 1,000
New York 1,000
Atlanta 2,000
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Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150Arbitrary origin
Chicago (30, 120)New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
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Center-of-Gravity Method
x-coordinate =(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000
= 66.7
y-coordinate =(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000
= 93.3
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Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150Arbitrary origin
Chicago (30, 120)New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
Center of gravity (66.7, 93.3)+
Figure 8.3
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Transportation Model
► Finds amount to be shipped from several points of supply to several points of demand
► Solution will minimize total production and shipping costs
► A special class of linear programming problems
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Worldwide Distribution of
Volkswagens and Parts
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Central location in Europe
Strong presence of foreign investors
EU membership
Availability and quality of local suppliers
Existing platform for R&D
Compact and high-quality infrastructure
Skilled workforce
High share of secondary and tertiary education
Favorable labor costs and price stability
Transparent system of investment incentives
Mentality, culture and attitudes close to western countries
Enviable life style
Main Reasons to Invest in the Czech Republic
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Homework No. 5
Based on the above reports (download the actual
versions from internet) prepare an analysis why the
Czech Republic is an attractive location for the
automotive industry.
You can illustrate your findings on any of 3 major
car producers – Skoda/VW, TPCA, or Hyundai.
Number of pages: 3-5