Operations Strategy in a Global Environment Chapter 2.

Operations Strategy in a Global Environment

Chapter 2

When we complete this chapter you should know: What is Mission and Strategy Explain ten decisions of OM Describe and explain Differentiation, Low

Cost, Response Four Global operations Strategies Why Global issues are important

Global Strategies

Boeing – sales and production are worldwide Benetton – moves inventory to stores around the

world faster than its competition by building flexibility into design, production, and distribution

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.

Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina

Boeing Suppliers (787)

FirmFirm CountryCountry ComponentComponent

DassaultDassault FranceFrance Design and Design and PLM softwarePLM software

Messier-BugattiMessier-Bugatti FranceFrance Landing gearLanding gear

ThalesThales FranceFrance Electrical power Electrical power conversion system conversion system and integrated and integrated standby flight displaystandby flight display

DiehlDiehl GermanyGermany Interior lightingInterior lighting

FR-HiTempFR-HiTemp UKUK Fuel pumps Fuel pumps and valvesand valves

Smiths AerospaceSmiths Aerospace UKUK Central computer Central computer systemsystem


BAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronics

Alenia AeronauticsAlenia Aeronautics ItalyItaly Upper center Upper center fuselage & fuselage & horizontal stabilizerhorizontal stabilizer

Toray IndustriesToray Industries JapanJapan Carbon fiber for Carbon fiber for wing and tail unitswing and tail units

Fuji Heavy Fuji Heavy JapanJapan Center wing boxCenter wing box IndustriesIndustries

Kawasaki Heavy Kawasaki Heavy JapanJapan Forward fuselage, Forward fuselage, IndustriesIndustries fixed section of wing, fixed section of wing,

landing gear welllanding gear well


Teijin SeikiTeijin Seiki JapanJapan Hydraulic actuatorsHydraulic actuators

Mitsubishi Heavy Mitsubishi Heavy JapanJapan Wing boxWing box IndustriesIndustries

Chengdu Aircraft Chengdu Aircraft ChinaChina RudderRudderGroupGroup

Hafei AviationHafei Aviation ChinaChina PartsParts

What is the Reasons to Globalize?

Reasons to Globalize

Reasons to GlobalizeReasons to Globalize

Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Improve supply chainImprove supply chain Provide better goods and servicesProvide better goods and services Understand marketsUnderstand markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent

Tangible Tangible ReasonsReasons

Intangible Intangible ReasonsReasons

How Globalization helps to Reduce costs?

Reduce Costs

Foreign locations with lower wage rates can lower direct and indirect costsMaquiladorasWorld Trade Organization (WTC)North American Free Trade Agreement

(NAFTA)APEC, SEATO, MERCOSUR European Union (EU)

How Globalization Improves the Supply Chain?

What is a supply chain?

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials; transformation of these material into intermediate and finished products; and distribution of these finished products to customers.

How Globalization Improves the Supply Chain?

Locating facilities closer to unique resources Auto design to California Athletic shoe production to China Perfume manufacturing in France

Improve the Supply Chain

Improved understanding as the result of a local presence permits firm to customize products and services to meet unique cultural needs in foreign markets. Objective and subjective characteristics

of goods and services On-time deliveries Cultural variables

Reduce response time.

Globalization can provide Better Goods and Services

Interacting with foreign customer and suppliers can lead to new opportunities Cell phone design from Europe Cell phone fads from Japan Extend the product life cycle

Understand Markets

Remain open to the free flow of ideas General Motors partnered with a

Japanese auto manufacturer to learn Scandinavian design ideas have been

used to improve equipment design and layout

Learn to Improve Operations

Offer better employment opportunities Better growth opportunities and

insulation against unemployment Relocate unneeded personnel to more

prosperous locations Incentives for people who like to travel

Attract and Retain Global Talent

Cultures can be quite different Attitudes can be quite different towards

PunctualityPunctuality

Lunch breaksLunch breaks

EnvironmentEnvironment

Intellectual Intellectual propertyproperty

ThieveryThievery

BriberyBribery

Child laborChild labor

Cultural and Ethical Issues

Braun Household Appliances

Firestone Tires Godiva Chocolate Haagen-Dazs Ice

Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods

1. Volkswagen

2. Bridgestone

3. Campbell Soup

4. Ford Motor Company

5. Gillette

6. Nestlé

7. Pillsbury

8. Sony

Match Product & Parent

Braun Household Appliances

Firestone Tires Godiva Chocolate Haagen-Dazs Ice

Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods

1. Great Britain

2. Germany

3. Japan

4. United States

5. Switzerland

Match Product & Country

Developing Missions and Strategies

MissionMission statements tell an organization statements tell an organization where it is going!?where it is going!?

The The Strategy Strategy tells the organization how tells the organization how to get there!?to get there!?

Benefit to Society

Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image

Factors Affecting Mission

Action plan to achieve mission

Functional areas have strategies

Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

Strategy

How firms achieve competitive advantage through operations? Firms achieve missions in three conceptual

ways:1. Differentiation2. Cost leadership3. Response This means operations managers are called to

deliver goods and services that are 1- better or at least different 2- cheaper 3- more responsive

Uniqueness can go beyond both the physical characteristics and service

attributes to encompass everything that impacts customer’s perception of value

Safeskin gloves – leading edge productsSafeskin gloves – leading edge products

Walt Disney Magic Kingdom – Walt Disney Magic Kingdom – experience differentiationexperience differentiation

Hard Rock Cafe – theme experienceHard Rock Cafe – theme experience

Competing on Differentiation

Provide the maximum value as perceived by customer. Does not imply low quality.

Southwest Airlines – secondary Southwest Airlines – secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipment, no downtown utilization of equipment, no downtown offices, matching capacity with demandoffices, matching capacity with demand

Wal-Mart – small overheads, shrinkage, Wal-Mart – small overheads, shrinkage, distribution costs, direct shipment, distribution costs, direct shipment, rapid transportationrapid transportation

Competing on Cost

Flexibility is matching market changes in design innovation and volumes

Institutionalization at Hewlett-Packard

Reliability is meeting schedules German machine industry

Timeliness is quickness in design, production, and delivery

Johnson Electric, Bennigan’s, Motorola

Competing on Response

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission

Strategic Process

Product

Quality

Process

Location

Layout

Human resource

Supply-chain

Inventory

Scheduling

Maintenance

FLEXIBILITYSony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume

Southwest Airlines No-frills service……..…..LOW COST

DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability

QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance

IBM’s after-sale service on mainframe computers……....AFTER-SALE SERVICE

Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE

Figure 2.4Figure 2.4

OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage

Response(Faster)

Cost leadership(Cheaper)

Differentiation(Better)

OM’s Contribution to Strategy

1. Goods and service design

2. Quality

3. Process and capacity design

4. Location selection

5. Layout design

6. Human resource and job design

7. Supply-chain management

8. Inventory

9. Scheduling

10. Maintenance

Differentiation, low cost, and response can be achieved when managers make effective decisions in 10 areas of OM (operations decisions):

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive Advantage

Product Differentiation Low Cost

Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand

Process focused; general processes; job shop approach, short production runs; focus on high utilization

Location Still located in the city where it was founded

Recently moved to low-tax, low-labor-cost environment

Table 2.2Table 2.2

Operations Strategies for Two Drug Companies




Scheduling Centralized production planning

Many short-run products complicate scheduling

Layout Layout supports automated product-focused production

Layout supports process-focused job shop practices

Table 2.2Table 2.2





Human Resources

Hire the best; nationwide researches

Very experienced top executives; other personnel paid below industry average

Supply Chain Long-term supplier relationships

Tends to purchase competitively to find bargains

Table 2.2Table 2.2





Inventory High finished goods inventory to ensure all demands are met

Process focus drives up work-in-process inventory; finished goods inventory tends to be low

Maintenance Highly trained staff; extensive parts inventory

Highly trained staff to meet changing demand

Table 2.2Table 2.2


28% - Operations Management

18% - Marketing/distribution

17% - Momentum/name recognition

16% - Quality/service

14% - Good management

4% - Financial resources

3% - Other

Strategic Options to Gain a Competitive Advantage

Identify critical success factors Build and staff the organization Integrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

Strategy Development and Implementation

Global operations strategy options

As we suggested early many operations strategies now require an international dimension.

Operations managers of international and multinational firms approach global opportunities with one of four operations strategies.

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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy

Four International Operations Strategies

International StrategyInternational Strategy




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Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy

Standardized product Economies of scale Cross-cultural learning


Global StrategyGlobal Strategy




Four International Operations StrategiesC

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Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe



Global StrategyGlobal Strategy

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Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy


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Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé

International Strategy



Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe


Check the course Website for assignments and announcements!

Have nice day!

Operations Strategy in a Global Environment Chapter 2.

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