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Operations Operations ManagementManagement
Operations Strategy in a Global Operations Strategy in a Global EnvironmentEnvironment
Chapter 2Chapter 2
OutlineOutline GLOBAL COMPANY PROFILE: BOEING 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
Outline - ContinuedOutline - Continued 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
Learning Objectives - ContinuedLearning Objectives - ContinuedDescribe or Explain:
Specific approaches used by OM to achieve strategies Differentiation Low Cost Response
Four Global Operations Strategies Why Global Issues are Important
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
Boeing Suppliers (777)Boeing Suppliers (777)
Firm Country PartsAlenia Italy Wing flaps
AeroSpaceTechnologies
Australia Rudder
CASA Spain Ailerons
doors, wing sectionFuji Japan Landing gear
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
Menasco Aerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
SingaporeAerospace
Singapore Landing gear doors
The Role ofThe Role of
Maquiladoras World Trade Organization (WTC) North American Free Trade Agreement (NAFTA) European Union (EU)
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
Some Multinational CorporationsSome Multinational Corporations
WorkforceCompany Home
Country% SalesOutsideHomeCountry
% AssetsOutsideHomeCountry
% Foreign
Colgate-Palmolive
USA 72 63 NA
DowChemical
USA 60 50 NA
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51
Citicorp USA 34 46 NA
Some Multinational CorporationsSome Multinational Corporations
WorkforceCompany Home
Country% SalesOutsideHomeCountry
% AssetsOutsideHomeCountry
% Foreign
ICI Britain 78 50 NA
Nestlé Switzerland 98 95 97
Philips Netherlands 94 85 82
Siemens Germany 51 NA 38Electronics
Unilever Britain & Netherlands
95 70 64
Pontiac - the LeMans Included Pontiac - the LeMans Included the Followingthe Following
About $6,000 heads to South Korea for auto’s assembly $3,500 goes to Japan for engines, axles, and electronics $1,500 goes to Germany for design $800 goes to Taiwan, Singapore, and Japan for smaller parts $500 heads to England for marketing $100 goes to Ireland for information technology the rest $7,600, goes to GM and its US bankers, insurance
agents, and attorneys.
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
Trade PaysTrade PaysGDP (PPP*) per PersonGDP (PPP*) per Person 1990 Growth Rates, % 1990 Growth Rates, %
-1
0
1
2
3
4
5
More globalized poor countries
Rich countries
Less globalized poor countries
*PPP – Purchasing Power Parity
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
Ranking CorruptionRanking Corruption1. Finland 9.72. Denmark & New Zealand (Tie) 9.5
…
7. Canada 9.0
…
10. United Kingdom 8.7
…
16. United States 7.7
…
18. Germany & Israel (Tie) 7.3
…
20. Japan 7.1
…
31. Italy 5.2
…
59. China 3.5
…
62. Egypt 3.4…71. India & Russia (Tie) 2.7…101.Nigeria 1.6102.Bangladesh 1.2
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
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
Developing Missions and Developing Missions and StrategiesStrategies
55
Mission - where are you going? Organization’s purpose for being Provides boundaries & focus Answers ‘What do we provide
society?’
© 1995 Corel Corp.
MissionMission
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.
Sample Mission - MerckSample Mission - Merck
The mission of Merck is to provide society with superior products and services - innovations and solutions that
improve the quality of life and satisfy customer needs - to provide employees with meaningful work and
advancement opportunities and investors with a superior rate of return
Mission of the Hard Rock CaféMission of the Hard Rock Café
To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring
our long-term success.
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
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
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
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
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)
Operations Strategies for Two Operations Strategies for Two Drug CompaniesDrug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Product Selection and Design
Heavy R & D; Extensive labs; focus on development in broad range of \drug categories
Low R & D investment; focus on development of generic drugs
Quality Quality is a major priority; Standards exceed regulatory requirements
Meets regulatory requirements on a country-by-country basis as necessary
Operations Strategies for Two Operations Strategies for Two Drug Companies - ContinuedDrug Companies - Continued
Brand Name Drugs, Inc.
Generic Drug Corp.
Process Product & modular production processes Long product runs in specialized facilities Build capacity ahead of demand
Process focused General production processes; “Job Shop” approach, short run; Focus on high utilization
Location Still located in city in which it was founded
Recently moved to low tax, low labor cost environment
Scheduling Central production planning
Many short run products complicate scheduling
Operations Strategies for Two Operations Strategies for Two Drug Companies - ContinuedDrug Companies - Continued
Brand Name Drugs, Inc.
Generic Drug Corp.
Human Resources
Hires the best; nation-wide searches
Very experienced top executives provide direction; other personnel paid below average
Supply Chain
Long term supplier relationship
Tends to purchase competitively to find bargains
Inventory Maintains high finished goods inventory, primarily to ensure all demands are met
Process focus drives up WIP inventory. Finished goods inventory tends to be low
Operations Strategies for Two Operations Strategies for Two Drug Companies - ContinuedDrug Companies - Continued
Brand Name Drugs, Inc.
Generic Drug Corp.
Maintenance Highly trained staff; Extensive parts inventory
Highly trained staff to meet challenging demands
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
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
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
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
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
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
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
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
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
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
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
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
Southwest Airline’s Low Cost Southwest Airline’s Low Cost Competitive AdvantageCompetitive Advantage
Vanguard’s Activity SystemVanguard’s Activity System
A broad array of mutual funds excluding some fund
categories
Efficient investment management approach offering good consistent
performance
Straightforward client communication and
education
Strict cost control
Direct distributions
Very low expenses
passed on to client
How It WorksHow It Works
CompanyMission
BusinessStrategy
Functional AreaStrategies
MarketingDecisions
OperationsDecisions
Fin./Acct.Decisions
If competitive advantage, leads to achieving
Distinctive competencies affect
Four International Operations Four International Operations StrategiesStrategies
Multidomestic StrategyMultidomestic Strategy
Operating decisions are decentralized to each country to enhance local responsiveness
Global StrategyGlobal Strategy
Operating decisions are centralized and headquarters coordinates the standardization
and learning between facilities
Transnational StrategiesTransnational Strategies
Combines the benefits of global-scale efficiencies with the benefits of local responsiveness
International StrategyInternational Strategy
Global markets are penetrated using exports and licenses