1. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Chapter 2 Operations strategy In Global Environment Source: courtesy of Justin Waskovich

2. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Global Strategies ▶ Boeing – sales and supply chain 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

3. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Global Strategies ▶ Volvo – considered a Swedish company, recently purchased by a Chinese company, Geely. The current Volvo S40 is assembled in Belgium, South Africa, Malaysia and China on a platform shared 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

4. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Reasons to Globalize 1.Improve the supply chain 2.Reduce costs (labor, taxes, tariffs, etc.) 3.Improve operations 4.Understand markets 5.Improve products 6.Attract and retain global talent

5. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Improve the Supply Chain ▶ Locating facilities closer to unique resources ▶ Auto design to California ▶ Athletic shoe production to China ▶ Perfume manufacturing in France

6. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Reduce Costs ▶ Foreign locations with lower wage rates can lower direct and indirect costs ▶ Trade agreements can lower tariffs ▶ Maquiladoras ▶ World Trade Organization (WTO) ▶ North American Free Trade Agreement (NAFTA) ▶ APEC, SEATO, MERCOSUR, CAFTA ▶ European Union (EU)

7. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Improve Operations ▶ Understand differences between how business is handled in other countries ▶ Japanese – inventory management ▶ Scandinavians – ergonomics ▶ International operations can improve response time and customer service

8. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Understand Markets ▶ Interacting with foreign customers, suppliers, competition can lead to new opportunities ▶ Cell phone design moved from Europe to Japan ▶ Extend the product life cycle

9. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Improve Products Remain open to free flow of ideas Toyota and BMW manage joint research and development –Reduced risk, state-of-the-art design, lower costs Samsung and Bosch jointly produce batteries

10. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Attract and Retain Global Talent ▶ Offer better employment opportunities ▶ Better growth opportunities and insulation against unemployment ▶ Relocate unneeded personnel to more prosperous locations

11. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Cultural and Ethical Issues ▶ Cultures can be quite different ▶ Attitudes can be quite different towards ► Punctuality ► Lunch breaks ► Environment ► Intellectual property ► Thievery ► Bribery ► Child labor

12. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Companies Want To Consider ▶ National literacy rate ▶ Rate of innovation ▶ Rate of technology change ▶ Number of skilled workers ▶ Political stability ▶ Product liability laws ▶ Export restrictions ▶ Variations in language ► Work ethic ► Tax rates ► Inflation ► Availability of raw materials ► Interest rates ► Population ► Number of miles of highway ► Phone system

13. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there

14. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Mission ► Mission - where is the organization going? ► Organization’s purpose for being ► Answers ‘What do we contribute to society?’ ► Provides boundaries and focus

15. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

16. MISSION STATEMENT To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand To attain the lowest cost so that everyone can fly with AirAsia Maintain the highest quality product, embracing technology to reduce cost and enhance service levels

17. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

18. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Sample Missions Sample Company Mission To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations. Sample Operations Management Mission To produce products consistent with the company’s mission as the worldwide low-cost manufacturer. Figure 2.3

19. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

20. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Sample Missions Sample OM Department Missions Product designTo design and produce products and services with outstanding quality and inherent customer value. Quality managementTo attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations Process designTo determine, design, and produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost. Figure 2.3

21. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Sample Missions Sample OM Department Missions LocationTo locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community. Layout designTo achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life. Human resourcesTo provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels. Figure 2.3

22. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Sample Missions Sample OM Department Missions Supply-chain management To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply. InventoryTo achieve low investment in inventory consistent with high customer service levels and high facility utilization. SchedulingTo achieve high levels of throughput and timely customer delivery through effective scheduling. MaintenanceTo achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment. Figure 2.3

23. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

24. What is the role of the Operations function? Operations as implementer Operations implements strategy Strategy Operations Operations drives strategy Operations as driver Strategy Operations Operations supports strategy Operations as supporter Strategy Operations

25. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What is strategy? Strategic decisions – means those decisions which … Are widespread in their effect on the organization to which the strategy refers Define the position of the organization relative to its environment Move the organization closer to its long-term goals.

26. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategy Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies © 1995 Corel Corp.

27. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategy Process Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area Strategies

28. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Operations strategy is different from operations management Example: capacity decisions Time scale Short-term capacity decisions 1–12 months Demand Long-term capacity decisions 1–-10 years Demand Operations managementOperations strategy

29. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Top-down perspective What the business wants operations to do Operations resources perspective What operations resources can do What day-to-day experience suggests operations should do Bottom-up perspective Market requirement perspective What the market position requires operations to do Operations strategy The four perspectives on operations strategy

30. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Developing a Corporate Strategy Developing a corporate strategy involves three considerations: 1.Monitoring and adapting to the environment 2.Identifying and developing core competencies 3.Developing the firm’s core processes Adapting requires environmental scanning to monitor trends for opportunities and threats. Core Competencies are the unique resources and strengths an organization possesses.

31. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Core Competencies Core competencies include… –A well-trained and flexible Workforce –Having well-located & flexible Facilities –Having Market and Financial Know-How. –Expertise in Systems and Technology. The core competencies should determine the firm’s core processes. –These can include customer relations, new service/product development, order fulfillment, and supplier relationships. –A firm may have all of these or focus on a subset of them, as determined by its core competencies.

32. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategies for Competitive Advantage 1.Differentiation – better, or at least different 2.Cost leadership – cheaper 3.Response – more responsive

33. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Competing on Differentiation 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 products ► Walt Disney Magic Kingdom – experience differentiation ► Hard Rock Cafe – dining experience

34. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Competing on Cost Provide the maximum value as perceived by customer. Does not imply low quality. ► Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment ► Walmart – small overhead, shrinkage, and distribution costs ► Air asia, tune Hotel?

35. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 ► Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment ► Walmart – small overhead, shrinkage, and distribution costs ► Air asia, tune Hotel?

36. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Competing on Response ▶ Flexibility is matching market changes in design innovation and volumes ▶ A way of life at Hewlett-Packard ▶ Reliability is meeting schedules ▶ German machine industry ▶ Timeliness is quickness in design, production, and delivery ▶ Johnson Electric, Pizza Hut, Samsung, Apple

37. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The effects of the product/service life cycle on the organization Sales volume Introduction Growth Maturity Decline Volume Slow growth in sales Rapid growth in sales volume Sales slow down and level off Market needs largely met Customers Innovators Early adopters Bulk of market Laggards Competitors Few or none Increasing numbers Stable number Declining numbers Variety of product / service design Possible high customization or frequent design changes Increasingly standardized Emerging dominant types Possible move to commodity standardization

38. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The effects of the product/service life cycle on the organization Sales volume Introduction Growth Maturity Decline Likely order winners Product/service characteristics, performance or novelty Availability of quality products/services Low price Dependable supply Low price Likely qualifiers Quality Range Price Range Quality Range Dependable supply Dominant operations performance objectives Flexibility Quality Speed Dependability Quality Cost Dependability Cost

39. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Competitiveness The Operations function can provide a competitive advantage through its performance at the five competitive objectives..\..\..\Videos\RealPlayer Downloads\Generic Strategies 1 - YouTube1.mp4..\..\..\Videos\RealPlayer Downloads\Generic Strategies 1 - YouTube1.mp4 Quality Being RIGHT Speed Being FAST Dependability Being ON TIME Cost Being PRODUCTIVE Being ABLE TO CHANGE Flexibility

40. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What do the terms quality, speed, dependability, flexibility and cost mean in the context of operations? Which enables you to do things cheaply (cost advantage)? Which enables you to change what you do (flexibility advantage)? Which enables you to do things quickly (speed advantage)? Which enables you to do things on time (dependability advantage)? Which enables you to do things right (quality advantage)?

41. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Minimum cost, maximum value Minimum price, highest value Fast throughput Quick delivery Reliable operation Dependable delivery Error-free processes Error-free products and services Ability to change Frequent new products, maximum choice The benefits of excelling Dependability Cost Speed Quality Flexibility

42. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Quality mean in … Patients receive the most appropriate treatment … a hospital? Treatment is carried out in the correct manner Patients are consulted and kept informed Staff are courteous, friendly and helpful

43. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Quality mean in … … an automobile plant? All assembly is to specification Product is reliable All parts are made to specification The product is attractive and blemish-free

44. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a bus company? What does Quality mean in … The buses are clean and tidy The buses are quiet and fume-free The timetable is accurate and user-friendly Staff are courteous, friendly and helpful

45. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a supermarket? What does Quality mean in … The store is clean and tidy Décor is appropriate and attractive Goods are in good condition Staff are courteous, friendly and helpful

46. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Quality ‘Quality’ has several meanings. The two most common are … Quality as the specification of a product or service e.g. Lower Hurst Farm produces organic meat raised exclusively on its own farm Quality as the conformance with which the product or service is produced e.g. Quick-service restaurants like McDonald’s may buy less expensive meat, but its conformance must be high

47. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Quality Irrespective of a product or service’s specification quality, producing it so it conforms to its specification consistently brings benefits to any operation Externally – it enhances the product or service in the market, or at least avoids customer complaints Internally – it brings other benefits to the operation: It prevents errors slowing down throughput speed It prevents errors causing internal unreliability and low dependability It prevents errors causing wasted time and effort, therefore saving cost

48. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Depend- ability Flexibility Quality Speed Cost Quality External and internal benefits On-specification products and services

49. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The time between requiring treatment and receiving treatment is kept to a minimum … a hospital? What does Speed mean in … The time for test results, X-rays, etc. to be returned is kept to a minimum

50. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Speed mean in … … an automobile plant? The time between dealers requesting a vehicle of a particular specification and receiving it is minimized The time to deliver spares to service centres is minimized

51. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Speed mean in … … a bus company? The time between a customer setting out on the journey and reaching his or her destination is kept to a minimum

52. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Speed mean in … … a supermarket? The time for the total transaction of going to the supermarket, making the purchases and returning is minimized Goods are immediately available

53. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Speed again has different interpretations, externally and internally Externally – it means the elapsed time between a customer asking for a product or service and getting it (in a satisfactory condition) It often enhances the value of the product or service to customers Internally – it brings other benefits to the operation: It helps to overcome internal problems by maintaining dependability It reduces the need to manage transformed resources as they pass through the operation, therefore saving cost Speed

54. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Depend- ability Flexibility Quality Speed Cost Speed External and internal benefits On-specification products and services Short delivery lead-time

55. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Dependability mean in … The proportion of appointments that are cancelled is kept to a minimum … a hospital? Keeping appointment times Test results, X-rays, etc. are returned as promised

56. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Dependability mean in … … an automobile plant? On-time delivery of vehicles to dealers On-time delivery of spares to service centres

57. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Dependability mean in … … a bus company? Keeping to the published timetable at all points on the route Constant availability of seats for passengers

58. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Dependability mean in … … a supermarket? Predictable opening hours Proportion of goods out of stock kept to a minimum Keeping to reasonable queuing times Constant availability of parking

59. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Externally – it enhances the product or service in the market, or at least avoids customer complaints Internally – it brings other benefits to the operation: It prevents late delivery slowing down throughput speed It prevents lateness causing disruption and wasted time and effort, therefore saving cost Dependability

60. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Depend- ability Flexibility Quality Speed Cost Dependability External and internal benefits Depend- ability Flexibility Quality Speed Cost On-specification products and services Short delivery lead-time Reliable delivery

61. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Flexibility has several distinct meanings but is always associated with an operation’s ability to change Change what ? The products and services it brings to the market – Product/service flexibility The mix of products and services it produces at any one time – Mix flexibility The volume of products and services it produces – Volume flexibility The delivery time of its products and services – Delivery flexibility Flexibility

62. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Flexibility mean in … Introducing new treatments … a hospital? Providing a wide range of treatments The ability to adjust the number of patients treated The ability to reschedule appointments

63. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Flexibility mean in … … an automobile plant? The introduction of new models A wide range of options The ability to adjust the number of vehicles manufactured The ability to reschedule manufacturing priorities

64. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a bus company? What does Flexibility mean in … The introduction of new routes and excursions A large number of locations served The ability to adjust the frequency of services The ability to reschedule trips

65. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a supermarket? What does Flexibility mean in … The introduction of new lines A wide range of goods stocked The ability to adjust the number of customers served The ability to get out-of-stock items

66. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Depend- ability Flexibility Quality Speed Cost External and internal benefits Flexibility External and internal benefits Depend- ability Flexibility Quality Cost On-specification products and services Short delivery lead-time Reliable delivery Speed Frequent new products/services Wide range Volume and delivery changes

67. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Cost mean in … … a hospital? Staff costs Technology and facilities costs Bought-in materials and services

68. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 What does Cost mean in … … an automobile plant? Technology and facilities costs Staff costs Bought-in materials and services

69. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a bus company? What does Cost mean in … Staff costs Technology and facilities costs Bought-in materials and services

70. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 … a supermarket? What does Cost mean in … Staff costs Technology and facilities costs Bought-in materials and services

71. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Cost External and internal benefits Depend- ability Flexibility Quality Speed Cost Depend- ability Flexibility Quality Cost On-specification products and services Short delivery lead-time Reliable delivery Speed Frequent new products/services Wide range Volume and delivery changes Low price, high margin, or both

72. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Competing On Any Basis Probably requires the institutionalization within the firm of the ability to change, to adapt..\..\..\Videos\RealPlayer Downloads\Alternative Competitive Advantage - YouTube1.mp4..\..\..\Videos\RealPlayer Downloads\Alternative Competitive Advantage - YouTube1.mp4

73. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 OM’s Contribution to Strategy Product Quality Process Location Layout Human resource Supply chain Inventory Scheduling Maintenance DIFFERENTIATION: Innovative designSafeskin’s innovative gloves Broad product lineFidelity Security’s mutual funds After-sales serviceCaterpillar’s heavy equipment service ExperienceHard Rock Café’s dining experience COST LEADERSHIP: Low overheadFranz-Colruyt’s warehouse-type stores Effective capacity Southwest Airline’s useaircraft utilization Inventory Walmart’s sophisticated managementdistribution system RESPONSE: FlexibilityHewlett-Packard’s response to volatile world market ReliabilityFedEx’s “absolutely, positively, on time” QuicknessPizza Hut’s 5-minute guarantee at lunchtime Figure 2.4 10 OperationsCompetitive DecisionsStrategyExampleAdvantage Response (faster) Cost leadership (cheaper) Differentiation (better)

74. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 OM’s Contribution to Strategy Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance Compaq Computer’s ability to follow the PC market Differentiation (Better) Response (Faster) Cost leadership (Cheaper) Southwest Airlines No-frills service Sony’s constant innovation of new products Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” Motorola’s automotive products ignition systems Motorola’s pagers IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage

75. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission

76. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategy Development and Implementation ▶ Identify key success factors ▶ Integrate OM with other activities ▶ Build and staff the organization The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

77. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategic Planning, Core Competencies, and Outsourcing Outsourcing – transferring activities that traditionally been internal to external suppliers Accelerating due to –Increased technological expertise –More reliable and cheaper transportation –Rapid development and deployment of advancements in telecommunications and computers

78. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Strategic Planning, Core Competencies, and Outsourcing ▶ Subcontracting - contract manufacturing ▶ Outsourced activities ► Legal services ► Travel services ► Payroll ► Production ► Surgery

79. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Theory of Comparative Advantage ▶ If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work ▶ Purchasing firm focuses on core competencies ▶ Drives outsourcing

80. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Risks of Outsourcing TABLE 2.2Potential Advantages and Disadvantages of Outsourcing ADVANTAGESDISADVANTAGES Cost savingsIncreased logistics and inventory costs Gaining outside expertiseLoss of control (quality, delivery, etc.) Improving operations and servicePotential creation of future competition Maintaining a focus on core competencies Negative impact on employees Accessing outside technologyRisks may not manifest themselves for years

81. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Rating Outsourcing Providers ▶ Insufficient analysis most common reason for failure ▶ Factor rating method ▶ Points and weights assigned for each factor to each

82. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Rating Provider Selection Criteria TABLE 2.3Factor Ratings Applied to National Architects’s Potential IT Outsourcing Providers IMPORTANCE WEIGHTS OUTSOURCING PROVIDERS FACTOR (CRITERION) BIM (U.S.) S.P.C. (INDIA) TELCO (ISRAEL) 1. Can reduce operating costs.2335 2. Can reduce capital investment.2433 3. Skilled personnel.2543 4. Can improve quality.1452 5. Can gain access to technology not in company.1535 6. Can create additional capacity.1424 7. Aligns with policy/philosophy/culture.1235 Totals1.03.93.33.8 Score for BIM = (.2 * 3) + (.2 * 4) + (.2 * 5) + (.1 * 4) + (.1 * 5) + (.1 * 4) + (.1 * 2) = 3.9

83. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Global Operations Strategy Options Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Cost Reduction High Low High..\..\..\Low Local Responsiveness (Quick Response and/or Differentiation Figure 2.9 Use existing domestic model globally Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Transnational strategy (eg, Coca-Cola, Nestlé) Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning

84. Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 ‘… the decisions which shape the long- term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …’ Operations strategy is …