1. 2 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 2 2 Operations Strategy in a Global Environment PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2. 2 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Boeing Suppliers (787) FirmCountryComponent LatecoereFrancePassenger doors LabinelFranceWiring DassaultFranceDesign and PLM software Messier-BugattiFranceElectric brakes ThalesFranceElectrical power conversion system and integrated standby flight display Messier-DowtyFranceLanding gear structure DiehlGermanyInterior lighting

3. 2 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Boeing Suppliers (787) FirmCountryComponent CobhamUKFuel pumps and valves Rolls-RoyceUKEngines Smiths AerospaceUKCentral computer system BAE SYSTEMSUKElectronics Alenia AeronauticsItalyUpper center fuselage & horizontal stabilizer Toray IndustriesJapanCarbon fiber for wing and tail units

4. 2 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Boeing Suppliers (787) FirmCountryComponent Fuji HeavyJapanCenter wing box Industries Kawasaki HeavyJapanForward fuselage, Industries fixed section of wing, landing gear well Teijin SeikiJapanHydraulic actuators Mitsubishi Heavy JapanWing box Industries Chengdu Aircraft ChinaRudder Group Hafei AviationChinaParts

5. 2 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Boeing Suppliers (787) FirmCountryComponent Korean AviationSouthWingtips Korea SaabSwedenCargo access doors

6. 2 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

7. 2 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall Global Strategies  Volvo – considered a Swedish company but until recently was 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

8. 2 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall 35 – 30 – 25 – 20 – 15 – 10 – 5 – 0 – ||||||||||| 19601965197019751980198519901995200020052010(est*) Year Percent Growth of World Trade Figure 2.1 Collapse of the Berlin Wall

9. 2 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Multinational Corporations % Sales% AssetsOutside HomeHomeHome% Foreign CompanyCountryCountryCountryWorkforce CiticorpUSA3446NA Colgate-USA7263NA Palmolive Dow USA6050NA Chemical GilletteUSA6253NA HondaJapan6336NA IBMUSA574751

10. 2 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall Some Multinational Corporations % Sales% AssetsOutside HomeHomeHome% Foreign CompanyCountryCountryCountryWorkforce ICIBritain7850NA NestleSwitzerland989597 PhilipsNetherlands948582 Electronics SiemensGermany51NA38 UnileverBritain &957064 Netherlands

11. 2 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Reasons to Globalize 1.Reduce costs (labor, taxes, tariffs, etc.) 2.Improve supply chain 3.Provide better goods and services 4.Understand markets 5.Learn to improve operations 6.Attract and retain global talent Tangible Reasons Intangible Reasons

12. 2 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall Reduce Costs  Foreign locations with lower wage rates can lower direct and indirect costs  Maquiladoras  World Trade Organization (WTO)  North American Free Trade Agreement (NAFTA)  APEC, SEATO, MERCOSUR, CAFTA  European Union (EU)

13. 2 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall Improve the Supply Chain  Locating facilities closer to unique resources  Auto design to California  Athletic shoe production to China  Perfume manufacturing in France

14. 2 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall Provide Better Goods and Services  Objective and subjective characteristics of goods and services  On-time deliveries  Cultural variables  Improved customer service

15. 2 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall Understand Markets  Interacting with foreign customers and suppliers can lead to new opportunities  Cell phone design from Europe  Cell phone fads from Japan  Extend the product life cycle

16. 2 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall Learn to Improve Operations  Remain open to the free flow of ideas  General Motors partnered with a Japanese auto manufacturer to learn new approaches to production and inventory control  Equipment and layout have been improved using Scandinavian ergonomic competence

17. 2 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall Attract and Retain Global Talent  Offer better employment opportunities  Better growth opportunities and insulation against unemployment  Relocate unneeded personnel to more prosperous locations

18. 2 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

19. 2 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

20. 2 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Developing Missions and Strategies Mission Mission statements tell an organization where it is going Strategy The Strategy tells the organization how to get there

21. 2 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall Mission  Mission - where are you going?  Organization’s purpose for being  Answers ‘What do we provide society?’  Provides boundaries and focus

22. 2 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall Hard Rock Cafe Our Mission: 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. Figure 2.2

23. 2 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

24. 2 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

25. 2 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall Sample Missions Figure 2.3 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.

26. 2 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall Sample Missions Figure 2.3 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.

27. 2 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Sample Missions Figure 2.3 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.

28. 2 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

29. 2 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy  Action plan to achieve mission  Functional areas have strategies  Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

30. 2 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response

31. 2 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

32. 2 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall 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  Wal-Mart – small overhead, shrinkage, distribution costs  Franz Colruyt – no bags, low light, no music, doors on freezers

33. 2 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall 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, Motorola

34. 2 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall OM’s Contribution to Strategy Product Quality Process Location Layout Human resource Supply chain Inventory Scheduling Maintenance DIFFERENTIATION Innovative design …Safeskin’s innovative gloves Broad product line …Fidelity Security’s mutual funds After-sales service …Caterpillar’s heavy equipment service Experience …Hard Rock Café’s dining experience COST LEADERSHIP Low overhead …Franz-Colruyt’s warehouse-type stores Effective capacity use …Southwest Airline’s aircraft utilization Inventory management …Wal Mart’s sophisticated distribution system RESPONSE Flexibility …Hewlett-Packard’s response to volatile world market Reliability …FedEx’s “absolutely, positively, on time” Quickness …Pizza Hut’s 5-minute guarantee at lunchtime Figure 2.4 10 OperationsCompetitive DecisionsApproachExampleAdvantage Response (faster) Cost leadership (cheaper) Differentiation (better)

35. 2 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall 10 Strategic OM Decisions 1.Goods and service design 2.Quality 3.Process and capacity design 4.Location selection 5.Layout design 6.Human resources and job design 7.Supply-chain management 8.Inventory 9.Scheduling 10.Maintenance

36. 2 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Goods and service design Product is usually tangible Product is not tangible QualityMany objective standards Many subjective standards Process and capacity design Customers not involved Customer may be directly involved Capacity must match demand Table 2.1

37. 2 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Location selection Near raw materials and labor Near customers Layout design Production efficiency Enhances product and production Human resources and job design Technical skills, consistent labor standards, output based wages Interact with customers, labor standards vary Table 2.1

38. 2 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Supply chain Relationship critical to final product Important, but may not be critical InventoryRaw materials, work-in-process, and finished goods may be held Cannot be stored SchedulingLevel schedules possible Meet immediate customer demand Table 2.1

39. 2 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices MaintenanceOften preventive and takes place at production site Often “repair” and takes place at customer’s site Table 2.1

40. 2 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall Managing Global Service Operations  Capacity planning  Location planning  Facilities design and layout  Scheduling Requires a different perspective on:

41. 2 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall Process Design LowModerateHigh Volume High Moderate Low Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine-dining restaurant) Repetitive (modular) focus ASSEMBLY 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, cafeteria)

42. 2 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall Product Life Cycle Best period to increase market share R&D engineering is critical Practical to change price or quality image Strengthen niche Poor time to change image, price, or quality Competitive costs become critical Defend market position Cost control critical IntroductionGrowthMaturityDecline Company Strategy/Issues Figure 2.5 Internet search engines Sales Drive-through restaurants CD-ROMs Analog TVs iPods Boeing 787 LCD & plasma TVs Twitter Avatars Xbox 360

43. 2 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall Product Life Cycle Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality IntroductionGrowthMaturityDecline OM Strategy/Issues Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2.5

44. 2 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 Activity Mapping at Southwest Airlines

45. 2 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 Automated ticketing machines No seat assignments No baggage transfers No meals (peanuts)

46. 2 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 No meals (peanuts) Lower gate costs at secondary airports High number of flights reduces employee idle time between flights

47. 2 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 High number of flights reduces employee idle time between flights Saturate a city with flights, lowering administrative costs (advertising, HR, etc.) per passenger for that city Pilot training required on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft

48. 2 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 Pilot training required on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing

49. 2 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 Reduced maintenance inventory required because of only one type of aircraft Flexible employees and standard planes aid scheduling Maintenance personnel trained only one type of aircraft 20-minute gate turnarounds Flexible union contracts

50. 2 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall Activity Mapping at Southwest Airlines Courteous, but Limited Passenger Service Standardized Fleet of Boeing 737 Aircraft Competitive Advantage: Low Cost Lean, Productive Employees Short Haul, Point-to- Point Routes, Often to Secondary Airports High Aircraft Utilization Frequent, Reliable Schedules Figure 2.8 Automated ticketing machines Empowered employees High employee compensation Hire for attitude, then train High level of stock ownership High number of flights reduces employee idle time between flights

51. 2 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson Education Ranking Corruption Rank Country2011 CPI Score (out of 10) 1New Zealand 9.5 2Demark, Finland9.4 5Singapore9.2 6Norway9.0 8Australia, Switzerland8.8 10Canada8.7 12Hong Kong8.4 14Germany, Japan8.0 16UK7.8 24USA7.1 32Taiwan6.1 43South Korea5.4 60Malaysia4.3 75China3.6 112Vietnam2.9 143Russia2.4 Least Corrupt Most Corrupt