1. 2 - 1© 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

2. 2 - 2 Goods & Services GOODS (a pizza)  Actual useful objects  Produced ahead of use  Same for everyone  Business  consumer  Standardisation important  Quality from specifications  Can be returned  tangible SERVICES (a haircut)  Only exist as happening  Simultaneous prod/cons.  Unique for each person  Business with consumer  Flexibility important  Quality from experience  Can’t be returned  intangible © 2011 Pearson Education, Inc. publishing as Prentice Hall

3. 2 - 3 G&S tangibility spectrum (an idea from marketing) © 2011 Pearson Education, Inc. publishing as Prentice Hall salt softdrinks automobiles cosmetics fastfood outlets advertising agencies airlines consulting teaching Tangible ‘dominant’ (‘goods’ focus) Intangible ‘dominant’ (‘service’ focus)

4. 2 - 4 More ideas from marketing Goods Tangible Easy to patent, stockpile, display, price Standardised Easy to state quality, meet customer expectations. Production separate Different location (centralise & scale), no customer interaction, can mass produce Nonperishable Easy to match supply & demand, can return etc. Services Intangible Difficult to patent, stockpile, display, price Heterogeneous Quality varies for each customer interaction Production simultaneous Happens ‘as consumed’, same location, (decentralise & small), cannot mass produce. Perishable Made ‘on-the-spot’ – difficult to match S&D, or to return.

5. 2 - 5© 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

6. 2 - 6© 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 (reduce cost) Near customers (increase revenue) Layout designProduction efficiency (reduce cost) Increase product exposure (increase revenue) Human resources and job design Technical skills, consistent labor standards, output based wages Interact with customers, labor standards vary Table 2.1

7. 2 - 7 Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Supply chainRelationship 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 (biggest issue)

8. 2 - 8© 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

9. 2 - 9 Assessment One © 2011 Pearson Education, Inc. publishing as Prentice Hall Apply the 10 OM areas to a business Assume you can identify the business strategy Show how the 10 OM areas support the strategy

10. 2 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall

11. 2 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Management History (major themes) 1960 = cost and efficiency 1970 = quality revolution 1980 = customisation & design 1985 = time / speed of response 1995 = service & value 2000 =sustainability ( all part of OM today)

12. 2 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall Developing Missions and Strategies Mission Mission statements set an organization’s goal. Strategy Strategy is how the organization reaches the goal

13. 2 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

14. 2 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

15. 2 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategy  Action plan to achieve mission  Functional areas each have strategies  Strategies should  exploit opportunities & strengths,  neutralize threats  avoid weaknesses

16. 2 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall Strategies for Competitive Advantage (really only three of them)  Differentiation  Having a unique selling point (USP)  Market driven  Cost leadership  Having the lowest price  Industry driven  Focus  Finding a target market within a target market

17. 2 - 17 Porters Competitive Strategies © 2011 Pearson Education, Inc. publishing as Prentice Hall

18. 2 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall Competing on Differentiation (D) Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value  Blunt umbrellas https://www.bluntumbrellas.com/nz/ https://www.bluntumbrellas.com/nz/  Burger Wisconsin https://www.burgerwisconsin.co.nz/ https://www.burgerwisconsin.co.nz/

19. 2 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Competing on Cost Leadership (CL) Provide the maximum value as perceived by customer. Does not imply low quality. (Customer expectations define quality)  Pak n Save http://www.paknsave.co.nz/http://www.paknsave.co.nz/  Jet Star http://www.jetstar.com/nz/en/homehttp://www.jetstar.com/nz/en/home

20. 2 - 20 Competing on Focus (F)  42 below http://www.42below.com/ldahttp://www.42below.com/lda (super premium vodka)  homebrand (extra cheap products http://www.countdown.co.nz/our-brands/homebrand © 2011 Pearson Education, Inc. publishing as Prentice Hall Finding a ‘sweet spot’ within another strategy by focusing on ‘doing-the-strategy’ more

21. 2 - 21 Strategy Development and Implementation  Decide on strategy (D, CL, F)  Identify key success factors for that strategy  Build and staff the organization  Integrate OM with other activities to deliver strategy The operations manager’s job is to set up an OM strategy, provide competitive advantage, and increase productivity

22. 2 - 22© 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)

23. 2 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Operations Strategies of Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Competitive Advantage Product Differentiation Low Cost Product Selection and Design Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories Low R&D investment; focus on development of generic drugs QualityMajor priority, exceed regulatory requirements Meets regulatory requirements on a country by country basis Table 2.2

24. 2 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Issues In Operations Strategy  Resources view  What the business resources (finance, people, assets) can deliver.  Value Chain analysis  Where & how the business adds value leads to advantage.  Porter’s Five Forces model  Power of suppliers, customers,  Competition in industry  Threat of substitutes, new entrants  Constant change  E.g. product life cycle.

25. 2 - 25© 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 Focus (e.g.faster) Cost leadership (cheaper) Differentiation (better)

26. 2 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall

27. 2 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Reasons to Globalize 1.Reduce costs (labour, 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

28. 2 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Reduce Costs  Foreign locations with lower wage rates can lower costs  Special economic zones  http://en.wikipedia.org/wiki/Shenzhen http://en.wikipedia.org/wiki/Shenzhen  Free-Trade relationships  New Zealand-Hong Kong, China Closer Economic Partnership (2011) New Zealand-Hong Kong, China Closer Economic Partnership  New Zealand-Malaysia Free Trade Agreement (2010) New Zealand-Malaysia Free Trade Agreement  ASEAN-Australia-New Zealand Free Trade Agreement - 2010 ASEAN-Australia-New Zealand Free Trade Agreement  New Zealand-China Free Trade Agreement - 2008 New Zealand-China Free Trade Agreement  Trans-Pacific Strategic Economic Partnership (P4) - 2005 Trans-Pacific Strategic Economic Partnership  New Zealand-Thailand Closer Economic Partnership - 2005 New Zealand-Thailand Closer Economic Partnership  New Zealand-Singapore Closer Economic Partnership - 2001 New Zealand-Singapore Closer Economic Partnership  Australia-New Zealand Closer Economic Relationship - 1983 Australia-New Zealand Closer Economic Relationship

29. 2 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Improve the Supply Chain  Locating facilities closer to centres of excellence  Auto design to California  Athletic shoe production to China  Perfume manufacturing in France  Locating near resources  Deep water port ( Whangarei, Napier).  Electricity Supply (Bluff).

30. 2 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Provide Better Goods and Services  Objective (tangible) features.  On-time deliveries  Subjective (intangible) features.  Cultural variables  Localised customisation eg packaging and promotions.  Improved customer service  Staff language and cultural skills  New market opportunities  Being ‘in-the-market’ brings better market intelligence

31. 2 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall Learn to Improve Operations Gain expertise from foreign partners  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  NZ Uraguay Farm partnership

32. 2 - 32 Issues in Global Operations © 2011 Pearson Education, Inc. publishing as Prentice Hall

33. 2 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall Cultural and Ethical Issues  Cultural Differences  Attitudes can be quite different towards  Punctuality  Lunch breaks  Environment  Intellectual property  Thievery  Bribery  Child labor

34. 2 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall P.E.S.T.L.E. Analysis  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

35. 2 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall Four International Operations Strategies Cost Reduction Considerations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples: Texas Instruments Caterpillar Otis Elevator Global StrategyTransnational Strategy  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald’sHard Rock Cafe Figure 2.9

36. 2 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall

37. 2 - 37 Porters Five Forces Analysis © 2011 Pearson Education, Inc. publishing as Prentice Hall Many = good Few = bad Many = good Few = bad Many = bad Few = good High = good Low = bad

38. 2 - 38 Porters Value Chain © 2011 Pearson Education, Inc. publishing as Prentice Hall

39. 2 - 39© 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

40. 2 - 40© 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