MGT 563 OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

Recap Lecture 24 The Procurement Process Strategic Sourcing is a collaborative and systematic process World Class Procurement can be defined using the following seven dimensions

C H A N G E L E A D E R S H I P  Develop vision and strategy  Enroll stakeholders  Develop new values, skills, and behaviours  Redesign infrastructure  Measure performance  Communicate vision and strategy Diagnose Opportunity Design Program Assess Opportunity Assess Internal Supply Chain Assess Supply Market Develop Sourcing Strategy Implement Sourcing Strategy Implement Sourcing Strategy Institutionalise Strategy Institutionalise Strategy Key Change Leadership fundamentals are necessary throughout implementation of the methodology to ensure successful results RECAP- Deloitte Consulting’s six-step methodology

Global Strategies Boeing – Headquartered in Chicago, Boeing employs more than 170,000 people across the United States and in 70 countries. Its sales and production are worldwide. Benetton –The Italian-based fashion designer and manufacturer has over 6,000 retail stores in more than 83 countries on every continent. Using Computer-Aided Design (CAD) of garments along with computerized garment cutting and assembly is the secret to a fast and flexible manufacturing operation. Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

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

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

Reduce Costs Foreign locations with lower wage rates can lower direct and indirect costs – Maquiladora (Mexican border export zone, populated by foreign owned factories) – World Trade Organization (WTO) – North American Free Trade Agreement (NAFTA) - Between Canada, Mexico and U.S.

Reduce Costs – APEC (Asia-Pacific Economic Cooperation between the US, Canada, Japan, South Korea, Australia, New Zealand, China, Taiwan, Hong Kong, and members of ASEAN) – SEATO (Australia, New zealand, Japan, HongKong, South Korea, Chile and New Guinea) – MERCOSUR (Argentina, Brazil, Paraguay and Uruguay – European Union (EU)

Improve the Supply Chain Locating facilities closer to unique resources – Auto design to California – Athletic shoe production to China – Perfume manufacturing in France

Provide Better Goods and Services Objective and subjective characteristics of goods and services – On-time deliveries – Cultural variables – Improved customer service

Reasons to Globalize Understand Markets Interacting with foreign customers and suppliers can lead to new opportunities Whirlpool refrigerators sold in Bangkok are bright colors. Extend the product life cycle

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

Attract and Retain Global Talent Offer better employment opportunities – Better growth opportunities and insulation against unemployment – Relocate unneeded personnel to more prosperous locations

Reconciling Differences in Cultural and Social Behavior is key to the success of GLOBALIZATION EFFORTS Cultures can be quite different Attitudes can be quite different towards  Punctuality  Lunch breaks  Environment  Intellectual property  Thievery  Bribery  Child labor

Developing Missions and Strategies Mission Mission statements tell an organization where it is going Strategy The Strategy tells the organization how to get there

Developing Missions and Strategies Developing a good strategy is difficult, but it is much easier if the mission has been well defined.

MISSION:Hard Rock Cafe 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.

Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

Strategy  Action plan to achieve mission  Functional areas have strategies  Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

Strategies for Competitive Advantage Differentiation – better, or at least different Cost leadership – cheaper Response – rapid response

Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value  Handmade Silk Turkish Rugs  Walt Disney Magic Kingdom – experience differentiation  Hard Rock Cafe – dining experience

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 overheads, direct shipments from manufacturers, reduced distribution costs with faster transportation  Pegasus Airlines -

Competing on Response: Flexible, Reliable and Quick Response Flexibility is matching market changes in design innovation and volumes – Products of Hewlett-Packard have a life cycle of months Reliability is in meeting schedules – German machine industry Quickness in design, production, and delivery – Benetton, Motorola

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 OperationsCompetitive DecisionsApproachExampleAdvantage Response (faster) Cost leadership (cheaper) Differentiation (better)

Strategy Development for a culinary school graduate who wants to open an outstanding French fine dining restaurant (DIFFERENTIATION)  Product design (Menus, meals)  Location planning  Facilities design and layout  Human Resources, Scheduling

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)

Mass Customization The use of flexible computer-aided manufacturing systems to produce custom output. Combines the low unit costs of mass production processes with the flexibility of individual customization.mass production

Issues In Operations Strategy Resources view Porter’s Value Chain analysis to identify opportunities for competitive advantage Porter’s Five Forces model to analyze competitors (1. immediate rivals, 2. potential entrants, 3. customers, 4. suppliers, 5. substitute products) External factors (political, economical factors) 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, iphone5 Avatars Xbox 360

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

Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission

Nike SWOT Analysis Strengths - strong at research and development. - Nike is a global brand. Opportunities - to develop new products such as sunglasses and jewellery. Weaknesses - The retail sector is very price sensitive. Threats - The market for sports shoes and garments is very competitive. Consumers are shopping around for a better deal.

SWOT Analysis SWOT Analysis, which is a key tool in the strategic planning process can also be applied to personal career planning.

Strategy Development Process Determine the Corporate Mission State the reason for the firm’s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines. Analyze the Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6

Strategy Development and Implementation Identify key success factors Build and staff the organization Integrate OM with other activities The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

Key Success Factors Production/Operations Figure 2.7 Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit DecisionsSample OptionsChapter Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance Customized, or standardized Define customer expectations and how to achieve them Facility size, technology, capacity Near supplier or near customer Work cells or assembly line Specialized or enriched jobs Single or multiple suppliers When to reorder, how much to keep on hand Stable or fluctuating production rate Repair as required or preventive maintenance 5 6, S6 7, S , S11 12, 14, 16 13, Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas

Strategy Development and Implementation Only by identifying Key Success Factors(KSFs) and Core Competencies can an organization achieve sustainable competitive advantage. One of the KSFs for McDonads is layout. Core Competency for Honda is its gas- powered engines.

GLOBAL OPERATIONS STRATEGY OPTIONS Operations managers of international and multinational companies (IBM is a multinational company)approach global opportunies with one of four operations strategies: International Strategy Global Strategy Multidomestic Strategy Transnational Strategy

Four International Operations Strategies Cost Reduction Considerations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Figure 2.9  Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy

Four International Operations Strategies Cost Reduction Considerations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9

Four International Operations Strategies Cost Reduction Considerations High Low HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy

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 Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9

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 Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Figure 2.9  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz McDonald’s The Body Shop Hard Rock Cafe Multidomestic Strategy

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 Strategy 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

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 Strategy 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  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé Transnational Strategy

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