Presentation on theme: "Operations Strategies"— Presentation transcript:
1 Operations Strategies Chapter 2Operations Strategiesin a Global Economy
2 Overview Introduction Today’s Global Business Conditions Operations StrategyForming Operations StrategiesWrap-Up: What World-Class Producers Do
3 Introduction Need for Better Business Strategy Foreign competitors focus on long-range strategyOperation’s Role in U.S. Business StrategyEqual footing with Marketing and Finance
4 IntroductionOperational effectiveness is the ability to perform similar operations activities better than competitorsIt is very difficult for a company to compete successfully in the long run based just on operational effectivenessA firm must also determine how operational effectiveness can be used to achieve a sustainable competitive advantageAn effective competitive strategy is critical
5 Factors Affecting Today’s Global Business Conditions Reality of global competitionQuality, customer service, and cost challengesRapid expansion of advanced technologiesContinued growth of the service sectorScarcity of operations resourcesSocial responsibility issues
6 Reality of Global Competition Changing nature of world businessInternational companiesStrategic alliances and production sharingFluctuation of international financial conditions
7 Changing Nature of World Business The US gross domestic product (GDP) is, at $10 trillion, the largest in the world.Companies all over the globe are aggressively exporting their products/services to the USMany US companies are targeting foreign markets to shore up profits.The global economy that interconnects the economies of all nations has been termed the global village.One of the most important new markets is China.
8 International Companies International companies are those whose scope of operations spans the globe as they buy, produce, and sell.International firms search out opportunities for profits relatively unencumbered by national boundaries.Operations managers must coordinate geographically dispersed operations.
9 International Companies World’s Largest Corporations1. General Motors US2. Wal-Mart Stores US3. Exxon Mobil US4. Ford Motor US5. DaimlerChrysler Germany6. Mitsui Japan7. Mitsubishi Japan8. Toyota Japan9. General Electric US10. Itochu Japan
10 Home Country of Parent Corporation? Braun household appliances: a. Switzerland b. Germany c. US d. JapanGillette Company - US
11 Home Country of Parent Corporation? Bic pens: a. Japan b. The Czech Republic c. U.S. d. FranceBic S.A. - France
12 Home Country of Parent Corporation? Haagen-Dazs ice cream: a. France b. Sweden c. Great Britain d. U.SGrand Metropolitan PLC. – Great Britain
13 Home Country of Parent Corporation? RCA television: a. Japan b. U.S . c. France d. KoreaThomson S.A. – France
14 Home Country of Parent Corporation? Arrow shirts: a. Thailand b. Italy c. U.S . d. FranceBidermann International – France
15 Home Country of Parent Corporation? Godiva chocolate: a. France b. Belgium c. Switzerland d. U.S.Campbell Soup Company – US
16 Home Country of Parent Corporation? Vaseline Intensive Care: a. U.S. b. France c. Britain/Netherlands d. GermanyUnilever PLC. – Great Britain/Netherlands
17 Home Country of Parent Corporation? Firestone tires: a. Japan b. U.S. c. Germany d. FranceBridgestone – Japan
18 Home Country of Parent Corporation? Daimler-Chrysler automobiles: a. Japan b. U.S. c. Germany d. FranceDaimler-Benz – Germany
19 Strategic AlliancesStrategic alliances are joint ventures among international companies to exploit global business opportunities.Alliances are often motivated byProduct or production technologyMarket accessProduction capabilityPooling of capital
20 Strategic Alliances Kia might help sell General Motors (US) & and market GM carsin South KoreaGeneral Motors (US) &Kia Motor Corp. (S.K.)Manufacture 100,000vehicles annuallynear MoscowRenault (France) &City of MoscowForming Texas-basedSino SwearingenAircraft Co.Sino Aerospace Invest-ment Corp. (Taiwan) &Swearingen Aircraft (US)
21 Strategic AlliancesJapanese companies have long practiced keiretsu, the linking of companies into industrial groups.A financial keiretsu links companies together with cross-holding of shares, sales and purchases within the group, and consultation.A production keiretsu is a web of interlocking relationships between a big manufacturer (Toyota) and its suppliers.
22 Production SharingProduction sharing means that a product might be designed and financed in one country, its materials produced in other countries, assembled in another country, and sold in yet other countries.The country that is the highest-quality, lowest-cost producer for a particular activity would perform that portion of the production of the product.
23 Production SharingProduction sharing means that a product might be designed and financed in one country, its materials produced in other countries, assembled in another country, and sold in yet other countriesThe Mercury Capri automobile is an example:designed by Ghia and Italdesign in Italymost of its components made in Japanassembled in Australiasold in the U.S
24 Pros and Cons of Globalization Pros (Pluses)Productivity grows more quickly (living standards can go up faster)Global competition and cheap imports keep a lid on prices (inflation less likely to derail economic growth)Open economy spurs innovation (with fresh ideas from abroad)Export jobs often pay more than other jobsUS has more access to foreign investment (keeps interest rates low)
25 Pros and Cons of Globalization Cons (Minuses)Millions of Americans have lost jobs due to imports or production shifts abroadMost displaced workers find new jobs that pay lessWorkers face pay-cuts demands from employersService and white-collar jobs are increasingly vulnerableUS employees lose their comparative advantage when companies build advanced factories abroad
26 International Financial Conditions International financial conditions are complex due to:inflationfluctuating currency exchange ratesturbulent interest ratesvolatility of international stock marketshuge national debts of some countriesenormous trade imbalances between countries
27 International Financial Conditions The Dollar Versus the Yen and the MarkYear Yen per Dollar Mark per Dollar
28 International Financial Conditions Example of Currency Exchange Rate ChangesA product produced and sold in the US for $1 would have sold in Japan for 135 yen in 1990 and 85 yen in 1995, a price decrease of 37%.A product produced and sold in Japan for 135 yen in 1990 and sold for $1 in the US would have sold in the US for $1.57 in 1995, a 57% price increase.
29 International Financial Conditions Due, in part, to the fall in the value of the dollar between 1975 and 1995, the following occurred:Prices of US products/services abroad fell and demand increasedJapan and other countries built factories in USJapanese manufacturers moved upscale toward higher priced products
30 International Financial Conditions Companies must be ready to move quickly to shift strategies as world financial conditions change.Opportunities are usually available to reduce riskBuilding smaller, more flexible factoriesUsing foreign suppliers for materials, parts, or productsCarefully planning and forecasting so that changing conditions can be anticipated
31 Quality, Service, and Cost Challenges The goal of adequate quality must be replaced with the objective of perfect product and service quality.The entire corporate culture must be redirected and committed to the ideal of perfect quality.All employees must be empowered to act.A commitment to continuous improvement has to be organization-wide.
32 Quality, Service, and Cost Challenges Customer ServiceCompanies must quickly develop innovative products and respond quickly to customers’ needs.Organizational structures must be made more horizontal to quickly accommodate change.Multidisciplined teams must have decision-making authority, responding better to the marketplace.Large, unwieldy companies are spinning off whole business units making them autonomous businesses that can compete with small, aggressive competitors.
33 Quality, Service, and Cost Challenges There is continuing pressure to reduce direct costs (of producing and selling) and overhead costs.It cost the US automakers $1,500 more per auto for labor in 1980 than it cost the Japanese auto-makers. By the 1990s the difference was almost zero.Giant retailers (like Wal-Mart) squeezed weaker competitors out of the market, giving the retailers the leverage to force their suppliers to streamline operations and reduce costs/prices.
34 Quality, Service, and Cost Challenges Cost-cutting measures being used include:Moving production to low-labor-cost countriesNegotiating lower labor rates with unions and workersAutomating processes to reduce the amount of labor needed, particularly processes that are labor intensive.
35 Advanced Technologies The use of automation is one of the most far-reaching developments to affect manufacturing and services in the past century.The initial cost of these assets is high.The benefits go far beyond a reduction in labor costs.Increased product/service qualityReduced scrap and material costsFaster responses to customer needsFaster introduction of new products and services
36 Advanced Technologies US companies cannot use automated production technology as a long-term competitive advantage.Automation systems are available to any company in the world today, although the price is prohibitive for some companies.Not investing, or delaying investing in this technology could be disastrous for a company.
37 Advanced Production Technology Computer-aided design (CAD) - allows engineers to design products directly on computer terminalsComputer-aided manufacturing (CAM) - translates CAD information into machinery instructionsFlexible manufacturing systems (FMS) - clusters of automated machinery produce a variety of productsAutomated storage & retrieval systems (ASRS) - computer-controlled warehousesAutomatic identification systems (AIS) - data is “read” into computers using bar coding and the like
38 Continued Growth of Service Sector A robust service sector helps support the manufacturing sector.There is much opportunity for quality improvement in US service firms.Many operations managers are being employed in services.Planning, analyzing, and controlling approaches from manufacturing are being adapted to service systems.The US service sector, like the manufacturing sector, must streamline and improve operations if it is to survive.
39 Scarcity of Operations Resources Raw materials like titanium, nickel, coal, natural gas, water, and petroleum products are periodically unavailable or in short supply.A shortage of any necessary input to a conversion subsystem, including skilled personnel, can be a challenge for an operations manager.An important issue in the formation of business strategy is how to allocate scarce resources among business opportunities.
40 Social-Responsibility Issues Corporate attitudes are evolving from doing what companies have a legal right to do, to doing what is right.Factors influencing this evolution include:Consumer attitude -- Consumers are expressing their likes/dislikes by such means as stockholder meetings, liability suits, and buying preferences.Regulation – The EPA, OSHA, Clean Air Act, and Family Leave Act place constraints on businesses.Self-interests -- Companies realize that profits will be greater if they act responsibly.
42 Social-Responsibility Issues Environmental ImpactConcerns about the global environment include:Landfill waste reductionRecyclingEnergy conservationChemical spillsAcid rainRadioactive waste disposal… and more
43 Social-Responsibility Issues Environmental ImpactThere is a need for standardizing government regulations of the environment.Otherwise, companies will gravitate to the less-regulated countries.The International Organization for Standardization has developed a set of environmental guidelines called ISO
44 Social-Responsibility Issues Product-Safety ImpactHarm to people or animals that results from poor product design can:Damage a company’s reputationRequire a large expense to remedyCause governments to impose more regulations
45 Social-Responsibility Issues Employee ImpactEmployee benefits and policies include:Safety and health programsFair hiring and promotion practicesDay-careFamily leaveHealth careRetirement benefitsEducational assistance… and more
46 Social-Responsibility Issues Employee ImpactEmployee benefits and policies impact long-term profitability due to their effect on:Employee morale and productivityRecruitment and retention of employeesDemand for a company’s productsCost of defending against lawsuits and boycotts
48 The Role of the MarketAdding ValueCompetitive Priorities - Value
49 Corporate MissionA corporate mission is a set of long-range goals and including statements about:the kind of business the company wants to be inwho its customers areits basic beliefs about businessits goals of survival, growth, and profitability
50 Business StrategyBusiness strategy is a long-range game plan of an organization and provides a road map of how to achieve the corporate mission.Inputs to the business strategy areAssessment of global business conditions - social, economic, political, technological, competitiveDistinctive competencies or weaknesses - workers, sales force, R&D, technology, management
51 Competitive Priorities Low Production CostsDefinitionUnit cost (labor, material, and overhead) of each product/serviceSome Ways of CreatingRedesign of product/serviceNew technologyIncrease in production ratesReduction of scrap/wasteReduction of inventory
52 Competitive Priorities Delivery PerformanceDefinitiona) Fast delivery b) On-time deliverySome Ways of Creatinga) larger finished-goods inventorya) faster production ratesa) quicker shipping methodsb) more-realistic promisesb) better control of production of ordersb) better information systems
53 Competitive Priorities High-Quality Products/ServicesDefinitionCustomers’ perception of degree of excellence exhibited by products/servicesSome Ways of CreatingImprove product/service’sAppearancePerformance and functionWear, endurance abilityAfter-sales service
54 Competitive Priorities Customer Service and FlexibilityDefinitionAbility to quickly change production to other products/services. Customer responsiveness.Some Ways of CreatingChange in type of processes usedUse of advanced technologiesReduction in WIP through lean manufacturingIncrease in capacity
55 Operations StrategyOperations strategy is a long-range game plan for the production of a company’s products/services, and provides a road map for the production function in helping to achieve the business strategy.
56 Elements of Operations Strategy ProductDesignProcurementLocationQualityManagementLayoutOMMission andStrategyProcessDesignScheduleHumanResources &Job DesignReliability &MaintenanceInventory
57 Elements of Operations Strategy Positioning the production systemProduct/service plans (Chapter 4)Outsourcing plans (Chapter 11)Process and technology plans (Chapters 4 & 6)Strategic allocation of resources (Chapter 8)Facility plans: capacity, location, and layout (Chapter 5)
58 Positioning the Production System Select the type of product designStandardCustomSelect the type of production processing systemProduct focusedProcess focusedSelect the type of finished-goods inventory policyProduce-to-stockProduce-to-order
59 Strategy Development Procedure COMPETITIVE SITUATION ANALYSISEnvironmentExpectationsEconomicCritical factorCompetitor threatsCompetitive positionIndustry opportunitiesFuture movesDEVELOP A MISSIONIdentify Strategy Alternativesstrength & opportunities match?can weaknesses be overcome?anticipate competitor moves?Secure a competitive advantage?Form a Strategysteps to competitive advantagesteps to build market sharesteps to become world classcritical strategic decisionsease of implementationMake & Implement a Strategymake necessary decisionsCOMPANY SITUATIONPresent performanceTOWS AnalysisRelative strengthsStrategic issuesWeaknesses
60 Product/Service Plans As a product is designed, all the detailedcharacteristics of the product are established.Each product characteristic directlyaffects how the product can be made.How the product is made determinesthe design of the production system.
61 Stages in a Product’s Life Cycle Introduction- Sales begin, production and marketing are developing, profits are negative.Growth - sales grow dramatically, marketing efforts intensify, capacity is expanded, profits begin.Maturity - production focuses on high-volume, efficiency, low costs; marketing focuses on competitive sales promotion; profits are at peak.Decline - declining sales and profit; product might be dropped or replaced.
62 Stages of a Product’s Life Cycle Introduction Growth Maturity DeclineB&W TVAutomobileVideo RecorderCD PlayerColor CopierCell PhoneInternet RadioFax MachineDot-MatrixPrinter
63 Outsourcing PlansOutsourcing refers to hiring out or subcontracting some of the work that a company needs to do.This strategy is being used more and more as companies strive to operate more efficiently.Outsourcing has many advantages and disadvantages.Companies try to determine the best level of out-sourcing to achieve their operations & business goals.More outsourcing requires a company to have less equipment, fewer employees, and a smaller facility.
64 Outsourcing PlansA company might outsource any of the following manufacturing related functions:Designing the productPurchasing the basic raw materialsProcessing the subcomponents, subassemblies, major assemblies, and finished productDistributing the product
65 Outsourcing PlansMany companies even outsource some service functions such as:PayrollBillingOrder processingDeveloping/maintaining a websiteEmployee recruitmentFacility maintenance
66 Process and Technology Plans An essential part of operations strategy is the determination of how products/services will be produced.The range of technologies available to produce products/services is great and is continually changing.
67 Strategic Allocation of Resources For most companies, the vast majority of the firm’s resources are used in production/operations.Some or all of these resources are limited.The resources must be allocated to products, services, projects, or profit opportunities in ways that maximize the achievement of the operations objectives.
68 Facility PlansHow to provide the long-range capacity to produce the firm’s products/services is a critical strategic decision.The location of a new facility may need to be decided.The internal arrangement (layout) of workers, equipment, and functional areas within a facility affects the ability to provide the desired volume, quality, and cost of products/services.
69 Characteristics of Services and Manufactured Products Services ProductsOutput Intangible TangibleOutput Inventoried No YesCustomer Contact Extensive LittleLead Time Short LongIntensity Labor CapitalQuality Subjective Objective
70 Services in the U.S. Economy Services - Importance in the US Economy
71 Competitive Priorities for Services The competitive priorities listed earlier for manufacturers apply to service firms as wellLow production costsFast and on-time deliveryHigh-quality products/servicesCustomer service and flexibilityProviding all the priorities simultaneously to customers is seldom possible.
72 Positioning Strategies for Services Type of Service DesignStandard or custom productsAmount of customer contactMix of physical goods and intangible servicesType of Production ProcessQuasi manufacturingCustomer-as-participantCustomer-as-product
73 Positioning Strategies for Services Example: McDonald’sHighly standardized service designLow amount of customer contactPhysical goods dominating intangible servicesQuasi-manufacturing approach to back-room production process
74 Forming Operations Strategies Support the product plans and competitive priorities defined in the business strategy.Adjust to the evolving positioning strategies.Link to the marketing strategies.Look at alternative operations strategies.
75 Evolution of Positioning Strategies The characteristics of production systems tend to evolve as products move through their product life cycles.Operations strategies must include plan for modifying production systems to a changing set of competitive priorities as products mature.The capital and production technology required to support these changes must be provided.
76 Evolution of Positioning Strategies LifeStageIntro.EarlyGrowthLateGrowthMaturityProductCustomSlightlyStandardStandardHighlyStandardVolumeVeryLowLowHighVeryHighFocusProcessProcessProductProductFin.Gds.To-OrderTo-OrderTo-StockTo-StockBatchSizeVerySmallSmallLargeVeryLarge
77 Linking Operations and Marketing Strategies Operations StrategyProduct-focusedMake-to-stockStandardized productsHigh volumeMarketing StrategyLow production costFast delivery of productsQualityExample: TV sets
78 Linking Operations and Marketing Strategies Operations StrategyProduct-focusedMake-to-orderStandardized productsLow volumeMarketing StrategyLow production costKeeping delivery promisesQualityExample: School buses
79 Linking Operations and Marketing Strategies Operations StrategyProcess-focusedMake-to-stockCustom productsHigh volumeMarketing StrategyFlexibilityQualityFast delivery of productsExample: Medical instruments
80 Linking Operations and Marketing Strategies Operations StrategyProcess-focusedMake-to-orderCustom productsLow volumeMarketing StrategyKeeping delivery promisesQualityFlexibilityExample: Large supercomputers
81 No Single Best Strategy Start-up and Small ManufacturersUsually prefer positioning strategies with:Custom productsProcess-focused productionProduce-to-order policiesThese systems are more flexible and require lesscapital.
82 No Single Best Strategy Start-up and Small ServicesSuccessfully compete with large corporations by:Carving out a specialty nicheEmphasizing close, personal customer serviceDeveloping a loyal customer base
83 No Single Best Strategy Technology-Intensive BusinessProduction systems must be capable of producing new products and services in high volume soon after introductionSuch companies must have two key strengths:Highly capable technical peopleSufficient capital
84 Wrap-Up: World-Class Practice Put customers firstGet new products/services to market fasterAre high quality producersHave high labor productivity & low production costsCarry little excess inventory. . . more
85 Wrap-Up: World-Class Practice Think more globally in purchasing and sellingQuickly adopt and develop new technologiesTrim organizations to be lean and flexibleAre less resistant to strategic alliances/joint venturesConsider relevant social issues when setting strategies