1. © 2008 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Operations Strategy in a Global Environment Delivered by: Eng.Mosab I. Tabash Eng.Mosab I. Tabash

2. © 2008 Prentice Hall, Inc.2 – 2 Outline  Global Company Profile: Boeing  A Global View of Operations  Cultural and Ethical Issues  Developing Missions And Strategies  Mission  Strategy

3. © 2008 Prentice Hall, Inc.2 – 3 Outline – Continued  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions

4. © 2008 Prentice Hall, Inc.2 – 4 Outline – Continued  Issues In Operations Strategy  Research  Preconditions  Dynamics

5. © 2008 Prentice Hall, Inc.2 – 5 Outline – Continued  Strategy Development and Implementation  Critical Success Factors and Core Competencies  Build and Staff the Organization  Integrate OM with Other Activities

6. © 2008 Prentice Hall, Inc.2 – 6  Global Operations Strategy Options  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy

7. © 2008 Prentice Hall, Inc.2 – 7 Global Strategies  Boeing – sales and production are worldwide  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

8. © 2008 Prentice Hall, Inc.2 – 8 Global Strategies  Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its products 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)

9. © 2008 Prentice Hall, Inc.2 – 9 Some Multinational Corporations % Sales% Assets OutsideOutside HomeHomeHome% Foreign CompanyCountryCountryCountryWorkforce CiticorpUSA3446NA Colgate-USA7263NA Palmolive Dow USA6050NA Chemical GilletteUSA6253NA HondaJapan6336NA IBMUSA574751

10. © 2008 Prentice Hall, Inc.2 – 10 Defining Global Operations International business - engages in cross-border transactionsInternational business - engages in cross-border transactions Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one countryMultinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country Global company - integrates operations from different countries, and views world as a single marketplaceGlobal company - integrates operations from different countries, and views world as a single marketplace Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsivenessTransnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness

11. © 2008 Prentice Hall, Inc.2 – 11 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. © 2008 Prentice Hall, Inc.2 – 12 Reduce Costs  Foreign locations with lower wage rates can lower direct and indirect costs  World Trade Organization (WTO)  North American Free Trade Agreement (NAFTA)  APEC, SEATO, MERCOSUR  European Union (EU)

13. © 2008 Prentice Hall, Inc.2 – 13 Improve the Supply Chain  Locating facilities closer to unique resources  Auto design to California  Athletic shoe production to China  Perfume manufacturing in France

14. © 2008 Prentice Hall, Inc.2 – 14 Provide Better Goods and Services  Objective and subjective characteristics of goods and services  On-time deliveries  Cultural variables  Improved customer service

15. © 2008 Prentice Hall, Inc.2 – 15 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. © 2008 Prentice Hall, Inc.2 – 16 Learn to Improve Operations  Remain open to the free flow of ideas  General Motors partnered with a Japanese auto manufacturer to learn  Equipment and layout have been improved using ergonomic competence

17. © 2008 Prentice Hall, Inc.2 – 17 Attract and Retain Global Talent  Offer better employment opportunities  Better growth opportunities and insulation against unemployment  Relocate unneeded personnel to more prosperous locations  Incentives for people who like to travel

18. © 2008 Prentice Hall, Inc.2 – 18 Cultural and Ethical Issues  Cultures can be quite different  Attitudes can be quite different towards  Punctuality  Environment

19. © 2008 Prentice Hall, Inc.2 – 19 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there

20. © 2008 Prentice Hall, Inc.2 – 20 Mission  Mission - where are you going?  Organization’s purpose for being  Answers ‘What do we provide society?’  Provides boundaries and focus

21. © 2008 Prentice Hall, Inc.2 – 21 Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

22. © 2008 Prentice Hall, Inc.2 – 22 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

23. © 2008 Prentice Hall, Inc.2 – 23 Figure 2.3 Islamic university mission

24. © 2008 Prentice Hall, Inc.2 – 24 Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

25. © 2008 Prentice Hall, Inc.2 – 25 Strategy  Action plan to achieve mission  Functional areas have strategies  Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

26. © 2008 Prentice Hall, Inc.2 – 26 Strategies for Competitive Advantage  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response

27. © 2008 Prentice Hall, Inc.2 – 27 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

28. © 2008 Prentice Hall, Inc.2 – 28 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,, distribution costs  Franz Colruyt – no bags, low light, no music, doors on freezers

29. © 2008 Prentice Hall, Inc.2 – 29 Competing on Response  Flexibility is matching market changes in design innovation and volumes  Reliability is meeting schedules  German machine industry  Timeliness is quickness in design, production, and delivery  Johnson Electric, Bennigan’s, Motorola

30. © 2008 Prentice Hall, Inc.2 – 30 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

31. © 2008 Prentice Hall, Inc.2 – 31 Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Goods and service design Product is usually tangible Product is not tangible Quality Many objective standards Many subjective standards Process and capacity design Customers not involved Customer may be directly involved Capacity must match demand Table 2.1

32. © 2008 Prentice Hall, Inc.2 – 32 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

33. © 2008 Prentice Hall, Inc.2 – 33 Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Supply chain Relationship critical to final product Important, but may not be critical Inventory Raw materials, work-in-process, and finished goods may be held Cannot be stored Scheduling Level schedules possible Meet immediate customer demand Table 2.1

34. © 2008 Prentice Hall, Inc.2 – 34 Goods and Services and the 10 OM Decisions Operations Decisions GoodsServices Maintenance Often preventive and takes place at production site Often “repair” and takes place at customer’s site Table 2.1

35. © 2008 Prentice Hall, Inc.2 – 35 Managing Global Service Operations  Capacity planning  Location planning  Facilities design and layout  Scheduling Requires a different perspective on:

36. © 2008 Prentice Hall, Inc.2 – 36 Capacity planning Capacity is the highest reasonable output rate which can be achieved with the current product specifications, workforce, plant and equipment. Two distinct ways to view capacity. Design capacityDesign capacity Effective capacityEffective capacity What is the difference ?

37. © 2008 Prentice Hall, Inc.2 – 37 Capacity planning Design capacity is the maximum possible rate of output that can be achieved.Design capacity is the maximum possible rate of output that can be achieved. Effective capacity is the rate of output that a firm is capable of achieving. Given process limitation such as preventive maintenance,downtime, setup time.Effective capacity is the rate of output that a firm is capable of achieving. Given process limitation such as preventive maintenance,downtime, setup time. Actual output rate will be less than effective capacity when production losses,like what losses?Actual output rate will be less than effective capacity when production losses,like what losses?

38. © 2008 Prentice Hall, Inc.2 – 38 How to calculate design, effective capacity,efficiency and utilization Suppose that a small machine shop, designed to operate one shift per day, five days per week, can produce 500 units per shift with its current equipment and workforce.Suppose that a small machine shop, designed to operate one shift per day, five days per week, can produce 500 units per shift with its current equipment and workforce. What is design capacity? What is effective capacity if 10 percent of productive time used for preventive maintenance and setup time? If actual output 2000 units/week. Calculate efficiency and utilization ?

39. © 2008 Prentice Hall, Inc.2 – 39 Calculations Design capacity: (500 units/shift)*(1 shift/day)(5 days/week)=2500 units/week Effective capacity = 0.9*2500= 2250 units/week Efficiency=actual output/effective capacity = 2000/2250= 88.9% = 2000/2250= 88.9% Utilization =actual output/design capacity = 2000/2500=80% = 2000/2500=80% Which we can improve design or effective capacity?

40. © 2008 Prentice Hall, Inc.2 – 40 Process Design LowModerateHigh Volume HighModerateLow Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop,) Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, Product focused CONTINUOUS (steel, beer, paper, bread, Mass Customization Customization at high Volume (Dell Computer’s PC,

41. © 2008 Prentice Hall, Inc.2 – 41 Issues In Operations Strategy  Research about effective operations management strategies  Preconditions for developing effective OM strategies  The dynamics of OM strategy development

42. © 2008 Prentice Hall, Inc.2 – 42 Characteristics of High ROI Firms  High product quality  High capacity utilization  High operating efficiency  Low investment intensity  Low direct cost per unit From the PIMS program of the Strategic Planning Institute

43. © 2008 Prentice Hall, Inc.2 – 43 Strategic Options to Gain a Competitive Advantage 28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 4% - Financial resources 3% - Other 3% - Other

44. © 2008 Prentice Hall, Inc.2 – 44 Preconditions  Strengths and weaknesses of competitors and possible new entrants into the market  Current and prospective environmental, technological, legal, and economic issues  The product life cycle  Resources available within the firm and within the OM function  Integration of OM strategy with company’s strategy and with other functional areas One must understand:

45. 45 is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within corporation. Environmental Scanning

46. 46 The Components of a Company’s Macro-Environment MACROENVIRONMENT Legislation and Regulation Societal Values and Lifestyles Population Demographics Technology The Economy at Large COMPANY SuppliersSubstitutes Buyer s New Entrants Rival Firms  IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT

47. 47 PEST analysis What environmental factors are effecting organization? Which of these are the most important at the present time? Whish of these can become important in the next few years?

48. 48 The Five-Forces Model of Competition (Porter’s approach) Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

49. © 2008 Prentice Hall, Inc.2 – 49 Dynamics of Strategic Change  Changes within the organization  Personnel  Finance  Technology  Product life  Changes in the environment

50. © 2008 Prentice Hall, Inc.2 – 50 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 Xbox 360 Drive-through restaurants CD-ROMs 3 1/2” Floppy disks LCD & plasma TVs Analog TVs iPods

51. © 2008 Prentice Hall, Inc.2 – 51 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 Less rapid 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

52. © 2008 Prentice Hall, Inc.2 – 52 Strategy Analysis SWOT Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission

53. © 2008 Prentice Hall, Inc.2 – 53 Strategy Development Process Determine 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. Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6

54. © 2008 Prentice Hall, Inc.2 – 54 Strategy Development and Implementation  Identify critical 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

55. © 2008 Prentice Hall, Inc.2 – 55 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)   Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy

56. © 2008 Prentice Hall, Inc.2 – 56 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy   Import/export or license existing product Examples U.S. Steel Harley Davidson

57. © 2008 Prentice Hall, Inc.2 – 57 International Strategy   Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies Cost Reduction Considerations HighLow 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

58. © 2008 Prentice Hall, Inc.2 – 58 Four International Operations Strategies Cost Reduction Considerations HighLow 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

59. © 2008 Prentice Hall, Inc.2 – 59   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 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)   Use existing domestic model globally   Franchise, joint ventures, subsidiaries Examples Heinz McDonald’s The Body Shop Hard Rock Cafe Multidomestic Strategy

60. © 2008 Prentice Hall, Inc.2 – 60 Four International Operations Strategies Cost Reduction Considerations HighLow 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

61. © 2008 Prentice Hall, Inc.2 – 61 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   Standardized product   Economies of scale   Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)   Move material, people, ideas across national boundaries   Economies of scale   Cross-cultural learning Examples Coca-Cola Nestlé Transnational Strategy

62. © 2008 Prentice Hall, Inc.2 – 62 Four International Operations Strategies Cost Reduction Considerations HighLow 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