2 - 1© 2011 pearson education, inc. publishing as prentice hall 10 strategic om decisions 1.goods...

2 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall

10 Strategic OM Decisions10 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

Goods & ServicesGoods & ServicesGOODS (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

2 - 3

G&S tangibility spectrum G&S tangibility spectrum (an idea from marketing)(an idea from marketing)


saltsoftdrinks

automobilescosmetics

fastfood outlets

fastfood outletsadvertising agencies

airlinesconsulting

teaching

Tangible ‘dominant’(‘goods’ focus)

Intangible ‘dominant’(‘service’ focus)

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More ideas from marketingMore ideas from marketingGoodsTangibleEasy to patent, stockpile, display, price

StandardisedEasy to state quality, meet customer expectations.

Production separateDifferent location (centralise & scale), no customer interaction, can mass produce

NonperishableEasy to match supply & demand, can return etc.

ServicesIntangible Difficult to patent, stockpile, display, price

HeterogeneousQuality varies for each customer interaction

Production simultaneousHappens ‘as consumed’, same location, (decentralise & small), cannot mass produce.

PerishableMade ‘on-the-spot’ – difficult to match S&D, or to return.


Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions

OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesGoods 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



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesLocation selection

Near raw materials and labor

(reduce cost)

Near customers

(increase revenue)

Layout design Production 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

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OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesSupply chain Relationship critical

to final productImportant, 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

(biggest issue)



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesMaintenance Often preventive

and takes place at production site

Often “repair” and takes place at customer’s site

Table 2.1

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Assessment OneAssessment One


Apply the 10 OM areas to a business

Assume you can identify the business strategy

Show how the 10 OM areas support the strategy


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)


Developing Missions and StrategiesDeveloping Missions and Strategies

MissionMission statements set an organization’s goal.

StrategyStrategy is how the organization reaches the goal


Mission

Factors Affecting MissionFactors Affecting Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image


Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission


StrategyStrategy Action plan to achieve mission

Functional areas each have strategies

Strategies should

exploit opportunities & strengths,

neutralize threats

avoid weaknesses


Strategies for Competitive AdvantageStrategies for Competitive Advantage(really only three of them)(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

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Porters Competitive StrategiesPorters Competitive Strategies



Competing on Competing on Differentiation (D)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/

Burger Wisconsin https://www.burgerwisconsin.co.nz/


Competing on Cost Competing on Cost Leadership (CL)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/

Jet Star http://www.jetstar.com/nz/en/home

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Competing on Focus (F)Competing on Focus (F)

42 below http://www.42below.com/lda

(super premium vodka)

homebrand (extra cheap products

http://www.countdown.co.nz/our-brands/homebrand


Finding a ‘sweet spot’ within another strategy by focusing on ‘doing-the-strategy’ more

2 - 21

Strategy Development and Strategy Development and ImplementationImplementation

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


Process DesignProcess Design

Low Moderate HighVolume

High

Moderate

Low

Var

iety

of

Pro

du

cts

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,

fine-diningrestaurant)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances,

TVs, fast-food restaurants) Product focused

CONTINUOUS(Steel, beer, paper, bread, institutional

kitchen)

Mass CustomizationCustomization at high

Volume(Dell Computer’s PC,

cafeteria)


Operations Strategies of Operations Strategies of Two Drug CompaniesTwo Drug Companies

Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.

Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow 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

Quality Major priority, exceed regulatory requirements

Meets regulatory requirements on a country by country basis

Table 2.2


Issues In Operations StrategyIssues 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.


OM’s Contribution to StrategyOM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATIONInnovative 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 Operations CompetitiveDecisions Approach Example Advantage

Focus(e.g.faster)

Cost leadership(cheaper)

Differentiation(better)


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize

1. Reduce costs (labour, taxes, tariffs, etc.)2. Improve supply chain3. Provide better goods and services4. Understand markets5. Learn to improve operations6. Attract and retain global talent

Tangible Reasons

Intangible Reasons


Reduce CostsReduce Costs Foreign locations with lower wage rates can

lower costs

Special economic zones http://en.wikipedia.org/wiki/Shenzhen

Free-Trade relationships New Zealand-Hong Kong, China Closer Economic Partnership (2011)

New Zealand-Malaysia Free Trade Agreement (2010)

ASEAN-Australia-New Zealand Free Trade Agreement - 2010

New Zealand-China Free Trade Agreement - 2008

Trans-Pacific Strategic Economic Partnership (P4) - 2005

New Zealand-Thailand Closer Economic Partnership - 2005

New Zealand-Singapore Closer Economic Partnership - 2001

Australia-New Zealand Closer Economic Relationship - 1983


Improve the Supply ChainImprove 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).


Provide Better Goods and ServicesProvide 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


Learn to Improve OperationsLearn 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

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Issues in Global OperationsIssues in Global Operations



Cultural and Ethical IssuesCultural and Ethical Issues

Cultural Differences Attitudes can be quite different towards

Punctuality

Lunch breaks

Environment

Intellectual property

Thievery

Bribery

Child labor


P.E.S.T.L.E. AnalysisP.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


Four International Four International Operations StrategiesOperations StrategiesC

ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9

2 - 37

Porters Five Forces AnalysisPorters Five Forces Analysis


Many = goodFew = bad

Many = goodFew = bad

Many = badFew = good

High = goodLow = bad

2 - 38

Porters Value ChainPorters Value Chain



Product Life CycleProduct 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 criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Co

mp

an

y S

tra

teg

y/Is

sue

s

Figure 2.5

Internet search engines

Sales

Drive-through restaurants

CD-ROMs

Analog TVs

iPods

Boeing 787

LCD & plasma TVs

Twitter

Avatars

Xbox 360


Product Life CycleProduct Life Cycle

Product design and development critical

Frequent product and process design changes

Short production runs

High production costs

Limited models

Attention to quality

Introduction Growth Maturity Decline

OM

Str

ate

gy

/Issu

es

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

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