chapter 2 – operations strategy in a global environment
TRANSCRIPT
© 2008 Prentice Hall, Inc. 2 – 1
Operations ManagementOperations ManagementChapter 2 Chapter 2 ––Operations Strategy in Operations Strategy in a Global Environmenta Global Environment
PowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e
© 2008 Prentice Hall, Inc. 2 – 2
OutlineOutline
Global Company Profile: BoeingGlobal Company Profile: BoeingA Global View of OperationsA Global View of Operations
Cultural and Ethical IssuesCultural and Ethical Issues
Developing Missions And Developing Missions And StrategiesStrategies
MissionMissionStrategyStrategy
© 2008 Prentice Hall, Inc. 2 – 3
Outline Outline –– ContinuedContinued
Achieving Competitive Advantage Achieving Competitive Advantage Through OperationsThrough Operations
Competing On DifferentiationCompeting On DifferentiationCompeting On CostCompeting On CostCompeting On ResponseCompeting On Response
Ten Strategic OM DecisionsTen Strategic OM Decisions
© 2008 Prentice Hall, Inc. 2 – 4
Outline Outline –– ContinuedContinued
Issues In Operations StrategyIssues In Operations StrategyResearchResearchPreconditionsPreconditionsDynamicsDynamics
© 2008 Prentice Hall, Inc. 2 – 5
Outline Outline –– ContinuedContinued
Strategy Development and Strategy Development and ImplementationImplementation
Critical Success Factors and Core Critical Success Factors and Core CompetenciesCompetenciesBuild and Staff the OrganizationBuild and Staff the OrganizationIntegrate OM with Other ActivitiesIntegrate OM with Other Activities
© 2008 Prentice Hall, Inc. 2 – 6
Outline Outline –– ContinuedContinued
Global Operations Strategy Global Operations Strategy OptionsOptions
International StrategyInternational StrategyMultidomestic StrategyMultidomestic StrategyGlobal StrategyGlobal StrategyTransnational StrategyTransnational Strategy
© 2008 Prentice Hall, Inc. 2 – 7
Learning ObjectivesLearning Objectives
1.1. Define mission and strategyDefine mission and strategy2.2. Identify and explain three strategic Identify and explain three strategic
approaches to competitive approaches to competitive advantageadvantage
3.3. Identify and define the 10 decisions Identify and define the 10 decisions of operations managementof operations management
When you complete this chapter you When you complete this chapter you should be able to:should be able to:
© 2008 Prentice Hall, Inc. 2 – 8
Learning ObjectivesLearning Objectives
4.4. Identify five OM strategy insights Identify five OM strategy insights provided by PIMS researchprovided by PIMS research
5.5. Identify and explain four global Identify and explain four global operations strategy optionsoperations strategy options
When you complete this chapter you When you complete this chapter you should be able to:should be able to:
© 2008 Prentice Hall, Inc. 2 – 9
Global StrategiesGlobal Strategies
Boeing Boeing –– sales and production are sales and production are worldwideworldwideBenetton Benetton –– moves inventory to stores moves inventory to stores around the world faster than its around the world faster than its competition by building flexibility into competition by building flexibility into design, production, and distributiondesign, production, and distributionSony Sony –– purchases components from purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world
© 2008 Prentice Hall, Inc. 2 – 10
Global StrategiesGlobal Strategies
Volvo Volvo –– considered a Swedish company considered a Swedish company but it is controlled by an American but it is controlled by an American company, Ford. The current Volvo S40 is company, Ford. The current Volvo S40 is built in Belgium and shares its platform built in Belgium and shares its platform with the Mazda 3 built in Japan and the with the Mazda 3 built in Japan and the Ford Focus built in Europe.Ford Focus built in Europe.Haier Haier –– A Chinese company, produces A Chinese company, produces compact refrigerators (it has onecompact refrigerators (it has one--third of third of the US market) and wine cabinets (it has the US market) and wine cabinets (it has half of the US market) in South Carolinahalf of the US market) in South Carolina
© 2008 Prentice Hall, Inc. 2 – 11
Some Multinational Some Multinational CorporationsCorporations
% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
CiticorpCiticorp USAUSA 3434 4646 NANAColgateColgate-- USAUSA 7272 6363 NANAPalmolivePalmoliveDow Dow USAUSA 6060 5050 NANAChemicalChemicalGilletteGillette USAUSA 6262 5353 NANAHondaHonda JapanJapan 6363 3636 NANAIBMIBM USAUSA 5757 4747 5151
© 2008 Prentice Hall, Inc. 2 – 12
Some Multinational Some Multinational CorporationsCorporations
% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
ICIICI BritainBritain 7878 5050 NANANestleNestle SwitzerlandSwitzerland 9898 9595 9797PhilipsPhilips NetherlandsNetherlands 9494 8585 8282ElectronicsElectronicsSiemensSiemens GermanyGermany 5151 NANA 3838UnileverUnilever Britain &Britain & 9595 7070 6464
NetherlandsNetherlands
© 2008 Prentice Hall, Inc. 2 – 13
Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentLatecoereLatecoere FranceFrance Passenger doorsPassenger doorsLabinelLabinel FranceFrance WiringWiringDassaultDassault FranceFrance Design and Design and
PLM softwarePLM softwareMessierMessier--BugattiBugatti FranceFrance Electric brakesElectric brakesThalesThales FranceFrance Electrical power Electrical power
conversion system conversion system and integrated and integrated standby flight displaystandby flight display
MessierMessier--DowtyDowty FranceFrance Landing gear structureLanding gear structureDiehlDiehl GermanyGermany Interior lightingInterior lighting
© 2008 Prentice Hall, Inc. 2 – 14
Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentCobhamCobham UKUK Fuel pumps and valvesFuel pumps and valvesRollsRolls--RoyceRoyce UKUK EnginesEnginesSmiths AerospaceSmiths Aerospace UKUK Central computer Central computer
systemsystemBAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronicsAlenia AeronauticsAlenia Aeronautics ItalyItaly Upper center Upper center
fuselage & fuselage & horizontal stabilizerhorizontal stabilizer
Toray IndustriesToray Industries JapanJapan Carbon fiber for Carbon fiber for wing and tail unitswing and tail units
© 2008 Prentice Hall, Inc. 2 – 15
Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentFuji HeavyFuji Heavy JapanJapan Center wing boxCenter wing boxIndustriesIndustries
Kawasaki HeavyKawasaki Heavy JapanJapan Forward fuselage,Forward fuselage,IndustriesIndustries fixed section of wing,fixed section of wing,
landing gear welllanding gear wellTeijin SeikiTeijin Seiki JapanJapan Hydraulic actuatorsHydraulic actuatorsMitsubishi Heavy Mitsubishi Heavy JapanJapan Wing boxWing boxIndustriesIndustries
Chengdu Aircraft Chengdu Aircraft ChinaChina RudderRudderGroupGroupHafei AviationHafei Aviation ChinaChina PartsParts
© 2008 Prentice Hall, Inc. 2 – 16
Some Boeing Suppliers (787)Some Boeing Suppliers (787)FirmFirm CountryCountry ComponentComponentKorean AviationKorean Aviation SouthSouth WingtipsWingtips
KoreaKoreaSaabSaab SwedenSweden Cargo access doorsCargo access doors
© 2008 Prentice Hall, Inc. 2 – 17
Reasons to GlobalizeReasons to Globalize
Reasons to GlobalizeReasons to Globalize1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)2.2. Improve supply chainImprove supply chain3.3. Provide better goods and servicesProvide better goods and services4.4. Understand marketsUnderstand markets5.5. Learn to improve operationsLearn to improve operations6.6. Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
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Reduce CostsReduce Costs
Foreign locations with lower wage Foreign locations with lower wage rates can lower direct and indirect rates can lower direct and indirect costscosts
MaquiladorasMaquiladorasWorld Trade Organization (World Trade Organization (WTOWTO))North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR European Union (EU)European Union (EU)
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Improve the Supply ChainImprove the Supply Chain
Locating facilities closer to Locating facilities closer to unique resourcesunique resources
Auto design to CaliforniaAuto design to CaliforniaAthletic shoe production to ChinaAthletic shoe production to ChinaPerfume manufacturing in FrancePerfume manufacturing in France
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Provide Better Goods Provide Better Goods and Servicesand Services
Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservices
OnOn--time deliveriestime deliveriesCultural variablesCultural variablesImproved customer serviceImproved customer service
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Understand MarketsUnderstand Markets
Interacting with foreign customers Interacting with foreign customers and suppliers can lead to new and suppliers can lead to new opportunitiesopportunities
Cell phone Cell phone design from design from EuropeEuropeCell phone Cell phone fads from fads from JapanJapanExtend the product life cycleExtend the product life cycle
© 2008 Prentice Hall, Inc. 2 – 22
Learn to Improve OperationsLearn to Improve Operations
Remain open to the free flow of Remain open to the free flow of ideasideas
General Motors partnered with a General Motors partnered with a Japanese auto manufacturer to Japanese auto manufacturer to learnlearnEquipment and layout have been Equipment and layout have been improved using Scandinavian improved using Scandinavian ergonomic competenceergonomic competence
© 2008 Prentice Hall, Inc. 2 – 23
Attract and Retain Global Attract and Retain Global TalentTalent
Offer better employment Offer better employment opportunitiesopportunities
Better growth opportunities and Better growth opportunities and insulation against unemploymentinsulation against unemploymentRelocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locationsIncentives for people who like to Incentives for people who like to travel travel
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Cultural and Ethical IssuesCultural and Ethical Issues
Cultures can be quite differentCultures can be quite differentAttitudes can be quite different Attitudes can be quite different towards towards
PunctualityPunctualityLunch breaksLunch breaksEnvironmentEnvironmentIntellectual Intellectual propertyproperty
ThieveryThieveryBriberyBriberyChild laborChild labor
© 2008 Prentice Hall, Inc. 2 – 25
You May Wish To ConsiderYou May Wish To ConsiderNational literacy rateNational literacy rateRate of innovationRate of innovationRate of technology Rate of technology changechangeNumber of skilled Number of skilled workersworkersPolitical stabilityPolitical stabilityProduct liability lawsProduct liability lawsExport restrictionsExport restrictionsVariations in languageVariations in language
Work ethicWork ethicTax ratesTax ratesInflationInflationAvailability of raw Availability of raw materialsmaterialsInterest ratesInterest ratesPopulationPopulationNumber of miles of Number of miles of highwayhighwayPhone systemPhone system
© 2008 Prentice Hall, Inc. 2 – 26
Match Product & ParentMatch Product & ParentBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--Dazs Ice Dazs Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo PetfoodsAlpo Petfoods
1.1. VolkswagenVolkswagen2.2. BridgestoneBridgestone3.3. Campbell SoupCampbell Soup4.4. Ford Motor CompanyFord Motor Company5.5. GilletteGillette6.6. NestlNestléé7.7. PillsburyPillsbury8.8. SonySony
© 2008 Prentice Hall, Inc. 2 – 27
Match Product & ParentMatch Product & ParentBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--Dazs Ice Dazs Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo PetfoodsAlpo Petfoods
1.1. VolkswagenVolkswagen2.2. BridgestoneBridgestone3.3. Campbell SoupCampbell Soup4.4. Ford Motor CompanyFord Motor Company5.5. GilletteGillette6.6. NestlNestléé7.7. PillsburyPillsbury8.8. SonySony
© 2008 Prentice Hall, Inc. 2 – 28
Match Product & CountryMatch Product & CountryBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--DazDaz Ice Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo Pet FoodsAlpo Pet Foods
1.1. Great BritainGreat Britain2.2. GermanyGermany3.3. JapanJapan4.4. United StatesUnited States5.5. SwitzerlandSwitzerland
© 2008 Prentice Hall, Inc. 2 – 29
Match Product & CountryMatch Product & CountryBraun Household Braun Household AppliancesAppliancesFirestone TiresFirestone TiresGodiva ChocolateGodiva ChocolateHaagenHaagen--DazDaz Ice Ice CreamCreamJaguar AutosJaguar AutosMGM MoviesMGM MoviesLamborghini AutosLamborghini AutosAlpo Pet FoodsAlpo Pet Foods
1.1. Great BritainGreat Britain2.2. GermanyGermany3.3. JapanJapan4.4. United StatesUnited States5.5. SwitzerlandSwitzerland
© 2008 Prentice Hall, Inc. 2 – 30
Developing Missions and Developing Missions and StrategiesStrategies
MissionMission statements tell an statements tell an organization where it is goingorganization where it is going
The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there
© 2008 Prentice Hall, Inc. 2 – 31
MissionMission
Mission Mission -- where are where are you going?you going?
OrganizationOrganization’’s s purpose for beingpurpose for beingAnswers Answers ‘‘What do What do we provide society?we provide society?’’Provides boundaries Provides boundaries and focusand focus
© 2008 Prentice Hall, Inc. 2 – 32
FedExFedExFedEx is committed to our PeopleFedEx is committed to our People--ServiceService--Profit Profit
philosophy. We will produce outstanding financial philosophy. We will produce outstanding financial returns by providing total reliable, competitively returns by providing total reliable, competitively
superior, global airsuperior, global air--ground transportation of high ground transportation of high priority goods and documents that require rapid, priority goods and documents that require rapid, timetime--certain delivery. Equally important, positive certain delivery. Equally important, positive
control of each package will be maintained using real control of each package will be maintained using real time electronic tracking and tracing systems. A time electronic tracking and tracing systems. A
complete record of each shipment and delivery will complete record of each shipment and delivery will be presented with our request for payment. We will be presented with our request for payment. We will
be helpful, courteous, and professional to each other be helpful, courteous, and professional to each other and the public. We will strive to have a completely and the public. We will strive to have a completely satisfied customer at the end of each transaction.satisfied customer at the end of each transaction.
Figure 2.2Figure 2.2
© 2008 Prentice Hall, Inc. 2 – 33
MerckMerck
The mission of Merck is to provide The mission of Merck is to provide society with superior products and society with superior products and
services services -- innovations and solutions innovations and solutions that improve the quality of life and that improve the quality of life and
satisfy customer needs satisfy customer needs -- to provide to provide employees with meaningful work and employees with meaningful work and
advancement opportunities and advancement opportunities and investors with a superior rate of returninvestors with a superior rate of return
Figure 2.2Figure 2.2
© 2008 Prentice Hall, Inc. 2 – 34
Hard Rock CafeHard Rock Cafe
Our Mission: To spread the spirit of Rock Our Mission: To spread the spirit of Rock ‘‘nn’’Roll by delivering an exceptional Roll by delivering an exceptional
entertainment and dining experience. We entertainment and dining experience. We are committed to being an important, are committed to being an important,
contributing member of our community and contributing member of our community and offering the Hard Rock family a fun, healthy, offering the Hard Rock family a fun, healthy,
and nurturing work environment while and nurturing work environment while ensuring our longensuring our long--term success.term success.
Figure 2.2Figure 2.2
© 2008 Prentice Hall, Inc. 2 – 35
Arnold Palmer HospitalArnold Palmer Hospital
Arnold Palmer Hospital is a healing Arnold Palmer Hospital is a healing environment providing familyenvironment providing family--centered centered
care with compassion, comfort and care with compassion, comfort and respectrespect…… when it matters the most.when it matters the most.
Figure 2.2Figure 2.2
© 2008 Prentice Hall, Inc. 2 – 36
Benefit to Society
Mission
Factors Affecting MissionFactors Affecting Mission
Philosophy and Values
Profitability and GrowthEnvironment
Customers Public Image
© 2008 Prentice Hall, Inc. 2 – 37
Sample MissionsSample Missions
To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.
Sample Operations Management MissionSample Operations Management Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
Sample Company MissionSample Company Mission
Figure 2.3Figure 2.3
© 2008 Prentice Hall, Inc. 2 – 38
Sample MissionsSample Missions
Figure 2.3Figure 2.3
To determine and design or produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.
Process design
To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations
Quality management
To design and produce products and services with outstanding quality and inherent customer value.
Product design
Sample OM Department MissionsSample OM Department Missions
© 2008 Prentice Hall, Inc. 2 – 39
Sample MissionsSample Missions
Figure 2.3Figure 2.3
To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.
Human resources
To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.
Layout design
To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.
Location
Sample OM Department MissionsSample OM Department Missions
© 2008 Prentice Hall, Inc. 2 – 40
Sample MissionsSample Missions
Figure 2.3Figure 2.3
To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.
Maintenance
To achieve high levels of throughput and timely customer delivery through effective scheduling.
Scheduling
To achieve low investment in inventory consistent with high customer service levels and high facility utilization.
Inventory
To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.
Supply chainmanagement
Sample OM Department MissionsSample OM Department Missions
© 2008 Prentice Hall, Inc. 2 – 41
Strategic ProcessStrategic Process
Marketing Operations Finance/ Accounting
Functional Area Missions
Organization’s Mission
© 2008 Prentice Hall, Inc. 2 – 42
StrategyStrategy
Action plan to Action plan to achieve missionachieve missionFunctional areas Functional areas have strategieshave strategiesStrategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses
© 2008 Prentice Hall, Inc. 2 – 43
Strategies for Competitive Strategies for Competitive AdvantageAdvantage
Differentiation Differentiation –– better, or at least better, or at least differentdifferentCost leadership Cost leadership –– cheapercheaperResponse Response –– rapid responserapid response
© 2008 Prentice Hall, Inc. 2 – 44
Competing on Competing on DifferentiationDifferentiation
Uniqueness can go beyond both the Uniqueness can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything
that impacts customerthat impacts customer’’s perception of s perception of valuevalue
Safeskin gloves Safeskin gloves –– leading edge productsleading edge productsWalt Disney Magic Kingdom Walt Disney Magic Kingdom ––experience differentiationexperience differentiationHard Rock Cafe Hard Rock Cafe –– dining experiencedining experience
© 2008 Prentice Hall, Inc. 2 – 45
Competing on CostCompeting on Cost
Provide the maximum value as Provide the maximum value as perceived by customer. Does not perceived by customer. Does not
imply low quality.imply low quality.
Southwest Airlines Southwest Airlines –– secondary secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipmentWalWal--Mart Mart –– small overheads, shrinkage, small overheads, shrinkage, distribution costsdistribution costsFranz Colruyt Franz Colruyt –– no bags, low light, no no bags, low light, no music, doors on freezersmusic, doors on freezers
© 2008 Prentice Hall, Inc. 2 – 46
Competing on ResponseCompeting on Response
Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes
Institutionalization at HewlettInstitutionalization at Hewlett--PackardPackardReliability is meeting schedulesReliability is meeting schedules
German machine industryGerman machine industryTimeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery
Johnson Electric, Johnson Electric, BenniganBennigan’’s, Motorolas, Motorola
© 2008 Prentice Hall, Inc. 2 – 47
OMOM’’s Contribution to Strategys Contribution to Strategy
Product
Quality
Process
Location
Layout
Humanresource
Supply chain
Inventory
Scheduling
Maintenance
FLEXIBILITY:Sony’s constant innovation of new products………………………………....Design
HP’s ability to lead the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY:Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed
Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY:Motorola’s HDTV converters….……........Conformance
Motorola’s pagers………………………..….Performance
Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE
Figure 2.4Figure 2.4
OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response(Faster)
Cost leadership(Cheaper)
Differentiation(Better)
© 2008 Prentice Hall, Inc. 2 – 48
10 Strategic OM Decisions10 Strategic OM Decisions
1.1. Goods and Goods and service design service design
2.2. Quality Quality 3.3. Process and Process and
capacity designcapacity design4.4. Location Location
selectionselection5.5. Layout designLayout design
6.6. Human resources Human resources and job designand job design
7.7. Supply chain Supply chain managementmanagement
8.8. InventoryInventory9.9. SchedulingScheduling10.10. MaintenanceMaintenance
© 2008 Prentice Hall, Inc. 2 – 49
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
Customer may be Customer may be directly involveddirectly involvedCapacity must Capacity must match demandmatch demand
Customers not Customers not involvedinvolved
Process Process and and capacity capacity designdesign
Many subjective Many subjective standardsstandards
Many objective Many objective standardsstandards
QualityQuality
Product is not Product is not tangibletangible
Product is usually Product is usually tangibletangible
Goods and Goods and service service designdesign
ServicesServicesGoodsGoodsOperationsOperationsDecisionsDecisions
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 50
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
Interact with Interact with customers, labor customers, labor standards varystandards vary
Technical skills, Technical skills, consistent labor consistent labor standards, output standards, output based wagesbased wages
Human Human resources resources and job and job designdesign
Enhances product Enhances product and productionand production
Production Production efficiencyefficiency
Layout Layout designdesign
Near customersNear customersNear raw Near raw materials and materials and laborlabor
Location Location selectionselection
ServicesServicesGoodsGoodsOperationsOperationsDecisionsDecisions
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 51
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
Meet immediate Meet immediate customer demandcustomer demand
Level schedules Level schedules possiblepossible
SchedulingScheduling
Cannot be storedCannot be storedRaw materials, Raw materials, workwork--inin--process, process, and finished and finished goods may be goods may be heldheld
InventoryInventory
Important, but Important, but may not be may not be criticalcritical
Relationship Relationship critical to final critical to final productproduct
Supply Supply chain chain
ServicesServicesGoodsGoodsOperationsOperationsDecisionsDecisions
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 52
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
Often Often ““repairrepair”” and and takes place at takes place at customercustomer’’s sites site
Often preventive Often preventive and takes place and takes place at production siteat production site
MaintenanceMaintenanceServicesServicesGoodsGoods
OperationsOperationsDecisionsDecisions
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 53
Managing Global Service Managing Global Service OperationsOperations
Capacity planningCapacity planningLocation planningLocation planningFacilities design and layoutFacilities design and layoutSchedulingScheduling
Requires a different perspective on:Requires a different perspective on:
© 2008 Prentice Hall, Inc. 2 – 54
Process DesignProcess Design
LowLow ModerateModerate HighHighVolumeVolume
HighHigh
ModerateModerate
LowLow
Varie
ty o
f Pro
duct
sVa
riety
of P
rodu
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)
© 2008 Prentice Hall, Inc. 2 – 55
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage
Meets regulatory Meets regulatory requirements on a requirements on a country by country country by country basisbasis
Major priority, exceed Major priority, exceed regulatory requirementsregulatory requirements
QualityQuality
Low R&D investment; Low R&D investment; focus on development focus on development of generic drugsof generic drugs
Heavy R&D investment; Heavy R&D investment; extensive labs; focus on extensive labs; focus on development in a broad development in a broad range of drug range of drug categoriescategories
Product Product Selection and Selection and DesignDesign
Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 56
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage
Recently moved to lowRecently moved to low--tax, lowtax, low--laborlabor--cost cost environmentenvironment
Still located in the city Still located in the city where it was foundedwhere it was founded
LocationLocation
Process focused; Process focused; general processes; general processes; ““job job shopshop”” approach, shortapproach, short--run production; focus run production; focus on high utilizationon high utilization
Product and modular Product and modular process; long process; long production runs in production runs in specialized facilities; specialized facilities; build capacity ahead of build capacity ahead of demanddemand
ProcessProcess
Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 57
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage
Layout supports Layout supports processprocess--focused focused ““job job shopshop”” practicespractices
Layout supports Layout supports automated productautomated product--focused productionfocused production
LayoutLayout
Many shortMany short--run run products complicate products complicate schedulingscheduling
Centralized production Centralized production planningplanning
SchedulingScheduling
Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 58
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage
Tends to purchase Tends to purchase competitively to find competitively to find bargainsbargains
LongLong--term supplier term supplier relationshipsrelationships
Supply ChainSupply Chain
Very experienced top Very experienced top executives; other executives; other personnel paid below personnel paid below industry averageindustry average
Hire the best; Hire the best; nationwide searchesnationwide searches
Human Human ResourcesResources
Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 59
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Low CostLow CostProduct DifferentiationProduct DifferentiationCompetitive Competitive AdvantageAdvantage
Highly trained staff to Highly trained staff to meet changing demandmeet changing demand
Highly trained staff; Highly trained staff; extensive parts extensive parts inventoryinventory
MaintenanceMaintenance
Process focus drives up Process focus drives up workwork--inin--process process inventory; finished inventory; finished goods inventory tends goods inventory tends to be lowto be low
High finished goods High finished goods inventory to ensure all inventory to ensure all demands are metdemands are met
InventoryInventory
Generic Drug Corp.Generic Drug Corp.Brand Name Drugs, Inc.Brand Name Drugs, Inc.
Table 2.2Table 2.2
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Issues In Operations StrategyIssues In Operations Strategy
Research about effective Research about effective operations management operations management strategiesstrategiesPreconditions for developing Preconditions for developing effective OM strategieseffective OM strategiesThe dynamics of OM strategy The dynamics of OM strategy developmentdevelopment
© 2008 Prentice Hall, Inc. 2 – 61
Characteristics of Characteristics of High ROI FirmsHigh ROI Firms
High product quality High product quality High capacity utilizationHigh capacity utilizationHigh operating efficiencyHigh operating efficiencyLow investment intensityLow investment intensityLow direct cost per unitLow direct cost per unit
From the PIMS program of the Strategic Planning InstituteFrom the PIMS program of the Strategic Planning Institute
© 2008 Prentice Hall, Inc. 2 – 62
Strategic Options to Gain a Strategic Options to Gain a Competitive AdvantageCompetitive Advantage
28% 28% -- Operations ManagementOperations Management18% 18% -- Marketing/distributionMarketing/distribution17% 17% -- Momentum/name recognitionMomentum/name recognition16% 16% -- Quality/serviceQuality/service14% 14% -- Good managementGood management4% 4% -- Financial resourcesFinancial resources3% 3% -- OtherOther
© 2008 Prentice Hall, Inc. 2 – 63
Elements of Operations Elements of Operations Management StrategyManagement StrategyLowLow--cost productcost productProductProduct--line breadthline breadthTechnical superiorityTechnical superiorityProduct characteristics/differentiationProduct characteristics/differentiationContinuing product innovationContinuing product innovationLowLow--price/highprice/high--value offeringsvalue offeringsEfficient, flexible operations adaptable to Efficient, flexible operations adaptable to consumersconsumersEngineering research developmentEngineering research developmentLocationLocationSchedulingScheduling
© 2008 Prentice Hall, Inc. 2 – 64
PreconditionsPreconditions
Strengths and weaknesses of competitors and Strengths and weaknesses of competitors and possible new entrants into the marketpossible new entrants into the marketCurrent and prospective environmental, Current and prospective environmental, technological, legal, and economic issuestechnological, legal, and economic issuesThe product life cycleThe product life cycleResources available within the firm and within Resources available within the firm and within the OM functionthe OM functionIntegration of OM strategy with companyIntegration of OM strategy with company’’s s strategy and with other functional areasstrategy and with other functional areas
One must understand:One must understand:
© 2008 Prentice Hall, Inc. 2 – 65
Dynamics of Dynamics of Strategic ChangeStrategic Change
Changes within the organizationChanges within the organizationPersonnelPersonnelFinanceFinanceTechnologyTechnologyProduct lifeProduct life
Changes in the environmentChanges in the environment
© 2008 Prentice Hall, Inc. 2 – 66
Product Life CycleProduct Life Cycle
Best period to Best period to increase market increase market shareshare
R&D engineering is R&D engineering is criticalcritical
Practical to change Practical to change price or quality price or quality imageimage
Strengthen nicheStrengthen niche
Poor time to Poor time to change image, change image, price, or qualityprice, or quality
Competitive costs Competitive costs become criticalbecome criticalDefend market Defend market positionposition
Cost control Cost control criticalcritical
Introduction Growth Maturity Decline
Com
pany
Str
ateg
y/Is
sues
Com
pany
Str
ateg
y/Is
sues
Figure 2.5Figure 2.5
Internet search enginesInternet search engines
SalesSales
Xbox 360Xbox 360
DriveDrive--through through restaurantsrestaurants
CDCD--ROMsROMs
3 1/23 1/2””Floppy Floppy disksdisks
LCD & plasma TVsLCD & plasma TVsAnalog TVsAnalog TVs
iPodsiPods
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Product Life CycleProduct Life Cycle
Product design Product design and and development development criticalcriticalFrequent Frequent product and product and process design process design changeschangesShort production Short production runsrunsHigh production High production costscostsLimited modelsLimited modelsAttention to Attention to qualityquality
Introduction Growth Maturity Decline
OM
Str
ateg
y/Is
sues
OM
Str
ateg
y/Is
sues
Forecasting Forecasting criticalcriticalProduct and Product and process process reliabilityreliabilityCompetitive Competitive product product improvements improvements and optionsand optionsIncrease capacityIncrease capacityShift toward Shift toward product focusproduct focusEnhance Enhance distributiondistribution
StandardizationStandardizationLess rapid Less rapid product changes product changes –– more minor more minor changeschangesOptimum Optimum capacitycapacityIncreasing Increasing stability of stability of processprocessLong production Long production runsrunsProduct Product improvement improvement and cost cuttingand cost cutting
Little product Little product differentiationdifferentiationCost Cost minimizationminimizationOvercapacity Overcapacity in the in the industryindustryPrune line to Prune line to eliminate eliminate items not items not returning returning good margingood marginReduce Reduce capacitycapacity
Figure 2.5Figure 2.5
© 2008 Prentice Hall, Inc. 2 – 68
Strategy
Analysis
SWOT Analysis SWOT Analysis
Internal Strengths
Internal Weaknesses
External Opportunities
External Threats
Mission
© 2008 Prentice Hall, Inc. 2 – 69
Strategy Development ProcessStrategy Development Process
Determine Corporate MissionState the reason for the firm’s existence and identify the
value it wishes to create.
Form a StrategyBuild a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-
sale service, broad product lines.
Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6Figure 2.6
© 2008 Prentice Hall, Inc. 2 – 70
Strategy Development and Strategy Development and ImplementationImplementation
Identify critical success factorsIdentify critical success factorsBuild and staff the organizationBuild and staff the organizationIntegrate OM with other activitiesIntegrate OM with other activities
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity
© 2008 Prentice Hall, Inc. 2 – 71
Critical Success FactorsCritical Success Factors
Decisions Sample Options Chapter
ProductProduct Customized, or standardizedCustomized, or standardized 55QualityQuality Define customer expectations and how to achieve themDefine customer expectations and how to achieve them 6, S66, S6ProcessProcess Facility size, technology, capacityFacility size, technology, capacity 7, S77, S7LocationLocation Near supplier or near customerNear supplier or near customer 88LayoutLayout Work cells or assembly lineWork cells or assembly line 99Human resourceHuman resource Specialized or enriched jobsSpecialized or enriched jobs 10, S1010, S10Supply chainSupply chain Single or multiple suppliersSingle or multiple suppliers 11, S1111, S11InventoryInventory When to reorder, how much to keep on handWhen to reorder, how much to keep on hand 12, 14, 1612, 14, 16ScheduleSchedule Stable or fluctuating production rateStable or fluctuating production rate 13, 1513, 15Maintenance Maintenance Repair as required or preventive maintenanceRepair as required or preventive maintenance 1717
Marketing
ServiceServiceDistributionDistributionPromotionPromotionChannels of distributionChannels of distributionProduct positioningProduct positioning(image, functions)(image, functions)
Finance/Accounting
LeverageLeverageCost of capitalCost of capitalWorking capitalWorking capitalReceivablesReceivablesPayablesPayablesFinancial controlFinancial controlLines of creditLines of credit
Production/Operations
Figure 2.7Figure 2.7
© 2008 Prentice Hall, Inc. 2 – 72
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 73
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Automated ticketing machinesNo seat assignmentsNo baggage transfersNo meals (peanuts)
© 2008 Prentice Hall, Inc. 2 – 74
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
No meals (peanuts)Lower gate costs at secondary airports
High number of flights reduces employee idle time
between flights
© 2008 Prentice Hall, Inc. 2 – 75
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8
High number of flights reduces employee idle time
between flightsSaturate a city with flights,
lowering administrative costs (advertising, HR, etc.) per passenger for that cityPilot training required on only one type of aircraftReduced maintenance
inventory required because of only one type of aircraft
© 2008 Prentice Hall, Inc. 2 – 76
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Pilot training required on only one type of aircraftReduced maintenance
inventory required because of only one type of aircraftExcellent supplier relations
with Boeing has aided financing
© 2008 Prentice Hall, Inc. 2 – 77
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Reduced maintenance inventory required because of only one type of aircraft
Flexible employees and standard planes aid
schedulingMaintenance personnel trained only one type of
aircraft20-minute gate turnarounds
Flexible union contracts
© 2008 Prentice Hall, Inc. 2 – 78
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Automated ticketing machines
Empowered employeesHigh employee compensation
Hire for attitude, then trainHigh level of stock
ownershipHigh number of flights
reduces employee idle time between flights
© 2008 Prentice Hall, Inc. 2 – 79
Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
International Strategy
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Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
© 2008 Prentice Hall, Inc. 2 – 81
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
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Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
© 2008 Prentice Hall, Inc. 2 – 83
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Use existing domestic model globallyFranchise, joint ventures, subsidiaries
ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe
Multidomestic Strategy
© 2008 Prentice Hall, Inc. 2 – 84
Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic StrategyUse existing domestic model globallyFranchise, joint ventures, subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
© 2008 Prentice Hall, Inc. 2 – 85
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic StrategyUse existing domestic model globallyFranchise, joint ventures, subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Move material, people, ideas across national boundariesEconomies of scaleCross-cultural learning
ExamplesCoca-ColaNestlé
Transnational Strategy
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Four International Four International Operations StrategiesOperations Strategies
Cos
t Red
uctio
n C
onsi
dera
tions
Cos
t Red
uctio
n C
onsi
dera
tions
HighHigh
LowLowHighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized productEconomies of scaleCross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy Transnational StrategyMove material, people, ideas across national boundariesEconomies of scaleCross-cultural learning
ExamplesCoca-ColaNestlé
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic StrategyUse existing domestic model globallyFranchise, joint ventures, subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
© 2008 Prentice Hall, Inc. 2 – 87
Ranking CorruptionRanking CorruptionRankRank CountryCountry 2006 CPI Score (out of 10)2006 CPI Score (out of 10)11 FinlandFinland 9.69.611 IcelandIceland 9.69.611 New ZealandNew Zealand 9.69.655 SingaporeSingapore 9.49.477 SwitzerlandSwitzerland 9.19.11111 UKUK 8.68.61414 CanadaCanada 8.58.51515 Hong KongHong Kong 8.38.31616 GermanyGermany 8.08.01717 JapanJapan 7.67.62020 USA, BelgiumUSA, Belgium 7.37.33434 Israel, TaiwanIsrael, Taiwan 5.95.97070 Brazil, China, MexicoBrazil, China, Mexico 3.33.3121121 RussiaRussia 2.52.5
Least Least CorruptCorrupt
Most Most CorruptCorrupt
Table 8.2Table 8.2