operations strategy in a global environment chapter 2
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Operations Strategy in a Global Environment
Chapter 2
When we complete this chapter you should know: What is Mission and Strategy Explain ten decisions of OM Describe and explain Differentiation, Low
Cost, Response Four Global operations Strategies Why Global issues are important
Global Strategies
Boeing – sales and production are worldwide Benetton – moves inventory to stores around the
world faster than its competition by building flexibility into design, production, and distribution
Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
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 platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.
Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina
Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
DassaultDassault FranceFrance Design and Design and PLM softwarePLM software
Messier-BugattiMessier-Bugatti FranceFrance Landing gearLanding gear
ThalesThales FranceFrance Electrical power Electrical power conversion system conversion system and integrated and integrated standby flight displaystandby flight display
DiehlDiehl GermanyGermany Interior lightingInterior lighting
FR-HiTempFR-HiTemp UKUK Fuel pumps Fuel pumps and valvesand valves
Smiths AerospaceSmiths Aerospace UKUK Central computer Central computer systemsystem
FirmFirm CountryCountry ComponentComponent
BAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronics
Alenia 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
Fuji Heavy Fuji Heavy JapanJapan Center wing boxCenter wing box IndustriesIndustries
Kawasaki Heavy Kawasaki Heavy JapanJapan Forward fuselage, Forward fuselage, IndustriesIndustries fixed section of wing, fixed section of wing,
landing gear welllanding gear well
FirmFirm CountryCountry ComponentComponent
Teijin SeikiTeijin Seiki JapanJapan Hydraulic actuatorsHydraulic actuators
Mitsubishi Heavy Mitsubishi Heavy JapanJapan Wing boxWing box IndustriesIndustries
Chengdu Aircraft Chengdu Aircraft ChinaChina RudderRudderGroupGroup
Hafei AviationHafei Aviation ChinaChina PartsParts
What is the Reasons to Globalize?
Reasons to Globalize
Reasons to GlobalizeReasons to Globalize
Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Improve supply chainImprove supply chain Provide better goods and servicesProvide better goods and services Understand marketsUnderstand markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
How Globalization helps to Reduce costs?
Reduce Costs
Foreign locations with lower wage rates can lower direct and indirect costsMaquiladorasWorld Trade Organization (WTC)North American Free Trade Agreement
(NAFTA)APEC, SEATO, MERCOSUR European Union (EU)
How Globalization Improves the Supply Chain?
What is a supply chain?
A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials; transformation of these material into intermediate and finished products; and distribution of these finished products to customers.
How Globalization Improves the Supply Chain?
Locating facilities closer to unique resources Auto design to California Athletic shoe production to China Perfume manufacturing in France
Improve the Supply Chain
Improved understanding as the result of a local presence permits firm to customize products and services to meet unique cultural needs in foreign markets. Objective and subjective characteristics
of goods and services On-time deliveries Cultural variables
Reduce response time.
Globalization can provide Better Goods and Services
Interacting with foreign customer and suppliers can lead to new opportunities Cell phone design from Europe Cell phone fads from Japan Extend the product life cycle
Understand Markets
Remain open to the free flow of ideas General Motors partnered with a
Japanese auto manufacturer to learn Scandinavian design ideas have been
used to improve equipment design and layout
Learn to Improve Operations
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
Attract and Retain Global Talent
Cultures can be quite different Attitudes can be quite different towards
PunctualityPunctuality
Lunch breaksLunch breaks
EnvironmentEnvironment
Intellectual Intellectual propertyproperty
ThieveryThievery
BriberyBribery
Child laborChild labor
Cultural and Ethical Issues
Braun Household Appliances
Firestone Tires Godiva Chocolate Haagen-Dazs Ice
Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony
Match Product & Parent
Braun Household Appliances
Firestone Tires Godiva Chocolate Haagen-Dazs Ice
Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony
Match Product & Parent
Braun Household Appliances
Firestone Tires Godiva Chocolate Haagen-Dazs Ice
Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
Match Product & Country
Braun Household Appliances
Firestone Tires Godiva Chocolate Haagen-Dazs Ice
Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
Match Product & Country
Developing Missions and Strategies
MissionMission statements tell an organization statements tell an organization where it is going!?where it is going!?
The The Strategy Strategy tells the organization how tells the organization how to get there!?to get there!?
Benefit to Society
Mission
Philosophy and Values
Profitability and GrowthEnvironment
Customers Public Image
Factors Affecting Mission
Action plan to achieve mission
Functional areas have strategies
Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses
Strategy
How firms achieve competitive advantage through operations? Firms achieve missions in three conceptual
ways:1. Differentiation2. Cost leadership3. Response This means operations managers are called to
deliver goods and services that are 1- better or at least different 2- cheaper 3- more responsive
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 productsSafeskin gloves – leading edge products
Walt Disney Magic Kingdom – Walt Disney Magic Kingdom – experience differentiationexperience differentiation
Hard Rock Cafe – theme experienceHard Rock Cafe – theme experience
Competing on Differentiation
Provide the maximum value as perceived by customer. Does not imply low quality.
Southwest Airlines – secondary Southwest Airlines – secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipment, no downtown utilization of equipment, no downtown offices, matching capacity with demandoffices, matching capacity with demand
Wal-Mart – small overheads, shrinkage, Wal-Mart – small overheads, shrinkage, distribution costs, direct shipment, distribution costs, direct shipment, rapid transportationrapid transportation
Competing on Cost
Flexibility is matching market changes in design innovation and volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules German machine industry
Timeliness is quickness in design, production, and delivery
Johnson Electric, Bennigan’s, Motorola
Competing on Response
Marketing Operations Finance/ Accounting
Functional Area Missions
Organization’s Mission
Strategic Process
Product
Quality
Process
Location
Layout
Human resource
Supply-chain
Inventory
Scheduling
Maintenance
FLEXIBILITYSony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance
IBM’s after-sale service on mainframe computers……....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)
OM’s Contribution to Strategy
1. Goods and service design
2. Quality
3. Process and capacity design
4. Location selection
5. Layout design
6. Human resource and job design
7. Supply-chain management
8. Inventory
9. Scheduling
10. Maintenance
Differentiation, low cost, and response can be achieved when managers make effective decisions in 10 areas of OM (operations decisions):
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage
Product Differentiation Low Cost
Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand
Process focused; general processes; job shop approach, short production runs; focus on high utilization
Location Still located in the city where it was founded
Recently moved to low-tax, low-labor-cost environment
Table 2.2Table 2.2
Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage
Product Differentiation Low Cost
Scheduling Centralized production planning
Many short-run products complicate scheduling
Layout Layout supports automated product-focused production
Layout supports process-focused job shop practices
Table 2.2Table 2.2
Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage
Product Differentiation Low Cost
Human Resources
Hire the best; nationwide researches
Very experienced top executives; other personnel paid below industry average
Supply Chain Long-term supplier relationships
Tends to purchase competitively to find bargains
Table 2.2Table 2.2
Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage
Product Differentiation Low Cost
Inventory High finished goods inventory to ensure all demands are met
Process focus drives up work-in-process inventory; finished goods inventory tends to be low
Maintenance Highly trained staff; extensive parts inventory
Highly trained staff to meet changing demand
Table 2.2Table 2.2
Operations Strategies for Two Drug Companies
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Strategic Options to Gain a Competitive Advantage
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
Strategy Development and Implementation
Global operations strategy options
As we suggested early many operations strategies now require an international dimension.
Operations managers of international and multinational firms approach global opportunities with one of four operations strategies.
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HighHigh
LowLow
HighHighLowLow
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
Four International Operations Strategies
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Operations Strategies
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product
Economies of scale Cross-cultural
learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Operations StrategiesC
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe
Multidomestic Strategy
International StrategyInternational 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
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural
learning
ExamplesCoca-ColaNestlé
Transnational Strategy
Four International Operations Strategies
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas 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
Four International Operations Strategies
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