2

OPERATIONS STRATEGY
IN A GLOBAL
ENVIRONMENT

PowerPoint presentation to accompany

Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

 GLOBAL STRATEGIES
 Boeing – sales and supply chain 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
 GLOBAL STRATEGIES
 Volvo – considered a Swedish company,
recently purchased by a Chinese company,
Geely. The current Volvo S40 is assembled in
Belgium, South Africa, Malaysia and China on a
platform shared 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
 REASONS TO GLOBALIZE
Operasi bisnis domestik memutuskan untuk berubah ke beberapa bentuk
operasi internasional untuk enam alasan utama berikut.

1. Improve the supply 1. Meningkatkan rantai

chain pasokan
2. Reduce costs (labor, 2. Mengurangi biaya (buruh,
taxes, tariffs, etc.) pajak, tarif, dll)
3. Improve operations 3. Meningkatkan operasi
4. Understand markets
4. Memahami pasar
5. Improve products
5. Meningkatkan produk
6. Attract and retain
global talent 6. Menarik dan
mempertahankan talenta
global
 Improve the Supply Chain

Locating facilities closer to unique

resources
 Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France
 Reduce Costs
 Foreign locations with lower wage rates can
lower direct and indirect costs
 Trade agreements can lower tariffs
 Maquiladoras
 World Trade Organization (WTO)
 North American Free Trade Agreement
(NAFTA)
 APEC, SEATO, MERCOSUR, CAFTA
 European Union (EU)
 IMPROVE OPERATIONS

 Understand differences between

how business is handled in other
countries
 Japanese – inventory management
 Scandinavians – ergonomics
 International operations can
improve response time and
customer service
 UNDERSTAND MARKETS
Interacting with foreign
customers, suppliers,
competition can lead to
new opportunities
1. Cell phone design moved
from Europe to Japan and
South Korea
2. Extend the product life
cycle
IMPROVE PRODUCTS
▶ Remain open to free
flow of ideas
▶ Toyota and BMW
manage joint research
and development
▶ Reduced risk, state-of-
the-art design, lower
costs
▶ Samsung and Bosch
jointly produce
batteries
 Attract and Retain Global Talent
Offer better employment
opportunities
 Better growth
opportunities and
insulation against
unemployment
 Relocate unneeded
personnel to more
prosperous locations
 DEVELOPING MISSIONS AND
STRATEGIES

Mission statements tell an organization

where it is going

The Strategy tells the organization how to

get there
 Mission
Mission - where is the organization
going?
 Organization’s purpose for being
 Answers ‘What do we contribute to
society?’
 Provides boundaries and focus
 Merck

The mission of Merck is to provide society

with superior products and services—
innovations and solutions that improve the
quality of life and satisfy customer needs—to
provide employees with meaningful work and
advancement opportunities and investors
with a superior rate of return.

Figure 2.2
 PespsiCo

Our mission is to be the world's premier

consumer products company focused on
convenient foods and beverages. We seek to
produce financial rewards to investors as we
provide opportunities for growth and
enrichment to our employees, our business
partners and the communities in which we
operate. And in everything we do, we strive
for honesty, fairness and integrity.

Figure 2.2
 Arnold Palmer Hospital

Arnold Palmer Hospital for Children provides

state of the art, family-centered healthcare
focused on restoring the joy of childhood in
an environment of compassion, healing, and
hope.

Figure 2.2
FACTORS AFFECTING MISSION
Philosophy
and Values

Profitability
Environment
and Growth

Mission

Customers Public Image

Benefit to Society
STRATEGIC PROCESS

Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting
 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.
 SAMPLE MISSIONS
Sample OM Department Missions
Product design To design and produce products and services
with outstanding quality and inherent customer
value.
Quality management 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

Process design To determine, design, and 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.
 SAMPLE MISSIONS
Sample OM Department Missions
Location To locate, design, and build efficient and
economical facilities that will yield high
value to the company, its employees, and the
community.
Layout design To achieve, through skill, imagination, and
resourcefulness in layout and work methods,
production effectiveness and efficiency
while supporting a high quality of work life.

Human resources 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.
 SAMPLE MISSIONS
Sample OM Department Missions
Supply-chain To collaborate with suppliers to develop
management innovative products from stable, effective,
and efficient sources of supply.
Inventory To achieve low investment in inventory
consistent with high customer service levels
and high facility utilization.
Scheduling To achieve high levels of throughput and
timely customer delivery through effective
scheduling.
Maintenance To achieve high utilization of facilities and
equipment by effective preventive
maintenance and prompt repair of facilities
and equipment.
 STRATEGY

 Action plan to achieve

mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
 Strategies for Competitive
Advantage

1. Differentiation – better, or at least

different
2. Cost leadership – cheaper
3. Response – more responsive
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
 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
► Walmart – small overhead, shrinkage,
and distribution costs
► Franz Colruyt – no bags, no bright lights,
no music, and doors on freezers
 COMPETING ON RESPONSE
 Flexibility is matching market changes in
design innovation and volumes
▶ A way of life at Hewlett-Packard
 Reliability is meeting schedules
▶ German machine industry
 Timeliness is quickness in design, production,
and delivery
▶ Sharp, Pizza Hut, Samsung
 OM’s Contribution to Strategy
10 Operations Competitive
Decisions Strategy Example Advantage

Product DIFFERENTIATION:
Innovative design Safeskin’s innovative gloves
Broad product line Fidelity Security’s mutual funds
Quality After-sales service Caterpillar’s heavy equipment
service
Process Experience Hard Rock Café’s dining
experience

Location COST LEADERSHIP:

Low overhead Franz-Colruyt’s warehouse-type Differentiation
stores
Layout (better)
Effective capacity Southwest Airline’s
use aircraft utilization
Human
resource Inventory Walmart’s sophisticated Response
management distribution system (faster)
Supply chain Cost
RESPONSE: leadership
Inventory Flexibility Hewlett-Packard’s response to (cheaper)
volatile world market
Reliability FedEx’s “absolutely, positively,
Scheduling on time”
Quickness Pizza Hut’s 5-minute guarantee
at lunchtime
Maintenance
 PRODUCT LIFE CYCLE
Introduction Growth Maturity Decline
Product design and Forecasting critical Standardization Little product
development Product and Fewer product differentiation
critical process reliability changes, more Cost
Frequent product Competitive minor changes minimization
and process
OM Strategy/Issues

product Optimum capacity Overcapacity in

design changes improvements and the industry
Increasing stability
Short production options of process Prune line to
runs Increase capacity eliminate items
Long production
High production Shift toward runs not returning
costs product focus good margin
Product
Limited models Enhance improvement and Reduce
Attention to quality distribution cost cutting capacity
 SWOT Analysis

Mission

Internal External
Strengths Opportunities

Analysis

Internal External
Weaknesses Threats

Strategy
STRATEGY DEVELOPMENT PROCESS
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine the 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.
 STRATEGY DEVELOPMENT AND
IMPLEMENTATION
▶ Identify key success factors
▶ Integrate OM with other activities
▶ Build and staff the organization

The operations manager’s job is to implement

an OM strategy, provide competitive advantage,
and increase productivity
 KEY SUCCESS FACTORS
Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas

Marketing Finance/Accounting Production/Operations

Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

10 OM Decisions Sample Options

Product Customized, or standardized; sustainability

Quality Define customer expectations and how to achieve them
Process Facility size, technology, capacity, automation
Location Near supplier or near customer
Layout Work cells or assembly line
Human resource Specialized or enriched jobs
Supply chain Single or multiple suppliers
Inventory When to reorder, how much to keep on hand
Schedule Stable or fluctuating production rate
Maintenance Repair as required or preventive maintenance
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Fleet Schedules
of Boeing 737
Aircraft
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Automated ticketing machines Secondary Airports
No seat assignments
Competitive Advantage:
No Low
baggageCost
transfers
No meals (peanuts)
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service
No meals (peanuts)
Lean,
Lower gate costs at secondary airports Short Haul, Point-to-
Productive Point Routes, Often to
High number of flights reduces employee
Employees Secondary Airports
idle time between flights
Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports
High number of flights reduces employee
idleCompetitive Advantage:
time between flights
Saturate a city with Low
flights, Cost
lowering
administrative costs (advertising, HR, etc.)
High per passenger for that city Frequent,
Aircraft
Pilot training required on only one type of Reliable
Utilization aircraft
Standardized Schedules
Reduced maintenanceFleet of Boeing
inventory required
737 of
because of only one type Aircraft
aircraft
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service
Pilot training required on only one type of
Lean, aircraft Short Haul, Point-to-
Productive Point Routes, Often to
Employees Reduced maintenance inventory required Secondary Airports
because of only one type of aircraft
Competitive
Excellent Advantage:
supplier relations with Boeing has
aided financing
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary
Reduced maintenance inventory required Airports
because of only one type of aircraft
Flexible union Competitive Advantage:
Flexible employees and standard planes aid
contracts Low Cost scheduling
Maintenance personnel trained only one
High type of aircraft Frequent,
Aircraft Reliable
Utilization 20-minute gate turnarounds Schedules
Standardized
Fleet of Boeing
737 Aircraft
Figure 2.8
ACTIVITY MAPPING AT SOUTHWEST AIRLINES

Courteous, but
Limited Passenger
Automated ticketing machines
Service
Empowered employees
Lean, High employee compensation
Short Haul, Point-to-
Productive Hire for attitude, thenPoint
train Routes, Often to
Employees Secondary Airports
High level of stock ownership
High number
Competitive of flights reduces employee
Advantage:
idle time between flights
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
 Implementing Strategic Decisions
Operations Strategies of Two Drug Companies
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION LOW COST STRATEGY
ADVANTAGE STRATEGY
Product Heavy R&D investment; extensive labs; Low R&D investment; focus on
selection and focus on development in a broad range development of generic drugs
design of drug categories
Quality Quality is major priority, standards Meets regulatory requirements on a
exceed regulatory requirements country-by-country basis, as necessary
Process Product and modular production Process focused; general production
process; tries to have long product runs processes; “job shop” approach, short-
in specialized facilities; builds capacity run production; focus on high utilization
ahead of demand
Location Still located in city where it was founded Recently moved to low-tax, low-labor-
cost environment
 Implementing Strategic Decisions

Operations Strategies of Two Drug Companies

BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION LOW COST STRATEGY
ADVANTAGE STRATEGY
Layout Layout supports automated product- Layout supports process-focused “job
focused production shop” practices
Human Hire the best; nationwide searches Very experienced top executives
resources provide direction; other personnel paid
below industry average
Supply chain Long-term supplier relationships Tends to purchase competitively to find
bargains
Inventory Maintains high finished goods inventory Process focus drives up work-in-
primarily to ensure all demands are met process inventory; finished goods
inventory tends to be low
Scheduling Centralized production planning Many short-run products complicate
scheduling
Maintenance Highly trained staff; extensive parts Highly trained staff to meet changing
inventory demands
 Strategic Planning, Core
Competencies, and Outsourcing
 Outsourcing – transferring activities that
traditionally been internal to external
suppliers
 Accelerating due to
▶ Increased technological expertise
▶ More reliable and cheaper transportation
▶ Rapid development and deployment of
advancements in telecommunications and
computers
 Strategic Planning, Core
Competencies, and Outsourcing
▶ Subcontracting - contract
manufacturing
▶ Outsourced activities
► Legal services
► Travel ► Production
services ► Surgery
► Payroll
Theory of Comparative Advantage

 If an external provider can perform

activities more productively than the
purchasing firm, then the external
provider should do the work
 Purchasing firm focuses on core
competencies
 Drives outsourcing
 Risks of Outsourcing
Potential Advantages and Disadvantages of Outsourcing
ADVANTAGES DISADVANTAGES
Cost savings Increased logistics and inventory costs
Gaining outside expertise Loss of control (quality, delivery, etc.)
Improving operations and service Potential creation of future competition
Maintaining a focus on core Negative impact on employees
competencies
Accessing outside technology Risks may not manifest themselves for
years
Rating Outsourcing Providers
 Insufficient analysis most common
reason for failure
 Factor rating method
 Points and weights assigned for each
factor to each
RATING PROVIDER SELECTION CRITERIA

Factor Ratings Applied to National Architects’s Potential IT

Outsourcing Providers

FACTOR (CRITERION)
1. Can reduce operating costs
2. Can reduce capital investment
3. Skilled personnel
4. Can improve quality
5. Can gain access to technology not in
company
6. Can create additional capacity
7. Aligns with policy/philosophy/culture
Global Operations Strategy Options
High Global strategy Transnational
(eg, Caterpillar strategy
Texas Instruments (eg, Coca-Cola, Nestlé)
Otis Elevator) • Move material,
people, ideas across
• Standardize product national boundaries
• Economies of scale • Economies of scale
• Cross-cultural learning • Cross-cultural
Cost Reduction

learning

International Multidomestic
strategy strategy
(eg, Harley-Davidson (eg, Heinz, McDonald’s
U.S. Steel) The Body Shop
Hard Rock Cafe)
• Import/export or • Use existing domestic
license existing model globally
product • Franchise, joint
ventures,
subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)