The Global Environment

2 and Operations Strategy

PowerPoint presentation to
accompany
Heizer, Render, and Al-Zu’bi
Operations Management,
Arab World Edition
Original PowerPoint slides by Jeff
Heyl, Adapted by Zu’bi Al-Zu’bi

2-1
Reasons to Globalize

Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons 6. Attract and retain global talent

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Reduce Costs

• Foreign locations with lower wage rates

can lower direct and indirect costs
- World Trade Organization (WTO)
- North American Free Trade Agreement
(NAFTA)
- European Union (EU)
- Gulf Cooperation Council (GCC)

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Improve the Supply Chain

• Locating facilities closer to unique

resources

2-4
Provide Better Goods
and Services

• Objective and subjective

characteristics of goods and services
• On-time deliveries
• Cultural variables
• Improved customer service

2-5
Understand Markets

• Interacting with foreign customers and

suppliers can lead to new opportunities
- Cell phone design from
Europe
- Cell phone fads
from Japan
- Extend the
product life
cycle

2-6
 Learn to Improve Operations

• Remain open to the free flow of ideas

• 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
2-7
Attract and Retain Global Talent

• Offer better employment opportunities

• Better growth opportunities and
insulation against unemployment
• Relocate unneeded personnel to
more prosperous locations

2-8
Cultural and Ethical Issues

• Cultures can be quite different

• Attitudes can be quite different towards

• Punctuality • Thievery
• Lunch breaks • Bribery
• Environment • Child labor
Intellectual
• • Wasta
property
2-9
Companies Want To Consider

• National literacy rate • Work ethic

• Rate of innovation • Tax rates
• Rate of technology • Inflation
change
• Availability of raw materials
• Number of skilled workers
• Interest rates
• Political stability
• Population
• Product liability laws
• Number of miles of highway
• Export restrictions
• Phone system
• Variations in language

2 - 10
Developing Missions and Strategies

Mission statements tell an

organization where it is going

The strategy tells the

organization how to get there

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Mission

Mission - where are you going?

- Organization’s purpose for being
- Answers ‘What do we provide society?’
- Provides boundaries and focus

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Aramex

To be recognized as one of the top five

global logistics and transportation
companies by enabling and facilitating
regional and global trade and commerce.

Figure 2.1

2 - 13
University of Jordan

The provision of quality education at both

the undergraduate and graduate levels
through the adoption of the principle of
democracy in the education and decision-
making processes whilst encouraging
interaction among students with the local
community, and at the international level
to support goal-oriented research.

Figure 2.1

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Burj Khalifa

To be the world’s most luxurious

hotel with a team dedicated to
outstanding personalized service,
surpassing guest expectations by
providing the ultimate Arabian
hospitality experience

Figure 2.1

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Factors Affecting Mission

Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society

2 - 16
Sample Missions

Sample Company Mission

To manufacture and service an innovative, growing, and

profitable worldwide microwave communications
business that exceeds our customers’ expectations.

Sample Operations Management Mission

To produce products consistent with the company’s

mission as the worldwide low-cost manufacturer.

Figure 2.2
2 - 17
Sample Missions

Sample OM Department Missions

Product design To design and produce products and
services with outstanding quality and
inherent customer value.
Quality To attain the exceptional value that is
management 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.
Figure 2.2
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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.

Figure 2.2
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Sample Missions

Sample OM Department Missions

Supply-chain To collaborate with suppliers to develop innovative

management 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.

Figure 2.2
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Strategic Process

Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

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Strategy

• Action plan to achieve mission

• Functional areas have strategies
•Strategies exploit opportunities and
strengths, neutralize threats, and avoid
weaknesses

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Strategies for Competitive Advantage

• Differentiation – better, or at least

different
• Cost leadership – cheaper
• Response – rapid response

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 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
Ferrari World Abu Dhabi – experience differentiation
TcheTche Cafe – dining differentiation

2 - 24
Competing on Cost

Provide the maximum value as perceived by

customer. Does not imply low quality.
•Air Arabia – no frills service, efficient
utilization of equipment
•Lulu Hypermarkets – small overhead,
shrinkage, distribution costs

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Competing on Response

• Flexibility is responding to the rapidly

changing market needs with high-quality
solutions
– Rubicon-Jordan

• Reliability is meeting schedules

• German machine industry
• Timeliness is quickness in design,
production, and delivery
• Apple, Tazaj, Motorola

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Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Goods and Product is usually Product is not tangible
service design tangible

Quality Many objective Many subjective

standards standards

Process and Customers not involved Customer may be

capacity design directly involved
Capacity must match
demand
Table 2.1

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Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Location Near raw materials and Near customers
selection labor

Layout design Production efficiency Enhances product and

production

Human Technical skills, Interact with

resources and consistent labor customers, labor
job design standards, output- standards vary
based wages

Table 2.1
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Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Supply chain Relationship critical to Important, but may not
final product be critical

Inventory Raw materials, work- Cannot be stored

in-process, and
finished goods may be
held

Scheduling Level schedules Meet immediate

possible customer demand Table 2.1

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Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Maintenance Often preventive and Often “repair” and
takes place at takes place at
production site customer’s site

Table 2.1
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Managing Global Service Operations

Requires a different perspective on:

• Capacity planning
• Location planning
• Facilities design and layout
• Scheduling

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 Process Design

High Process-focused Mass Customization

JOB SHOPS Customization at high
(Print shop, emergency volume
room, machine shop, (Dell Computer’s PC,
Variety of Products

fine-dining Repetitive (modular) cafeteria)

restaurant) focus
ASSEMBLY LINE
Moderate (Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(Steel, paper,
bread, institutional
kitchen)

Low

Low Moderate High

Volume
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 Operations Strategies of Two Drug
Companies
Table 2.2

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive
Product Differentiation Low Cost
Advantage

Product Heavy R&D investment; Low R&D investment;

Selection and extensive labs; focus on focus on development of
Design development in a broad generic drugs
range of drug categories

Quality Major priority, exceed Meets regulatory

regulatory requirements requirements on a
country-by-country basis

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 Operations Strategies of Two Drug
Companies

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive
Product Differentiation Low Cost
Advantage

Process Product and modular Process focused; general

process; long production processes; “job shop”
runs in specialized approach, short-run
facilities; build capacity production; focus on high
ahead of demand utilization
Location Still located in the city Recently moved to low-
where it was founded tax, low-labor-cost
environment
Table 2.2

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 Operations Strategies of Two Drug
Companies

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive
Product Differentiation Low Cost
Advantage

Human Hire the best; nationwide Very experienced top

Resources searches executives; other
personnel paid below
industry average
Layout Layout supports Layout supports process-
automated product- focused “job shop”
focused production practices

Table 2.2

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 Operations Strategies of Two Drug
Companies

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive
Product Differentiation Low Cost
Advantage

Supply Chain Long-term supplier Tends to purchase

relationships competitively to find
bargains

Inventory High finished goods Process focus drives up

inventory to ensure all work-in-process
demands are met inventory; finished goods
inventory tends to be low
Table 2.2
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 Operations Strategies of Two Drug
Companies
Table 2.2

Brand Name Drugs, Inc. Generic Drug Corp.

Competitive
Product Differentiation Low Cost
Advantage

Scheduling Centralized production Many short-run products

planning complicate scheduling

Maintenance Highly trained staff; Highly trained staff to

extensive parts inventory meet changing demand

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Issues In Operations Strategy

• Resources view
• Value-chain analysis
• Porter’s Five Forces model
• Operating in a system with many
external factors
• Constant change

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Product Life Cycle

Introduction Growth Maturity Decline

Best period to Practical to change Poor time to Cost control
increase market price or quality change image, critical
Company Strategy/Issues

share image price, or quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position Drive-through
Internet search engines restaurants
CD-ROMs
iPods LCD &
Xbox 360 plasma TVs
Sales
Avatars

Boeing 787 Analog

TVs
Twitter
Figure 2.4
2 - 39
Product Life Cycle

Introduction Growth Maturity Decline

Product design Forecasting Standardization Little product
and critical Fewer product differentiation
development
Product and changes, more Cost
OM Strategy/Issues

critical
process minor changes minimization
Frequent reliability
Optimum Overcapacity
product and
Competitive capacity in the
process design
product industry
changes Increasing
improvements
stability of Prune line to
Short production and options process eliminate
runs
Increase capacity items not
Long production
High production returning
Shift toward runs
costs good margin
product focus Product
Limited models Reduce
Enhance improvement and
capacity
Attention to distribution cost cutting
quality

Figure 2.4
2 - 40
SWOT Analysis

Mission

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses Threats
Strategy

2 - 41
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.

Figure 2.5
2 - 42
Strategy Development and Implementation

• Identify key success factors and core competencies

• 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

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 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

Decisions Sample Options Chapter

Product Customized, or standardized 5

Quality Define customer expectations and how to achieve them 6
Process Facility size, technology, capacity 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17

Figure 2.6 2 - 44
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 Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
2 - 45
Activity Mapping at
Southwest Airlines
Competitive Advantage:
Low Cost

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Automated ticketing Point Routes, Often to
Employees machines Secondary Airports
No seat assignments
No baggage transfers
No meals (peanuts)
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
2 - 46
Activity Mapping at Competitive
Southwest Airlines Advantage:

Courteous, but Low Cost

Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees No meals (peanuts)
Secondary Airports
Lower gate costs at
secondary airports
High number of flights
reduces employee idle time
High between flights Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft

Figure 2.7
2 - 47
 Activity Mapping at Competitive Advantage:
Southwest Airlines
Low Cost

Courteous, but
Limited Passenger
Service

Lean, High number of flights reduces

employee idle time between flights
Short Haul, Point-to-
Productive Point Routes, Often to
Saturate a city with flights, lowering
Employees administrative costs per passenger Secondary Airports
for that city
Pilot training required on only one
type of aircraft
Reduced maintenance inventory
required because of only one type of
High aircraft Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
© 2013 Pearson Education 2 - 48
Activity Mapping at
Southwest Airlines

Pilot training required on

Courteous,
onlyLimited
one type butaircraft
of
Passenger
ReducedService
maintenance
Lean, inventory required because Short Haul, Point-to-
Productive of only one type of aircraft
Point Routes, Often to
Employees Secondary Airports
Excellent supplier relations
with Boeing
Competitive has aided
Advantage:
financing
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
2 - 49
Activity Mapping at Competitive
Southwest Airlines Advantage:
Low Cost

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Reduced maintenance inventory
Productive required because of only one type of Point Routes, Often to
Employees aircraft Secondary Airports
Flexible employees and standard planes
Flexibl aid scheduling
e Maintenance personnel trained only one
union type of aircraft
contra
20-minute gate turnarounds
High cts Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
2 - 50
Activity Mapping at Competitive Advantage:
Southwest Airlines Low Cost

Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Automated ticketing machines Point Routes, Often to
Employees Empowered employees Secondary Airports
High employee compensation
Hire for attitude, then train
High level of stock ownership
High number of flights reduces
employee idle time between flights
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.7
2 - 51
 Four International Operations Strategies
High
Figure 2.8

International
Cost Reduction Considerations

Strategy
Import/export or license
existing product
Examples:
Jordan’s Cement
Morocco's Phosphates
Co.
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 52
 Four International Operations Strategies
High Figure 2.8
Cost Reduction Considerations

International Strategy
 Import/export or
license existing
product

Examples:
Jordan’s Cement
Morocco's Phosphates
Co.
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

2 - 53
 Four International Operations Strategies
High Figure 2.8
Cost Reduction Considerations

Global
Strategy
 Standardized product
 Economies of scale
 Cross-cultural learning

International Strategy
Examples:
Petra Industries
 Import/export or Al Zamil Group
license existing
product
Aramex
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 54
 Four International Operations Strategies
High Figure 2.8
Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
Petra Industries
Al-Zamil Group
Aramex

International Strategy
 Import/export or
license existing
product

Examples:
Jordan Cement
Morocco’s
Phosphates Co.
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 55
 Four International Operations Strategies

High Figure 2.8

Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning Multidomestic
Examples: Strategy
Texas Instruments  Use existing domestic
Caterpillar model globally
Otis Elevator
 Franchise, joint
ventures, subsidiaries

International Strategy Examples:

Tazaj
 Import/export or
license existing TcheTche
product Afia
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 56
 Four International Operations Strategies
High Figure 2.8
Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
Texas Instruments
Caterpillar
Otis Elevator

Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
 Franchise, joint ventures,
license existing
product subsidiaries

Examples: Examples:
Jordan Cement Tazaj
Morocco’s TcheTche
Phosphates Co. Afia
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

2 - 57
 Four International Operations Strategies
Transnation
al
High Figure 2.8
Strategy
 Move material,
Global Strategy people, ideas
across national
Cost Reduction Considerations

 Standardized product
 Economies of scale boundaries
 Cross-cultural learning  Economies of scale
Examples:  Cross-cultural
Texas Instruments learning
Caterpillar
Otis Elevator Examples:
Almarai
Rani Beverage’s
Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
 Franchise, joint ventures,
license existing
product subsidiaries

Examples Examples
U.S. Steel Heinz The Body
Harley Davidson Shop
McDonald’s Hard Rock
Cafe
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

2 - 58
 Four International Operations Strategies
High Figure 2.8
Global Strategy Transnational Strategy
Cost Reduction Considerations

 Standardized product  Move material, people, ideas

 Economies of scale across national boundaries
 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples:
Petra Industries Examples:
Al Zamil Group Almarai
Aramex Rani Beverages

Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
 Franchise, joint ventures,
license existing
product subsidiaries

Examples: Examples:
Jordan Cement Tazaj
Morocco’s TcheTche
Phosphate Co. Afia
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

2 - 59