2008 Prentice Hall, Inc. 2 – 1 Operations Management Chapter 2 – Chapter 2 – Operations Strategy in Operations Strategy in a Global Environment a Global Environment PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 7e Principles of Operations Management, 7e Operations Management, 9e Operations Management, 9e Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised February 2012)
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Operations ManagementOperations ManagementChapter 2 – Chapter 2 – Operations Strategy in Operations Strategy in a Global Environmenta Global Environment
PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised February 2012)
Achieving Competitive Advantage Achieving Competitive Advantage Through OperationsThrough OperationsCompeting On DifferentiationCompeting On Differentiation
Competing On CostCompeting On Cost
Competing On ResponseCompeting On Response
Ten Strategic OM DecisionsTen Strategic OM Decisions
Boeing – sales and production are Boeing – sales and production are worldwideworldwide
Benetton – moves inventory to stores Benetton – 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 distribution
Sony – purchases components from Sony – purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world
Volvo – considered a Swedish company Volvo – considered a Swedish company but it isbut it is ( (waswas)) controlled by an American controlled by an American company, Ford. company, Ford. Now it belongs to Geely, Now it belongs to Geely, a Chinese company. a Chinese company. The current Volvo The current Volvo S40 is built in Belgium and shares its S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.and the Ford Focus built in Europe.
A comment made on the Net upon the purchase of A comment made on the Net upon the purchase of Volvo by Geely: “Volvo by Geely: “Interesting. A brand renown for Interesting. A brand renown for building cars that could survive a demolition derby building cars that could survive a demolition derby with a couple of Sherman tanks will be made in a with a couple of Sherman tanks will be made in a country renown for building cars that country renown for building cars that spontaneously disintegrate when a fly hits the spontaneously disintegrate when a fly hits the windscreen.windscreen.””
Haier – A Chinese company, Haier – A Chinese company, produces compact refrigerators (it produces compact refrigerators (it has one-third of the US market) and has one-third of the US market) and wine cabinets (it has half of the US wine cabinets (it has half of the US market) in South Carolinamarket) in South Carolina
Globalization means that producing Globalization means that producing locally and exporting is not a viable locally and exporting is not a viable business model any more for many business model any more for many industriesindustries
DassaultDassault FranceFrance Design and Design and PLM softwarePLM software
Messier-BugattiMessier-Bugatti FranceFrance Electric brakesElectric brakes
ThalesThales FranceFrance Electrical power Electrical power conversion system conversion system and integrated and integrated standby flight displaystandby flight display
Foreign locations with lower wage rates Foreign locations with lower wage rates and tariffs and tariffs can lower direct and indirect costscan lower direct and indirect costs MaquiladorasMaquiladoras (free trade zones-Mexico) (free trade zones-Mexico) World Trade Organization (WTO)World Trade Organization (WTO) Trade blocs & agreements (reduced cost of Trade blocs & agreements (reduced cost of
operating)operating) North American Free Trade Agreement (NAFTA)North American Free Trade Agreement (NAFTA) Asia-Pacific Economic Cooperation(Asia-Pacific Economic Cooperation(APECAPEC-21 -21
countries)countries) South East Asia Treaty Org(South East Asia Treaty Org(SEATOSEATO-8 countries-8 countries MERCOSUR MERCOSUR (Argentina, Brazil, Paraguay, and (Argentina, Brazil, Paraguay, and
UruguayUruguay European Union (EU)European Union (EU)
Ex: Many U.S. businesses have their call centers in India
3. 3. Provide Better Goods Provide Better Goods and Servicesand Services
Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservicesOn-time deliveriesOn-time deliveries
Cultural variablesCultural variables (customized (customized goods & services to meet unique goods & services to meet unique cultural needs)cultural needs)
Improved customer serviceImproved customer service (reduce (reduce response time)response time)
Interacting with foreign customers and Interacting with foreign customers and suppliers can lead to new opportunitiessuppliers can lead to new opportunitiesCell phone design from EuropeCell phone design from Europe (Nokia) (Nokia)Cell phoneCell phone fadsfads (accessories) (accessories) from from JapanJapan
and Koreaand Korea• a device which converts your rear-view mirror into a a device which converts your rear-view mirror into a
display for the phone. So if someone is calling you, just display for the phone. So if someone is calling you, just look at the number on the mirror while you drive. look at the number on the mirror while you drive.
• Sony Ericsson has launched stereophonic speakers called Sony Ericsson has launched stereophonic speakers called MDS-65, which can be attached to the phone and give the MDS-65, which can be attached to the phone and give the effect of a mini home theatre. effect of a mini home theatre.
• just look at all the accessories for the Ipod and the Iphone.just look at all the accessories for the Ipod and the Iphone.
Extend the product life cycleExtend the product life cycle
5. 5. BURADA…Learn to Improve BURADA…Learn to Improve OperationsOperations
Remain open to the free flow of Remain open to the free flow of ideasideasGeneral Motors partnered with a General Motors partnered with a
Japanese auto manufacturer Japanese auto manufacturer (Toyota) (Toyota) to learnto learn (NUMMI-Calif.) (NUMMI-Calif.)
benchmarking - first practised by benchmarking - first practised by Xerox Corp.Xerox Corp.
Equipment and layout have been Equipment and layout have been improved using Scandinavian improved using Scandinavian ergonomic competenceergonomic competence
TAV –- Tepe-Akfen-Vie (Tepe TAV –- Tepe-Akfen-Vie (Tepe learned airport operations from Vie)learned airport operations from Vie)
6. 6. Attract and Retain Global Attract and Retain Global TalentTalent
Offer better employment Offer better employment opportunitiesopportunitiesBetter growth opportunities and Better growth opportunities and
insulation against unemploymentinsulation against unemployment
Relocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locations during during economic downturns (flexibility)economic downturns (flexibility)
Incentives for people who like to Incentives for people who like to travel travel
Developing Missions and Developing Missions and StrategiesStrategies
MissionMission: : overall purpose of an organizationoverall purpose of an organization (misyon; varoluş nedeni)(misyon; varoluş nedeni). .
The mission of an The mission of an o organization defines its rganization defines its reason for existence.reason for existence. “Why are we in “Why are we in business?”business?”
MissionMission statements tell an organization statements tell an organization where it is goingwhere it is going
Mission of the organization plus mission of Mission of the organization plus mission of the functional areas (prod, mktg, finance, the functional areas (prod, mktg, finance, R&D, etc)R&D, etc)
Developing Missions and Developing Missions and StrategiesStrategies
The The sstrategy trategy is an organization’s is an organization’s action plan to achieve its mission action plan to achieve its mission and goalsand goals
FedExFedEx’s Mission’s MissionFedEx is committed to our People-Service-Profit FedEx is committed to our People-Service-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 air-ground transportation of high superior, global air-ground transportation of high priority goods and documents that require rapid, priority goods and documents that require rapid, time-certain delivery. Equally important, positive time-certain delivery. Equally important, positive control of each package will be maintained using control of each package will be maintained using
real time electronic tracking and tracing systems. A real 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.
Our Mission: To spread the spirit of Rock ‘n’ Our Mission: To spread the spirit of Rock ‘n’ 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 long-term success.ensuring our long-term success.
TAI is a company of dedicated, TAI is a company of dedicated, dynamic anddynamic and resourceful people resourceful people searching for excellencesearching for excellence and and continued growth in the field of continued growth in the field of aerospace. Our mission is to fulfil aerospace. Our mission is to fulfil the aerospace requirements of our the aerospace requirements of our nation and world marketnation and world marketss with with commitment to high quality, value commitment to high quality, value and on time delivery.and on time delivery.
With our great leader Atatürk’s With our great leader Atatürk’s vision: “The Future is in the Skies” vision: “The Future is in the Skies” and our nation’s eagerness to “Build and our nation’s eagerness to “Build its own aircraft”; TAI has dedicated its own aircraft”; TAI has dedicated itself to be in the skies and space itself to be in the skies and space and be pioneers in developing and be pioneers in developing Turkey’s aviation and space industry.Turkey’s aviation and space industry.
Mission statements may change over Mission statements may change over time..time..
To provide excellent telecommunication To provide excellent telecommunication solutions within the framework of Total solutions within the framework of Total Quality Management philosophy.Quality Management philosophy.
Fully satisfying customer Fully satisfying customer expectations and requirements is the expectations and requirements is the guiding mission of Arçelik. In order guiding mission of Arçelik. In order to achieve and maintain the high to achieve and maintain the high standards it has, Arçelik has a standards it has, Arçelik has a continual programme of investment continual programme of investment which encompasses plants, which encompasses plants, manufacturing equipment, research manufacturing equipment, research & development and most importantly & development and most importantly personnel.personnel.
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
Sample OM Department MissionsSample 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 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.
Sample OM Department MissionsSample 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.
Action plan to Action plan to achieve missionachieve mission
Functional areas Functional areas have strategieshave strategies
Strategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses
Competing on Competing on DifferentiationDifferentiation
UniquenessUniqueness can go beyond both the can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything
that impacts customer’s perception of that impacts customer’s perception of valuevalue
• Honda cars with Qiblah (Kıble) indicator sold Honda cars with Qiblah (Kıble) indicator sold in Saudi Arabia and Gulf countriesin Saudi Arabia and Gulf countries
• Prayer carpets with built-in compass made in Prayer carpets with built-in compass made in Taiwan and sold in Arab countriesTaiwan and sold in Arab countries
• Cell phonesCell phones camera cameraFMFMvideovideogames games GPS GPS wi-fi wi-fi other applications other applications
Competing on Competing on DifferentiationDifferentiation
airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipment
Pegasus Airlines in TurkeyPegasus Airlines in Turkey
Wal-Mart – small overheads, Wal-Mart – small overheads, decreased decreased shrinkage, distribution costsshrinkage, distribution costs
Belgian discount food retailer Belgian discount food retailer Franz Franz Colruyt – no bags, low light, no music, Colruyt – no bags, low light, no music, doors on freezersdoors on freezers saves energy costs saves energy costs
Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes Institutionalization at Hewlett-PackardInstitutionalization at Hewlett-Packard
Reliability is meeting schedulesReliability is meeting schedules German machine industryGerman machine industry
Timeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery Johnson Electric, Johnson Electric,
Bennigan’sBennigan’s(restaurant; delivery in 15 minutes)(restaurant; delivery in 15 minutes), , MotorolaMotorola, Domino’s Pizza, Domino’s Pizza
Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes Institutionalization at Hewlett-PackardInstitutionalization at Hewlett-Packard
Reliability is meeting schedulesReliability is meeting schedules German machine industryGerman machine industry
Timeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery Johnson Electric, Johnson Electric,
Examples for Quick Response:Examples for Quick Response:
Domino’s Pizza Domino’s Pizza “Türkiye’nin en sevdiği pizzaları hazırlayan Domino’s “Türkiye’nin en sevdiği pizzaları hazırlayan Domino’s Pizza olarak evlere serviste yepyeni bir dönem Pizza olarak evlere serviste yepyeni bir dönem başlatıyoruz. Ülkemizde 30 dakikada teslim garantisi başlatıyoruz. Ülkemizde 30 dakikada teslim garantisi veren tek firma olan Domino’s Pizza bugüne dek "eğer veren tek firma olan Domino’s Pizza bugüne dek "eğer geç kalırsak, sonraki siparişinizde bir pizzanız hediye" geç kalırsak, sonraki siparişinizde bir pizzanız hediye" diyorduk. Şimdi de yepyeni bir söz daha veriyor ve diyorduk. Şimdi de yepyeni bir söz daha veriyor ve “eğer 30 dakikada gelemezsek siparişinizdeki kapınızda “eğer 30 dakikada gelemezsek siparişinizdeki kapınızda hemen bir pizzanın ücretini almıyoruz” diyoruz.”hemen bir pizzanın ücretini almıyoruz” diyoruz.”
TansaşTansaş3 dakika içinde yeni bir kasanın açılması garantisi3 dakika içinde yeni bir kasanın açılması garantisi
DELIVERY: Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
Product Product Selection and Selection and DesignDesign
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
Low R&D investment; Low R&D investment; focus on development focus on development of generic drugsof generic drugs
QualityQuality Major priority, exceed Major priority, exceed regulatory requirementsregulatory requirements
Meets regulatory Meets regulatory requirements on a requirements on a country by country country by country basisbasis
ProcessProcess 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
Process focused; Process focused; general processes; “job general processes; “job shop” approach, short-shop” approach, short-run production; focus run production; focus on high utilizationon high utilization
LocationLocation Still located in the city Still located in the city where it was foundedwhere it was founded
Recently moved to low-Recently moved to low-tax, low-labor-cost tax, low-labor-cost environmentenvironment
Hire the best; Hire the best; nationwide searchesnationwide searches
Very experienced top Very experienced top executives; other executives; other personnel paid below personnel paid below industry averageindustry average
InventoryInventory High finished goods High finished goods inventory to ensure all inventory to ensure all demands are metdemands are met
Process focus drives up Process focus drives up work-in-process work-in-process inventory; finished inventory; finished goods inventory tends goods inventory tends to be lowto be low
MaintenanceMaintenance Highly trained staff; Highly trained staff; extensive parts extensive parts inventoryinventory
Highly trained staff to Highly trained staff to meet changing demandmeet changing demand
Issues In Operations StrategyIssues In Operations Strategy
Operations managers must Operations managers must consider three issues related to consider three issues related to strategy formulation:strategy formulation:
Research about effective Research about effective operations management operations management strategiesstrategies
Preconditions for developing Preconditions for developing effective OM strategieseffective OM strategies
The dynamics of OM strategy The dynamics of OM strategy developmentdevelopment
Characteristics of High ROI Characteristics of High ROI FFirmsirms::
High product quality High product quality
High capacity utilizationHigh capacity utilization
High operating efficiencyHigh operating efficiency
Low investment intensityLow investment intensity (amount of capital required to (amount of capital required to produce a lira of sales)produce a lira of sales)
Low direct cost per unitLow direct cost per unitFrom the PIMS From the PIMS (profit impact of market strategy) (profit impact of market strategy) program program of the Strategic Planning Instituteof the Strategic Planning Institute in cooperation with GE in cooperation with GE
Data on 3000 organizations collected. ROI used as measure of success
2. 2. PreconditionsPreconditions to strategy to strategydevelopmentdevelopment
Strengths and weaknesses of competitors and Strengths and weaknesses of competitors and possible new entrants into the marketpossible new entrants into the market
Current and prospective environmental, Current and prospective environmental, technological, legal, and economic issuestechnological, legal, and economic issues
The product life cycleThe product life cycle
Resources available within the firm and within Resources available within the firm and within the OM functionthe OM function
Integration of OM strategy with company’s Integration of OM strategy with company’s strategy and with other functional areasstrategy and with other functional areas
3. 3. Dynamics of Dynamics of Strategic ChangeStrategic Change
Strategies change for two reasons:Strategies change for two reasons: Changes within the organizationChanges within the organization
PersonnelPersonnel FinanceFinance TechnologyTechnology Product lifeProduct life
Changes in the environmentChanges in the environment Microsoft (SW hardware)Microsoft (SW hardware) Paşabahçe Şişe Cam (product + Paşabahçe Şişe Cam (product +
Activities or factors that are of key Activities or factors that are of key importance for achieving competitive importance for achieving competitive advantageadvantage
You have to get them right to survive You have to get them right to survive and achieve goalsand achieve goals
McDonald’s – efficient layout, play McDonald’s – efficient layout, play area for children, efficient kitchenarea for children, efficient kitchen
Hes Kablo – quality (purity) of fiber Hes Kablo – quality (purity) of fiber optic cable optic cable www.hes.com.trwww.hes.com.tr
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
Temel beceriler (yetenekler)Temel beceriler (yetenekler)
A set of skills, talents and activites A set of skills, talents and activites that a firm does particularly well.that a firm does particularly well.
They allow a firm to set itself apart They allow a firm to set itself apart from competitors and gain from competitors and gain competitive advantage.competitive advantage.
IMPORTANT – CFS’s and Core competencies must be supported by related activities activity mapping