2 - 1© 2011 Pearson Education 2 2 The Global Environment and Operations Strategy PowerPoint presentation to accompany Heizer and Render Operations Management,

2 - 1© 2011 Pearson Education

22 The Global Environment and Operations StrategyThe Global Environment and Operations Strategy

PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer and Render Heizer and Render Operations Management, 10e, Global Edition Operations Management, 10e, Global Edition Principles of Operations Management, 8e, Global EditionPrinciples of Operations Management, 8e, Global Edition

PowerPoint slides by Jeff Heyl


OutlineOutline

Global Company Profile: Boeing

A Global View of Operations

Developing Missions And Strategies

Achieving Competitive Advantage Through Operations strategy (differentiation ,cost ,and response)

Ten Strategic OM Decisions

Strategy Development and Implementation

Global Operations Strategy options (international – multinational – global - transnational )


Learning ObjectivesLearning Objectives

1. Define mission and strategy2. Identify and explain three strategic approaches

to competitive advantage3. Identify and define the 10 decisions of OM4. Understand the significant key success factors

and core competencies5. Identify and explain four global operations

strategy options

By the end of this chapter you should By the end of this chapter you should be able to:be able to:


Global company Global company Some Boeing Suppliers (787)Some Boeing Suppliers (787)

Firm Country Component

Latecoere France Passenger doors

Labinel France Wiring

Dassault France Design and PLM software

Messier-Bugatti France Electric brakes

Thales France Electrical power conversion system and integrated standby flight display

Messier-Dowty France Landing gear structure

Diehl Germany Interior lighting


Some Boeing Suppliers (787)Some Boeing Suppliers (787)Firm Country Component

Cobham UK Fuel pumps and valves

Rolls-Royce UK Engines

Smiths Aerospace UK Central computer system

BAE SYSTEMS UK Electronics

Alenia Aeronautics Italy Upper center fuselage & horizontal stabilizer

Toray Industries Japan Carbon fiber for wing and tail units



Fuji Heavy Japan Center wing box Industries

Kawasaki Heavy Japan Forward fuselage, Industries fixed section of wing,

landing gear well

Teijin Seiki Japan Hydraulic actuators

Mitsubishi Heavy Japan Wing box Industries

Hafei Aviation China Parts



Korean Aviation South Wingtips Korea

Saab Sweden Cargo access doors


Global StrategiesGlobal Strategies

Benetton – moves inventory to stores around the world faster than its competitors 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 until recently was controlled by an American company ( Ford).


35 –

30 –

25 –

20 –

15 –

10 –

5 –

0 –| | | | | | | | | | |

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*)

Year

Per

cen

t

Growth of World TradeGrowth of World Trade

Figure 2.1

Collapse of the Berlin Wall


Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize

1. Reduce costs (labor, taxes, tariffs, etc.)2. Improve supply chain3. Provide better goods and services4. Understand markets5. Learn to improve operations6. Attract and retain global talent7. Cultural and Ethical Issues

Tangible Reasons

Intangible Reasons


Reduce CostsReduce Costs Foreign locations with lower wage

rates can lower direct and indirect costs (salary-electricity ….etc)


Improve the Supply ChainImprove the Supply Chain

Locating facilities closer to unique resources Auto design to California

Sport shoe production to China

Perfume manufacturing in France


Provide Better Goods Provide Better Goods and Servicesand Services

Satisfy the different needs of goods and services On-time deliveries

Cultural variation

Improved customer service


Understand MarketsUnderstand 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


Learn to Improve Learn to Improve OperationsOperations

Remain open to the free flow of ideas General Motors partnered with a

Japanese auto manufacturer to learn new approaches for production and inventory control


Cultural and Ethical IssuesCultural and Ethical Issues

Cultures and attitude can be quite different towards

Child labor

Lunch breaks

Environment

Intellectual property


Many factors must be Many factors must be ConsideredConsidered

National literacy rate

Rate of innovation

Rate of technology change

Number of skilled workers

Political stability

Product liability laws

Export restrictions

Variations in language

Work ethic

Tax rates

Inflation

Availability of raw materials

Interest rates

Population

Phone system


Developing Missions and Developing Missions and StrategiesStrategies

The MissionThe Mission statements tell an organization where it is going

While The StrategyStrategy tells the organization how to get there


MissionMission

Mission - where are you going? Organization’s

purpose for being

Answers ‘What do we provide society?’


MerckMerck

Our mission 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 advanced

opportunities and investors with a superior rate of return.

Figure 2.2


Palmer HospitalPalmer Hospital

Palmer Hospital for Children - provides state-of-the-art, family centred healthcare focused on

restoring the joy of childhood in an environment of compassion,

healing, and hope.

Figure 2.2


Benefit to Society

Mission

Factors Affecting MissionFactors Affecting Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image


Sample MissionsSample Missions

Company Mission

To manufacture and service an innovative, growing, and profitable worldwide successful communications business that exceeds our customers’ expectations.

Operations Management Mission

To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.

Figure 2.3



Figure 2.3

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, 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 2.3


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 resources 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 2.3


Supply-chain management

To collaborate with suppliers to develop 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 productivity and timely customer delivery through effective scheduling.

Maintenance To achieve high utilization of facilities and equipment by effective maintenance of facilities and equipment.


Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission


StrategyStrategy

Action plan to achieve mission

Functional areas have strategies

Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses


Strategies for Competitive Strategies for Competitive AdvantageAdvantage

Differentiation – better, or at least different

Cost leadership – cheaper

Flexibility -rapid response


Competing on Competing on DifferentiationDifferentiation

Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception

of value

Safe skin innovative gloves – leading edge products

Walt Disney Magic Kingdom – experience differentiation

Hard Rock Cafe – dining experience


Competing on CostCompeting 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

Wal-Mart – small overhead, shrinkage, distribution costs

Franz Colruyt – no bags, low light, no music, doors on freezers


Competing on flexibilityCompeting on flexibility 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 Pizza Hut, Motorola


OM’s Contribution to StrategyOM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATIONInnovative design … Safeskin’s innovative gloves Broad product line … Fidelity Security’s mutual

funds After-sales service … Caterpillar’s heavy equipment

service Experience … Hard Rock Café’s dining

experience

COST LEADERSHIP Low overhead … Franz-Colruyt’s warehouse-

type stores Effective capacity use … Southwest Airline’s

aircraft utilization Inventory management … Wal Mart’s sophisticated

distribution system

RESPONSE Flexibility … Hewlett-Packard’s response to

volatile world market Reliability … FedEx’s “absolutely,

positively, on time” Quickness … Pizza Hut’s 5-minute guarantee

at lunchtime

Figure 2.4

10 Operations CompetitiveDecisions Approach Example Advantage

Response(faster)

Cost leadership(cheaper)

Differentiation(better)

2 - 34

Ten strategic OM decisionsTen strategic OM decisionsOM decision concept

Product design

Designing goods and services defines much of the transformation process ; it usually determine the lower limits of cost and the upper limits of quality

Quality The customer’s quality expectation must be determined so that policies and procedures established to identify and achieve that quality

Process & Capacity design

Process decision commit management to specific technology , quality , human resources use , and maintenance, that expenses

determine much of the firm’s basic cost

Location selection

this decision may determine the firm’s ultimate successAny error decision may overwhelm any other efficiencies

layout design Material flows , capacity needs, personnel levels, technology decisions and inventory requirement influence layout

2 - 35

Ten strategic OM decisionsTen strategic OM decisions

© 2011 Pearson Education

Human resources & job design

Providing the quality of work life , determine the talented and skills people

Supply chain management

Determine what is to be made and what is to be purchased (quality – delivery - innovation) . Mutually trust between buyer and supplier is necessary for effective purchasing

Inventory Suppliers, production schedules and human resource planning are considered for more inventory efficiency

Scheduling The demands on human resources and facilities must be determined and controlled for developing the feasible and efficient schedules

Maintenance Decisions must be made regarding desired levels of reliability and stability .Systems must be established to maintain that reliability & stability


Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions

OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesProduct design

product is usually tangible

product is not tangible

Quality Many objective (battery life )standards

Many subjective standards (nice colour)

Process and

capacity design

Customers is not involved

Capacity may or may not match demand

Customer must directly involved

Capacity must match demand

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesLocation selection

Near raw materials and labor

Near customers

Layout design

Enhances production efficiency

Enhances product and production

Human resources and job design

Workforce focused on technical skills, consistent labor standards, output -based wages

Workforce must be able to interact with customers, labor standards vary depending on customer requirements

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesSupply chain management

Relationship critical to final product

Important, but may not be critical

Inventory Raw materials, work-in-process, and finished goods may be inventoried

Cannot be stored

Scheduling Level schedules possible

Meet immediate customer demand

Table 2.1



OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesMaintenance Often preventive

and takes place at production site

Often “repair” and takes place at customer’s site

Table 2.1


Issues In Operations StrategyIssues In Operations Strategy

Resources view

Value Chain analysis

Porter’s Five Forces model

Organization’s operating system

Constant change

2 - 41

(1)Resource View(1)Resource View

a view in which managers thinking in terms of financial ,physical, human and technological resources available and ensuring that the potential strategy is compatible with those resources.

Mangers evaluate these resources in order to achieve competitive advantages


2 - 42

(2)Value –chain analysis (2)Value –chain analysis

A way to identify the elements in the products /services chain that uniquely add value .

It is used to identify activities that represent strengths, or opportunities for developing competitive advantages

The areas where the firm can add its unique values through product research , design , human resources, supply chain management , quality management , process innovation


2 - 43

(3)(3) Porter’s Five Forces Porter’s Five Forces ModelModel

According to Porter there are 5 potential competing forces:-

1.Immediate rivals

2.Potential entrants

3.Customers

4.Suppliers

5.Substitute products


2 - 44

( 4) Organization’s operating ( 4) Organization’s operating system system

The firm is operating in a system with many external factors

Political , cultural , legal, product life cycle ...etc are in flux

The internal changes combined with the external changes require strategies that are dynamic

As example the following figure shows us how the changes in the product lifecycle can affect the OM strategy

© 2011 Pearson Educatione


Product Life CycleProduct Life Cycle

Best period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Co

mp

an

y S

tra

teg

y/Is

sue

s

Figure 2.5

Internet search engines

Sales

Drive-through restaurants

CD-ROMs

Ana log TVs

iPods

Boeing 787

LCD & plasma TVs

Twitter

Avatars

Xbox 360


Product Life CycleProduct Life Cycle

Product design and development critical

Frequent product and process design changes

Short production runs

High production costs

Limited models

Attention to quality

Introduction Growth Maturity Decline

OM

Str

ate

gy

/Issu

es

Forecasting critical

Product and process reliability

Competitive product improvements and options

Increase capacity

Shift toward product focus

Enhance distribution

Standardization

Fewer product changes, more minor changes

Optimum capacity

Increasing stability of process

Long production runs

Product improvement and cost cutting

Little product differentiation

Cost minimization

Overcapacity in the industry

Prune line to eliminate items not returning good margin

Reduce capacity

Figure 2.5

2 - 47

(5) (5) SWOTSWOT Analysis Analysis A method of determine, internal

(Strengths& Weakness) and external (Opportunities & Threats)

The purpose of this analysis is to maximize the strengths & opportunity and minimize or avoid the weakness & threats

According to this analysis strategy will be performed as shown by the following figure



Strategy

Analysis

SWOTSWOT Analysis Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission


Strategy Development ProcessStrategy Development Process

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.

Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.

Figure 2.6


OM Strategy Development OM Strategy Development and Implementationand Implementation

Identify key 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


Key Success FactorsKey Success Factors

Production/Operations

Figure 2.7

Marketing

ServiceDistributionPromotionChannels of distributionProduct positioning (image, functions)

Finance/Accounting

LeverageCost of capitalWorking capitalReceivablesPayablesFinancial controlLines of credit

Decisions Sample Options Chapter

ProductQualityProcessLocationLayoutHuman resourceSupply chainInventoryScheduleMaintenance

Customized, or standardizedDefine customer expectations and how to achieve themFacility size, technology, capacityNear supplier or near customerWork cells or assembly lineSpecialized or enriched jobsSingle or multiple suppliersWhen to reorder, how much to keep on handStable or fluctuating production rateRepair as required or preventive maintenance

56, S67, S7

89

1011, S11

12, 14, 1613, 15

17

Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas


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

Activity Mapping atActivity Mapping atSouthwest AirlinesSouthwest Airlines




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Automated ticketing machines

No seat assignments

No baggage transfers

No meals (peanuts)




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

No meals (peanuts)

Lower gate costs at secondary airports

High number of flights reduces employee idle time

between flights




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8


between flights

Saturate a city with flights, lowering administrative

costs (advertising, HR, etc.) per passenger for that city

Pilot training required on only one type of aircraft

Reduced maintenance inventory required because of only one type of aircraft




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Pilot training required on only one type of aircraft


Excellent supplier relations with Boeing has aided

financing




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8


Flexible employees and standard planes aid

scheduling

Maintenance personnel trained only one type of

aircraft

20-minute gate turnarounds




Service


737 Aircraft




Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.8

Automated ticketing machines

Empowered employees

High employee compensation

Hire for attitude, then train

High level of stock ownership


between flights

2 - 59

International business & International business & A multinational corporation A multinational corporation

(MNC)(MNC) International business is a firm that engage in

cross- border transactions.

A multinational corporation (MNC) is a firm with extensive international business involvement

MNCs buy resources , create goods & service and sell the production in a variety of countries

IBM is a good example of an MNC that imports electronic components to the USA from over 50 countries and exports components to over 130 countries , it has facilities in 45 countries and earns more than half its sales and profits abroad


2 - 60

International Operations International Operations Strategies Strategies

According to local responsiveness and cost reduction, four operations strategies have been performed for the global and MNCs

1. International strategy

2. Multinational strategy

3. Global strategy

4. Transnational strategy


2 - 61

International StrategyInternational Strategy(little local responsiveness and little cost (little local responsiveness and little cost

advantages ) advantages )

It depends on using the exports and license to penetrate the global market

It is the least advantages with little local responsiveness and little cost advantages

It is the easiest strategy


2 - 62

Multi-Domestic Strategy Multi-Domestic Strategy (significant local responsiveness but little (significant local responsiveness but little

cost advantages )cost advantages )

Organizationally , these organization are typically subsidiaries , franchise ,or joint ventures

The advantages of this strategy is maximizing the responsiveness for the local market

The disadvantages , it has no cost advantages


2 - 63

Global Strategy Global Strategy (little local responsiveness but significant (little local responsiveness but significant

cost advantages)cost advantages)

It has a high degree of centralization with headquarters coordinating the organization by which it can achieve the economic of scale

This strategy is appropriate for cost reduction

While it has no recommended when the demand for local responsiveness is high


2 - 64

Transnational StrategyTransnational Strategy (significant local responsiveness and (significant local responsiveness and

significant cost advantages)significant cost advantages) It exploits the economic of scale and

learning as well as high responsiveness

Its basic “ core competence doesn’t reside in just the home country but can exist anywhere in the world”

These firms have the potential to pursue all three operation strategies (differentiation- low cost – response )



Four International Four International Operations StrategiesOperations StrategiesC

ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

Figure 2.9

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low






Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low






Figure 2.9

Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low



Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy




Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy




Figure 2.9

Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy






subsidiaries


Figure 2.9

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy



ost

Red

uct

ion

Co

nsi

der

atio

ns

High

Low





Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé






subsidiaries


Figure 2.9

2 - 1© 2011 Pearson Education 2 2 The Global Environment and Operations Strategy PowerPoint presentation to accompany Heizer and Render Operations Management,

Documents

pearson education reasons

global view of operations

global environment

global talent

global company profile

boeing suppliers

jeff heyl slide

berlin wall slide