Chapter 1, Heizer/Render, 5th edition

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Transcript Chapter 1, Heizer/Render, 5th edition

Operations Management

Operations Strategy in a Global Environment Chapter 2

Outline



A GLOBAL VIEW OF OPERATIONS



DEVELOPING MISSIONS AND STRATEGIES



ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS



Differentiation, Cost, Response



ISSUES IN OPERATIONS STRATEGY



Research, Preconditions, Dynamics



STRATEGY DEVELOPMENT AND IMPLEMENTATION

Outline - Continued

GLOBAL OPERATIONS STRATEGY OPTIONS



International Strategy



Multidomestic Strategy



Global Strategy



Transnational Strategy

Learning Objectives

When you complete this chapter, you should be able to

Identify or Define



Mission

  

Strategy Ten Decisions of OM Multinational Corporations

Learning Objectives - Continued

Describe or Explain



Specific approaches used by OM to achieve strategies



Differentiation



Low Cost



Response



Four Global Operations Strategies



Why Global Issues are Important

Examples of Global Strategies

 Boeing – both sales and production are worldwide.

 Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world  GM is building four similar plants in Argentina, Poland, China, and Thailand PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-6 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Boeing Suppliers (777)

Firm Alenia AeroSpace Technologies CASA Fuji Country Italy Australia Spain Japan GEC Avionics Korean Air Menasco Aerospace Short Brothers United Kingdom Korea Canada Ireland Singapore Aerospace PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Singapore 2-7 Parts Wing flaps Rudder Ailerons Landing gear doors, wing section Flight computers Flap supports Landing gears Landing gear doors Landing gear doors © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Global Organizations, Agreements

 Free trade zones receive preferential tariff treatment.

 World Trade Organization (WTC) lowers barriers to free flow of goods across borders.  North American Free Trade Agreement (NAFTA): a free trade agreement between Canada, Mexico, USA.

 European Union (EU)-customs union © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-8

Reasons to Globalize Operations

Tangible  Reduce costs (labor, taxes, tariffs, etc.)  Improve the supply chain  Provide better goods and services  Attract new markets  Learn to improve operations  Attract and retain global talent Intangible PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-9 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

 Improve SC: locating facilities in countries where unique resources, i.e., expertise, labor, raw material exist.

 Provide better goods and services -better understanding of culture leads to more efficient customization -reduce response time to meet customer’s changing product and service requirements.

 Attract new markets-international firms find opportunities for new products and services.

-increase sales -diversify their customer base -add production flexibility to switch b/w good and bad economies.

-expand life cycle PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-11 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

To Establish Global Services

 Determine if sufficient people or facilities exist to support the service  Identify foreign markets that are open - not controlled by governments  Determine what services are of most interest to foreign customers  Determine how to reach global customers PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-12 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

You May Wish To Consider

        national literacy rate rate of innovation rate of technology change number of skilled workers stability of government product liability laws export restrictions similarity in language PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-13        work ethic tax rates inflation availability of raw materials interest rates population number of miles of highway © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Cultural and Ethical Issues

 Cultures differ! Some accept/expect:  variations in punctuality  long lunch hours  expectation of thievery  Bribery, child labor  little protection of intellectual property  Requirement for common laws and regulations for global uniformity.

Developing Missions and Strategies

Mission

Where are we going?

What do we provide society?

What’s our purpose?

What’s our reason for being?

•Provides boundaries & focus for organizations •Functional areas have supporting missions for the company mission.

•Supporting missions for 10 OM functions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-16 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Mission of FedEx

FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction.

Sample Mission - 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-18 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Mission of the Hard Rock Café

To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

Strategy

 Mission where are we going?

 Strategy how can we get there?

 Provides an action plan PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-20 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy Process

Company Mission Business Strategy Functional Area mission/strategies Marketing Decisions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Operations Decisions 2-21 Fin./Acct.

Concepts of a mission

Firms achieve mission in 3 conceptual ways: 1) Product Differentiation 2) Low cost 3) Quick response Competitive advantage PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-22 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Competing on Differentiation

Differentiation is providing uniqueness Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value Limited by imagination Ex: “Experience differentiation” in Magic Kingdom, Hard Rock Cafe, Migros PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-23 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Competing on Cost

Provide the maximum value as perceived by customer Does not imply low value or low quality Effective use of resources to decrease costs Ex: Reduced warehousing costs, direct shipment from manufacturer in Wallmart PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-24 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Competing on Response

 Flexible response: is the ability to match design/volume changes in market ex: HP  Reliability of scheduling: ex: German M/C industry  Quickness in design, production, delivery Requires institutionalization within the firm ability to respond of the PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-25 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

10 Strategic OM Decisions

          Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-26 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

OM’s Contribution to Strategy

Operations Decisions Product Examples Specific Strategy Used Quality Process Sony’s constant innovation of new products HP’s ability to follow the printer market Southwest Airlines No-frills service FLEXIBILITY

Design Volume

LOW COST Location Layout Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” DELIVERY

Speed Dependability

Human Resource Supply Chain Motorola’s automotive products ignition systems Motorola’s pagers Inventory IBM’s after-sale service on mainframe computers Scheduling Maintenance Fidelity Security’s broad line of mutual funds QUALITY

Conformance Performance

AFTER-SALE SERVICE BROAD PRODUCT LINE Competitive Advantage Differentiation (Better) Cost leadership (Cheaper) Response (Faster)

Goods & Services and the 10 OM Decisions

Operations Decisions

Goods & services decisions Quality Process and capacity design

Goods

Product is usually tangible Objective quality standards Customer not involved in most of process PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-28

Services

Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity must match demand to avoid lost sales © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Goods & Services and the 10 OM Decisions – Continued

Operations Decisions Goods Services

Location Selection Layout Design Human Resources and Job Design May need to be near raw materials or labor force Layout can enhance production efficiency Workforce focused on technical skills. Labor standards consistent. Output-based wage system. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-29 May need to be near customer Layout can enhance production and product Customer may directly interact with customer. Standards vary depending on customer requirements © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Goods & Services and the 10 OM Decisions – Continued

Operations Decisions Goods Services

Supply chain management Supply-chain relationships critical to final product Inventory Raw materials, work in-process, and finished goods Scheduling Ability to convert inventory may allow leveling of production Management, 7e rates Principles of Operations Management, 5e, and Operations 2-30 Supply-chain relationships important, not necessarily critical Most services cannot be stored Primarily concerned with meeting the customer's immediate schedule © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Goods & Services and the 10 OM Decisions – Continued

Operations Decisions Goods Services

Maintenance Maintenance is often preventive and takes place at the production site Maintenance is often "repair" and takes place at the customer's site PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-31 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Ex: How to find Process Design Strategy?

High Moderate Process-focused Job Shops (Print shop, emergency room , machine shop, fine dining Repetitive (modular) focus Assembly line (Cars, appliances, TVs, fast-food restaurants) Customization at high Volume Mass Customization (Dell Computer’s PC) Product-focused Continuous (steel, beer, paper, bread, institutional kitchen) Low Low Moderate High PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-32 Volume © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc. Generic Drug Corp. Product Selection and Design Quality

Heavy R & D; Extensive labs; focus on development in broad range of \drug categories Quality is a major priority; Standards exceed regulatory requirements Low R & D investment; focus on development of generic drugs Meets regulatory requirements on a country-by-country basis as necessary PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-33 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Operations Strategies for Two Drug Companies - Continued

Brand Name Drugs, Inc. Generic Drug Corp. Process Location Scheduling

Product & modular production processes Long product runs in specialized facilities Build capacity ahead of demand Still located in city in which it was founded Central production planning Process focused General production processes; “Job Shop” approach, short run; Focus on high utilization Recently moved to low tax, low labor cost environment Many short run products complicate scheduling PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-34 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Operations Strategies for Two Drug Companies - Continued

Brand Name Drugs, Inc. Generic Drug Corp. Human Resources Supply Chain Inventory

Hires the best; nation wide searches Long term supplier relationship Maintains high finished goods inventory, primarily to ensure all demands are met Very experienced top executives provide direction; other personnel paid below average Tends to purchase competitively to find bargains Process focus drives up WIP inventory. Finished goods inventory tends to be low PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-35 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Operations Strategies for Two Drug Companies - Continued

Generic Drug Corp. Brand Name Drugs, Inc. Maintenance

Highly trained staff; Extensive parts inventory Highly trained staff to meet challenging demands PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-36 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Some Multinational Corporations

Company Home Country Citicorp Colgate Palmolive Dow Chemical Gillette Honda IBM USA USA USA USA Japan USA PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e % Sales Outside Home Country 34 72 60 62 63 57 2-37 % Assets Outside Home Country 46 63 % Foreign Workforce NA NA 50 NA 53 36 47 NA NA 51 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Some Multinational Corporations

Company ICI Nestlé Philips Electronics Siemens Unilever Home Country Britain Switzerland Netherlands Germany Britain & Netherlands % Sales Outside Home Country 78 98 94 51 95 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-38 % Assets Outside Home Country 50 95 85 NA 70 % Foreign Workforce NA 97 82 38 64 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Issues in Operations Strategy

 Characteristics that impact strategic OM decisions  Preconditions that should exist to develop an operations strategy  Dynamics of developed strategies: strategies change PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-39 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Characteristics of high ROI firms

From the PIMS study of the Strategic Planning Institute      High quality product High capacity utilization High operating efficiency (expected/actual employee productivity) Low investment intensity (capital required/produce 1 dollar sales) Low direct cost per unit (relative to the competitors’ value) © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-40

Preconditions To Implement a Strategy

Operations manager must understand that the firm is operating in an open system.      Strengths & weaknesses of competitors and new entrants into the market Current and prospective environmental, legal, and economic issues The notion of product life cycle Resources available with the firm and within the OM function Integration of OM strategy with company strategy and with other functions.

Dynamics

Strategies change because of two reasons:  Changes in the organization: personnel, finance, technology, product life  Changes in the environment Ex: Microsoft, impact of internet, changing demand PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-42 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy and Issues During a Product’s Life

Strategy & Issues During Product Life

 Company Strategy & Issues Introduction Best period to increase market share R&D engineering are critical  OM Strategy & Issues Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-44 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy & Issues During Product Life

Growth Company Strategy & Issues OM Strategy & Issues Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-45 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy & Issues During Product Life

Company Strategy & Issues Maturity Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches OM Strategy & Issues Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-46 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy & Issues During Product Life

Decline Company Strategy & Issues Cost control critical to market share OM Strategy & Issues Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-47 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Strategy Development Process

Environmental Analysis

Identify SWOT. Understand environment, customer, industry, competitors Determine Corporate Mission

Form a Strategy

Build a strategy such as low price, flexibility, quick delivery, dependability, after sale service, broad product lines PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-48 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

SWOT Analysis to Strategy Formulation

Mission Internal Strengths External Opportunities Strategy Internal Weaknesses PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Competitive Advantage 2-49 External Threats © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Identifying Critical Success Factors

Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Production/Operations Decisions Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance Sample Option Chapter Customized, or standardized 5 Define customer expectations and how to achieve them 6, S6 Facility size, technology, capacity 7, S7 Near supplier or customer 8 Work cells or assembly line 9 Specialized or enriched jobs 10, S10 Single or multiple source suppliers 11, S11 When to reorder, how much to keep on hand 12, 14,16 Stable or fluctuating productions rate 13, 15 Repair as required or preventive maintenance 17

Southwest Airline’s Low Cost Competitive Advantage

How It Works

t Company Mission Business Strategy Functional Area Strategies Marketing Decisions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Operations Decisions 2-52 Fin./Acct.

Global Operations Strategy Options

 International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-53 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Four International Operations Strategies

International Strategy

Global markets are penetrated using exports and licenses Least advantageous with little local responsiveness (expost from home country) little cost advantage (use existing facility in home country).

Multidomestic Strategy

Operating decisions are decentralized to each country to enhance local responsiveness Advantage is to maximize competitive response for the local market.

But no cost advantage.

Ex: Mc Donald’s call itself multilocal PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-56 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Global Strategy

Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities.

Appropriate when strategic focus is cost reduction.

Not recommended when there is also concerns about high responsiveness.

Transnational Strategies

Combines the benefits of global-scale efficiencies with the benefits of local responsiveness.

Recognizes that core competence is not only in the local country.

Material, people and ideas cross national boundaries!

Firms can pursue all strategies of cost, response and differentiation.

Neither centralized, nor decentralized Resources and activities are dispersed, but specialized in a flexible interdependent network.