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
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Outline
GLOBAL COMPANY PROFILE: BOEING
DEVELOPING MISSIONS AND STRATEGIES
Mission
Strategy
ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
Competing on Differentiation
Competing on Cost
Competing on Response
TEN STRATEGIC OM DECISIONS
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Outline - Continued
ISSUES IN OPERATIONS STRATEGY
Research
Preconditions
Dynamics
STRATEGY DEVELOPMENT AND
IMPLEMENTATION
Identify Critical Success Factors
A Global view of Operations Cultural and Ethical
Issues
Build and Staff the Organization
Integrate OM with Other Activities
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Outline - Continued
GLOBAL OPERATIONS STRATEGY OPTIONS
International Strategy
Multidomestic Strategy
Global Strategy
Transnational Strategy
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Learning Objectives
When you complete this chapter, you should
be able to :
Identify or Define:
Mission
Strategy
Ten Decisions of OM
Multinational Corporations
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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
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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
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Boeing Suppliers (777)
Firm
Country
Parts
Alenia
Italy
Wing flaps
AeroSpace
Technologies
CASA
Fuji
Australia
Rudder
Spain
Japan
GEC Avionics
Korean Air
Menasco Aerospace
United Kingdom
Korea
Canada
Ailerons
Landing gear
doors, wing section
Flight computers
Flap supports
Landing gears
Short Brothers
Ireland
Landing gear doors
Singapore
Aerospace
Singapore
Landing gear doors
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The Role of
Maquiladoras
World Trade Organization (WTC)
North American Free Trade Agreement (NAFTA)
European Union (EU)
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Management Issues in
Global Operations
Global Strategic Context
Differentiation
Cost leadership
Response
Supply Chain
Management
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Location
Decisions
2-10
Logistics
Management
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Supply-Chain Management
Sourcing
Vertical integration
Make-or-buy decisions
Partnering
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Location Decisions
Country-related issues
Product-related issues
Government policy/political risk
Organizational issues
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Materials Management
Flow of materials
Transportation options and speed
Inventory levels
Packaging
Storage
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Defining Global Operations
International business - engages in cross-border
transactions
Multinational Corporation - has extensive involvement in
international business, owning or controlling facilities in
more than one country
Global company - integrates operations from different
countries, and views world as a single marketplace
Transnational company - seeks to combine the benefits of
global-scale efficiencies with the benefits of local
responsiveness
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Some Multinational Corporations
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
% Foreign
Workforce
Country
Citicorp
USA
34
46
NA
ColgatePalmolive
USA
72
63
NA
Dow
Chemical
Gillette
USA
60
50
NA
USA
62
53
NA
Honda
Japan
63
36
NA
IBM
USA
57
47
51
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Some Multinational Corporations
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
Country
% Foreign
Workforce
ICI
Britain
78
50
NA
Nestlé
Switzerland
98
95
97
Philips
Electronics
Siemens
Netherlands
94
85
82
Germany
51
NA
38
Unilever
Britain &
Netherlands
95
70
64
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Pontiac - the LeMans Included
the Following
About $6,000 heads to South Korea for auto’s assembly
$3,500 goes to Japan for engines, axles, and electronics
$1,500 goes to Germany for design
$800 goes to Taiwan, Singapore, and Japan for smaller parts
$500 heads to England for marketing
$100 goes to Ireland for information technology
the rest $7,600, goes to GM and its US bankers, insurance
agents, and attorneys.
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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
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Trade and Tariff
Maquiladoras - Mexican factories located along
the U.S.-Mexico border that receive preferential
tariff treatment
GATT - an international treaty that helps
promote world trade by lowering barriers to the
free flow of goods across borders
NAFTA - a free trade agreement between
Canada, Mexico, and the United States
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Trade Pays
GDP (PPP*) per Person
1990 Growth Rates, %
*PPP – Purchasing Power Parity
5
4
3
2
1
0
-1
More globalized
poor countries
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Rich
countries
2-20
Less globalized
poor countries
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Free trade may
take us into the era of the floating factory - a six
person crew will take a factory from port to port
in order to obtain the best market, material,
labor and tax advantages
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Achieving Global Operations
-Four ConsiderationsGlobal product design
Global process design and technology
Global factory location analysis
Impact of Culture and Ethics
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Global
Product Design
Remember social and cultural differences
packaging and marketing can help make product seem
“domestic” but “liter” versus “quart”
“sweetness” and “taste”
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Global
Process Design and Technology
Information technology enables management of
integrated, globally dispersed operation
Texas Instruments: 50 plants in 19 countries
Hewlett-Packard - product development teams
in U.S., Japan, Great Britain, and Germany
Reduces time-to-market
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Global
Facility Location Analysis
Using CSFs for Country Selection
Select CSFs based on parent organization;’s
strategic or operations objectives
Obtain country-specific information on the CSFs
Evaluate each country’s CSFs using a 1 (bad) to
5 (good) rating scale
Sum the ratings
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You May Wish To Consider
work ethic
tax rates
inflation
availability of raw materials
interest rates
population
number of miles of highway
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
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Global
Impact of Culture and Ethics
Cultures differ! Some accept/expect:
variations in punctuality
long lunch hours
expectation of thievery
bribery
little protection of intellectual property
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Ranking Corruption
1. Finland
2.
… Denmark & New Zealand (Tie)
7.
… Canada
10.
… United Kingdom
16.
… United States
18.
… Germany & Israel (Tie)
20.
… Japan
31.
… Italy
59.
… China
62. Egypt
…
71. India & Russia (Tie)
…
101. Nigeria
102. Bangladesh
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9.7
9.5
9.0
8.7
7.7
7.3
7.1
5.2
3.5
3.4
2.7
1.6
1.2
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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
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Managing Global Service
Operations
Must take a different perspective on
Capacity planning
Location Planning
Facilities design and layout
Scheduling
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Some Definitions
International business
A firm that engages in cross-border
transactions.
Multinational Corporation (MNC)
A firm that has extensive involvement in
international business, owning or controlling
facilities in more than one country
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Some Global Strategies
International Strategy: uses exports and licenses to
penetrate the global area
Multidomestic Strategy: uses decentralized authority with
substantial autonomy at each business
Global Strategy: Uses a high degree of centralization, with
headquarters coordinating to seek standardization and
learning between plants
Transnational Strategy: Exploits economies of scale and
learning, as well as pressure for responsiveness, by
recognizing that core competencies reside everywhere in
the organization
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Match Product & Parent
Arrow shirts
Braun Household Appliances
Burger King
Firestone Tires
Godiva Chocolate
Haagen_dazs Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Goodrich Tires
Alpo Petfoods
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1. Volkswagen
2. Bidermann International
3. Bridgestone
4. Campbell Soup
5. Credit Lyonnais
6. Ford Motor Company
7. Gillette
8. Grand Metropolitan
9. Michelin
10. Nestlé
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Match Product & Country
Arrow shirts
Braun Household Appliances
Burger King
Firestone Tires
Godiva Chocolate
Haagen_Dazs Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Goodrich Tires
Alpo Petfoods
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1. France
2. Great Britain
3. Germany
4. Japan
5. United States
6. Switzerland
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Developing Missions and
Strategies
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Mission
Mission - where are you
going?
Organization’s purpose for being
Provides boundaries & focus
Answers ‘What do we provide
society?’
© 1995 Corel Corp.
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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.
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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
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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.
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Factors Affecting Mission
Philosophy &
Values
Profitability
& Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
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Mission/Strategy
Mission - where you are going
Strategy - how you are going to get there; an
action plan
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Strategy
Action plan to achieve
mission
Shows how mission will be
achieved
Company has a business
strategy
Functional areas have
strategies
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© 1995 Corel Corp.
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Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing
Decisions
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Operations
Decisions
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Fin./Acct.
Decisions
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Strategies for Competitive
Advantage
Differentiation
Cost leadership
Quick 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
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Competing on Cost
Provide the maximum value as perceived by
customer
Does not imply low value or low quality
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Competing on Response
Flexibility
Reliability
Timeliness
Requires institutionalization within the firm of the
ability to respond
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Competing, Regardless of the Basis,
Requires the institutionalization within the firm of
the ability to change, and to adapt
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OM’s Contribution to Strategy
Operations
Decisions
Specific
Strategy Used
Examples
Quality
Product
FLEXIBILITY
Sony’s constant innovation of new products
HP’s ability to follow the printer market
Process
Design
Volume
Southwest Airlines No-frills service
LOW COST
Location
DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime
Federal Express’s “absolutely, positively on time”
Layout
Human Resource
Supply Chain
Speed
Dependability
Maintenance
Differentiation
(Better)
QUALITY
Motorola’s automotive products ignition systems
Motorola’s pagers
Conformance
Performance
Inventory
Scheduling
Competitive
Advantage
IBM’s after-sale service on mainframe computers
Fidelity Security’s broad line of mutual funds
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Cost
leadership
(Cheaper)
Response
(Faster)
AFTER-SALE SERVICE
BROAD PRODUCT LINE
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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
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Goods & Services and the 10 OM
Decisions
Operations
Decisions
Goods
Services
Goods &
services
decisions
Quality
Product is usually
tangible
Product is usually
intangible
Objective quality
standards
Subjective quality
standards
Process
and
capacity
design
Customer not involved
in most of process
Customer may be directly
involved in process.
Capacity must match
demand to avoid lost sales
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Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Location
Selection
Layout
Design
Human
Resources
and Job
Design
Goods
Services
May need to be near raw
materials or labor force
Product is usually
intangible
Layout can enhance
production efficiency
Subjective quality
standards
Workforce focused on
technical skills.
Labor standards consistent.
Output-based wage system.
Customer may be directly
involved in process.
Capacity matches
demand to avoid lost
sales
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Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Goods
Services
Supply-chain relationships
Supply chain Supply-chain
management relationships critical to important, not necessarily
final product
critical
Raw materials, workin-process, and
finished goods
Most services cannot be
stored
Ability to convert
inventory may allow
leveling of production
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Primarily concerned with
meeting the customer's
immediate schedule
Inventory
Scheduling
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Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Goods
Services
Maintenance Maintenance is often
Maintenance is often
preventive and takes "repair" and takes place at
place at the production the customer's site
site
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Process Design
High
Customization at high
Volume
Process-focused
Job Shops
Variety of Products
(Print shop, emergency
room , machine shop,
fine dining
Mass Customization
(Dell Computer’s PC)
Repetitive (modular)
focus
Assembly line
(Cars, appliances, TVs,
fast-food restaurants)
Moderate
Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low
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Moderate
Volume
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High
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Operations Strategies for Two
Drug Companies
Brand Name Drugs,
Inc.
Generic Drug Corp.
Heavy R & D;
Product
Extensive labs; focus
Selection
and Design on development in
Low R & D investment; focus on
development of generic drugs
Quality
Meets regulatory requirements on
a country-by-country basis as
necessary
broad range of \drug
categories
Quality is a major
priority;
Standards exceed
regulatory
requirements
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Operations Strategies for Two
Drug Companies - Continued
Brand Name Drugs,
Inc.
Product & modular
production processes
Long product runs in
specialized facilities
Build capacity ahead of
demand
Still located in city in
Location
which it was founded
Scheduling Central production
planning
Process
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Generic Drug Corp.
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
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Operations Strategies for Two
Drug Companies - Continued
Brand Name Drugs,
Inc.
Human
Resources
Supply
Chain
Inventory
Generic Drug Corp.
Hires the best; nationwide searches
Very experienced top executives
provide direction; other
personnel paid below average
Long term supplier
Tends to purchase competitively
relationship
to find bargains
Maintains high finished Process focus drives up WIP
goods inventory,
inventory.
primarily to ensure all
Finished goods inventory tends
demands are met
to be low
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Operations Strategies for Two
Drug Companies - Continued
Brand Name
Drugs, Inc.
Maintenance Highly trained staff;
Extensive parts
inventory
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Management, 7e
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Generic Drug Corp.
Highly trained staff to meet
challenging demands
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Characteristics of High ROI Firms
High quality product
High capacity utilization
High operating effectiveness
Low investment intensity
Low direct cost per unit
From the PIMS study of the Strategic
Planning Institute
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Strategic Options Managers Use
to Gain Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
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Strategic Options Managers Use
to Gain Competitive Advantage
28% Operations Management
Low- cost product
Product-line breadth
Technical superiority
Product characteristics/differentiation
Continuing product innovation
Low-price/high-value offerings
Efficient, flexible operations adaptable to consumers
Engineering research development
Location
Scheduling
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Preconditions To Implement a Strategy
One must understand:
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.
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Impetus for Strategy Change
Changes in the organization
Stages in the product life cycle
Changes in the environment
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Growth rate
Stages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
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Strategy & Issues During Product Life
Introduction
Company
Strategy &
Issues
OM Strategy
& Issues
Best period to increase market share
R&D engineering are critical
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
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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
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Strategy & Issues During Product Life
Maturity
Company
Strategy
& Issues
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
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Strategy & Issues During Product Life
Decline
Company Strategy
& Issues
OM Strategy
& Issues
Cost control critical to market share
Little product differentiation
Cost minimization
Overcapacity in the industry
Prune line to eliminate items not returning
Good margin
Reduce capacity
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Strategy and Issues During a
Product’s Life
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Strategy Development and
Implementation
Identify critical success factors
Build and staff the organization
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SWOT Analysis Process
Environmental Analysis
Determine Corporate Mission
Form a Strategy
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SWOT Analysis to Strategy
Formulation
Mission
Internal
Strengths
External
Opportunities
Strategy
Internal
Weaknesses
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Competitive
Advantage
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External
Threats
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Identifying
Critical Success Factors
Marketing
Finance/Accounting
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Production/Operations
Decisions
Sample Option
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
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
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Chapter
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
Lean, productive
employees
Competitive Advantage:
Low Cost
High aircraft
utilization
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Standardized fleet of
Boeing 737 aircraft
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Short haul, point-to-point
routes, often to secondary
airports
Frequent, reliable
schedules
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
No seat assignments
No baggage transfers
Automated ticketing machines
No meals
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Lower gate costs at
secondary airports
High number of flights,
reduces employee idle
time between flights
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Short haul, point-to-point
routes, often to secondary
airports
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
High number of flights reduces
employee idle time between
flights
Saturate a city with flights
lowering administrative costs
per passenger for that city
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Frequent, reliable
schedules
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one type
of aircraft
Excellent supplier relations with
Boeing has aided financing
Standardized fleet of
Boeing 737 aircraft
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
High aircraft
utilization
Flexible employees and
standard planes aids scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
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Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Lean, productive
employees
High level of stock ownership
Hire for attitude, then train
High employee compensation
Empowered employees
Automated ticket machines
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
Lean, productive
employees
Competitive Advantage:
Low Cost
High aircraft
utilization
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Standardized fleet of
Boeing 737 aircraft
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Short haul, point-to-point
routes, often to secondary
airports
Frequent, reliable
schedules
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Southwest Airline’s Low Cost
Competitive Advantage
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Vanguard’s Activity System
A broad array of mutual
funds excluding some fund
categories
Very low
expenses
passed on to
client
Strict cost
control
Straightforward client
communication and
education
Direct
distributions
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Efficient investment
management approach
offering good consistent
performance
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How It Works
If competitive
advantage, leads to
achieving
Company
Mission
Distinctive
competencies affect
Business
Strategy
Functional Area
Strategies
Marketing
Decisions
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Operations
Decisions
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Fin./Acct.
Decisions
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Four International Operations
Strategies
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Multidomestic Strategy
Operating decisions are decentralized to each
country to enhance local responsiveness
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Global Strategy
Operating decisions are centralized and
headquarters coordinates the standardization
and learning between facilities
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Transnational Strategies
Combines the benefits of global-scale efficiencies
with the benefits of local responsiveness
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International Strategy
Global markets are penetrated using exports and
licenses
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