Operations Strategy in a Global Environment

1
Operations Management
Chapter 2 Global Environment and Operations
Strategy
PowerPoint presentation to accompany
Heizer/Render Operations Management, 10 Ed.
Some additions and deletions have been made by
Ömer Yagiz to this slide set.
(Revised March 2013)
2
Outline

• Global Company Profile Boeing
• A Global View of Operations
• Cultural and Ethical Issues
• Developing Missions And Strategies
• Mission
• Strategy

3
Outline Continued

• Achieving Competitive Advantage Through
  Operations
• Competing On Differentiation
• Competing On Cost
• Competing On Response
• Ten Strategic OM Decisions

4
Outline Continued

• Strategy Development and Implementation
• Critical Success Factors and Core Competencies
• Build and Staff the Organization
• Integrate OM with Other Activities

5
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

1. Define mission and strategy
2. Identify and explain three strategic approaches
   to competitive advantage
3. Identify and define the 10 decisions of
   operations management

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Learning Objectives
When you complete this chapter you should be able
to

1. Identify five OM strategy insights provided by
   PIMS research
2. Identify and explain four global operations
   strategy options

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Some Boeing Suppliers (787)
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Some Boeing Suppliers (787)
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Some Boeing Suppliers (787)
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Some Boeing Suppliers (787)
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Global Strategies

• Boeing sales and production are worldwide
• Benetton moves inventory to stores around the
  world faster than its competition by building
  flexibility into design, production, and
  distribution
• Sony purchases components from suppliers in
  Thailand, Malaysia, and around the world

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Global Strategies

• Volvo considered a Swedish company but it is
  (was) controlled by an American company, Ford.
  Now it belongs to Geely, a Chinese company. The
  current Volvo S40 is built in Belgium and shares
  its platform with the Mazda 3 built in Japan and
  the Ford Focus built in Europe.
• A comment made on the Net upon the purchase of
  Volvo by Geely Interesting. A brand renown for
  building cars that could survive a demolition
  derby with a couple of Sherman tanks will be made
  in a country renown for building cars that
  spontaneously disintegrate when a fly hits the
  windscreen.

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Global Strategies

• Haier A Chinese company, produces compact
  refrigerators (it has one-third of the US market)
  and wine cabinets (it has half of the US market)
  in South Carolina
• Globalization means that producing locally and
  exporting is not a viable business model any more
  for many industries

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Some Multinational Corporations
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Some Multinational Corporations
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Reasons to Globalize
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1. Reduce Costs

• Foreign locations with lower wage rates and
  tariffs can lower direct and indirect costs
• Maquiladoras (free trade zones-Mexico)
• World Trade Organization (WTO)
• Trade blocs agreements (reduced cost of
  operating)
• North American Free Trade Agreement (NAFTA)
• Asia-Pacific Economic Cooperation(APEC-21
  countries)
• South East Asia Treaty Org(SEATO-8 countries
• MERCOSUR (Argentina, Brazil, Paraguay, and
  Uruguay
• European Union (EU)

Ex Many U.S. businesses have their call centers
in India
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2. Improve the Supply Chain

• Locating facilities closer to unique resources
• Auto design to California
• Athletic shoe production to China (it was South
  Korea before)
• Perfume manufacturing in France

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3. Provide Better Goods and Services

• Objective and subjective characteristics of goods
  and services
• On-time deliveries
• Cultural variables (customized goods services
  to meet unique cultural needs)
• Improved customer service (reduce response time)

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4. Understand Markets

• Interacting with foreign customers and suppliers
  can lead to new opportunities
• Cell phone design from Europe (Nokia)
• Cell phone fads (accessories) from Japan and
  Korea
• a device which converts your rear-view mirror
  into a display for the phone. So if someone is
  calling you, just look at the number on the
  mirror while you drive.
• Sony Ericsson has launched stereophonic speakers
  called MDS-65, which can be attached to the phone
  and give the effect of a mini home theatre.
• just look at all the accessories for the Ipod and
  the Iphone.
• Extend the product life cycle

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5. Learn to Improve Operations

• Remain open to the free flow of ideas
• General Motors partnered with a Japanese auto
  manufacturer (Toyota) to learn (NUMMI-Calif.)
• benchmarking - first practised by Xerox Corp.
• Equipment and layout have been improved using
  Scandinavian ergonomic competence
• TAV - Tepe-Akfen-Vie (Tepe learned airport
  operations from Vie)

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6. Attract and Retain Global Talent

• Offer better employment opportunities
• Better growth opportunities and insulation
  against unemployment
• Relocate unneeded personnel to more prosperous
  locations during economic downturns (flexibility)
• Incentives for people who like to travel

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Cultural and Ethical Issues

• Cultures can be quite different
• Attitudes can be quite different towards

• Punctuality
• Lunch breaks
• Environment
• Intellectual property

• Thievery
• Bribery
• Child labor

My Saudi Arabian experience with punctuality!
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Companies Want To Consider

• 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
• Number of miles of highway
• Phone system

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Match Product Parent
Match Product Parent (Kimin eli kimin cebinde?)

• Braun Household Appliances
• Firestone Tires
• Godiva Chocolate
• Haagen-Dazs Ice Cream
• Jaguar Autos
• MGM Movies
• Lamborghini Autos
• Alpo Petfoods

1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony

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Match Product Parent (Kimin eli kimin cebinde?)

• Braun Household Appliances
• Firestone Tires
• Godiva Chocolate
• Haagen-Dazs Ice Cream
• Jaguar Autos
• MGM Movies
• Lamborghini Autos
• Alpo Petfoods

1. Volkswagen
2. Bridgestone
3. Ülker Group
4. Ford Motor Company
5. Gillette
6. Nestlé
7. Pillsbury
8. Sony

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Match Product Country

• Braun Household Appliances
• Firestone Tires
• Godiva Chocolate
• Haagen-Daz Ice Cream
• Jaguar Autos
• MGM Movies
• Lamborghini Autos
• Alpo Pet Foods

1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland

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Match Product Country

• Braun Household Appliances
• Firestone Tires
• Godiva Chocolate
• Haagen-Daz Ice Cream
• Jaguar Autos
• MGM Movies
• Lamborghini Autos
• Alpo Pet Foods

1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
6. Turkey

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Developing Missions and Strategies

• Mission overall purpose of an organization
  (misyon varolus nedeni).
• The mission of an organization defines its
  reason for existence. Why are we in business?
• Mission statements tell an organization where it
  is going
• Mission of the organization plus mission of
  the functional areas (prod, mktg, finance, RD,
  etc)

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Developing Missions and Strategies

• The strategy is an organizations action plan to
  achieve its mission and goals
• It is a long term plan

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FedExs Mission

• 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.

Figure 2.2
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Mercks Mission

• 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

Figure 2.2
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Hard Rock Cafes Mission

• Our Mission 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.

Figure 2.2
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Arnold Palmer Hospital
Arnold Palmer Hospital for Children provides
state-of-the-art, family centered healthcare
focused on restoring the joy of childhood in an
environment of compassion, healing, and hope..
Figure 2.2
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TAIs Mission (old version)

• TAI is a company of dedicated, dynamic and
  resourceful people searching for excellence and
  continued growth in the field of aerospace. Our
  mission is to fulfil the aerospace requirements
  of our nation and world markets with commitment
  to high quality, value and on time delivery.

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TAIs Mission (current version)

• With our great leader Atatürks vision The
  Future is in the Skies and our nations
  eagerness to Build its own aircraft TAI has
  dedicated itself to be in the skies and space and
  be pioneers in developing Turkeys aviation and
  space industry.
• Mission statements may change over time..

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TAIs Mission (most current version)
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NETASs Mission

• To provide excellent telecommunication solutions
  within the framework of Total Quality Management
  philosophy.

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Arçeliks Mission

• Fully satisfying customer expectations and
  requirements is the guiding mission of Arçelik.
  In order to achieve and maintain the high
  standards it has, Arçelik has a continual
  programme of investment which encompasses plants,
  manufacturing equipment, research development
  and most importantly personnel.

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Factors Affecting Mission
Benefit to stockholders
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Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers expectations.
Sample Operations Management Mission
To produce products consistent with the companys mission as the worldwide low-cost manufacturer.
Figure 2.3
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Sample Missions
Sample OM Department Missions 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, 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.
Figure 2.3
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Sample Missions
Sample OM Department Missions Sample OM Department Missions
Location To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.
Layout design To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.
Human resources To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.
Figure 2.3
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Sample Missions
Sample OM Department Missions Sample OM Department Missions
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 throughput and timely customer delivery through effective scheduling.
Maintenance To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.
Figure 2.3
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Strategic Process
Organizations Mission
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Strategy

• Action plan to achieve mission
• Functional areas have strategies
• Strategies exploit opportunities and strengths,
  neutralize threats, and avoid weaknesses

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Strategies for Competitive Advantage (OM)

• Compete on differentiation better, or at least
  different
• Compete on cost cheaper
• Compete on response rapid response (hizli
  hareket)
• My idea Maybe a fourth one is quality

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Competing on Differentiation

• Uniqueness can go beyond both the physical
  characteristics and service attributes to
  encompass everything that impacts customers
  perception of value

• Kimberly Clarks Safeskin gloves leading edge
  products
• Walt Disney Magic Kingdom theme park experience
  differentiation
• Hard Rock Cafe dining experience

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Competing on Differentiation

• Honda cars with Qiblah (Kible) indicator sold in
  Saudi Arabia and Gulf countries
• Prayer carpets with built-in compass made in
  Taiwan and sold in Arab countries
• Cell phones? camera?FM?video?games ? GPS ? wi-fi
  ? other applications

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Competing 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
• Pegasus Airlines in Turkey
• Wal-Mart small overheads, decreased shrinkage,
  distribution costs
• Belgian discount food retailer Franz Colruyt no
  bags, low light, no music, doors on freezers
  saves energy costs
• Low-cost leadership

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Competing on Response

• Flexibility is matching market changes in design
  innovation and volumes
• A way of life at Hewlett-Packard, Apple, samsung,
  others
• Reliability is meeting schedules
• German machine industry
• Timeliness is quickness in design, production,
  and delivery
• Johnson Electric, Bennigans(restaurant),
  Motorola, Dominos Pizza

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Competing on Response

• Examples for Quick Response
• Dominos Pizza Türkiyenin en sevdigi
  pizzalari hazirlayan Dominos Pizza olarak evlere
  serviste yepyeni bir dönem baslatiyoruz.
  Ülkemizde 30 dakikada teslim garantisi veren tek
  firma olan Dominos Pizza bugüne dek "eger geç
  kalirsak, sonraki siparisinizde bir pizzaniz
  hediye" diyorduk. Simdi de yepyeni bir söz daha
  veriyor ve eger 30 dakikada gelemezsek
  siparisinizdeki kapinizda hemen bir pizzanin
  ücretini almiyoruz diyoruz.
• Tansas3 dakika içinde yeni bir kasanin açilmasi
  garantisi

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OMs Contribution to Strategy
10 Operations Competitive Decisions Approach E
xample Advantage
Figure 2.4
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10 Strategic OM Decisions

1. Goods and service design
2. Quality
3. Process and capacity design
4. Location selection
5. Layout design

1. Human resources and job design
2. Supply chain management
3. Inventory
4. Scheduling
5. Maintenance

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Goods and Services and the 10 OM Decisions
OperationsDecisions Goods Services
Goods and service design Product is usually tangible Product is not tangible
Quality Many objective standards Many subjective standards
Process and capacity design Customers not involved Customer may be directly involved Capacity must match demand
Table 2.1
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Goods and Services and the 10 OM Decisions
OperationsDecisions Goods Services
Location selection Near raw materials and labor Near customers
Layout design Production efficiency Enhances product and production
Human resources and job design Technical skills, consistent labor standards, output based wages Interact with customers, labor standards vary
Table 2.1
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Goods and Services and the 10 OM Decisions
OperationsDecisions Goods Services
Supply chain Relationship critical to final product Important, but may not be critical
Inventory Raw materials, work-in-process, and finished goods may be held Cannot be stored
Scheduling Level schedules possible Meet immediate customer demand
Table 2.1
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Goods and Services and the 10 OM Decisions
OperationsDecisions Goods Services
Maintenance Often preventive and takes place at production site Often repair and takes place at customers site
Table 2.1
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Managing Global Service Operations
Requires a different perspective on

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

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An example Process Design
Example on p. 71
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Operations Strategies for Two Drug Companies
(Diff vs low cost)
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage Product Differentiation Low Cost
Product Selection and Design Heavy RD investment extensive labs focus on development in a broad range of drug categories Low RD investment focus on development of generic drugs
Quality Major priority, exceed regulatory requirements Meets regulatory requirements on a country by country basis
Table 2.2
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Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage Product Differentiation Low Cost
Process Product and modular process long production runs in specialized facilities build capacity ahead of demand Process focused general processes job shop approach, short-run production focus on high utilization
Location Still located in the city where it was founded Recently moved to low-tax, low-labor-cost environment
Table 2.2
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Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage Product Differentiation Low Cost
Scheduling Centralized production planning Many short-run products complicate scheduling
Layout Layout supports automated product-focused production Layout supports process-focused job shop practices
Table 2.2
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Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage Product Differentiation Low Cost
Human Resources Hire the best nationwide searches Very experienced top executives other personnel paid below industry average
Supply Chain Long-term supplier relationships Tends to purchase competitively to find bargains
Table 2.2
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Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Advantage Product Differentiation Low Cost
Inventory High finished goods inventory to ensure all demands are met Process focus drives up work-in-process inventory finished goods inventory tends to be low
Maintenance Highly trained staff extensive parts inventory Highly trained staff to meet changing demand
Table 2.2
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Issues In Operations Strategy

• Resources view
• Value Chain analysis
• Porters Five Forces model
• Operating in a system with many external factors
• Constant change
• pg. 72 text

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1. Elements of Operations Management Strategy

• Low-cost product
• Product-line breadth (ürün yelpazesi (gami)
  genisligi)
• 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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2. Preconditions to strategydevelopment
One must understand

• Strengths and weaknesses of competitors and
  possible new entrants into the market
• Current and prospective environmental,
  technological, legal, and economic issues
• The product life cycle
• Resources available within the firm and within
  the OM function
• Integration of OM strategy with companys
  strategy and with other functional areas

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3. Dynamics of Strategic Change

• Strategies change for two reasons
• Changes within the organization
• Personnel
• Finance
• Technology
• Product life
• Changes in the environment
• Microsoft (SW hardware)
• Pasabahçe Sise Cam (product delivery service)

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Product Life Cycle
Figure 2.5
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Product Life Cycle
Product design and development critical Frequent
product and process design changes Short
production runs High production costs Limited
models Attention to quality
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
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SWOT Analysis
Competitive Advantage
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Strategy Development Process
Figure 2.6
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Strategy Development and Implementation

• Identify key (critical) success factors
• Build and staff the organization
• Integrate OM with other activities

The operations managers job is to implement an
OM strategy, provide competitive advantage, and
increase productivity
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Key (critical) success factors (CSF)

• Activities or factors that are of key importance
  for achieving competitive advantage
• You have to get them right to survive and achieve
  goals
• McDonalds efficient layout, play area for
  children, efficient kitchen
• Hes Kablo quality (purity) of fiber optic
  cable www.hes.com.tr

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Key (critical) Success Factors
Production/Operations
Figure 2.7
78
Core competencies

• Temel beceriler (yetenekler)
• A set of skills, talents and activites that a
  firm does particularly well.
• They allow a firm to set itself apart from
  competitors and gain competitive advantage.
• IMPORTANT CFSs and Core competencies must be
  supported by related activities ? activity mapping

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Activity mapping

• A graphical link of
• competitive advantage
• CSFs
• supporting activities
• Next an example from airline industry
• Southwest airlines
• Pegasus Airlines

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Activity Mapping
CSFs
Figure 2.8
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Activity Mapping
Figure 2.8
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Activity Mapping
Figure 2.8
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Activity Mapping
Figure 2.8
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Activity Mapping
Figure 2.8
85
Activity Mapping
Figure 2.8
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Activity Mapping
Figure 2.8
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Four International Operations Strategies
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Four International Operations Strategies
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Four International Operations Strategies
90
Four International Operations Strategies
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Four International Operations Strategies
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Four International Operations Strategies
93
Four International Operations Strategies
94
Four International Operations Strategies
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Ranking Corruption

• Rank Country 2006 CPI Score (out of 10)
• 1 Finland 9.6
• 1 Iceland 9.6
• 1 New Zealand 9.6
• 5 Singapore 9.4
• 7 Switzerland 9.1
• 11 UK 8.6
• 14 Canada 8.5
• 15 Hong Kong 8.3
• 16 Germany 8.0
• 17 Japan 7.6
• 20 USA, Belgium 7.3
• 34 Israel, Taiwan 5.9
• 70 Brazil, China, Mexico 3.3
• Russia 2.5
• Turkey
  3.8
• 2012 Rank 54
  www.transparency.org

Table 8.2