Operations

Management
Chapter 2 –
Operations Strategy in a
Global Environment
 Globalization

Its an ongoing process in which in

regional economies, societies and
cultures have become integrated
through network of exchange
 Examples of Global Strategies

• Boeing – both sales and production are worldwide.

• Sony – purchases components from suppliers in

Thailand, Malaysia, and around the world

• GM is building four similar plants in Argentina,

Poland, China, and Thailand
Reasons to Globalize

Reasons to Globalize
 Reduce costs (labor, taxes etc.)
 Improve supply chain
 Provide better goods and services
 Understand markets
 Learn to improve operations
 Attract and retain global talent
 Reduce Costs
 Foreign locations with lower wage
rates can lower direct and indirect
costs
Improve the Supply Chain
 Locating facilities closer to
unique resources
 Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
 On-time deliveries
 Cultural variable.
 Improved customer service
 Understand Markets
 Interacting with foreign customer
and suppliers can lead to new
opportunities
 Cell phone design from Europe
 Extend the product life cycle
Learn to Improve Operations

 Remain open to the free flow of

ideas
 General Motors partnered with a
Japanese auto manufacturer to
learns
Attract and Retain Global
Talent
 Offer better employment
opportunities
 Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations
 Incentives for people who like to
travel
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different towards

 Punctuality  Bribery
 Lunch breaks  Child labor
 Environment
Developing Missions and
Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there
 Mission
 Mission - where are
you going?
 Organization’s
purpose for being
 Answers ‘What do we
provide society?’
 Provides boundaries
and focus
 Hard Rock Café

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.
 Strategic Process
Organization’s
Mission

Functional Area
Missions

Finance/
Marketing Operations
Accounting
 Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
Strategies for Competitive
Advantage

 Differentiation – better, or at least

different
 Cost leadership – cheaper
 Quick response – more
responsive
 Competing on
Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything
that impacts customer’s perception of
value
 Cathay pacific – lifestyle experience.
 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
 Wal-Mart – small overheads, shrinkage,
distribution costs
 Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Hewlett-Packard and Dell
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness in design,
production, and delivery
 Domino Pizza.
 Operations Strategy Means
Adding Value for the Customer

• How to add value:

–Reduce product costs to customer.
–Make the product more readily available.
–Provide faster service.
–Provide customers with additional relevant
information.
–Customize the product to the customer’s
specific needs.
 10
OM’s Contribution to Strategy
Operation
s Specific Competiti
Strategic Example
s Strategy ve
Decisions Used Advantag
1. Quality FLEXIBILITY e
Sony’s constant innovation of new products Design
2. Product HP’s ability to follow the printer market Volume

3. Process Southwest Airlines low fare charges LOW COST

4. Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
5. Layout Dependability
Federal Express’s “absolutely, positively on time” Differentiation
(Better)
6. Human QUALITY
Motorola’s automotive products ignition systemsConformance Response
Resource Cost (Faster)
Honda Performance leadership
7. Supply Chain (Cheaper)

IBM’s after-sale service on mainframe computers

8. Inventory AFTER-SALE SERVICE

Mobilink variety of packages BROAD PRODUCT LINE

9. Scheduling

10.Maintenance
 Goods & Services and the 10
OM Decisions
Operations Goods Services
Decisions
Goods & Product is usually Product is usually
services tangible intangible
decisions
Quality Objective quality Subjective quality
standards standards
Process Customer not involved Customer may be directly
and inmost of process involvedin process.
capacity Capacity must match
design demand to avoidlost sales
 Goods & Services and the 10
OM Decisions – Continued
Operations Goods Services
Decisions
Location May need to be near rawMay need to be near customer
Selection materials or labor force Car rental, hair stylist
Layout Layout can enhance Can enhance product as well as
Design production efficiency Production
Human Work
force focused on Direct workforce usually
Resources technical skills. needed
and Job Labor standards consistent.
Design Output-
based wage system.
Goods & Services and the 10
OM Decisions – Continued
Operations Goods Services
Decisions
Supplychain Supply-chain Supply-chainrelationships
management relationships critical to important, notnecessarily
final product critical
Inventory Rawmaterials, work - Most services can notbe
in-process, and stored
finishedgoods
Scheduling Abilitytoconvert Primarilyconcernedwith
inventorymayallow meetingthecustomer's
levelingof production immediateschedule
rates
Goods & Services and the 10
OM Decisions – Continued
Operations Goods Services
Decisions
Maintenance Maintenanceis often Maintenanceis often
preventiveandtakes "repair"andtakes placeat
placeattheproduction thecustomer's site
site
Strategic Options Managers use to
gain Competitive Advantage
 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
 Process Design
Customization at high
High Process-focused Volume
Job Shops Mass
(Print shop, emergency
Customization
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
Variety of Products

fine dining
focus
Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer,
paper, bread,
institutional
Low kitchen)
Low Moderate High
Volume
 Product Life Cycle
Introduction Growth Maturity Decline
Best period to Practical to change Poor time to change Cost control
increase market price or quality image, price, or critical
Company Strategy/Issues

share image quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position
CD-ROM Fax machines

Internet Drive-through
restaurants
Color printers
Sales
3 1/2”
Floppy
Flat-screen disks
monitors DVD
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting critical Standardization Little product
and development Product and Less rapid product differentiation
critical process reliability changes – more Cost
OM Strategy/Issues

Frequent product minor changes minimization

Competitive
and process product Optimum capacity Overcapacity
design changes improvements and Increasing stability in the industry
Short production options of process Prune line to
runs Increase capacity eliminate items
Long production
High production not returning
Shift toward runs
costs good margin
product focus Product
Limited models Reduce
Enhance improvement and
capacity
Attention to distribution cost cutting
quality
 Four International Operations
Strategies

• International Strategy
• Multidomestic Strategy
• Global Strategy
• Transnational Strategy
International Strategy
• Selling product or services outside the
firm’s home market.
• By means of export.
• E.g Shan Foods, Lucky Cement, Gul
Ahmed Textile.
Multidomestic Strategy
• Strategy and operating decisions are
decentralized in each country.
• Products and services are tailored to local
market.
• Business unit in each country are
independent of each country.
• By means of franchise.
• E.g McDonalds, KFC
Global Strategy
• Products are standardized across
national markets.
• High degree of centralization.
• Emphasize on economies of scale.
• E.g Caterpillar.
Transnational Strategy
• Seeks to achieve cost reduction and
local responsiveness.
• Difficult to achieve.
• Emphasize on economies of scale as
well as pressure for responsiveness.
• E.g Nestle, P&G.