Operations and Production Management
Chapter 2
The Global Environment and Operations Strategy
Professor Ayman Abdallah
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Global Strategies
(Global View of Operations)
• Continuous removal of retractions on
international trade has provided companies with
opportunities to extend their operations to other
countries.
• Examples of restrictions removal:
FreeTrade Zones
FreeTrade Agreements
World Trade Organization (WTO)
North American Free Trade Agreement (NAFTA)
European Union (EU)
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Global Strategies
(Global View of Operations)
• Patchi – purchases components from suppliers
in Côte d’Ivoire, Brazil, Indonesia, and
elsewhere around the world to produce the
finest chocolates.
• Free Trade Zones encourage firms from around
the world to relocate their operations to that
area by offering a wide range of facilities
provided by the local authorities.
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Reasons to Globalize
Reasons to Globalize (Benefits)
1) Reduce costs (labor, taxes, tariffs, etc.)
2) Improve supply chain
3) Provide better goods and services
4) Understand markets
5) Learn to improve operations
6) Attract and retain global talent
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1) Reduce Costs
• Foreign locations with lower wage rates can
lower direct and indirect costs
- World Trade Organization (WTO)
- North American Free Trade Agreement
(NAFTA)
- European Union (EU)
- Gulf Cooperation Council (GCC)
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2) Improve the Supply Chain
• Locating facilities closer to unique
resources
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3) Provide Better Goods and Services
• Objective and subjective characteristics of
goods and services
• On-time deliveries
• Cultural variables
• Improved customer service
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4) Understand 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
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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 to learn new
approaches to production and inventory
control
• Equipment and layout have been
improved using Scandinavian ergonomic
competence
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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
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Cultural and Ethical Issues (Challenges)
• Cultures can be quite different
• Attitudes can be quite different towards
• Punctuality • Thievery
• Lunch breaks • Bribery
• Environment • Child labor
• Intellectual • Waste
property
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Developing Missions and Strategies
Mission statements tell an organization where it
is going
(the purpose of an organization’s existence)
The strategy tells the organization how to get
there
(plan for achieving organizational mission and
goals)
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Mission
Mission - where are you going?
- Organization’s purpose for being
- Answers ‘What do we provide society?’
- Provides boundaries and focus
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Aramex
To be recognized as one of the top five global
logistics and transportation companies by
enabling and facilitating regional and global
trade and commerce.
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University of Jordan
The provision of quality education at both the
undergraduate and graduate levels through the
adoption of the principle of democracy in the
education and decision-making processes
whilst encouraging interaction among students
with the local community, and at the
international level to support goal-oriented
research.
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Burj Khalifa
To be the world’s most luxurious hotel
with a team dedicated to outstanding
personalized service, surpassing guest
expectations by providing the ultimate
Arabian hospitality experience
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Strategic Process
Organization’s
Mission
Functional
Area Missions
Finance/
Marketing Operations
Accounting
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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
• Differentiation – better, or at least
different
• Cost leadership – cheaper
• Response – rapid 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
Safeskin gloves – leading edge products
Ferrari World Abu Dhabi – experience differentiation
TcheTche Cafe – dining differentiation
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Competing on Cost
Provide the maximum value as perceived by
customer. Does not imply low quality.
• Air Arabia – no frills service, efficient
utilization of equipment
• Lulu Hypermarkets – small overhead,
shrinkage, distribution costs
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Competing on Response
• Flexibility in responding to the rapidly
changing market needs with high-quality
solutions
– Rubicon-Jordan
• Reliability in meeting schedules
• German machine industry
• Timeliness is quickness in design,
production, and delivery
• Apple, Tazaj, Motorola
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OM’s Contribution to Strategy
10 Operations Competitive
Decisions Approach Example Advantage
Product DIFFERENTIATION
Innovative design … Burj Khalifa
Quality Broad product line … Arab Bank’s Financial
Services
Process After-sales service …Petra’s heavy equipment
service
Location Experience … Ferrari World
COST LEADERSHIP Differentiation
Layout (better)
Low overhead …Great stores, Saudi
Human Arabia
resource Effective capacity Response
use … Air Arabia (faster)
Supply chain Inventory Cost
leadership
management …Carrefour, Saudi Arabia (cheaper)
Inventory
RESPONSE
Scheduling Flexibility … Rubicon’s response to
different market needs
Maintenance Reliability … Arab Bridge Ferries
Quickness … Aramex Express Figure 2.3
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10 Strategic OM Decisions
1. Goods and service 6. Human resources and
design job design
2. Quality 7. Supply-chain
management
3. Process and
capacity design 8. Inventory
4. Location selection 9. Scheduling
5. Layout design 10. Maintenance
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Operations Strategies of Two Drug
Companies
Table 2.2
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Product Heavy R&D investment; Low R&D investment;
Selection and extensive labs; focus on focus on development of
Design development in a broad generic drugs
range of drug categories
Quality Major priority, exceed Meets regulatory
regulatory requirements requirements on a
country-by-country basis
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Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Process Product and modular Process focused; general
process; long production processes; “job shop”
runs in specialized approach, short-run
facilities; build capacity production; focus on high
ahead of demand utilization
Location Still located in the city Recently moved to low-
where it was founded tax, low-labor-cost
environment
Table 2.2
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Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Human Hire the best; nationwide Very experienced top
Resources searches executives; other
personnel paid below
industry average
Layout Layout supports Layout supports process-
automated product- focused “job shop”
focused production practices
Table 2.2
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Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Supply Chain Long-term supplier Tends to purchase
relationships competitively to find
bargains
Inventory High finished goods Process focus drives up
inventory to ensure all work-in-process
demands are met inventory; finished goods
inventory tends to be low
Table 2.2
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Operations Strategies of Two Drug
Companies
Table 2.2
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Scheduling Centralized production Many short-run products
planning complicate scheduling
Maintenance Highly trained staff; Highly trained staff to
extensive parts inventory meet changing demand
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SWOT Analysis
Mission
Internal External
Strengths Opportunities
Analysis
Internal External
Weaknesses Threats
Strategy
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Strategy Development Process
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
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.
Figure 2.5
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Strategy Development and
Implementation
• Identify key success factors and core
competencies
• 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
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