Operations Strategy in

a Global Environment 2
PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Thirteenth Edition, Global Edition
Principles of Operations Management, Eleventh Edition

PowerPoint slides by Jeff Heyl

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-1

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

2.1 Define mission and strategy

2.2 Identify and explain three strategic
approaches to competitive advantage
2.3 Understand the significant key
success factors and core
competencies
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-2
 Learning Objectives
When you complete this chapter
you should be able to:
2.4 Use factor rating to evaluate both
country and provider outsources
2.5 Identify and explain four global
operations strategy options

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-3

 Reasons to Globalize

1. Improve the supply chain

2. Reduce costs and exchange rate risks
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-4

 Improve the Supply Chain
▶ Locating facilities closer to unique
resources
▶ Auto design to California
▶ Perfume manufacturing in France

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-5

 Experiential Exercise 1
▶ Students are required to share how their
organization is working towards improving
supply chain management.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-6

 Reduce Costs
▶ Risks associated with currency exchange
rates
▶ Reduce direct and indirect costs
▶ Trade agreements can lower tariffs
▶ Maquiladoras
▶ World Trade Organization (WTO)
▶ North American Free Trade Agreement (NAFTA)
▶ APEC, SEATO, MERCOSUR, CAFTA
▶ European Union (EU)

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-7

 Improve Operations
▶ Understand differences between
how business is handled in other
countries
▶ Japanese – inventory management
▶ Germans – robots
▶ Scandinavians – ergonomics
▶ International operations can
improve response time and
customer service
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-8
 Understand Markets
▶ Interacting with foreign customers,
suppliers, competition can lead to
new opportunities
▶ Cell phone
design moved
from Europe to
Japan and India
▶ Extend the
product
life cycle

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2-9

 Improve Products

▶ Remain open to free flow of ideas

▶ Toyota and BMW manage joint
research and development
▶ Reduced risk, state-of-the-art design,
lower costs
▶ Samsung and Bosch jointly produce
batteries

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 10

 Attract and Retain Global
Talent
▶ Offer better employment
opportunities
▶ Better growth opportunities and
insulation against unemployment
▶ Relocate unneeded personnel to
more prosperous locations

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 11

 Cultural and Ethical Issues
▶ Social and cultural behavior differs
▶ International laws, agreements,
codes of conduct for ethical
behaviors
▶ Despite cultural and ethical
differences, we observe
extraordinary mobility of capital,
information, goods, and people

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 12

 Companies Want To Consider
▶ National literacy rate ► Work ethic
▶ Rate of innovation ► Tax rates
▶ Rate of technology ► Inflation
change ► Availability of raw
▶ Number of skilled materials
workers ► Interest rates
▶ Political stability ► Population
▶ Product liability laws ► Transportation
▶ Export restrictions infrastructure
▶ Variations in language ► Communication
system
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 13
 Developing Missions and
Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 14

 Mission
► Mission - where is the organization
going?
► Organization’s purpose for being
► Answers “What do we contribute to
society?”
► Provides boundaries and focus

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 15

 Factors Affecting Mission
Philosophy
and Values

Profitability and
Environment
Growth

Mission

Customers Public Image

Benefit to
Society

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 16

 Strategic Process
Organization’s
Mission

Functional Area
Missions

Marketing Operations Finance/

Accounting

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 17

 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 company’s mission

as the worldwide low-cost manufacturer.

Figure 2.3
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 18
 Sample 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, supply chain, production, and field
service opportunities

Process design To determine, design, and develop the

production process and equipment that will
be compatible with low-cost product, high
quality, and good quality of work life.

Figure 2.3
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 19
 Sample 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
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 20
 Sample Missions
Sample OM Department Missions
Supply-chain To collaborate with suppliers to develop
management 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
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 21
 Experiential Exercise Two
▶ Students are required to share their own
organizations OM department’s mission
with the class.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 22

 Strategy
Strategies require managers to
► Develop action plan to achieve

mission
► Ensure functional areas have

supporting strategies
► Exploit opportunities and strengths,

neutralize threats, and avoid

weaknesses

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 23

 Strategies for Competitive
Advantage
1. Differentiation – better, or at least
different
2. Cost leadership – cheaper
3. Response – more responsive

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 24

 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
► Walt Disney Magic Kingdom –
experience differentiation
► Hard Rock Cafe – dining experience

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 25

 Experience Differentiation
Engaging a customer with a product
through imaginative use of the five
senses, so the customer “experiences”
the product
► Theme parks use sight, sound, smell,
and participation
► Movie theatres use sight, sound, moving
seats, smells, and mists of rain
► Restaurants use music, smell, and open
kitchens
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 26
 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
► Walmart – small overhead, shrinkage, and
distribution costs
► Franz Colruyt – no bags, no bright lights,
no music

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 27

 Competing on Response
▶ Flexibility is matching market changes in
design innovation and volumes
▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules
▶ German machine industry
▶ Quickness in design,
production, and delivery
▶ Johnson Electric,
Pizza Hut

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 28

 OM’s Contribution to Strategy
10 Operations Competitive
Decisions Strategy Example Advantage

Product DIFFERENTIATION:
Innovative design ………... Safeskin’s innovative gloves
Broad product line ……… Fidelity Security’s mutual
Quality funds
After-sales service …….. Caterpillar’s heavy equipment
Process service
Experience …………….. Hard Rock Café’s dining
Location experience

COST LEADERSHIP: Differentiation

Layout Low overhead ……… Franz-Colruyt’s warehouse-
type stores (better)
Human Effective capacity … Southwest Airline’s
resource use aircraft utilization
Response
Supply chain Inventory ……………. Walmart’s sophisticated (faster)
management distribution system
Cost
Inventory leadership
RESPONSE: (cheaper)
Scheduling Flexibility …………….. Hewlett-Packard’s response to
volatile world market
Maintenance Reliability ……………… FedEx’s “absolutely,
positively, on time”
Quickness ………………. Pizza Hut’s 5-minute guarantee
Figure 2.4
at lunchtime
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 29
 Issues In Operations Strategy

▶ Resources view
▶ Value-chain analysis
▶ Porter’s Five Forces model
▶ Operating in a system with many
external factors
▶ Constant change

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 30

 Product Life Cycle
Introduction Growth Maturity Decline

Best period to Practical to change Poor time to Cost control

increase market price or quality change image, critical
share image price, or quality
Company Strategy/Issues

R&D engineering is Strengthen niche Competitive costs

critical become critical

Defend market
position
Hybrid engine vehicles Xbox One
Boeing 787
3D printers
Boeing 747

Life Cycle Curve Electric vehicles

DVDs
Autonomous Video
vehicles Virtual reality physical
rentals

Figure 2.5
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 31
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting critical Standardization Little product
and development Product and Fewer rapid differentiation
critical process reliability product changes, Cost
Frequent product Competitive more minor minimization
and process changes
Strategy/Issues

product Overcapacity in
OMStrategy/Issues

design changes improvements and Optimum capacity the industry

Short production options Increasing stability Prune line to
runs Increase capacity of process eliminate items
High production Shift toward not returning
costs product focus good margin
Limited models Enhance Reduce
Long production capacity
Attention to quality distribution runs
OM

Product
improvement and
cost cutting

Figure 2.5
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 32
 SWOT Analysis

Mission

Internal External
Strengths Opportunities

Analysis

Internal External
Weaknesses Threats

Strategy

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 33

 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 2.6
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 34
 Strategy Development and
Implementation
▶ Identify key success factors
▶ Integrate OM with other activities
▶ Build and staff the organization

The operations manager’s job is to implement

an OM strategy, provide competitive
advantage, and increase productivity

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 35

 Key Success Factors
Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas

Marketing Finance/Accounting Production/Operations

Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

10 OM Decisions Sample Options Chapter

Product Customized, or standardized; sustainability 5, S5

Quality Define customer quality expectations and 6, S6
how to achieve them
Process Facility size, capacity, how much automation 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. Figure 2.72 - 36
Implementing Strategic Decisions
TABLE 2.1 Operations Strategies of Two Drug Companies
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION LOW-COST STRATEGY
ADVANTAGE STRATEGY
Product Heavy R&D investment; extensive labs; Low R&D investment; focus on
selection and focus on development in a broad range development of generic drugs
design of drug categories
Quality Quality is major priority, standards Meets regulatory requirements on a
exceed regulatory requirements country-by-country basis, as necessary
Process Product and modular production Process focused; general production
process; tries to have long product runs processes; “job shop” approach, short-
in specialized facilities; builds capacity run production; focus on high utilization
ahead of demand
Location Still located in city where it was founded Recently moved to low-tax, low-labor-
cost environment

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 37

Implementing Strategic Decisions
TABLE 2.1 Operations Strategies of Two Drug Companies
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION LOW-COST STRATEGY
ADVANTAGE STRATEGY
Layout Layout supports automated product- Layout supports process-focused “job
focused production shop” practices
Human Hire the best; nationwide searches Very experienced top executives
resources provide direction; other personnel paid
below industry average
Supply chain Long-term supplier relationships Tends to purchase competitively to find
bargains
Inventory Maintains high finished goods inventory Process focus drives up work-in-
primarily to ensure all demands are met process inventory; finished goods
inventory tends to be low
Scheduling Centralized production planning Many short-run products complicate
scheduling
Maintenance Highly trained staff; extensive parts Highly trained staff to meet changing
inventory process and equipment demands

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 38

 Strategic Planning, Core
Competencies, and Outsourcing

▶ Outsourcing – transferring activities

that have traditionally been internal to
external suppliers
▶ Accelerating due to
1) Increased technological expertise
2) More reliable and cheaper
transportation
3) Rapid development and deployment of
advancements in telecommunications
and computers
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 39
 Strategic Planning, Core
Competencies, and Outsourcing

▶ Subcontracting - contract
manufacturing
▶ Outsourced activities
► Legal services
► IT services ► Payroll
► Travel ► Production
services ► Surgery

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 40

 Theory of Comparative Advantage

▶ If an external provider can perform

activities more productively than the
purchasing firm, then the external
provider should do the work
▶ Purchasing firm focuses on core
competencies
▶ Drives outsourcing

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 41

 Risks of Outsourcing
TABLE 2.2 Potential Advantages and Disadvantages of Outsourcing
ADVANTAGES DISADVANTAGES
Cost savings Increased logistics and inventory costs
Gaining outside expertise that comes Loss of control (quality, delivery, etc.)
with specialization
Improving operations and service Potential creation of future competition
Maintaining a focus on core Negative impact on employees
competencies
Accessing outside technology Risks may not manifest themselves for
years

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 42

Rating Outsourcing Providers
▶ Insufficient analysis most common
reason for failure
▶ Factor-rating method
▶ Points are assigned for each factor for
each provider
▶ Weights are assigned to each factor

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 43

 Rating Provider Selection Criteria
TABLE 2.3 Factor Ratings Applied to National Architects' Potential IT Outsourcing Providers
OUTSOURCING PROVIDERS
IMPORTANCE BIM S.P.C. TELCO
FACTOR (CRITERION) WEIGHTS (U.S.) (INDIA) (ISRAEL)
1. Can reduce operating costs .2 3 3 5
2. Can reduce capital investment .2 4 3 3
3. Skilled personnel .2 5 4 3
4. Can improve quality .1 4 5 2
5. Can gain access to technology not in
company .1 5 3 5
6. Can create additional capacity .1 4 2 4
7. Aligns with policy/philosophy/culture .1 2 3 5
Total Weighted Score 1.0 3.9 3.3 3.8

Score for BIM = (.2 * 3) + (.2 * 4) + (.2 * 5) + (.1 * 4) + (.1 * 5) + (.1 * 4) + (.1 * 2) = 3.9

Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 44

 Global Operations Strategy
Options High
Figure 2.9

International
strategy
• Import/export or
Cost Reduction

license existing
product
Examples:
U.S. Steel
Harley-Davidson
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 45
 Global Operations Strategy
Options High
Figure 2.9
Cost Reduction

International
strategy
• Import/export or
license existing
product

Examples:
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 46
 Global Operations Strategy
Options High
Figure 2.9
Global
strategy
• Standardize product
• Economies of scale
Cost Reduction

• Cross-cultural
learning
International
strategy
• Import/export or
Examples:
license existing
product
Texas
Examples:
Instruments
Caterpillar
U.S. Steel
Harley-Davidson

Low
Otis Elevator
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 47
 Global Operations Strategy
Options High Global strategy
Figure 2.9
• Standardize product
• Economies of scale
• Cross-cultural learning

Examples:
Texas Instruments
Cost Reduction

Caterpillar
Otis Elevator

International
strategy
• Import/export or
license existing
product

Examples:
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 48
 Global Operations Strategy
Options High
Multidomestic
Global strategy
Figure 2.9
• Standardize product
strategy
• Economies of scale
• Cross-cultural learning
• Use existing domestic
Examples:
model globally
Texas Instruments
Cost Reduction

• Franchise, joint
Caterpillar
Otis Elevator
ventures, subsidiaries
International
strategy
Examples:
• Import/export or
Heinz, McDonald’s
license existing
product

Examples:
The Body Shop
Hard Rock Cafe
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 49
 Global Operations Strategy
Options High Global strategy
Figure 2.9
• Standardize product
• Economies of scale
• Cross-cultural learning

Examples:
Texas Instruments
Cost Reduction

Caterpillar
Otis Elevator
Multidomestic
International
strategy
strategy
• Use existing domestic
• Import/export or model globally
license existing • Franchise, joint
product ventures, subsidiaries
Examples:
Examples: Heinz, McDonald’s
U.S. Steel The Body Shop
Harley-Davidson Hard Rock Cafe
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 50
 Global Operations Strategy
Options High Global strategy
Figure 2.9
• Transnational
Standardize product
• Economies of scale
• strategy
Cross-cultural learning

• Move material, people,

Examples:
Texas Instruments
or ideas across national
Cost Reduction

Caterpillar
Otis Elevator
boundaries
•International Multidomestic
Economies of scale strategy
strategy
•
• Cross-cultural
Import/export or
learning
• Use existing domestic
model globally
license existing • Franchise, joint
Examples:
product ventures, subsidiaries
Coca-Cola, Nestlé
Examples:
Examples:
Heinz, McDonald’s
U.S. Steel The Body Shop
Harley-Davidson Hard Rock Cafe
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 51
 Global Operations Strategy
Options High Global strategy Transnational
strategy Figure 2.9
• Standardize product
• Economies of scale • Move material, people,
• Cross-cultural learning or ideas across
national boundaries
Examples: • Economies of scale
Texas Instruments • Cross-cultural learning
Cost Reduction

Caterpillar Examples:
Otis Elevator Coca-Cola, Nestlé

International Multidomestic
strategy
strategy
• Import/export or (eg, Heinz, McDonald’s
license existing The Body Shop
product Hard Rock Cafe)
• Use existing domestic
Examples: model globally
U.S. Steel • Franchise, joint
Harley-Davidson ventures,
subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 2 - 52