Principles of Operations Management:
Sustainability and Supply Chain Management
Twelfth Edition, Global Edition
Chapter 2
Operations Strategy in a
Global Environment
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Outline
• Global Company Profile: Boeing
• A View of Global Strategy
• Developing Missions and Strategies
• Achieving Competitive Advantage Through
Operations
• Issues in Operations Strategy
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Outline (continued)
• Strategy Development and Implementation
• Strategic Planning, Core Competencies, and
Outsourcing
• Global Operations Strategy Options
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Boeing’s Global Supply-Chain
Strategy (1 of 3)
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Latecoere France Passenger doors
Labinel France Wiring
Dassault France Design and PLM software
Messier-Bugatti France Electric brakes
Thales France Electrical power conversion
system
Messier-Dowty France Landing gear structure
Diehl Germany Interior lighting
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Boeing’s Global Supply-Chain
Strategy (2 of 3)
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Cobham UK Fuel pumps and valves
Rolls-Royce UK Engines
Smiths Aerospace UK Central computer system
BA E Systems UK Electronics
Alenia Aeronautica Italy Upper center fuselage
Toray Industries Japan Carbon fiber for wing and
tail units
Fuji Heavy Industries Japan Center wing box
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Boeing’s Global Supply-Chain
Strategy (3 of 3)
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Kawasaki Heavy Japan Forward fuselage, fixed
Industries sections of wing
Teijin Seiki Japan Hydraulic actuators
Mitsubishi Heavy Japan Wing box
Industries
Chengdu Aircraft China Rudder
Hafei Aviation China Parts
Korean Airlines South Korea Wingtips
Saab Sweden Cargo and access doors
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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
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Learning Objectives (continued)
When you complete this chapter you should be able to:
2.4 Use factor rating to evaluate both country and outsource
providers
2.5 Identify and explain four global operations strategy
options
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Global Strategies
• Boeing – sales and supply chain 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 (continued)
• Volvo – considered a Swedish company, was
purchased by a Chinese company, Geely.
Assembles cars in Sweden, Belgium, Malaysia
and China.
• Haier – A Chinese company, produces compact
refrigerators (it has one-third of the U.S. market)
and wine cabinets (it has half of the U.S. market)
in South Carolina and other appliances in
Kentucky.
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Growth of World Trade
Figure 2.1
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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
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Improve the Supply Chain
• Locating facilities closer to unique resources
– Auto design to California
– Perfume manufacturing in France
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Reduce Costs
• Risks associated with currency exchange rates
• Reduce direct and indirect costs
• Trade agreements can lower tariffs
– Maquiladoras
– World Trade Organization (WT O)
– North American Free Trade Agreement (NAFTA) and
USMC A
– APE C, SEAT O, M ERCO SU R, CAFT A
– European Union (E U)
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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
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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
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Improve Products
• Remain open to free flow of ideas
• Toyota and BM W manage joint research and
development
– Reduced risk, state-of-the-art design, lower costs
• Samsung and Bosch jointly produce batteries
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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
• 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
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Companies Want To Consider
• National literacy rate • Work ethic
• Rate of innovation • Tax rates
• Rate of technology • Inflation
change • Availability of raw materials
• Number of skilled workers • Interest rates
• Political stability • Population
• Product liability laws • Transportation
• Export restrictions infrastructure
• Variations in language • Communication system
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Match Product and Parent
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Match Product and Country
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Developing Missions and Strategies
Mission statements tell an organization where it is
going
Strategies tell the organization how to get there
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Mission (1 of 4)
• Mission – the purpose or rationale for an
organization’s existence
– Organization’s purpose for being
– Answers “What do we contribute to society?”
– Provides boundaries and focus
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Mission (2 of 4)
Figure 2.2
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Mission (3 of 4)
Figure 2.2
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Mission (4 of 4)
Figure 2.2
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Strategic Process
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Sample Missions (1 of 4)
Figure 2.3
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Sample Missions (2 of 4)
Figure 2.3
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Sample Missions (3 of 4)
Figure 2.3
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Sample Missions (4 of 4)
Figure 2.3
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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
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Strategies for Competitive Advantage
1. Differentiation – better, or at least different
2. Cost leadership – cheaper
3. Response – more responsive
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Competing on Differentiation
Distinguishing the offerings of an organization in a
way that the customer perceives as adding value
Uniqueness can go beyond both the physical
characteristics and service attributes to encompass
everything that impacts the customer’s perception
of value.
• Safeskin gloves – leading edge products
• Walt Disney Magic Kingdom – experience
differentiation
• Hard Rock Cafe – dining experience
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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
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Competing on Cost
Low-cost leadership means achieving maximum
value, as perceived by the 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
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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
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O M’s Contribution to Strategy
Figure 2.4
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Issues In Operations Strategy
• Resources view
• Value-chain analysis
• Porter’s Five Forces model
• Operating in a system with many external
factors
• Constant change
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Product Life Cycle
Figure 2.5
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SWO T Analysis
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Strategy Development Process
Figure 2.6
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Strategy Development and
Implementation
• Identify key success factors that support core
competencies
• Integrate O M with other activities
• Build and staff the organization
The operations manager’s job is to implement an
O M strategy, provide competitive advantage, and
increase productivity
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Key Success Factors
Figure 2.7
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Activity Mapping at Southwest
Airlines (1 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (2 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (3 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (4 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (5 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (6 of 7)
Figure 2.8
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Activity Mapping at Southwest
Airlines (7 of 7)
Figure 2.8
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Implementing Strategic Decisions
Table 2.1 Operations Strategies of Two Drug Companies
Blank
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION
ADVANTAGE STRATEGY LOW-COST STRATEGY
Product selection and Heavy R&D investment; extensive Low R&D investment; focus on
design labs; focus on development in a development of generic drugs
broad range of drug categories
Quality Quality is major priority, standards Meets regulatory requirements
exceed regulatory requirements on a country-by-country basis,
as necessary
Process Product and modular production Process focused; general
process; tries to have long product production processes; “job
runs in specialized facilities; builds shop” approach, short-run
capacity ahead of demand production; focus on high
utilization
Location Still located in city where it was Recently moved to low-tax, low-
founded labor-cost environment
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Implementing Strategic Decisions
(continued)
Table 2.1 Operations Strategies of Two Drug Companies
Blank
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE PRODUCT DIFFERENTIATION
ADVANTAGE STRATEGY LOW-COST STRATEGY
Layout Layout supports automated Layout supports process-focused “job shop”
product-focused production practices
Human Hire the best; nationwide Very experienced top executives provide
resources searches 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 Process focus drives up work-in-process
inventory primarily to ensure all inventory; finished goods inventory tends to be
demands are met low
Scheduling Centralized production planning Many short-run products complicate scheduling
Maintenance Highly trained staff; extensive Highly trained staff to meet changing process
parts inventory and equipment demands
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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
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Strategic Planning, Core Competencies,
and Outsourcing (continued)
• Subcontracting - contract manufacturing
• Outsourced activities
– Legal services
– I T services
– Travel services
– Payroll
– Production
– Surgery
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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
• On a more macro (country view) basis – countries benefit
from specializing in (and exporting) goods and services in
which they have relative advantage, and they benefit from
importing goods and services in which they have a relative
disadvantage.
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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
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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
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Rating Provider Selection Criteria
Table 2.3 Factor Ratings Applied to National Architects'
Potential I T Outsourcing Providers
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Global Operations Strategy Options
Figure 2.9
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Ranking Corruption
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