Operations

Management1
Operations Strategy in a Global
Environment

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Principles of Operations Management, 5e, and Operations 2-1
Management, 7e
 Outline
 GLOBAL COMPANY PROFILE
 DEVELOPING MISSIONS AND STRATEGIES
 Mission
 Strategy
 ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
 Competing on Differentiation
 Competing on Cost
 Competing on Response
 TEN STRATEGIC OM DECISIONS
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Principles of Operations Management, 5e, and Operations 2-2
Management, 7e
 Porter’s five forces model

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Principles of Operations Management, 5e, and Operations 2-3
Management, 7e
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 Management Issues in
Global Operations

Global Strategic Context

 Differentiation
 Cost leadership
 Response

Supply Chain Location Decisions Logistics Management

Management 

Country-related issues
Product-related issues


Flow of materials
Transportation options and speed
 Sourcing
 Government policy/political risk  Inventory levels
 Vertical integration
 Organizational issues  Packaging
 Make-or-buy decisions
 Storage
 Partnering

PowerPoint presentation to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 2-5
Management, 7e
 Porter’s five forces model of
competition

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 Reasons to Globalize Operations
Free Trade
Tangible
Reduce costs (labour, taxes, tariffs, etc.)
Improve the supply chain
Provide better goods and services
Attract new markets
Learn to improve operations
Attract and retain global talent
Intangible

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Principles of Operations Management, 5e, and Operations 2-7
Management, 7e
 Free trade may
take us into the era of the floating factory - a six
person crew will take a factory from port to port
in order to obtain the best market, material,
labor and tax advantages

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Principles of Operations Management, 5e, and Operations 2-8
Management, 7e
 Location: You May Wish To
Consider
 national literacy rate  work ethic
 rate of innovation  tax rates
 rate of technology change  inflation
 number of skilled workers  availability of raw materials
 stability of government  interest rates
 product liability laws  population
 export restrictions  number of miles of highway
 similarity in language

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Principles of Operations Management, 5e, and Operations 2-9
Management, 7e
 Global
Impact of Culture and Ethics

Cultures differ! Some accept/expect:

 variations in punctuality
 long lunch hours
 expectation of thievery
 bribery
 little protection of intellectual property

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Principles of Operations Management, 5e, and Operations 2-10
Management, 7e
 Ranking Corruption
1. Finland 9.7
2.
… Denmark & New Zealand (Tie) 9.5
7.
… Canada 9.0
10.
… United Kingdom 8.7
16.
… United States 7.7
18.
… Germany & Israel (Tie) 7.3
20.
… Japan 7.1
31.
… Italy 5.2
59.
… China 3.5
62. Egypt 3.4
…
71. India & Russia (Tie) 2.7
…
101. Nigeria 1.6
102. Bangladesh 1.2
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Principles of Operations Management, 5e, and Operations 2-11
Management, 7e
 Mission

 Mission - where are you

going?
 Organization’s purpose for being
 Provides boundaries & focus
 Answers ‘What do we provide
society?’

© 1995 Corel Corp.

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Principles of Operations Management, 5e, and Operations 2-12
Management, 7e
 Sample Mission - Merck
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

HARD ROCK CAFE

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.
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Principles of Operations Management, 5e, and Operations 2-13
Management, 7e
 Factors Affecting Mission
Mission - where you are going
Philosophy &
Values

Profitability
Environment
& Growth
Mission

Customers Public Image

Benefit to
Society

Strategy - how you are going to get there; an action plan

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Principles of Operations Management, 5e, and Operations 2-14
Management, 7e
 Strategy
 Action plan to achieve
mission
 Shows how mission will be
achieved
 Company has a business
strategy
 Functional areas have
strategies © 1995 Corel Corp.

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Principles of Operations Management, 5e, and Operations 2-15
Management, 7e
 Strategy Process
Company
Mission

Business
Strategy

Functional
Functional Area
Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

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Principles of Operations Management, 5e, and Operations 2-16
Management, 7e
Strategies for Competitive Advantage
Differentiation:
Uniqueness can go beyond both the physical characteristics and
service attributes to encompass everything that impacts
customer’s perception of value

Cost leadership
Provide the maximum value as perceived by customer: Does not
imply low value or low quality

Quick response
Flexibility, Reliability, Timeliness
Requires institutionalization within the firm of the ability to
respond
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Principles of Operations Management, 5e, and Operations 2-17
Management, 7e
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Quality FLEXIBILITY
Sony’s constant innovation of new products Design
Product HP’s ability to follow the printer market Volume

Process Southwest Airlines No-frills service LOW COST

Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
Layout Federal Express’s “absolutely, positively on time” Dependability Differentiation
(Better)
Human Resource
QUALITY
Motorola’s automotive products ignition systems Conformance Response
Supply Chain Cost (Faster)
Motorola’s pagers Performance leadership
(Cheaper)
Inventory
IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE
Scheduling
Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE
Maintenance

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Principles of Operations Management, 5e, and Operations 2-18
Management, 7e
 Preconditions -
To Implement a Strategy
One must understand:
 Strengths & weaknesses of competitors and new
entrants into the market
 Current and prospective environmental, legal, and
economic issues
 The notion of product life cycle
 Resources available with the firm and within the OM
function
 Integration of OM strategy with company strategy and
with other functions.
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Principles of Operations Management, 5e, and Operations 2-19
Management, 7e
 Stages in the Product Life Cycle

Introduction
Growth rate

Growth

Maturity

Decline

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Principles of Operations Management, 5e, and Operations 2-20
Management, 7e
 Strategy and Issues During a
Product’s Life

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Principles of Operations Management, 5e, and Operations 2-21
Management, 7e
 SWOT Analysis Process

Environmental Analysis

Determine Corporate Mission

Form a Strategy
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Principles of Operations Management, 5e, and Operations 2-22
Management, 7e
 SWOT Analysis to Strategy
Formulation

Mission

Internal External
Strengths Opportunities
Strategy

Internal External
Weaknesses Threats
Competitive
Advantage
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Principles of Operations Management, 5e, and Operations 2-23
Management, 7e
 Identifying
Critical Success Factors
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

Decisions Sample Option

Product Customized, or standardized
Quality Define customer expectations and how to achieve them
Process Facility size, technology, capacity
Location Near supplier or customer
Layout Work cells or assembly line
Human resource Specialized or enriched jobs
Supply chain Single or multiple source suppliers
Inventory When to reorder, how much to keep on hand
Schedule Stable or fluctuating productions rate
Maintenance Repair as required or preventive maintenance
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Principles of Operations Management, 5e, and Operations 2-24
Management, 7e
 How It Works

If competitive Distinctive
advantage, leads to Company
competencies affect
achieving Mission

Business
Strategy

Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

PowerPoint presentation to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 2-25
Management, 7e
 Four International Operations
Strategies

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Principles of Operations Management, 5e, and Operations 2-26
Management, 7e
 Discussions on topic 1

Mission statement of a company

Strategy adopted by a company
Requirements for fulfilling the stated
mission/strategy
What did you learn?

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Principles of Operations Management, 5e, and Operations 2-27
Management, 7e