PROCESS DESIGN

STRATEGIES

© 2008 Prentice Hall, Inc. 2–1

 Developing Missions and
Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there

© 2008 Prentice Hall, Inc. 2–2

 Mission
 Mission - where are
you going?
 Organization’s
purpose for being
 Answers ‘What do
we provide society?’
 Provides boundaries
and focus

© 2008 Prentice Hall, Inc. 2–3

 FedEx
FedEx is committed to our People-Service-Profit
philosophy. We will produce outstanding financial
returns by providing total reliable, competitively
superior, global air-ground transportation of high
priority goods and documents that require rapid,
time-certain delivery. Equally important, positive
control of each package will be maintained using
real time electronic tracking and tracing systems. A
complete record of each shipment and delivery will
be presented with our request for payment. We will
be helpful, courteous, and professional to each other
and the public. We will strive to have a completely
satisfied customer at the end of each transaction.
Figure 2.2
© 2008 Prentice Hall, Inc. 2–4
 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

Figure 2.2
© 2008 Prentice Hall, Inc. 2–5
 Hard Rock Cafe

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.

Figure 2.2
© 2008 Prentice Hall, Inc. 2–6
 Arnold Palmer Hospital

Arnold Palmer Hospital is a healing

environment providing family-centered
care with compassion, comfort and
respect… when it matters the most.

Figure 2.2
© 2008 Prentice Hall, Inc. 2–7
 Factors Affecting Mission
Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society
© 2008 Prentice Hall, Inc. 2–8
 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
© 2008 Prentice Hall, Inc. 2–9
 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, procurement, production, and field
service operations

Process design To determine and design or produce the

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

Figure 2.3
© 2008 Prentice Hall, Inc. 2 – 10
 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
© 2008 Prentice Hall, Inc. 2 – 11
 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
© 2008 Prentice Hall, Inc. 2 – 12
 Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

© 2008 Prentice Hall, Inc. 2 – 13

 Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

© 2008 Prentice Hall, Inc. 2 – 14

 Strategies for Competitive
Advantage

 Differentiation – better, or at least

different
 Cost leadership – cheaper
 Response – rapid response

© 2008 Prentice Hall, Inc. 2 – 15

 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
© 2008 Prentice Hall, Inc. 2 – 16
 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
 Franz Colruyt – no bags, low light, no
music, doors on freezers
© 2008 Prentice Hall, Inc. 2 – 17
 Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness
in design, production,
and delivery
 Johnson Electric,
Bennigan’s, Motorola

© 2008 Prentice Hall, Inc. 2 – 18

 Issues In Operations Strategy

 Research about effective

operations management
strategies
 Preconditions for developing
effective OM strategies
 The dynamics of OM strategy
development

© 2008 Prentice Hall, Inc. 2 – 19

 Strategy Development Process

Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine 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.

© 2008 Prentice Hall, Inc. Figure 2.6 2 – 20

 Strategy Development and
Implementation
 Identify critical success factors
 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

© 2008 Prentice Hall, Inc. 2 – 21

 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 Options Chapter

Product Customized, or standardized 5
Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10, S10
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

Figure 2.7
© 2008 Prentice Hall, Inc. 2 – 22
 Southwest Airlines Low Cost
Competitive Advantage
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 23
 Activity Mapping
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports
Automated ticketing machines
Competitive Advantage:
No seat assignments
Low Cost
No baggage transfers
High Frequent,
Aircraft No meals (peanuts) Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 24
 Activity Mapping
Courteous, but
Limited Passenger
Service
No meals (peanuts)
Lean,
Lower gate costs at Short Haul, Point-to-
Productive Point Routes, Often to
secondary airports
Employees Secondary Airports
High number of flights
Competitive Advantage:
reduces employee idle time
Low Cost
between flights
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 25
 Activity Mapping
High number of flights
Courteous, but
Limited Passenger
reduces employee idle time
Service
between flights
Lean,
Saturate a city with flights, Short Haul, Point-to-
Productive Point Routes, Often to
lowering administrative
Employees Secondary Airports
costs (advertising, HR, etc.)
Competitive
per passenger Advantage:
for that city
Low Cost
Pilot training required on
Highonly one type of aircraft Frequent,
Aircraft Reliable
Reduced maintenance
Utilization Schedules
Standardized
inventory required because
Fleet of Boeing
of only one type ofAircraft
737 aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 26
 Activity Mapping
Pilot training required on
Courteous,
onlyLimited
one type butaircraft
of
Passenger
ReducedService
maintenance
Lean, inventory required because Short Haul, Point-to-
Productive of only one type of aircraft
Point Routes, Often to
Employees Secondary Airports
Excellent supplier relations
with Boeing
Competitive has aided
Advantage:
financing
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 27
 Activity Mapping
Courteous, but
Limited Passenger
Reduced maintenance
Service
inventory required because
Lean, of only one type of aircraft
Short Haul, Point-to-
Productive Point Routes, Often to
Flexible union
Employees Flexible employeesSecondary
and Airports
contracts standard planes aid
Competitive Advantage:
scheduling
Low Cost
Maintenance personnel
High trained only one type of
Frequent,
Aircraft aircraft Reliable
Utilization Standardized Schedules
20-minute gate turnarounds
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 28
 Activity Mapping
Automated ticketing
Courteous, but
machines
Limited Passenger
Service
Empowered employees
Lean, High employee
Short Haul, Point-to-
Productive Point Routes, Often to
compensation
Employees Secondary Airports
Hire for attitude, then train
Competitive Advantage:
LowHigh level of stock
Cost
ownership
High
Aircraft High number of flightsFrequent,
Reliable
Utilization reduces employee idle time
Standardized Schedules
Fleetbetween
of Boeing flights
737 Aircraft
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 29
 Four International
Operations Strategies

© 2008 Prentice Hall, Inc. 2 – 30

 Four International
Operations Strategies
High

International
Cost Reduction Considerations

Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 31
 Four International
Operations Strategies
High
Cost Reduction Considerations

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 32
 Four International
Operations Strategies
Global
High Strategy
 Standardized
Cost Reduction Considerations

product
 Economies of scale
 Cross-cultural
learning
Examples
International Strategy
 Import/export or
Texas Instruments
license existing
product

Examples Caterpillar
Otis Elevator
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 33
 Four International
Operations Strategies
High
Global Strategy
 Standardized product
Cost Reduction Considerations

 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 34
 FourMultidomestic
International
Operations Strategies
Strategy
High
 Use existing
Global Strategy
 Standardizeddomestic
product model
Cost Reduction Considerations

 Economies of scale
globally
 Cross-cultural learning

Examples
 Franchise, joint
Texas Instruments
Caterpillar
Otis Elevatorventures,

subsidiaries
International Strategy
Examples
 Import/export or

Heinz
license existing
product

Examples
McDonald’s
U.S. Steel
The Body Shop
Harley Davidson

Low Hard Rock Cafe

Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 35
 Four International
Operations Strategies
High
Global Strategy
 Standardized product
Cost Reduction Considerations

 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 36
 Four International
Operations Strategies
Transnational
High Strategy
 Move material,
Global Strategy
 Standardized product
Cost Reduction Considerations

people, ideas
 Economies of scale
 Cross-cultural learning

Examples across national

Texas Instruments
Caterpillar boundaries
Otis Elevator
 Economies of scale
 Cross-cultural
International Strategy Multidomestic Strategy
learning
 Import/export or
 Use existing
domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples
Examples Examples
Coca-Cola
U.S. Steel
Harley Davidson
Heinz The Body Shop
McDonald’s Hard Rock Cafe

Low Nestlé
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 37
 Four International
Operations Strategies
High
Global Strategy Transnational Strategy
 Standardized product  Move material, people, ideas
Cost Reduction Considerations

 Economies of scale across national boundaries

 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
© 2008 Prentice Hall, Inc.
(Quick Response and/or Differentiation) 2 – 38