Operations Strategy in a Global Environment

1. Global Company Profile: Boeing
a. Boeing – sales and production are worldwide
b. Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution
c. Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
d. Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.
e. Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina

2. A Global View of Operations
a. Reasons to Globalize
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
Note : Tangible Reasons and Intangible Reasons
b. Reduce Costs
Foreign locations with lower wage rates can lower direct and indirect costs
a. Maquiladoras
b. World Trade Organization (WTO)
c. North American Free Trade Agreement (NAFTA)
d. APEC, SEATO, MERCOSUR
e. European Union (EU)
c. Improve the Supply Chain
Locating facilities closer to unique resources
a. Auto design to California
b. Athletic shoe production to China
c. Perfume manufacturing in France
d. Provide Better Goods and Services
Objective and subjective characteristics of goods and services
a. On-time deliveries
b. Cultural variables
c. Improved customer service
e. Understand Markets
Interacting with foreign customers and suppliers can lead to new opportunities
a. Cell phone design from Europe
b. Cell phone fads from Japan
c. Extend the product life cycle
f. Attract and Retain Global Talent
Offer better employment opportunities
a. Better growth opportunities and insulation against unemployment
b. Relocate unneeded personnel to more prosperous locations
c. Incentives for people who like to travel
g. Cultural and Ethical Issues
a. Cultures can be quite different
b. Attitudes can be quite different towards
• Punctuality
• Lunch breaks
• Environment
• Intellectual property
• Thievery
• Bribery
• Child labor
h. You May Wish To Consider
• National literacy rate
• Rate of innovation
• Rate of technology change
• Number of skilled workers
• Political stability
• Product liability laws
• Export restrictions
• Variations in language
• Work ethic
• Tax rates
• Inflation
• Availability of raw materials
• Interest rates
• Population
• Number of miles of highway
• Phone system

3. Developing Missions And Strategies
Mission statements tell an organization where it is going. The Strategy tells the organization how to get there.
A. Mission
B. Strategy
A. Mission
Mission - where are you going?
a. Organization’s purpose for being
b. Answers ‘What do we provide society?’
c. Provides boundaries and focus
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.
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
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.
Factors Affecting Mission
1. Philosophy and Values
2. Profitability and Growth
3. Public Image
4. Environment
5. Customers
6. Benefit to Society
Sample Missions
a. Sample Company Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
b. Sample Operations Management Mission
To produce products consistent with the company’s mission as the worldwide low-cost manufacturer
B. Strategy
• Action plan to achieve mission
• Functional areas have strategies
• Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

4. Achieving Competitive Advantage Through Operations
Strategies for Competitive Advantage
• Differentiation – better, or at least different
• Cost leadership – cheaper
• Response – rapid response
1. 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
2. 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
3. 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

5. Ten Strategic OM Decisions
1. Goods and service design
2. Quality
3. Process and capacity design
4. Location selection
5. Layout design
6. Human resources and job design
7. Supply chain management
8. Inventory
9. Scheduling
10. Maintenance
Managing Global Service Operations
Requires a different perspective on : Capacity planning, Location planning, Facilities design and layout and Scheduling

6. Issues In Operations Strategy
1. Research about effective operations management strategies
2. Preconditions for developing effective OM strategies
3. The dynamics of OM strategy development
Characteristics of High ROI Firms
• High product quality
• High capacity utilization
• High operating efficiency
• Low investment intensity
• Low direct cost per unit
Strategic Options to Gain a Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Elements of Operations Management Strategy
• Low-cost product
• Product-line breadth
• Technical superiority
• Product characteristics/differentiation
• Continuing product innovation
• Low-price/high-value offerings
• Efficient, flexible operations adaptable to consumers
• Engineering research development
• Location
• Scheduling
Preconditions
One must understand :
1. Strengths and weaknesses of competitors and possible new entrants into the market
2. Current and prospective environmental, technological, legal, and economic issues
3. The product life cycle
4. Resources available within the firm and within the OM function
5. Integration of OM strategy with company’s strategy and with other functional areas
Dynamics of Strategic Change
• Changes within the organization
a. Personnel
b. Finance
c. Technology
d. Product life
• Changes in the environment

Product Life Cycle
a. Introduction
• Product design and development critical
• Frequent product and process design changes
• Short production runs
• High production costs
• Limited models
• Attention to quality
b. Growth
• Forecasting critical
• Product and process reliability
• Competitive product improvements and options
• Increase capacity
• Shift toward product focus
• Enhance distribution
c. Maturity
• Standardization
• Less rapid product changes – more minor changes
• Optimum capacity
• Increasing stability of process
• Long production runs
• Product improvement and cost cutting
d. Decline
• Little product differentiation
• Cost minimization
• Overcapacity in the industry
• Prune line to eliminate items not returning good margin
• Reduce capacity
Strategy Development Process
a. Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.
b. Determine Corporate Mission
State the reason for the firm’s existence and identify the value it wishes to create.
c. 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

7. Strategy Development and Implementation
a. Identify critical success factors
b. Build and staff the organization
c. Integrate OM with other activities
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

8. Global Operations Strategy Options
1. International Strategy
Import/export or license existing product
Examples : U.S. Steel and Harley Davidson
2. Global Strategy
• Standardized product
• Economies of scale
• Cross-cultural learning
Examples : Texas Instruments, Caterpillar and Otis Elevator
3. Multidomestic Strategy
• Use existing domestic model globally
• Franchise, joint ventures, subsidiaries
Examples : Heinz, McDonald’s, The Body Shop and Hard Rock Cafe
4. Transnational Strategy
• Move material, people, ideas across national boundaries
• Economies of scale
• Cross-cultural learning
Examples : Coca-Cola and Nestlé
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Operations Strategy in a Global Environment

1. Global Company Profile: Boeing
a. Boeing – sales and production are worldwide
b. Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution
c. Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
d. Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe.
e. Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina

2. A Global View of Operations
a. Reasons to Globalize
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
Note : Tangible Reasons and Intangible Reasons
b. Reduce Costs
Foreign locations with lower wage rates can lower direct and indirect costs
a. Maquiladoras
b. World Trade Organization (WTO)
c. North American Free Trade Agreement (NAFTA)
d. APEC, SEATO, MERCOSUR
e. European Union (EU)
c. Improve the Supply Chain
Locating facilities closer to unique resources
a. Auto design to California
b. Athletic shoe production to China
c. Perfume manufacturing in France
d. Provide Better Goods and Services
Objective and subjective characteristics of goods and services
a. On-time deliveries
b. Cultural variables
c. Improved customer service
e. Understand Markets
Interacting with foreign customers and suppliers can lead to new opportunities
a. Cell phone design from Europe
b. Cell phone fads from Japan
c. Extend the product life cycle
f. Attract and Retain Global Talent
Offer better employment opportunities
a. Better growth opportunities and insulation against unemployment
b. Relocate unneeded personnel to more prosperous locations
c. Incentives for people who like to travel
g. Cultural and Ethical Issues
a. Cultures can be quite different
b. Attitudes can be quite different towards
• Punctuality
• Lunch breaks
• Environment
• Intellectual property
• Thievery
• Bribery
• Child labor
h. You May Wish To Consider
• National literacy rate
• Rate of innovation
• Rate of technology change
• Number of skilled workers
• Political stability
• Product liability laws
• Export restrictions
• Variations in language
• Work ethic
• Tax rates
• Inflation
• Availability of raw materials
• Interest rates
• Population
• Number of miles of highway
• Phone system

3. Developing Missions And Strategies
Mission statements tell an organization where it is going. The Strategy tells the organization how to get there.
A. Mission
B. Strategy
A. Mission
Mission - where are you going?
a. Organization’s purpose for being
b. Answers ‘What do we provide society?’
c. Provides boundaries and focus
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.
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
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.
Factors Affecting Mission
1. Philosophy and Values
2. Profitability and Growth
3. Public Image
4. Environment
5. Customers
6. Benefit to Society
Sample Missions
a. Sample Company Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
b. Sample Operations Management Mission
To produce products consistent with the company’s mission as the worldwide low-cost manufacturer
B. Strategy
• Action plan to achieve mission
• Functional areas have strategies
• Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

4. Achieving Competitive Advantage Through Operations
Strategies for Competitive Advantage
• Differentiation – better, or at least different
• Cost leadership – cheaper
• Response – rapid response
1. 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
2. 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
3. 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

5. Ten Strategic OM Decisions
1. Goods and service design
2. Quality
3. Process and capacity design
4. Location selection
5. Layout design
6. Human resources and job design
7. Supply chain management
8. Inventory
9. Scheduling
10. Maintenance
Managing Global Service Operations
Requires a different perspective on : Capacity planning, Location planning, Facilities design and layout and Scheduling

6. Issues In Operations Strategy
1. Research about effective operations management strategies
2. Preconditions for developing effective OM strategies
3. The dynamics of OM strategy development
Characteristics of High ROI Firms
• High product quality
• High capacity utilization
• High operating efficiency
• Low investment intensity
• Low direct cost per unit
Strategic Options to Gain a Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Elements of Operations Management Strategy
• Low-cost product
• Product-line breadth
• Technical superiority
• Product characteristics/differentiation
• Continuing product innovation
• Low-price/high-value offerings
• Efficient, flexible operations adaptable to consumers
• Engineering research development
• Location
• Scheduling
Preconditions
One must understand :
1. Strengths and weaknesses of competitors and possible new entrants into the market
2. Current and prospective environmental, technological, legal, and economic issues
3. The product life cycle
4. Resources available within the firm and within the OM function
5. Integration of OM strategy with company’s strategy and with other functional areas
Dynamics of Strategic Change
• Changes within the organization
a. Personnel
b. Finance
c. Technology
d. Product life
• Changes in the environment

Product Life Cycle
a. Introduction
• Product design and development critical
• Frequent product and process design changes
• Short production runs
• High production costs
• Limited models
• Attention to quality
b. Growth
• Forecasting critical
• Product and process reliability
• Competitive product improvements and options
• Increase capacity
• Shift toward product focus
• Enhance distribution
c. Maturity
• Standardization
• Less rapid product changes – more minor changes
• Optimum capacity
• Increasing stability of process
• Long production runs
• Product improvement and cost cutting
d. Decline
• Little product differentiation
• Cost minimization
• Overcapacity in the industry
• Prune line to eliminate items not returning good margin
• Reduce capacity
Strategy Development Process
a. Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.
b. Determine Corporate Mission
State the reason for the firm’s existence and identify the value it wishes to create.
c. 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

7. Strategy Development and Implementation
a. Identify critical success factors
b. Build and staff the organization
c. Integrate OM with other activities
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

8. Global Operations Strategy Options
1. International Strategy
Import/export or license existing product
Examples : U.S. Steel and Harley Davidson
2. Global Strategy
• Standardized product
• Economies of scale
• Cross-cultural learning
Examples : Texas Instruments, Caterpillar and Otis Elevator
3. Multidomestic Strategy
• Use existing domestic model globally
• Franchise, joint ventures, subsidiaries
Examples : Heinz, McDonald’s, The Body Shop and Hard Rock Cafe
4. Transnational Strategy
• Move material, people, ideas across national boundaries
• Economies of scale
• Cross-cultural learning
Examples : Coca-Cola and Nestlé

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