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Operations Strategy in a Global Environment Chapter 2 When we complete this chapter you should know: What is Mission and Strategy Explain ten decisions of OM Describe and explain Differentiation, Low Cost, Response Four Global operations Strategies Why Global issues are important Global Strategies Boeing – sales and production 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 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. 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 Boeing Suppliers (787) Firm Dassault Country France Messier-Bugatti Thales France France Diehl FR-HiTemp Germany UK Smiths Aerospace UK Component Design and PLM software Landing gear Electrical power conversion system and integrated standby flight display Interior lighting Fuel pumps and valves Central computer system Firm BAE SYSTEMS Alenia Aeronautics Country UK Italy Toray Industries Japan Fuji Heavy Industries Kawasaki Heavy Industries Japan Japan Component Electronics Upper center fuselage & horizontal stabilizer Carbon fiber for wing and tail units Center wing box Forward fuselage, fixed section of wing, landing gear well Firm Teijin Seiki Mitsubishi Heavy Industries Chengdu Aircraft Group Hafei Aviation Country Japan Japan Component Hydraulic actuators Wing box China Rudder China Parts What is the Reasons to Globalize? Reasons to Globalize Reasons to Globalize Tangible Reasons Intangible Reasons Reduce costs (labor, taxes, tariffs, etc.) Improve supply chain Provide better goods and services Understand markets Learn to improve operations Attract and retain global talent How Globalization helps to Reduce costs? Reduce Costs Foreign locations with lower wage rates can lower direct and indirect costs Maquiladoras World Trade Organization (WTC) North American Free Trade Agreement (NAFTA) APEC, SEATO, MERCOSUR European Union (EU) How Globalization Improves the Supply Chain? What is a supply chain? A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials; transformation of these material into intermediate and finished products; and distribution of these finished products to customers. How Globalization Improves the Supply Chain? Improve the Supply Chain Locating facilities closer to unique resources Auto design to California Athletic shoe production to China Perfume manufacturing in France Globalization can provide Better Goods and Services Improved understanding as the result of a local presence permits firm to customize products and services to meet unique cultural needs in foreign markets. Objective and subjective characteristics of goods and services On-time deliveries Cultural variables Reduce response time. Understand Markets Interacting with foreign customer and suppliers can lead to new opportunities Cell phone design from Europe Cell phone fads from Japan Extend the product life cycle Learn to Improve Operations Remain open to the free flow of ideas General Motors partnered with a Japanese auto manufacturer to learn Scandinavian design ideas have been used to improve equipment design and layout Attract and Retain Global Talent Offer better employment opportunities Better growth opportunities and insulation against unemployment Relocate unneeded personnel to more prosperous locations Incentives for people who like to travel Cultural and Ethical Issues Cultures can be quite different Attitudes can be quite different towards Punctuality Thievery Lunch breaks Bribery Environment Child labor Intellectual property Match Product & Parent Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods 1. 2. 3. 4. 5. 6. 7. 8. Volkswagen Bridgestone Campbell Soup Ford Motor Company Gillette Nestlé Pillsbury Sony Match Product & Parent Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods 1. 2. 3. 4. 5. 6. 7. 8. Volkswagen Bridgestone Campbell Soup Ford Motor Company Gillette Nestlé Pillsbury Sony Match Product & Country Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods 1. 2. 3. 4. 5. Great Britain Germany Japan United States Switzerland Match Product & Country Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods 1. 2. 3. 4. 5. Great Britain Germany Japan United States Switzerland Developing Missions and Strategies Mission statements tell an organization where it is going!? The Strategy tells the organization how to get there!? Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Mission Customers Public Image Benefit to Society Strategy Action plan to achieve mission Functional areas have strategies Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses How firms achieve competitive advantage through operations? 1. 2. 3. Firms achieve missions in three conceptual ways: Differentiation Cost leadership Response This means operations managers are called to deliver goods and services that are 1- better or at least different 2- cheaper 3- more responsive 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 – theme experience 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, no downtown offices, matching capacity with demand Wal-Mart – small overheads, shrinkage, distribution costs, direct shipment, rapid transportation Competing on Response Flexibility is matching market changes in design innovation and volumes Reliability is meeting schedules Institutionalization at Hewlett-Packard German machine industry Timeliness is quickness in design, production, and delivery Johnson Electric, Bennigan’s, Motorola Strategic Process Organization’s Mission Functional Area Missions Marketing Operations Finance/ Accounting OM’s Contribution to Strategy Operations Decisions Product Quality Process Examples Specific Strategy Used Competitive Advantage FLEXIBILITY Sony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume Southwest Airlines No-frills service……..…..LOW COST Location Layout Human resource Supply-chain Inventory Scheduling Maintenance DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability Differentiation (Better) Response (Faster) QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance IBM’s after-sale service on mainframe computers……....AFTER-SALE SERVICE Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE Cost leadership (Cheaper) Figure 2.4 Differentiation, low cost, and response can be achieved when managers make effective decisions in 10 areas of OM (operations decisions): 1. 2. 3. 4. 5. Goods and service design Quality Process and capacity design Location selection Layout design 6. 7. 8. 9. 10. Human resource and job design Supply-chain management Inventory Scheduling Maintenance Operations Strategies for Two Drug Companies Competitive Advantage Brand Name Drugs, Inc. Generic Drug Corp. Product Differentiation Low Cost Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand Process focused; general processes; job shop approach, short production runs; focus on high utilization Location Still located in the city where it was founded Recently moved to lowtax, low-labor-cost environment Table 2.2 Operations Strategies for Two Drug Companies Competitive Advantage Brand Name Drugs, Inc. Generic Drug Corp. Product Differentiation Low Cost Scheduling Centralized production planning Many short-run products complicate scheduling Layout Layout supports automated productfocused production Layout supports processfocused job shop practices Table 2.2 Operations Strategies for Two Drug Companies Competitive Advantage Brand Name Drugs, Inc. Generic Drug Corp. Product Differentiation Low Cost Human Resources Hire the best; nationwide researches Very experienced top executives; other personnel paid below industry average Supply Chain Long-term supplier relationships Tends to purchase competitively to find bargains Table 2.2 Operations Strategies for Two Drug Companies Competitive Advantage Brand Name Drugs, Inc. Generic Drug Corp. Product Differentiation Low Cost Inventory High finished goods inventory to ensure all demands are met Process focus drives up work-in-process inventory; finished goods inventory tends to be low Maintenance Highly trained staff; extensive parts inventory Highly trained staff to meet changing demand Table 2.2 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 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 Global operations strategy options As we suggested early many operations strategies now require an international dimension. Operations managers of international and multinational firms approach global opportunities with one of four operations strategies. Four International Operations Strategies International Strategy Cost Reduction Considerations High Import/export or license existing product Examples U.S. Steel Harley Davidson Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Four International Operations Strategies Global Strategy High Cost Reduction Considerations Standardized product Economies of scale Cross-cultural learning Examples Import/export or license existing Texas Instruments product Examples Caterpillar U.S. Steel Otis Elevator Harley Davidson International Strategy Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Four International Operations Strategies Multidomestic Strategy High Use existing Standardizeddomestic product model Economies of scale Cross-cultural learning globally Examples Franchise, joint Texas Instruments Caterpillar Otis Elevatorventures, subsidiaries Cost Reduction Considerations Global Strategy International Strategy Examples Heinz Examples McDonald’s U.S. Steel Harley Davidson The Body Shop Hard Rock Cafe Import/export or license existing product Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Four International Operations Strategies Transnational Strategy High Move material, people, ideas Examples across national Texas Instruments Caterpillar boundaries Otis Elevator Economies of scale Cross-cultural International Strategy Multidomestic Strategy Use existing learning Import/export or domestic model globally Global Strategy Cost Reduction Considerations Standardized product Economies of scale Cross-cultural learning license existing product Examples Coca-Cola Nestlé Examples U.S. Steel Harley Davidson Low Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop McDonald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Four International Operations Strategies Cost Reduction Considerations High Global Strategy Transnational Strategy Standardized product Economies of scale Cross-cultural learning Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Examples Coca-Cola Nestlé International Strategy Import/export or license existing product Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples U.S. Steel Harley Davidson Examples Heinz The Body Shop McDonald’s Hard Rock Cafe Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Check the course Website for assignments and announcements! 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