Operations

Management
Chapter 2 –
Operations Strategy in
a Global Environment

2–1
 Reasons to Globalize

Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons 6. Attract and retain global talent

2–2
Developing Missions and
Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there

2–3
 Mission

 Mission - where are

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

2–4
 Factors Affecting Mission
Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society
2–5
 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
2–6
 Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

2–7
 Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

2–8
Strategies for Competitive
Advantage

 Differentiation – better, or at least

different
 Cost leadership – cheaper
 Response – rapid response

2–9
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage

Product FLEXIBILITY:
Sony’s constant innovation
Quality of new products………………………………....Design
HP’s ability to lead
the printer market………………………………Volume
Process
Southwest Airlines No-frills service……..…..LOW COST
Location
DELIVERY:
Pizza Hut’s 5-minute guarantee Differentiation
Layout at lunchtime…………………..…..………………….Speed (Better)
Federal Express’s “absolutely,
Human positively on time”………………………..….Dependability
resource Response
QUALITY:
Motorola’s HDTV converters….……........Conformance (Faster)
Supply chain Motorola’s pagers………………………..….Performance Cost
leadership
Caterpillar’s after-sale service (Cheaper)
Inventory on heavy equipment……………....AFTER-SALE SERVICE

Scheduling Fidelity Security’s broad

line of mutual funds………….BROAD PRODUCT LINE
Maintenance Figure 2.4
2 – 10
2 – 11
 Process Design
High Process-focused Mass Customization
JOB SHOPS Customization at high
(Print shop, emergency Volume
room, machine shop, (Dell Computer’s PC,
Variety of Products

fine-dining Repetitive (modular) cafeteria)

restaurant) focus
ASSEMBLY LINE
Moderate (Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, beer, paper,
bread, institutional
kitchen)
Low

Low Moderate High

Volume
2 – 12
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
2 – 13
 Preconditions
One must understand:
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas

2 – 14
 Dynamics of
Strategic Change
 Changes within the organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment

2 – 15
 Product Life Cycle
Introduction Growth Maturity Decline
Best period to Practical to change Poor time to Cost control
Company Strategy/Issues

increase market price or quality change image, critical

share image price, or quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position
CD-ROMs
Internet search engines
Analog TVs
Drive-through
LCD & plasma TVs restaurants

Sales iPods

3 1/2”
Xbox 360 Floppy
disks

Figure 2.5
2 – 16
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting Standardization Little product
and critical Less rapid differentiation
development Product and product changes Cost
OM Strategy/Issues

critical process – more minor minimization

Frequent reliability changes Overcapacity
product and Competitive Optimum in the
process design product capacity industry
changes improvements Increasing Prune line to
Short production and options stability of eliminate
runs Increase capacity process items not
High production Shift toward Long production returning
costs product focus runs good margin
Limited models Enhance Product Reduce
Attention to distribution improvement capacity
quality and cost cutting

Figure 2.5
2 – 17
 SWOT Analysis

Mission

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses Threats
Strategy

2 – 18
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.

Figure 2.6 2 – 19
 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

2 – 20
 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
(Quick Response and/or Differentiation) 2 – 21