College of Science and
Human Studies at Ghat
Female Branch
Operations
Management
Operations Strategy
Chapter 2
Instructor: Fatma Letaief
1st Mid term 1436-1437
Learning Objectives
When you complete this chapter, you should
be able to :
Identify or Define:
Mission
Strategy
Ten Decisions of OM
 Multinational Corporations



2-2
Learning Objectives - Continued
Describe or Explain:
 Specific approaches used by OM to achieve
strategies
 Differentiation
 Low Cost
 Response
 Four Global Operations Strategies
 Why Global Issues are Important
2-3
Mission
 Mission - where are you
going?



Organization’s purpose for being
Provides boundaries & focus
Answers ‘What do we provide
society?’
2-4
Factors Affecting Mission
Philosophy &
Values
Profitability
& Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
2-5
Strategy
 Action plan to achieve
mission
 Shows how mission will be
achieved
 Company has a business
strategy
 Functional areas have
strategies
2-6
Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing
Decisions
Operations
Decisions
2-7
Fin./Acct.
Decisions
Mission/Strategy
Mission - where you are going
Strategy - how you are going to get there; an
action plan
2-8
Strategies for Competitive
Advantage
Differentiation
Cost leadership
Quick response
2-9
Competing on Differentiation
Uniqueness can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts customer’s
perception of value
2-10
Competing on Cost
Provide the maximum value as perceived by
customer
Does not imply low value or low quality
2-11
Competing on Response
Flexibility
Reliability
Timeliness
Requires institutionalization within the firm of the
ability to respond
2-12
Competing, Regardless of the Basis,
Requires the institutionalization within the firm of
the ability to change, and to adapt
2-13
OM’s Contribution to Strategy
Operations
Decisions
Specific
Strategy Used
Examples
Quality
Product
FLEXIBILITY
Sony’s constant innovation of new products
HP’s ability to follow the printer market
Process
Design
Volume
Southwest Airlines No-frills service
LOW COST
Location
DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime
Federal Express’s “absolutely, positively on time”
Layout
Human Resource
Supply Chain
Speed
Dependability
Maintenance
Differentiation
(Better)
QUALITY
Motorola’s automotive products ignition systems
Motorola’s pagers
Conformance
Performance
Inventory
Scheduling
Competitive
Advantage
IBM’s after-sale service on mainframe computers
Fidelity Security’s broad line of mutual funds
2-14
AFTER-SALE SERVICE
BROAD PRODUCT LINE
Cost
leadership
(Cheaper)
Response
(Faster)
10 Strategic OM Decisions
 Goods & service design
 Quality

Process & capacity design

Location selection

Layout design

Human resource and job design

Supply-chain management

Inventory

Scheduling

Maintenance
2-15
Goods & Services and the 10 OM
Decisions
Operations
Decisions
Goods
Services
Goods &
services
decisions
Quality
Product is usually
tangible
Product is usually
intangible
Objective quality
standards
Subjective quality
standards
Process
and
capacity
design
Customer not involved
in most of process
Customer may be directly
involved in process.
Capacity must match
demand to avoid lost sales
2-16
Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Location
Selection
Layout
Design
Human
Resources
and Job
Design
Goods
Services
May need to be near raw
materials or labor force
My not need to bee neer
to materials or labor force
Layout can enhance
production efficiency
Subjective quality
standards
Workforce focused on
technical skills.
Labor standards consistent.
Output-based wage system.
Customer may be directly
involved in process.
Capacity matches
demand to avoid lost
sales
2-17
Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Goods
Services
Supply-chain relationships
Supply chain Supply-chain
management relationships critical to important, not necessarily
final product
critical
Inventory
Raw materials, workin-process, and
finished goods
Most services cannot be
stored
Scheduling
Ability to convert
inventory may allow
leveling of production
rates
2-18
Primarily concerned with
meeting the customer's
immediate schedule
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Goods & Services and the 10 OM
Decisions – Continued
Operations
Decisions
Goods
Services
Maintenance Maintenance is often
Maintenance is often
preventive and takes "repair" and takes place at
place at the production the customer's site
site
2-19
Process Design
High
Customization at high
Volume
Process-focused
Job Shops
Variety of Products
(Print shop, emergency
room , machine shop,
fine dining
Mass Customization
(Dell Computer’s PC)
Repetitive (modular)
focus
Assembly line
(Cars, appliances, TVs,
fast-food restaurants)
Moderate
Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low
Moderate
Volume
2-20
High
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.

2-21
Impetus for Strategy Change
Changes in the organization
Stages in the product life cycle
Changes in the environment
2-22
Growth rate
Stages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
2-23
Strategy & Issues During Product Life
Introduction
Company  Best period to increase market share
R&D engineering are critical
Strategy &
Issues
Product design and development are critical
Frequent product and process design changes
Over-capacity
Short production runs
OM Strategy  High skilled-labor content
High production costs
& Issues
Limited number of models
Utmost attentions to quality
Quick elimination of market-revealed design defects
2-24
Strategy & Issues During Product Life
Growth
Company
Strategy
& Issues
OM Strategy
& Issues
Practical to change prices or quality image
Marketing is critical
Strengthen niche
Forecasting is critical
Product and process reliability
Competitive product improvements and options
Shift toward product oriented
Enhance distribution
2-25
Strategy & Issues During Product Life
Maturity
Company
Strategy
& Issues
OM Strategy
& Issues
Poor time to increase market share
Competitive costs become critical
Poor time to change price, image, or quality
Defend position via fresh promotional and distribution
approaches
Standardization
Less rapid product changes and more minor annual model
changes
Optimum capacity
Increasing stability of manufacturing process
Lower labor skills
Long production runs
Attention to product improvement and cost cutting
Re-examination of necessity of design compromises
2-26
Strategy & Issues During Product Life
Decline
Company Strategy Cost control critical to market share
& Issues
Little product differentiation
OM Strategy Cost minimization
& Issues Overcapacity in the industry
Prune line to eliminate items not returning
Good margin
Reduce capacity
2-27
Strategy Development and
Implementation
Identify critical success factors
Build and staff the organization
2-28
SWOT Analysis Process
Environmental Analysis 
Determine Corporate Mission
Form a Strategy
2-29
SWOT Analysis to Strategy
Formulation
Mission
Internal
Strengths
External
Opportunities
Strategy
Internal
Weaknesses
Competitive
Advantage
2-30
External
Threats
Identifying
Critical Success Factors
Marketing
Finance/Accounting
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Production/Operations
Decisions
Sample Option
Chapter
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
Customized, or standardized
5
Define customer expectations and how to achieve them
6, S6
Facility size, technology, capacity
7, S7
Near supplier or customer
8
Work cells or assembly line
9
Specialized or enriched jobs
10, S10
Single or multiple source suppliers
11, S11
When to reorder, how much to keep on hand
12, 14,16
Stable or fluctuating productions rate
13, 15
Repair as required or preventive maintenance
17
2-31
How It Works
If competitive
advantage, leads to
achieving
Company
Mission
Distinctive
competencies affect
Business
Strategy
Functional Area
Strategies
Marketing
Decisions
Operations
Decisions
2-32
Fin./Acct.
Decisions
Four International Operations
Strategies
2-33
Defining Global Operations
 International business - engages in cross-border
transactions
 Multinational Corporation - has extensive involvement in
international business, owning or controlling facilities in
more than one country
 Global company - integrates operations from different
countries, and views world as a single marketplace
 Transnational company - seeks to combine the benefits of
global-scale efficiencies with the benefits of local
responsiveness
2-34
Multidomestic Strategy
Operating decisions are decentralized to each
country to enhance local responsiveness
2-35
Global Strategy
Operating decisions are centralized and
headquarters coordinates the standardization
and learning between facilities
2-36
Transnational Strategies
Combines the benefits of global-scale efficiencies
with the benefits of local responsiveness
2-37
International Strategy
Global markets are penetrated using exports and
licenses
2-38
Management Issues in
Global Operations
Global Strategic Context
Differentiation
 Cost leadership
 Response

Supply Chain
Management
Location Decisions
2-39
Logistics
Management
Supply-Chain Management
Sourcing
Vertical integration
Make-or-buy decisions
Partnering
2-40
Location Decisions
Country-related issues
Product-related issues
Government policy/political risk
Organizational issues
2-41
Materials Management
Flow of materials
Transportation options and speed
Inventory levels
Packaging
Storage
2-42
Reasons to Globalize Operations
Tangible
Reduce costs (labor, 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
2-43
Achieving Global Operations
-Four ConsiderationsGlobal product design
Global process design and technology
Global factory location analysis
Impact of Culture and Ethics
2-44
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

2-45
You May Wish To Consider
 work ethic
 tax rates
 inflation
 availability of raw materials
 interest rates
 population
 number of miles of highway
 national literacy rate
 rate of innovation
 rate of technology change
 number of skilled workers
 stability of government
 product liability laws
 export restrictions
 similarity in language
2-46