Operations Management Operations Strategy in a Global Environment Chapter 2 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-1 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Outline ♦ GLOBAL COMPANY PROFILE: BOEING ♦ DEVELOPING MISSIONS AND STRATEGIES ♦ Mission ♦ Strategy ♦ ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS ♦ Competing on Differentiation ♦ Competing on Cost ♦ Competing on Response ♦ TEN STRATEGIC OM DECISIONS PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-2 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Outline - Continued ♦ ISSUES IN OPERATIONS STRATEGY Research ♦ Preconditions ♦ Dynamics ♦ ♦ STRATEGY DEVELOPMENT AND IMPLEMENTATION Identify Critical Success Factors ♦ A Global view of Operations Cultural and Ethical Issues ♦ Build and Staff the Organization ♦ Integrate OM with Other Activities ♦ PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-3 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Outline - Continued ♦ GLOBAL OPERATIONS STRATEGY OPTIONS International Strategy ♦ Multidomestic Strategy ♦ Global Strategy ♦ Transnational Strategy ♦ PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-4 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Mission ♦ Strategy ♦ Ten Decisions of OM ♦ Multinational Corporations ♦ PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-5 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-6 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Examples of Global Strategies ♦ Boeing – both sales and production are worldwide. ♦ Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution ♦ Sony – purchases components from suppliers in Thailand, Malaysia, and around the world ♦ GM is building four similar plants in Argentina, Poland, China, and Thailand PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-7 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Boeing Suppliers (777) Firm Country Parts Alenia Italy Wing flaps AeroSpace Technologies CASA Fuji Australia Rudder Spain Japan GEC Avionics Korean Air Menasco Aerospace United Kingdom Korea Canada Ailerons Landing gear doors, wing section Flight computers Flap supports Landing gears Short Brothers Ireland Landing gear doors Singapore Aerospace Singapore Landing gear doors PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-8 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 The Role of ♦ Maquiladoras ♦ World Trade Organization (WTC) ♦ North American Free Trade Agreement (NAFTA) ♦ European Union (EU) PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-9 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Management Issues in Global Operations Global Strategic Context Differentiation ♦ Cost leadership ♦ Response ♦ Supply Chain Management PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Location Decisions 2-10 Logistics Management © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Supply-Chain Management ♦ Sourcing ♦ Vertical integration ♦ Make-or-buy decisions ♦ Partnering PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-11 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Location Decisions ♦ Country-related issues ♦ Product-related issues ♦ Government policy/political risk ♦ Organizational issues PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-12 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Materials Management ♦ Flow of materials ♦ Transportation options and speed ♦ Inventory levels ♦ Packaging ♦ Storage PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-13 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 2-14the benefits of local responsiveness PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Some Multinational Corporations Company Home Country % Sales Outside Home % Assets Outside Home Country Country % Foreign Workforce Citicorp USA 34 46 NA ColgatePalmolive USA 72 63 NA Dow Chemical Gillette USA 60 50 NA USA 62 53 NA Honda Japan 63 36 NA IBM USA 57 47 51 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-15 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Some Multinational Corporations Company Home Country % Sales Outside Home Country % Assets Outside Home Country % Foreign Workforce ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Electronics Siemens Netherlands 94 85 82 Germany 51 NA 38 Britain & Netherlands 95 70 64 Unilever PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-16 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Pontiac - the LeMans Included the Following ♦ About $6,000 heads to South Korea for auto’s assembly ♦ $3,500 goes to Japan for engines, axles, and electronics ♦ $1,500 goes to Germany for design ♦ $800 goes to Taiwan, Singapore, and Japan for smaller parts ♦ $500 heads to England for marketing ♦ $100 goes to Ireland for information technology ♦ the rest ≅ $7,600, goes to GM and its US bankers, insurance agents, and attorneys. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-17 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Reasons to Globalize Operations Tangible Intangible ♦ 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-18 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Trade and Tariff ♦ Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment ♦ GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders ♦ NAFTA - a free trade agreement between Canada, Mexico, and the United States PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-19 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Trade Pays GDP (PPP*) per Person 1990 Growth Rates, % *PPP – Purchasing Power Parity 5 4 3 2 1 0 -1 More globalized poor countries PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Rich countries 2-20 Less globalized poor countries © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Free trade may take us into the era of the floating factory - a six person crew will take a factory from port to port in order to obtain the best market, material, labor and tax advantages PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-21 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Achieving Global Operations -Four Considerations♦ Global product design ♦ Global process design and technology ♦ Global factory location analysis ♦ Impact of Culture and Ethics PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-22 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Global Product Design ♦ Remember social and cultural differences ♦ packaging and marketing can help make product seem “domestic” but ♦ “liter” versus “quart” ♦ “sweetness” and “taste” PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-23 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Global Process Design and Technology ♦ Information technology enables management of integrated, globally dispersed operation ♦ Texas Instruments: 50 plants in 19 countries ♦ Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany ♦ Reduces time-to-market PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-24 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Global Facility Location Analysis Using CSFs for Country Selection ♦ Select CSFs based on parent organization;’s strategic or operations objectives ♦ Obtain country-specific information on the CSFs ♦ Evaluate each country’s CSFs using a 1 (bad) to 5 (good) rating scale ♦ Sum the ratings PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-25 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-26 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 ♦ PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-27 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Ranking Corruption 1. 2. 7. 10. 16. 18. 20. 31. 59. 62. … 71. … 2. 3. Finland Denmark & New Zealand (Tie) Canada United Kingdom United States Germany & Israel (Tie) Japan Italy China Egypt India & Russia (Tie) Nigeria Bangladesh PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-28 9.7 9.5 9.0 8.7 7.7 7.3 7.1 5.2 3.5 3.4 2.7 1.6 1.2 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 To Establish Global Services ♦ Determine if sufficient people or facilities exist to support the service ♦ Identify foreign markets that are open - not controlled by governments ♦ Determine what services are of most interest to foreign customers ♦ Determine how to reach global customers PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-29 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Managing Global Service Operations Must take a different perspective on ♦ Capacity planning ♦ Location Planning ♦ Facilities design and layout ♦ Scheduling PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-30 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Some Definitions ♦ International business ♦ A firm that engages in cross-border transactions. ♦ Multinational Corporation (MNC) ♦ A firm that has extensive involvement in international business, owning or controlling facilities in more than one country PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-31 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Some Global Strategies ♦ International Strategy: uses exports and licenses to penetrate the global area ♦ Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business ♦ Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants ♦ Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-32 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Match Product & Parent ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1. Volkswagen 2. Bidermann International 3. Bridgestone 4. Campbell Soup 5. Credit Lyonnais 6. Ford Motor Company 7. Gillette 8. Grand Metropolitan 9. Michelin 10. Nestlé 2-33 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Match Product & Country ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1. France 2. Great Britain 3. Germany 4. Japan 5. United States 6. Switzerland 2-34 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Developing Missions and Strategies PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-35 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Mission ♦ Mission - where are you going? ♦ ♦ ♦ Organization’s purpose for being Provides boundaries & focus Answers ‘What do we provide society?’ © 1995 Corel Corp. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-36 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Mission of 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. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-37 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Sample Mission - 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-38 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Mission of the Hard Rock Café 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. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-39 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Factors Affecting Mission Philosophy & Values Profitability & Growth Environment Mission Customers Public Image Benefit to Society PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-40 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Mission/Strategy ♦ Mission - where you are going ♦ Strategy - how you are going to get there; an action plan PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-41 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy ♦ Action plan to achieve mission ♦ Shows how mission will be achieved ♦ Company has a business strategy ♦ Functional areas have strategies PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 1995 Corel Corp. 2-42 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy Process Company Mission Business Strategy Functional Functional Area Area Strategies Marketing Decisions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Operations Decisions 2-43 Fin./Acct. Decisions © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategies for Competitive Advantage ♦ Differentiation ♦ Cost leadership ♦ Quick response PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-44 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-45 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Competing on Cost Provide the maximum value as perceived by customer Does not imply low value or low quality PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-46 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Competing on Response ♦ Flexibility ♦ Reliability ♦ Timeliness Requires institutionalization within the firm of the ability to respond PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-47 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Competing, Regardless of the Basis, Requires the institutionalization within the firm of the ability to change, and to adapt PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-48 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 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 Cost leadership (Cheaper) Response (Faster) AFTER-SALE SERVICE BROAD PRODUCT LINE Maintenance PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-49 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-50 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-51 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 Product is usually intangible 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-52 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 Raw materials, workin-process, and finished goods Most services cannot be stored Ability to convert inventory may allow leveling of production PowerPoint presentation to accompanyrates Heizer/Render – 2-53 Primarily concerned with meeting the customer's immediate schedule Inventory Scheduling Principles of Operations Management, 5e, and Operations Management, 7e © 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-54 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Process Design High Customization at high Volume Process-focused Variety of Products Job Shops (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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Moderate Volume 2-55 High © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Operations Strategies for Two Drug Companies Brand Name Drugs, Inc. Generic Drug Corp. Heavy R & D; Product Extensive labs; focus Selection and Design on development in Low R & D investment; focus on development of generic drugs Quality Meets regulatory requirements on a country-by-country basis as necessary broad range of \drug categories Quality is a major priority; Standards exceed regulatory requirements PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-56 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Operations Strategies for Two Drug Companies - Continued Brand Name Drugs, Inc. Product & modular production processes Long product runs in specialized facilities Build capacity ahead of demand Still located in city in Location which it was founded Scheduling Central production planning Process PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Generic Drug Corp. Process focused General production processes; “Job Shop” approach, short run; Focus on high utilization Recently moved to low tax, low labor cost environment Many short run products complicate scheduling 2-57 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Operations Strategies for Two Drug Companies - Continued Brand Name Drugs, Inc. Human Resources Supply Chain Inventory Generic Drug Corp. Hires the best; nationwide searches Very experienced top executives provide direction; other personnel paid below average Long term supplier Tends to purchase competitively relationship to find bargains Maintains high finished Process focus drives up WIP goods inventory, inventory. primarily to ensure all Finished goods inventory tends demands are met to be low PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-58 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Operations Strategies for Two Drug Companies - Continued Brand Name Drugs, Inc. Maintenance Highly trained staff; Extensive parts inventory PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-59 Generic Drug Corp. Highly trained staff to meet challenging demands © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Characteristics of High ROI Firms ♦ High quality product ♦ High capacity utilization ♦ High operating effectiveness ♦ Low investment intensity ♦ Low direct cost per unit From the PIMS study of the Strategic Planning Institute PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-60 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategic Options Managers Use to Gain Competitive Advantage ♦ 28% - Operations Management ♦ 18% - Marketing/distribution ♦ 17% - Momentum/name recognition ♦ 16% - Quality/service ♦ 14% - Good management ♦ 4% - Financial resources ♦ 3% - Other PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-61 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategic Options Managers Use to Gain Competitive Advantage ♦ 28% Operations Management ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-62 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-63 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Impetus for Strategy Change ♦ Changes in the organization ♦ Stages in the product life cycle ♦ Changes in the environment PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-64 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Growth rate Stages in the Product Life Cycle Introduction Growth Maturity Decline PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-65 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy & Issues During Product Life Introduction ♦ Company Strategy & Issues ♦ OM Strategy & Issues Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-66 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-67 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy & Issues During Product Life Maturity Company 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 OM Strategy & Issues 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-68 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy & Issues During Product Life Decline Company Strategy & Issues OM Strategy & Issues Cost control critical to market share Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-69 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy and Issues During a Product’s Life PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-70 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Strategy Development and Implementation ♦ Identify critical success factors ♦ Build and staff the organization PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-71 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 SWOT Analysis Process ♦ Environmental Analysis ♦ Determine Corporate Mission ♦ Form a Strategy PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-72 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 SWOT Analysis to Strategy Formulation Mission Internal Strengths External Opportunities Strategy Internal Weaknesses PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Competitive Advantage 2-73 External Threats © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 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 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 PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Chapter 2-74 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service Lean, productive employees Competitive Advantage: Low Cost High aircraft utilization PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Standardized fleet of Boeing 737 aircraft 2-75 Short haul, point-to-point routes, often to secondary airports Frequent, reliable schedules © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-76 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-77 Short haul, point-to-point routes, often to secondary airports © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage High number of flights reduces employee idle time between flights Saturate a city with flights lowering administrative costs per passenger for that city PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-78 Frequent, reliable schedules © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing Standardized fleet of Boeing 737 aircraft PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-79 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage High aircraft utilization Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 20 minute gate turnarounds PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-80 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Lean, productive employees High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-81 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service Lean, productive employees Competitive Advantage: Low Cost High aircraft utilization PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Standardized fleet of Boeing 737 aircraft 2-82 Short haul, point-to-point routes, often to secondary airports Frequent, reliable schedules © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Southwest Airline’s Low Cost Competitive Advantage PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-83 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Vanguard’s Activity System A broad array of mutual funds excluding some fund categories Very low expenses passed on to client Strict cost control Straightforward client communication and education Direct distributions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Efficient investment management approach offering good consistent performance 2-84 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 How It Works If competitive advantage, leads to achieving Company Mission Distinctive competencies affect Business Strategy Functional Area Strategies Marketing Decisions PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Operations Decisions 2-85 Fin./Acct. Decisions © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Four International Operations Strategies PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-86 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Multidomestic Strategy Operating decisions are decentralized to each country to enhance local responsiveness PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-87 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Global Strategy Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-88 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Transnational Strategies Combines the benefits of global-scale efficiencies with the benefits of local responsiveness PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-89 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 International Strategy Global markets are penetrated using exports and licenses PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 2-90 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
