Operations
Management
Operations Strategy in a Global
Environment
Chapter 2
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Outline
 A GLOBAL VIEW OF OPERATIONS
 DEVELOPING MISSIONS AND STRATEGIES
 ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
 Differentiation, Cost, Response
 ISSUES IN OPERATIONS STRATEGY
 Research, Preconditions, Dynamics
 STRATEGY DEVELOPMENT AND
IMPLEMENTATION
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Outline - Continued
GLOBAL OPERATIONS STRATEGY OPTIONS
International Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy

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Learning Objectives
When you complete this chapter, you should
be able to :
Identify or Define:
Mission
Strategy
Ten Decisions of OM
 Multinational Corporations



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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
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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
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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
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Global Organizations, Agreements
Free trade zones receive preferential tariff
treatment.
World Trade Organization (WTC) lowers barriers
to free flow of goods across borders.
North American Free Trade Agreement
(NAFTA): a free trade agreement between
Canada, Mexico, USA.
European Union (EU)-customs union
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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
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 Improve SC:
locating facilities in countries where unique resources,
i.e., expertise, labor, raw material exist.
 Provide better goods and services
-better understanding of culture leads to more efficient
customization
-reduce response time to meet customer’s changing
product and service requirements.
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Attract new markets-international firms find
opportunities for new products and services.
-increase sales
-diversify their customer base
-add production flexibility to switch b/w good and bad
economies.
-expand life cycle
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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
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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
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Cultural and Ethical Issues
Cultures differ! Some accept/expect:
variations in punctuality
 long lunch hours
 expectation of thievery
 Bribery, child labor
 little protection of intellectual property

Requirement for common laws and regulations
for global uniformity.
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Developing Missions and
Strategies
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Mission
Where are we going?
What do we provide society?
What’s our purpose?
What’s our reason for being?
•Provides boundaries & focus for organizations
•Functional areas have supporting missions for the
company mission.
•Supporting missions for 10 OM functions
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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.
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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
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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.
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Strategy
Mission - where are we going?
Strategy - how can we get there?
Provides an action plan
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Strategy Process
Company
Mission
Business
Strategy
Functional Area
Functional Area
mission/strategies
Marketing
Decisions
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Operations
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Fin./Acct.
Decisions
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Concepts of a mission
Firms achieve mission in 3 conceptual ways:
1) Product Differentiation
2) Low cost
3) Quick response
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Competitive
advantage
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Competing on Differentiation
Differentiation is providing uniqueness
Uniqueness can go beyond both the physical
characteristics and service attributes to encompass
everything that impacts customer’s perception of value
Limited by imagination
Ex: “Experience differentiation” in Magic Kingdom, Hard
Rock Cafe, Migros
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Competing on Cost
Provide the maximum value as perceived by
customer
Does not imply low value or low quality
Effective use of resources to decrease costs
Ex: Reduced warehousing costs, direct shipment
from manufacturer in Wallmart
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Competing on Response
Flexible response: is the ability to match
design/volume changes in market ex: HP
Reliability of scheduling: ex: German M/C
industry
Quickness in design, production, delivery
Requires institutionalization within the firm of the
ability to respond
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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
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OM’s Contribution to Strategy
Operations
Decisions
Specific
Strategy Used
Examples
Product
Quality
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
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Cost
leadership
(Cheaper)
Response
(Faster)
AFTER-SALE SERVICE
BROAD PRODUCT LINE
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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
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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
May need to be near
customer
Layout can enhance
production efficiency
Layout can enhance
production and product
Workforce focused on
technical skills.
Labor standards consistent.
Output-based wage system.
Customer may directly
interact with customer.
Standards vary
depending on customer
requirements
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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
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Primarily concerned with
meeting the customer's
immediate schedule
Inventory
Scheduling
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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
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Ex: How to find Process Design
Strategy?
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
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Volume
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High
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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
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Operations Strategies for Two
Drug Companies - Continued
Brand Name Drugs,
Inc.
Process
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
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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
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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
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Operations Strategies for Two
Drug Companies - Continued
Brand Name
Drugs, Inc.
Maintenance Highly trained staff;
Extensive parts
inventory
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Generic Drug Corp.
Highly trained staff to meet
challenging demands
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Some Multinational Corporations
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
% Foreign
Workforce
Country
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
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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
Unilever
Britain &
Netherlands
95
70
64
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Issues in Operations Strategy
Characteristics that impact strategic OM
decisions
Preconditions that should exist to develop an
operations strategy
Dynamics of developed strategies: strategies
change
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Characteristics of high ROI firms
From the PIMS study of the Strategic Planning Institute
 High quality product
 High capacity utilization
 High operating efficiency (expected/actual employee
productivity)
 Low investment intensity (capital required/produce 1 dollar
sales)
 Low direct cost per unit (relative to the competitors’ value)
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Preconditions To Implement a Strategy
Operations manager must understand that the firm is
operating in an open system.





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.
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Dynamics
Strategies change because of two reasons:
Changes in the organization: personnel, finance,
technology, product life
Changes in the environment
Ex: Microsoft, impact of internet, changing demand
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Strategy and Issues During a
Product’s Life
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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
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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
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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
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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
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Strategy Development Process
Environmental Analysis
Identify SWOT. Understand environment, customer, industry, competitors
Determine Corporate Mission
Form a Strategy
Build a strategy such as low price, flexibility, quick delivery, dependability, after sale
service, broad product lines
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SWOT Analysis to Strategy
Formulation
Mission
Internal
Strengths
External
Opportunities
Strategy
Internal
Weaknesses
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Competitive
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External
Threats
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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
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Southwest Airline’s Low Cost
Competitive Advantage
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How It Works
Company
Mission
t
Business
Strategy
Functional Area
Strategies
Marketing
Decisions
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Fin./Acct.
Decisions
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Global Operations Strategy Options
International Strategy
Multidomestic Strategy
Global Strategy
Transnational Strategy
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Four International Operations
Strategies
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International Strategy
Global markets are penetrated using exports and
licenses
Least advantageous with
little local responsiveness (expost from home country)
little cost advantage (use existing facility in home
country).
PowerPoint presentation to accompany Heizer/Render –
Principles of Operations Management, 5e, and Operations
Management, 7e
2-55
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Multidomestic Strategy
Operating decisions are decentralized to each
country to enhance local responsiveness
Advantage is to maximize competitive response for
the local market.
But no cost advantage.
Ex: Mc Donald’s call itself multilocal
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
Global Strategy
Operating decisions are centralized and
headquarters coordinates the standardization
and learning between facilities.
Appropriate when strategic focus is cost reduction.
Not recommended when there is also concerns
about high responsiveness.
PowerPoint presentation to accompany Heizer/Render –
Principles of Operations Management, 5e, and Operations
Management, 7e
2-57
© 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.
Recognizes that core competence is not only in the local
country.
Material, people and ideas cross national boundaries!
Firms can pursue all strategies of cost, response and
differentiation.
Neither centralized, nor decentralized
Resources and activities are dispersed, but specialized in a
flexible interdependent network.
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