MGT 563
OPERATIONS STRATEGIES
Dr. Aneel SALMAN
Department of Management Sciences
COMSATS Institute of Information Technology,
Islamabad
Recap Lecture 24
• The Procurement Process
• Strategic Sourcing is a collaborative and
systematic process
• World Class Procurement can be defined
using the following seven dimensions
RECAPDeloitte Consulting’s six-step methodology
1
2
Diagnose
Opportunity
Assess
Opportunity
Design
Program
3
Assess
Internal
Supply
Chain
4
Assess
Supply
Market
5
Develop
Sourcing
Strategy
6
Implement
Sourcing
Strategy
Institutionalise
Strategy
Key Change Leadership fundamentals are necessary throughout implementation of the
methodology to ensure successful results
 Develop vision and strategy
 Redesign infrastructure
 Measure performance
 Develop new values, skills, and behaviours
CHANGE LEADERSHIP
 Enroll stakeholders
 Communicate vision and strategy
Global Strategies
•
•
•
Boeing – Headquartered in Chicago, Boeing employs
more than 170,000 people across the United States and
in 70 countries. Its sales and production are worldwide.
Benetton –The Italian-based fashion designer and
manufacturer has over 6,000 retail stores in more than 83
countries on every continent. Using Computer-Aided
Design (CAD) of garments along with computerized
garment cutting and assembly is the secret to a fast and
flexible manufacturing operation.
Sony – purchases components from suppliers in Thailand,
Malaysia, and around the world
Global Strategies
• Volvo – considered a Swedish company but until
recently was 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
Reasons to Globalize
Reasons to Globalize
Tangible
Reasons
Intangible
Reasons
1.
2.
3.
4.
5.
6.
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
Reduce Costs
• Foreign locations with lower wage rates
can lower direct and indirect costs
– Maquiladora (Mexican border export zone,
populated by foreign owned factories)
– World Trade Organization (WTO)
– North American Free Trade Agreement
(NAFTA) - Between Canada, Mexico and
U.S.
Reduce Costs
– APEC (Asia-Pacific Economic Cooperation between
the US, Canada, Japan, South Korea, Australia,
New Zealand, China, Taiwan, Hong Kong, and
members of ASEAN)
– SEATO (Australia, New zealand, Japan, HongKong,
South Korea, Chile and New Guinea)
– MERCOSUR (Argentina, Brazil, Paraguay and
Uruguay
– European Union (EU)
Improve the Supply Chain
• Locating facilities closer to unique
resources
– Auto design to California
– Athletic shoe production to China
– Perfume manufacturing in France
Provide Better Goods
and Services
• Objective and subjective characteristics
of goods and services
– On-time deliveries
– Cultural variables
– Improved customer service
Reasons to Globalize
Understand Markets
• Interacting with foreign customers and suppliers
can lead to new opportunities
•
•
•
•
Whirlpool
refrigerators
sold in Bangkok
are bright colors.
• 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
new approaches to production and
inventory control
– Equipment and layout have been
improved using Scandinavian ergonomic
competence
Attract and Retain Global Talent
• Offer better employment opportunities
– Better growth opportunities and
insulation against unemployment
– Relocate unneeded personnel to more
prosperous locations
Reconciling Differences in Cultural and Social Behavior is key
to the success of GLOBALIZATION EFFORTS
• Cultures can be quite different
• Attitudes can be quite different towards
 Punctuality
 Thievery
 Lunch breaks
 Bribery
 Environment
 Child labor
 Intellectual
property
Developing Missions and Strategies
Mission statements tell an
organization where it is going
The Strategy tells the organization
how to get there
Developing Missions and Strategies
• Developing a good strategy is difficult, but it is
much easier if the mission has been well
defined.
MISSION:Hard Rock Cafe
• 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.
Strategic Process
Organization’s Mission
Functional Area
Missions
Marketing
Operations
Finance/
Accounting
Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
Strategies for Competitive Advantage
• Differentiation – better, or at least
different
• Cost leadership – cheaper
• Response – rapid response
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
 Handmade Silk Turkish Rugs
 Walt Disney Magic Kingdom – experience differentiation
 Hard Rock Cafe – dining 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
 Wal-Mart –small overheads, direct
shipments from manufacturers,
reduced distribution costs with faster
transportation
 Pegasus Airlines -
Competing on Response:
Flexible, Reliable and Quick Response
• Flexibility is matching market changes in design
innovation and volumes
– Products of Hewlett-Packard have a life cycle of
months
• Reliability is in meeting schedules
– German machine industry
• Quickness
in design, production,
and delivery
– Benetton, Motorola
OM’s Contribution to Strategy
10 Operations
Decisions
Product
Quality
Process
Location
Layout
Human
resource
Supply chain
Inventory
Scheduling
Maintenance
Approach
DIFFERENTIATION
Innovative design …
Broad product line …
After-sales service …
Experience …
COST LEADERSHIP
Low overhead …
Effective capacity
use …
Inventory
management …
RESPONSE
Flexibility …
Reliability …
Quickness …
Example
Competitive
Advantage
Safeskin’s innovative gloves
Fidelity Security’s mutual funds
Caterpillar’s heavy equipment service
Hard Rock Café’s dining experience
Franz-Colruyt’s warehouse-type
stores
Southwest Airline’s
aircraft utilization
Differentiation
(better)
Wal Mart’s sophisticated
distribution system
Hewlett-Packard’s response to
volatile world market
FedEx’s “absolutely, positively, on
time”
Pizza Hut’s 5-minute guarantee
at lunchtime
Response
(faster)
Cost
leadership
(cheaper)
Figure 2.4
Strategy Development for a culinary
school graduate who wants to open an
outstanding French fine dining
restaurant (DIFFERENTIATION)
 Product design (Menus, meals)
 Location planning
 Facilities design and layout
 Human Resources, Scheduling
Process Design
Variety of Products
High
Process-focused
JOB SHOPS
(Print shop, emergency
room, machine shop, finedining
restaurant)
Moderate
Repetitive (modular)
focus
ASSEMBLY LINE
(Cars, appliances, TVs,
fast-food restaurants)
Mass Customization
Customization at high
Volume
(Dell Computer’s PC,
cafeteria)
Product focused
CONTINUOUS
(Steel, beer, paper,
bread, institutional
kitchen)
Low
Low
Moderate
Volume
High
Mass Customization
• The use of flexible computer-aided
manufacturing systems to produce custom
output.
• Combines the low unit costs of mass
production processes with the flexibility of
individual customization.
Issues In Operations Strategy
•
•
•
•
•
Resources view
Porter’s Value Chain analysis to identify
opportunities for competitive advantage
Porter’s Five Forces model to analyze
competitors (1. immediate rivals, 2.
potential entrants, 3. customers, 4.
suppliers, 5. substitute products)
External factors (political, economical
factors)
Product Life Cycle
Product Life Cycle
Company Strategy/Issues
Introduction
Growth
Best period to
increase market share
Practical to change
price or quality image
R&D engineering is
critical
Strengthen niche
Maturity
Poor time to change
image, price, or
quality
Competitive costs
become critical
Defend market
position
Internet search engines
iPods
Xbox 360
Sales
Decline
Cost control
critical
Drive-through
restaurants
CD-ROMs
LCD & plasma
TVs
Avatars
Boeing 787
Twitter,
iphone5
Analog
TVs
Figure 2.5
OM Strategy/Issues
Product Life Cycle
Introduction
Growth
Product design and
development
critical
Forecasting critical
Standardization
Product and
process reliability
Frequent product
and process design
changes
Competitive
product
improvements and
options
Fewer product
changes, more
minor changes
Short production
runs
Increase capacity
High production
costs
Shift toward
product focus
Limited models
Enhance
distribution
Attention to quality
Maturity
Optimum capacity
Increasing stability
of process
Long production
runs
Product
improvement and
cost cutting
Decline
Little product
differentiation
Cost
minimization
Overcapacity in
the industry
Prune line to
eliminate items
not returning
good margin
Reduce
capacity
Figure 2.5
SWOT Analysis
Mission
Internal
Strengths
External Opportunities
Analysis
Internal
Weaknesses
External
Threats
Strategy
Nike SWOT Analysis
• Strengths
•
- strong at research and development.
•
- Nike is a global brand.
• Opportunities
•
- to develop new products such as sunglasses and
jewellery.
• Weaknesses
• - The retail sector is very price sensitive.
• Threats
• - The market for sports shoes and garments is very
competitive. Consumers are shopping around for a better
deal.
SWOT Analysis
• SWOT Analysis, which is a key tool in the
strategic planning process can also be applied
to personal career planning.
Strategy Development Process
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats. Understand
the environment, customers, industry, and competitors.
Determine the 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
Strategy Development and
Implementation
• Identify key 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
Key Success Factors
Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas
Marketing
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
Decisions
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
Finance/Accounting
Production/Operations
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Sample Options
Customized, or standardized
Define customer expectations and how to achieve them
Facility size, technology, capacity
Near supplier or near customer
Work cells or assembly line
Specialized or enriched jobs
Single or multiple suppliers
When to reorder, how much to keep on hand
Stable or fluctuating production rate
Repair as required or preventive maintenance
Chapter
5
6, S6
7, S7
8
9
10
11, S11
12, 14, 16
13, 15
17
Figure 2.7
Strategy Development and
Implementation
• Only by identifying Key Success Factors(KSFs)
and Core Competencies can an organization
achieve sustainable competitive advantage.
• One of the KSFs for McDonads is layout.
• Core Competency for Honda is its gaspowered engines.
GLOBAL OPERATIONS STRATEGY
OPTIONS
• Operations managers of international and
multinational companies (IBM is a
multinational company)approach global
opportunies with one of four operations
strategies:
• International Strategy
• Global Strategy
• Multidomestic Strategy
• Transnational Strategy
Four International Operations
Strategies
International
Strategy
High
Figure 2.9
Cost Reduction Considerations
 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
High
Cost Reduction Considerations
Figure 2.9
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
High
Four International Operations
Strategies
Global
Strategy
Figure 2.9
Cost Reduction Considerations
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas
Instruments
International
Strategy
Caterpillar
 Import/export
or
license existing
product
Otis Elevator
Examples
U.S. Steel
Harley Davidson
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations
Strategies
High
Figure 2.9
Global Strategy
Cost Reduction Considerations
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples:
Texas Instruments
Caterpillar
Otis Elevator
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
High
Four International Operations
Multidomestic
Strategies
Strategy
Figure 2.9
Cost Reduction Considerations
Global Strategy

Use existing domestic
 Standardized product
 Economies
of scale
model
globally
 Cross-cultural learning
 Franchise, joint
Examples:
Texas Instruments
Caterpillar
ventures, subsidiaries
Otis Elevator
Examples
International Strategy
Heinz
 Import/export or
McDonald’s
license
existing
product
The Body Shop
Examples
U.S. Steel
HarleyHard
Davidson Rock Cafe
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations
Strategies
High
Figure 2.9
Global Strategy
Cost Reduction Considerations
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples:
Texas Instruments
Caterpillar
Otis Elevator
 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
McDonald’s
International Strategy
The Body Shop
Hard Rock Cafe
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
High
Four International Operations
Strategies
Transnational
Figure 2.9
Strategy
Global Strategy
 Move material,
people, ideas across
Examples:
Texas Instruments
national boundaries
Caterpillar
Otis Elevator
 Economies of scale
 Cross-cultural learning
Multidomestic Strategy
Cost Reduction Considerations
 Standardized product
 Economies of scale
 Cross-cultural learning
International Strategy
Examples
 Import/export or
license existing
product
Coca-Cola
Examples
U.S.Nestlé
Steel
Harley Davidson
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz
McDonald’s
The Body Shop
Hard Rock Cafe
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations
Strategies
High
Figure 2.9
Cost Reduction Considerations
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
 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
McDonald’s
International Strategy
The Body Shop
Hard Rock Cafe
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)