LECTURE 3
LSM 733Production Operations
Management
OSMAN BIN SAIF
2-1
Summary of last Session
• Definition of Production Operations
Management (OM)
• Organizational Functions
• Why Study POM?
• A brief history of operations management
• The future of the discipline
• Goods Versus Services
• Measuring productivity
• Career opportunities in operations management
2
2-2
Agenda of this Session
▶ The Global Environment and Operations
Strategy
▶ Growth of World Trade
▶ Reasons to Globalize
▶ Improve the supply chain
▶ Attract and Retain Global Talent
▶ Cultural and Ethical Issues
▶ Developing Mission and Strategies
▶ Strategic for Competitive Advantage
▶ Global Operation Strategy Options
2-3
The Global Environment
and Operations Strategy
Section 1, Chapter 2
2-4
Growth of World Trade
60 –
55 –
50 –
Percent
45 –
40 –
35 –
30 –
25 –
20 –
15 –
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10 –|
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Figure 2.1
2-5
Reasons to Globalize
1. Improve the supply chain
2. Reduce costs (labor, taxes, tariffs, etc.)
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent
2-6
Improve the Supply Chain
▶ Locating facilities closer to unique
resources
▶ Auto design to California
▶ Athletic shoe production to China
▶ Perfume manufacturing in France
2-7
Reduce Costs
▶ Foreign locations with lower wage rates
can lower direct and indirect costs
▶ Trade agreements can lower tariffs
▶ Maquiladoras
▶ World Trade Organization (WTO)
▶ North American Free Trade Agreement
(NAFTA)
▶ APEC, SEATO, MERCOSUR, CAFTA
▶ European Union (EU)
2-8
Improve Operations
▶ Understand differences between
how business is handled in other
countries
▶ Japanese – inventory management
▶ Scandinavians – ergonomics
▶ International operations can
improve response time and
customer service
2-9
Understand Markets
▶ Interacting with foreign customers,
suppliers, competition can lead to
new opportunities
▶ Cell phone
design moved
from Europe
to Japan
▶ Extend the
product life
cycle
2 - 10
Improve Products
▶ Remain open to free flow of ideas
▶ Toyota and BMW manage joint
research and development
▶
Reduced risk, state-of-the-art design,
lower costs
▶ Samsung and Bosch jointly produce
batteries
2 - 11
Attract and Retain Global
Talent
▶ Offer better employment
opportunities
▶ Better growth opportunities and
insulation against unemployment
▶ Relocate unneeded personnel to
more prosperous locations
2 - 12
Cultural and Ethical Issues
▶ Cultures can be quite different
▶ Attitudes can be quite different
towards
►
Punctuality
►
Thievery
►
Lunch breaks
►
Bribery
►
Environment
►
Child labor
►
Intellectual
property
2 - 13
Companies Want To Consider
▶ National literacy rate
►
Work ethic
▶ Rate of innovation
►
Tax rates
►
Inflation
►
Availability of raw
materials
►
Interest rates
►
Population
►
Number of miles of
highway
►
Phone system
▶ Rate of technology
change
▶ Number of skilled
workers
▶ Political stability
▶ Product liability laws
▶ Export restrictions
▶ Variations in language
2 - 14
Match Product & Parent
Braun Household
Appliances
1. Volkswagen
►
Firestone Tires
2. Bridgestone
►
Godiva Chocolate
3. Campbell Soup
►
Haagen-Dazs Ice
Cream
4. Tata Motors Limited
►
►
Jaguar Autos
►
MGM Movies
►
Lamborghini Autos
►
Alpo Petfoods
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
2 - 15
Match Product & Parent
Braun Household
Appliances
1. Volkswagen
►
Firestone Tires
2. Bridgestone
►
Godiva Chocolate
3. Campbell Soup
►
Haagen-Dazs Ice
Cream
4. Tata Motors Limited
►
►
Jaguar Autos
►
MGM Movies
►
Lamborghini Autos
►
Alpo Petfoods
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
2 - 16
Match Product & Country
►
Braun Household
Appliances
►
Firestone Tires
1. Great Britain
►
Godiva Chocolate
2. Germany
►
Haagen-Dazs Ice
Cream
3. Japan
►
►
Jaguar Autos
MGM Movies
►
Lamborghini Autos
►
Alpo Petfoods
4. United States
5. Switzerland
6. India
2 - 17
Match Product & Country
►
Braun Household
Appliances
►
Firestone Tires
1. Great Britain
►
Godiva Chocolate
2. Germany
►
Haagen-Dazs Ice
Cream
3. Japan
►
►
Jaguar Autos
MGM Movies
►
Lamborghini Autos
►
Alpo Petfoods
4. United States
5. Switzerland
6. India
7. Belgium
2 - 18
Developing Missions and
Strategies
Mission statements tell an
organization where it is going
The Strategy tells the organization
how to get there
2 - 19
Mission
►
Mission - where is the organization
going?
►
►
►
Organization’s purpose for being
Answers ‘What do we contribute to
society?’
Provides boundaries and focus
2 - 20
Factors Affecting Mission
Philosophy
and Values
Profitability and
Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
2 - 21
Strategic Process
Organization’s
Mission
Functional Area
Missions
Marketing
Operations
Finance/
Accounting
2 - 22
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 - 23
Strategy
►
Action plan to achieve
mission
►
Functional areas have
strategies
►
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
2 - 24
Strategies for Competitive
Advantage
1. Differentiation – better, or at least
different
2. Cost leadership – cheaper
3. Response – more responsive
2 - 25
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
►
►
►
Safeskin gloves – leading edge products
Walt Disney Magic Kingdom –
experience differentiation
Hard Rock Cafe – dining experience
2 - 26
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
Walmart – small overhead, shrinkage,
and distribution costs
2 - 27
Competing on Response
▶ Flexibility is matching market changes in
design innovation and volumes
▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules
▶ German machine industry
▶ Timeliness is quickness
in design, production,
and delivery
▶ Johnson Electric,
Pizza Hut, Motorola
2 - 28
OM’s Contribution to Strategy
10 Operations
Decisions
Product
Quality
Process
Location
Layout
Human
resource
Strategy
DIFFERENTIATION:
Innovative design
Broad product line
After-sales service
Experience
Example
Safeskin’s innovative gloves
Fidelity Security’s mutual funds
Caterpillar’s heavy equipment
service
Hard Rock Café’s dining
experience
COST LEADERSHIP:
Low overhead
Franz-Colruyt’s warehouse-type
stores
Effective capacity Southwest Airline’s
use
aircraft utilization
Inventory
management
Inventory
Reliability
Scheduling
Quickness
Maintenance
Differentiation
(better)
Walmart’s sophisticated
distribution system
Supply chain
RESPONSE:
Flexibility
Competitive
Advantage
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
2 - 29
SWOT Analysis
Mission
Internal
External
Strengths
Opportunities
Analysis
Internal
External
Weaknesses
Threats
Strategy
2 - 30
Strategy Development and
Implementation
▶ Identify key success factors
▶ Integrate OM with other activities
▶ Build and staff the organization
The operations manager’s job is to implement
an OM strategy, provide competitive
advantage, and increase productivity
2 - 31
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)
10 OM 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; sustainability
Define customer expectations and how to achieve them
Facility size, technology, capacity, automation
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
Figure 2.7
2 - 32
Global Operations Strategy
Options
High
Figure 2.9
Cost Reduction
International strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 33
Global Operations Strategy
Options
Cost Reduction
High
Figure 2.9
International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 34
Global Operations Strategy
Options
High
Figure 2.9
Cost Reduction
Global strategy
(eg, Caterpillar
Texas
Instruments
Otis Elevator)
International
strategy
•
Standardize
product
(eg, Harley-Davidson
Steel)
• U.S.
Economies
of scale
• Import/export or
license
existing
•
Cross-cultural
product
learning
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 35
Global Operations Strategy
Options
High
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Figure 2.9
Cost Reduction
• Standardize product
• Economies of scale
• Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 36
Global Operations Strategy
Options
High
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Cost Reduction
•
•
•
Multidomestic
strategy
Standardize
product
(eg, Heinz,
McDonald’s
Economies of scale
Cross-cultural
learning
The
Body Shop
Hard Rock Cafe)
Figure 2.9
• Use existing domestic
model globally
• Franchise, joint
Import/export
or
ventures,
subsidiaries
license existing
International
strategy
(eg, Harley-Davidson
U.S. Steel)
•
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 37
Global Operations Strategy
Options
High
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Figure 2.9
Cost Reduction
• Standardize product
• Economies of scale
• Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Multidomestic
strategy
(eg, Heinz, McDonald’s
The Body Shop
Hard Rock Cafe)
• Use existing domestic
model globally
• Franchise, joint
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 38
Global Operations Strategy
Options
Cost Reduction
High
Low
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Transnational
strategy
• (eg,
Standardize
product
Coca-Cola,
Nestlé)
• Economies of scale
• Cross-cultural learning
• Move material,
people, ideas across
Multidomestic
International
national
boundaries
strategy
strategy
(eg,
Heinz,
McDonald’s
(eg, Harley-Davidson
•U.S.Economies
of
scale
The Body Shop
Steel)
Hard Rock Cafe)
•
Cross-cultural
• Import/export or
• Use existing domestic
license existing
model globally
product learning
• Franchise, joint
Figure 2.9
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 39
Global Operations Strategy
Options
High
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Cost Reduction
• Standardize product
• Economies of scale
• Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Transnational
strategy
(eg, Coca-Cola, Nestlé)
• Move material,
people, ideas across
national boundaries
• Economies of scale
• Cross-cultural
learning
Figure 2.9
Multidomestic
strategy
(eg, Heinz, McDonald’s
The Body Shop
Hard Rock Cafe)
• Use existing domestic
model globally
• Franchise, joint
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 40
Summary of this Session
▶ The Global Environment and Operations
Strategy
▶ Growth of World Trade
▶ Reasons to Globalize
▶ Improve the supply chain
▶ Attract and Retain Global Talent
▶ Cultural and Ethical Issues
▶ Developing Mission and Strategies
▶ Strategic for Competitive Advantage
▶ Global Operation Strategy Options
2 - 41
THANK YOU
2 - 42