Operations Management Operations Strategy Chapter 2

1. Operations ManagementOperations Strategy Chapter 2

2. Outline • Missions and Strategies. • Achieving Competitive Advantage Through Operations. • Competing on Differentiation. • Competing on Cost. • Competing on Response. • Life Cycle. • Global Strategies.

3. Mission • Mission - “Where are you going?” • Mission statement: • States organization’s purpose for being. • Provides boundaries & focus. • Answers ‘How can we satisfy people’s needs?’ • Published.

4. Mission Statement - Merck The mission of Merck is to provide: (1) Society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs, (2) Employees with meaningful work and advancement opportunities, and (3) Investors with a superior rate of return.

5. Mission Statement - COBA The College of Business Administration...seeks to: • Provide students with a high quality business education that prepares them to become productive contributors and leaders... • Conduct research…[to] extend and expand existing levels of knowledge and understanding relating…to enterprises in both the private and public sectors. • Serve the university, the citizens of Missouri, and the St. Louis business community through useful outreach programs...

6. Mission/Strategy • Mission - “Where are you going?” • Strategy - “How are you going to get there?”

7. Action plan to achieve mission. • Exploits strengths and opportunities, avoid weaknesses. • Functional areas have strategies. Strategy

8. Marketing Fin./Acct. Strategy Strategy Strategy Process Company Mission Business Strategy Operations Strategy

9. Operations Strategy • Should include measurable goals: • Product quality. • Customer wait time. • Delivery times. • Safety. • Equipment down time. • Employment and/or layoffs.

10. Competitive Advantage Through: • Differentiation. Better! • Cost leadership. Cheaper! • Quick response. Faster!

11. Competing on Differentiation • Better physical characteristics and service attributes. • Can encompass everything that impacts customer’s perception of value: • Higher quality. • More convenient. • Better service. • Broader product line. • Innovative products/services.

12. Competing on Cost • Maximum value as perceived by customer. • Does not imply low value or low quality. • Usually results in a narrow range of products or services.

13. Competing on Response • Flexible to match changes in marketplace. • Reliable scheduling. • Rapid design, development, delivery, etc. Requires institutionalization within the firm of the ability to respond.

14. OM’s Contribution to Strategy - p. 37 Operations Decisions Specific Strategy Used Competitive Advantage Examples Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance FLEXIBILITY Sony’s constant innovation of new products Design Compaq Computer’s ability to follow the PC market Volume LOW COST Southwest Airlines No-frills service DELIVERY Pizza Hut’s five-minute guarantee at lunchtime Speed Differentiation (Better) Dependability Federal Express’s “absolutely, positively on time” QUALITY Response (Faster) Conformance Motorola’s automotive products ignition systems Cost leadership (Cheaper) Motorola’s pagers Performance IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE

15. Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports Competitive Advantage: Low Cost High aircraft utilization Frequent flights. Standardized fleet of Boeing 737 aircraft

16. Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service No seat assignments. No baggage transfers. Automated ticketing machines. No meals.

17. Southwest Airline’s Low Cost Competitive Advantage Lower gate costs at secondary airports. Short haul, point-to-point routes, often to secondary airports

18. Southwest Airline’s Low Cost Competitive Advantage Less employee idle time between flights. Lower administrative costs per passenger. Frequent flights.

19. Southwest Airline’s Low Cost Competitive Advantage Pilot and maintenance training on only one type of aircraft. Reduced maintenance inventory. Excellent supplier relations with Boeing. Standardized fleet of Boeing 737 aircraft

20. Southwest Airline’s Low Cost Competitive Advantage Fast (15 minute) gate turnarounds. Flexible employees and standard planes aids scheduling. Easier maintenance with only one type of aircraft. High aircraft utilization

21. Southwest Airline’s Low Cost Competitive Advantage High level of stock ownership. Hire for attitude, then train. High employee compensation. Empowered employees. Lean, productive employees

22. How Do These Organizations Compete? • UM - St. Louis. • Other area universities. • Boeing. • 7-11

23. Life Cycle • Every product/service has a life cycle with four phases: • Introduction. • Growth. • Maturity. • Decline. • Strategy changes as product/service moves through life cycle.

24. Introduction Growth Maturity Decline Strengthen niche. Can change image, price, quality. Defend market position. Poor time to change image, price, or quality. Increase market share. R&D product engineering critical. Cost control critical. Sales Time Life Cycle

25. Introduction Growth Maturity Decline Optimum capacity. Long production runs. Product improvement and cost cutting. Reduce capacity. Minimize cost. Eliminate items. Forecasting critical. Increase capacity. Enhance distribution. Frequent design changes. Short production runs. High production costs. Limited models. Sales Time Strategy Issues During Life Cycle

26. Life Cycle • Every product/service has a life cycle with four phases: • Introduction. • Growth. • Maturity. • Decline. • Strategy changes as product/service moves through life cycle.

27. Global Business Home Country % Sales Outside Home Country % Assets Outside Home Country Company Citicorp USA 34 46 Colgate- Palmolive USA 72 63 Dow Chemical USA 60 50 Gillette USA 62 53 Honda Japan 63 36 IBM USA 57 47

28. $20,000 for a Pontiac LeMans • $6,000 to South Korea for auto’s assembly. • $3,500 to Japan for engines, axles, and electronics. • $1,500 to Germany for design. • $800 to Taiwan, Singapore, and Japan for parts. • $500 to England for marketing. • $100 to Ireland for information technology. • $7,600, to US (GM and its bankers, insurance agents, and attorneys).

29. 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.

30. Reasons to Globalize Operations Tangible Intangible • Reduce costs (labor, taxes, tariffs, etc.). • Provide better goods and services. • Improve operations. • Improve the supply chain. • Attract new markets. • Attract and retain global talent.

31. Trade and Tariffs • Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment. • GATT - an international treaty to 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.

32. Global Product Design • Different countries/regions require different versions of a product & different packaging. • Consider social and cultural differences: • Language. • Measures: “liter” versus “quart”. • “sweetness” and “taste” • Coca-Cola for Mexico is different than for the USA. • Infrastructure: electricity, outlets, water, transportation, etc.

33. Global Process Design and IT • Information technology (IT) enables management of globally dispersed operations. • Low labor cost outside USA lowers production cost. • Examples: Manufacturing in China, Call centers in Asia. • Offshore production may increase other costs (transportation, inventory, etc.) and may affect response and risk.

34. Impact of Culture and Ethics • Cultures differ in many ways! • Some accept or expect: • Variations in punctuality. • Long lunch hours. • “Shrinkage” (theft). • Bribery. • Little protection of intellectual property.