MGT 563 OPERATIONS STRATEGIES

1. MGT 563OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

2. 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

3. C H A N G E L E A D E R S H I P RECAP-Deloitte Consulting’s six-step methodology 1 2 3 4 5 6 DiagnoseOpportunity Assess Internal Supply Chain AssessSupplyMarket DevelopSourcingStrategy Implement Sourcing Strategy AssessOpportunity Institutionalise Strategy Design Program Key Change Leadership fundamentals are necessary throughout implementation of the methodology to ensure successful results • Develop vision and strategy • Redesign infrastructure • Measure performance • Enroll stakeholders • Communicate vision and strategy • Develop new values, skills, and behaviours

4. 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

5. 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

6. Tangible Reasons Reasons to Globalize 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 Intangible Reasons Reasons to Globalize

7. 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.

8. 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)

9. Improve the Supply Chain • Locating facilities closer to unique resources • Auto design to California • Athletic shoe production to China • Perfume manufacturing in France

10. Provide Better Goods and Services • Objective and subjective characteristics of goods and services • On-time deliveries • Cultural variables • Improved customer service

11. Reasons to GlobalizeUnderstand 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

12. 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

13. Attract and Retain Global Talent • Offer better employment opportunities • Better growth opportunities and insulation against unemployment • Relocate unneeded personnel to more prosperous locations

14. 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 • Lunch breaks • Environment • Intellectual property • Thievery • Bribery • Child labor

15. Developing Missions and Strategies Missionstatements tell an organization where it is going TheStrategytells the organization how to get there

16. Developing Missions and Strategies • Developing a good strategy is difficult, but it is much easier if the mission has been well defined.

17. 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.

18. Functional Area Missions Finance/ Accounting Marketing Operations Strategic Process Organization’s Mission

19. Strategy • Action plan to achieve mission • Functional areas have strategies • Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

20. Strategies for Competitive Advantage • Differentiation – better, or at least different • Cost leadership – cheaper • Response – rapid response

21. 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

22. 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 -

23. 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

24. DIFFERENTIATION Innovative design … Safeskin’s innovative gloves Broad product line … Fidelity Security’s mutual funds After-sales service … Caterpillar’s heavy equipment service Experience … Hard Rock Café’s dining experience COST LEADERSHIP Low overhead … Franz-Colruyt’s warehouse-type stores Effective capacity use … Southwest Airline’s aircraft utilization Inventory management … Wal Mart’s sophisticated distribution system RESPONSE Flexibility … Hewlett-Packard’s response to volatile world market Reliability … FedEx’s “absolutely, positively, on time” Quickness … Pizza Hut’s 5-minute guarantee at lunchtime Product Quality Process Location Layout Human resource Supply chain Inventory Scheduling Maintenance Differentiation (better) Response (faster) Cost leadership (cheaper) OM’s Contribution to Strategy 10 Operations Competitive Decisions Approach Example Advantage Figure 2.4

25. 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

26. Mass Customization Customization at high Volume (Dell Computer’s PC,cafeteria) Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine-diningrestaurant) High Moderate Low Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants) Variety of Products Product focused CONTINUOUS (Steel, beer, paper, bread, institutional kitchen) Low Moderate High Volume Process Design

27. 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.

28. Issues In Operations Strategy • Resources view • Porter’sValue 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

29. Introduction Growth Maturity Decline Best period to increase market share R&D engineering is critical Practical to change price or quality image Strengthen niche Poor time to change image, price, or quality Competitive costs become critical Defend market position Cost control critical Drive-through restaurants Internet search engines Company Strategy/Issues CD-ROMs iPods LCD & plasma TVs Xbox 360 Sales Avatars Analog TVs Boeing 787 Twitter, iphone5 Product Life Cycle Figure 2.5

30. Introduction Growth Maturity Decline OM Strategy/Issues Product Life Cycle Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2.5

31. Mission Internal Strengths External Opportunities Analysis Internal Weaknesses External Threats Strategy SWOT Analysis

32. 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.

33. SWOT Analysis • SWOT Analysis, which is a key tool in the strategic planning process can also be applied to personal career planning.

34. 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. Strategy Development Process Figure 2.6

35. 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

36. Production/Operations Key Success Factors Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas Figure 2.7

37. 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 gas-powered engines.

38. 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

39. International Strategy High • Import/export or license existing product • Examples • U.S. Steel • Harley Davidson Cost Reduction Considerations Low Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) Four International Operations Strategies Figure 2.9

40. High Figure 2.9 Cost Reduction Considerations 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) Four International Operations Strategies

41. High Figure 2.9 Global Strategy • Standardized product • Economies of scale • Cross-cultural learning • Examples • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations 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) Four International Operations Strategies

42. High Figure 2.9 Global Strategy • Standardized product • Economies of scale • Cross-cultural learning • Examples: • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations 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) Four International Operations Strategies

43. Multidomestic Strategy High Figure 2.9 Global Strategy • Use existing domestic model globally • Franchise, joint ventures, subsidiaries • Examples • Heinz • McDonald’s • The Body Shop • Hard Rock Cafe • Standardized product • Economies of scale • Cross-cultural learning • Examples: • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations 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) Four International Operations Strategies

44. High Figure 2.9 Global Strategy • Standardized product • Economies of scale • Cross-cultural learning • Examples: • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations International Strategy Multidomestic Strategy • Use existing domestic model globally • Franchise, joint ventures, subsidiaries • Examples • Heinz The Body Shop • McDonald’s Hard Rock Cafe • 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

45. Transnational Strategy High Figure 2.9 Global Strategy • Move material, people, ideas across national boundaries • Economies of scale • Cross-cultural learning • Examples • Coca-Cola • Nestlé • Standardized product • Economies of scale • Cross-cultural learning • Examples: • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations International Strategy Multidomestic Strategy • Use existing domestic model globally • Franchise, joint ventures, subsidiaries • Examples • Heinz The Body Shop • McDonald’s Hard Rock Cafe • 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

46. High Figure 2.9 Global Strategy Transnational Strategy • Move material, people, ideas across national boundaries • Economies of scale • Cross-cultural learning • Examples • Coca-Cola • Nestlé • Standardized product • Economies of scale • Cross-cultural learning • Examples: • Texas Instruments • Caterpillar • Otis Elevator Cost Reduction Considerations International Strategy Multidomestic Strategy • Use existing domestic model globally • Franchise, joint ventures, subsidiaries • Examples • Heinz The Body Shop • McDonald’s Hard Rock Cafe • 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