BA 339, OM – Chapter 2

1. BA 339, OM – Chapter 2 • Chapter 2, Operations Strategy in a Global Environment • Global view of operations – why companies move to global operations • Mission & strategies • Achieving competitive advantage through operations • Issues in operations strategy • Strategy development & implementation • Global operations strategy options

2. BA 339, OM – Chapter 2 • Global View of Operations • Reasons to globalize (increase wealth): • Reduce costs – labor, taxes, tariff, governmental regulations, etc. (Role of WTO, NAFTA, EU) • Example: Maquiladoras (free trade zones), • Improve supply chain • Example: Auto-styling studios moving to S. California to maintain expertise in contemporary auto design; athletic shoe production move from Korea to China • Provide better goods & services > closer to customers • Attract new markets • Example: Expanded product lifecycle of computers > mature in U.S. but introductory in Albania, Burma, etc. • Learn to improve operations – Joint GM/Toyota facility • Attract & retain global talent

3. BA 339, OM – Chapter 2 • Examples of Global Strategies • Boeing: • Sales and production are worldwide • Alenia (Italy) – wing flaps; Mitsubishi (Japan) – fuselage; GEC Avionics (UK) – flight computers • Countries/companies likely to buy if production is located in their country • Lower production cost • Sony • Purchases components from suppliers around the world • General Motors • Worldwide productions and component suppliers for worldwide markets/customers

4. BA 339, OM – Chapter 2 • Defining Global Operations • International business – engages in cross-border transactions • Multinational corporation – extensive involvement in international business, owning or controlling facilities in more than one country • Examples (sales/assets): Citicorp (34/46) - USA, IBM – (57/47) - USA; Honda (63/36) - Japan; Nestle (98/95) – Switzerland; Phillips Electronics (94/85) - Netherlands • Global company – integrates operations from different countries, and views world as a single marketplace • Transnational company – seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness

5. BA 339, OM – Chapter 2 • Management Issues in Global Operations • Supply chain management (SCM) • Sourcing • Vertical integration • Make-or-buy decisions • Partnering • Location decisions • Country-related issues • Product-related issues • Gov’t policy/political risk • Organizational issues • Logistics management • Flow of materials • Transportation option & speed • Inventory levels • Packaging & storage

6. BA 339, OM – Chapter 2 • Mission & Strategy • Mission: Where you’re going • Organization’s purpose (e.g., what it will contribute to society – goods, services, etc.) • Rationale for existence • Provide boundaries and focus > determines functional areas mission/strategy • Affected by philosophy, values, environment, customers, profitability, public image • Achieved in 3 ways: • Differentiation – Hunter Fans, quality • Cost leadership – Nucor, value at low cost • Quick response – Dell, quick, reliable response • Strategy: How you get there • Action plan to achieve the organization’s mission – SWOT analysis • Drives development of functional areas’ strategies to deliver products/services that are better, cheaper, or more responsive

7. BA 339, OM – Chapter 2 • Strategy – Change & Implementation • Impetus for strategy change – Why? • Changes in the organization – often driven by management, board of directors, or investors • Stage in the product lifecycle – pace often driven by market factors • Changes in the environment – can be legal, business climate (expansion vs. contraction), risk etc. • Example: Federal PMA and administration emphasis on outsourcing • Strategy implementation – must understand: • Strengths/weaknesses of competitors and new entrants • Current/future legal, environmental, & economic issues • Product lifecycle • Resources available w/in firm and OM function > CSFs • Integration of OM strategy with company strategy & other functions

8. BA 339, OM – Chapter 2 • Achieving Competitive Advantage via Operations • Competing via Differentiation • Uniqueness of product/service based on perceived value (quality) • Example: Safeskin Corporation • Strategy – Develop reputation for designing/producing reliable, state-of the art gloves • Designed gloves to prevent allergic reactions > Developed hypoallergenic gloves > textured gloves > synthetic disposal glove for those allergic to latex • Examples of services can include location of stores/distribution facilities, training, product delivery and installation, or repair & maintenance services • Experience differentiation – used in services to provide unique services • Examples: Hard Rock Café, Disney’s Magic Kingdom, food samples at supermarket

9. BA 339, OM – Chapter 2 • Achieving Competitive Advantage via Operations • Competing via Cost • Provide the maximum value as perceived by customer > does not imply low value or low quality • Example: Southwest Airlines • Standardized aircraft (Boeing 737) – reduced maintenance inventory & pilot training, excellent supplier relations • Short-haul, point-to-point service – use secondary airports, High no. of flights reduces employee idle time, no meals • Courteous but limited passenger service – no baggage transfers, no seat assignments, automated ticket machines • High aircraft utilization – maintenance personnel trained on one aircraft, 20 min. gate turnarounds, flexible unions/employees & standard planes aid scheduling • Frequent, reliable schedules – reduced pilot training, lower administrative costs by saturating city with flights (HR, advertising)

10. BA 339, OM – Chapter 2 • Achieving Competitive Advantage via Operations • Competing via Response • Includes flexibility, reliability, timeliness • Requires institutionalization within the organization/firm of the ability to respond (culture); communication critical • Example: Flexibility – HP • Responsive to design & volume changes – short lifecycles with frequent volume changes within those lifecycles • Example: Customer Focus – Pascor (Forest Grove, OR) • Consistent customer focus from all organizational functions • Reliability (scheduling – German machine industry) • Use meaningful schedules and perform to them • Example: Timeliness – Johnson Electric • Speed in design, production & delivery

11. BA 339, OM – Chapter 2 • Achieving Competitive Advantage via Operations • Differentiation, cost, and response are often implemented via six (seven) specific strategies: • Flexibility in design and volume • Low price • Delivery • Quality • After-sales service • Broad product line • (Customer Focus)

12. BA 339, OM – Chapter 2 • Issues in Operations Strategy • Research – what is tells us about effective OM strategies • ROI and role in strategy development • Associated with high product quality • High capacity utilization • High operating efficiency (ratio of expected to actual labor efficiency) • Low investment intensity (amount of capital used to produce a dollar of sales) • Low direct cost per unit (relative to competition) • Importance of 32 categories and contribution to sustainable competitive advantage: • 28% of categories fell under OM; 44% when “Q” is added >“Q” management is a core OM competency (IT)

13. BA 339, OM – Chapter 2 • Issues in Operations Strategy • Preconditions – what’s needed or needs to be known to implement an effective strategy (SWOT) • Strengths & Weaknesses of competitors and new market entrants, substitute products/services, and commitment of suppliers/distributors • Current/prospective environmental, technological, legal and economic issues (Opportunities & Threats) • SWOT analysis leads to identification of company’s critical success factors (CSFs) • Product lifecycle > may limit ops. Strategy • Resource available within firm and OM function • Integration of OM strategy with company strategy and other functional areas.

14. BA 339, OM – Chapter 2 • Issues in Operations Strategy • Dynamics – strategy driven by internal and environmental changes • Internal – personnel, finance, technology & product lifecycle (SW piece of SWOT) • External – finance/economic, marketplace, legal, environmental, product lifecycle OT piece of SWOT) • Product lifecycle & growth rate • Introduction – product/process design, R&D, quality critical • Growth – forecasting, product/process reliability, distribution critical • Maturity – standardization, process stability, cost competition critical • Decline – cost minimization, product/margin interaction, overcapacity critical

15. BA 339, OM – Chapter 2 • Strategy Development & Implementation • SWOT analysis (strengths, weaknesses, opportunities & threats) – most effective when integrated vertically and horizontally • Identify critical success factors & relationship to competitive advantage (activity maps are a useful tool) > for OM function, 10 decisions • Build staff and organization – Ops. Mgr. works w/ subordinate managers to develop plans, budgets & programs • Integrate OM w/other activities – HR, marketing, finance, IT • Class Exercise: Select company & conduct analysis

16. BA 339, OM – Chapter 2 • Global Operations Strategy Options • Four major strategies: • International: • Uses exports & licenses to penetrate global areas • Little responsiveness (licensing product from home country) and cost advantage (using existing production facilities) • Often the easiest to implement – little impact to existing operations; licensee assumes much of the risk • Example: U.S. Steel

17. BA 339, OM – Chapter 2 • Global Operations Strategy Options • Four major strategies: • Multidomestic strategy • Decentralized authority with substantial autonomy as business unit level (typically subsidiaries, franchises, or joint ventures); utilizes existing production and domestic markets • Little of no cost advantage • Responsive to local needs/tastes • Example: McDonald’s (serves beer in Germany, wine in France, hamburgers w/out beef in India, poached egg hamburger (McHuevo) in Uruguay; Heinz ketchup accommodates local tastes since production process is not critical

18. BA 339, OM – Chapter 2 • Global Operations Strategy Options • Four major strategies: • Global strategy: • High degree of centralization w/ HQ coordinating organization to pursue standardization and learning between plans, that lead to economies of scale • Used when focus is on cost reduction; little or no impact on local responsiveness (e.g., when it isn’t needed) • Examples: • Caterpillar – end products are the same throughout the world; individual factories produce limited line of of products to be shipped worldwide • Texas Instruments – use optimal sized plants with similar processes; maximize learning by aggressive learning between plants

19. BA 339, OM – Chapter 2 • Global Operations Strategy Options • Four major strategies: • Transnational strategy: • Exploits economies of scale & learning as well as pressure for responsiveness > recognizes that core competence can exist anywhere in the organization • People, materials & ideas transgress national boundaries; Key activities are neither centralized in parent co. nor decentralized in subsidiaries • Resources, activities are dispersed, but specialized to be both efficient & flexible. • Examples: nestle, ABB, Reuters, Citicorp • Nestle - (95% of assts and 98% of sales are outside Switzerland, 10% of workers are Swiss • ABB – Swedish firm headquartered in Switzerland with multiple operations/factories in many countries