2-1 Operations Management Operations Strategy Chapter 2

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

2-3 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.

2-4 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.

2-5 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...

2-6 Mission/Strategy  Mission - “Where are you going?”  Strategy - “How are you going to get there?”

2-7 Strategy  Action plan to achieve mission.  Exploits strengths and opportunities, avoid weaknesses.  Functional areas have strategies.

2-8 Strategy Process Marketing Strategy Operations Strategy Fin./Acct. Strategy Company Mission Business Strategy

2-9 Operations Strategy  Should include measurable goals:  Product quality.  Customer wait time.  Delivery times.  Safety.  Equipment down time.  Employment and/or layoffs.

2-10 Competitive Advantage Through:  Differentiation. Better!  Cost leadership. Cheaper!  Quick response. Faster!

2-11 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.

2-12 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.

2-13 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.

2-14 OM’s Contribution to Strategy - p. 37 Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance Compaq Computer’s ability to follow the PC market Differentiation (Better) Response (Faster) Cost leadership (Cheaper) Southwest Airlines No-frills service Sony’s constant innovation of new products Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” Motorola’s automotive products ignition systems Motorola’s pagers IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage

2-15 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 High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent flights. Competitive Advantage: Low Cost

2-16 Southwest Airline’s Low Cost Competitive Advantage Courteous, but limited passenger service No seat assignments. No baggage transfers. Automated ticketing machines. No meals.

2-17 Southwest Airline’s Low Cost Competitive Advantage Short haul, point-to- point routes, often to secondary airports Lower gate costs at secondary airports.

2-18 Southwest Airline’s Low Cost Competitive Advantage Frequent flights. Less employee idle time between flights. Lower administrative costs per passenger.

2-19 Southwest Airline’s Low Cost Competitive Advantage Standardized fleet of Boeing 737 aircraft Pilot and maintenance training on only one type of aircraft. Reduced maintenance inventory. Excellent supplier relations with Boeing.

2-20 Southwest Airline’s Low Cost Competitive Advantage High aircraft utilization Fast (15 minute) gate turnarounds. Flexible employees and standard planes aids scheduling. Easier maintenance with only one type of aircraft.

2-21 Southwest Airline’s Low Cost Competitive Advantage Lean, productive employees High level of stock ownership. Hire for attitude, then train. High employee compensation. Empowered employees.

2-22 How Do These Organizations Compete?  UM - St. Louis.  Other area universities.  Boeing.  7-11

2-23 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.

2-24 Life Cycle IntroductionGrowthMaturityDecline Increase market share. R&D product engineering critical. Strengthen niche. Can change image, price, quality. Cost control critical. Defend market position. Poor time to change image, price, or quality. Sales Time

2-25 Strategy Issues During Life Cycle Frequent design changes. Short production runs. High production costs. Limited models. IntroductionGrowthMaturityDecline Sales Forecasting critical. Increase capacity. Enhance distribution. Optimum capacity. Long production runs. Product improvement and cost cutting. Reduce capacity. Minimize cost. Eliminate items. Time

2-26 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.

2-27 Global Business Company Home Country % Sales Outside Home Country % Assets Outside Home Country Colgate- Palmolive USA7263 Dow ChemicalUSA6050 Gillette USA6253 HondaJapan6336 IBMUSA5747 CiticorpUSA3446

2-28 $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).

2-29 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.

2-30 Reasons to Globalize Operations  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. Tangible Intangible

2-31 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.

2-32 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.

2-33 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.

2-34 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.