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2 - 2  What Is Operations Management?  Organizing to Produce Goods and Services  Why Study OM?  What Operations Managers Do  The Heritage of Operations Management  Operations in the Service Sector  Differences between Goods and Services  Growth of Services  Exciting New Trends in Operations Management Previous Presentation Summary (1/2)

2 - 3  The Productivity Challenge  Productivity Measurement  Productivity Variables  Productivity and the Service Sector  Ethics and Social Responsibility Previous Presentation Summary (2/2)

2 - 4 Chapter 2: Operations Strategy in a Global Environment

2 - 5 Outline  A Global View of Operations  Developing Missions And Strategies  Mission  Strategy  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions  Strategy Development Issues

2 - 6 Outline – Continued  Strategy development and implimentation  Global Operations Strategy Options  International Strategy  Multi domestic Strategy  Global Strategy  Transnational Strategy

– 30 – 25 – 20 – 15 – 10 – 5 – 0 – ||||||||||| (est*) Year Percent Growth of World Trade Figure 2.1 Collapse of the Berlin Wall

2 - 8 Some Multinational Corporations % Sales% AssetsOutside HomeHomeHome% Foreign CompanyCountryCountryCountryWorkforce CiticorpUSA3446NA Colgate-USA7263NA Palmolive Dow USA6050NA Chemical GilletteUSA6253NA HondaJapan6336NA IBMUSA574751

2 - 9 Some Multinational Corporations % Sales% AssetsOutside HomeHomeHome% Foreign CompanyCountryCountryCountryWorkforce ICIBritain7850NA NestleSwitzerland PhilipsNetherlands Electronics SiemensGermany51NA38 UnileverBritain & Netherlands

Reasons to Globalize 1.Reduce costs (labor, taxes, tariffs, etc.) 2.Improve supply chain 3.Provide better goods and services 4.Understand markets 5.Learn to improve operations 6.Attract and retain global talent Tangible Reasons Intangible Reasons

Reduce Costs (1/6)  Foreign locations with lower wage rates can lower direct and indirect costs  World Trade Organization (WTO)  North American Free Trade Agreement (NAFTA)  European Union (EU)

Improve the Supply Chain (2/6)  Locating facilities closer to unique resources  Auto design to California  Athletic shoe production to China  Perfume manufacturing in France

Provide Better Goods and Services (3/6)  Objective and subjective characteristics of goods and services  On-time deliveries (objective characteristic)  Cultural variables (subjective characteristic)  Improved customer service

Understand Markets (4/6)  Interacting with foreign customers and suppliers can lead to new opportunities  Cell phone design from Europe  Extend the product life cycle

Learn to Improve Operations (5/6)  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

Attract and Retain Global Talent (6/6)  Offer better employment opportunities  Better growth opportunities and insulation against unemployment  Relocate unneeded personnel to more prosperous locations

Companies Want To Consider  National literacy rate  Rate of innovation  Rate of technology change  Number of skilled workers  Political stability  Product liability laws  Export restrictions  Variations in language  Work ethic  Tax rates  Inflation  Availability of raw materials  Interest rates  Population  Number of miles of highway  Phone system

Developing Missions and Strategies Mission Mission statements tell an organization where it is going Strategy The Strategy tells the organization how to get there

Mission  Mission - where are you going?  Organization’s purpose for being  Answers ‘What do we provide society?’  Provides boundaries and focus

Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

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

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

Competing on Differentiation (1/3) 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

Competing on Cost (2/3) 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 overhead, shrinkage (loss of inventory), distribution costs

Competing on Response (3/3)  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

Goods and Services and the 10 OM Decisions (1/4) Operations Decisions GoodsServices Goods and service design Product is usually tangible Product is not tangible QualityMany objective standards Many subjective standards Process and capacity design Customers not involved Customer may be directly involved Capacity must match demand Table 2.1

Goods and Services and the 10 OM Decisions (2/4) Operations Decisions GoodsServices Location selection Near raw materials and labor Near customers Layout designProduction efficiencyEnhances product and production Human resources and job design Technical skills, consistent labor standards, output based wages Interact with customers, labor standards vary Table 2.1

Goods and Services and the 10 OM Decisions (3/4) Operations Decisions GoodsServices Supply chainRelationship critical to final product Important, but may not be critical InventoryRaw materials, work- in-process, and finished goods may be held Cannot be stored SchedulingLevel schedules possible Meet immediate customer demand Table 2.1

Goods and Services and the 10 OM Decisions (4/4) Operations Decisions GoodsServices MaintenanceOften preventive and takes place at production site Often “repair” and takes place at customer’s site Table 2.1

Managing Global Service and Manufacturing Operations  Capacity planning  Location planning  Facilities design and layout  Scheduling Requires a different perspective on:

Process Design LowModerateHigh Volume High Moderate Low Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine-dining restaurant) Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (Steel, paper, bread, petroleum product, chemical production) Mass Customization Customization at high Volume (Dell Computer’s PC, cafeteria)

Summary of Today's Presentation  A Global View of Operations  Developing Missions And Strategies  Mission  Strategy  Achieving Competitive Advantage Through Operations  Competing On Differentiation  Competing On Cost  Competing On Response  Ten Strategic OM Decisions  Strategy Development Issues

End of Presentation