1. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-1 Operations Management Operations Strategy in a Global Environment Chapter 2

2. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-2 Outline  A GLOBAL VIEW OF OPERATIONS  DEVELOPING MISSIONS AND STRATEGIES  ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS  Differentiation, Cost, Response  ISSUES IN OPERATIONS STRATEGY  Research, Preconditions, Dynamics  STRATEGY DEVELOPMENT AND IMPLEMENTATION

3. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-3 Outline - Continued GLOBAL OPERATIONS STRATEGY OPTIONS  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy

4. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-4 Learning Objectives When you complete this chapter, you should be able to : Identify or Define :  Mission  Strategy  Ten Decisions of OM  Multinational Corporations

5. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-5 Learning Objectives - Continued Describe or Explain :  Specific approaches used by OM to achieve strategies  Differentiation  Low Cost  Response  Four Global Operations Strategies  Why Global Issues are Important

6. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-6 Examples of Global Strategies  Boeing – both sales and production are worldwide.  Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world  GM is building four similar plants in Argentina, Poland, China, and Thailand

7. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-7 Boeing Suppliers (777) FirmCountryParts AleniaItalyWing flaps AeroSpace Technologies AustraliaRudder CASASpainAilerons doors, wing section FujiJapanLanding gear GEC AvionicsUnited KingdomFlight computers Korean AirKoreaFlap supports Menasco Aerospace CanadaLanding gears Short BrothersIrelandLanding gear doors Singapore Aerospace SingaporeLanding gear doors

8. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-8 Global Organizations, Agreements  Free trade zones receive preferential tariff treatment.  World Trade Organization (WTC) lowers barriers to free flow of goods across borders.  North American Free Trade Agreement (NAFTA): a free trade agreement between Canada, Mexico, USA.  European Union (EU)-customs union

9. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-9 Reasons to Globalize Operations  Reduce costs (labor, taxes, tariffs, etc.)  Improve the supply chain  Provide better goods and services  Attract new markets  Learn to improve operations  Attract and retain global talent Tangible Intangible

10. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-10  Improve SC: locating facilities in countries where unique resources, i.e., expertise, labor, raw material exist.  Provide better goods and services -better understanding of culture leads to more efficient customization -reduce response time to meet customer’s changing product and service requirements.

11. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-11  Attract new markets-international firms find opportunities for new products and services. -increase sales -diversify their customer base -add production flexibility to switch b/w good and bad economies. -expand life cycle

12. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-12 To Establish Global Services  Determine if sufficient people or facilities exist to support the service  Identify foreign markets that are open - not controlled by governments  Determine what services are of most interest to foreign customers  Determine how to reach global customers

13. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-13 You May Wish To Consider  national literacy rate  rate of innovation  rate of technology change  number of skilled workers  stability of government  product liability laws  export restrictions  similarity in language  work ethic  tax rates  inflation  availability of raw materials  interest rates  population  number of miles of highway

14. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-14 Cultural and Ethical Issues  Cultures differ! Some accept/expect:  variations in punctuality  long lunch hours  expectation of thievery  Bribery, child labor  little protection of intellectual property  Requirement for common laws and regulations for global uniformity.

15. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-15 Developing Missions and Strategies Developing Missions and Strategies

16. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-16 Mission Where are we going? What do we provide society? What’s our purpose? What’s our reason for being? Provides boundaries & focus for organizations Functional areas have supporting missions for the company mission. Supporting missions for 10 OM functions

17. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-17 Mission of FedEx FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction.

18. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-18 Sample Mission - Merck The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return

19. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-19 Mission of the Hard Rock Café 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.

20. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-20 Strategy  Mission - where are we going?  Strategy - how can we get there?  Provides an action plan

21. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-21 Strategy Process Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area mission/strategies

22. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-22 Concepts of a mission Firms achieve mission in 3 conceptual ways: 1)Product Differentiation Competitive 2)Low cost advantage 3)Quick response

23. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-23 Competing on Differentiation Differentiation is providing uniqueness Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value Limited by imagination Ex: “Experience differentiation” in Magic Kingdom, Hard Rock Cafe, Migros

24. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-24 Competing on Cost Provide the maximum value as perceived by customer Does not imply low value or low quality Effective use of resources to decrease costs Ex: Reduced warehousing costs, direct shipment from manufacturer in Wallmart

25. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-25 Competing on Response  Flexible response: is the ability to match design/volume changes in market ex: HP  Reliability of scheduling: ex: German M/C industry  Quickness in design, production, delivery Requires institutionalization within the firm of the ability to respond

26. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-26 10 Strategic OM Decisions  Goods & service design  Quality  Process & capacity design  Location selection  Layout design  Human resource and job design  Supply-chain management  Inventory  Scheduling  Maintenance

27. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-27 OM’s Contribution to Strategy Response (Faster) Product Quality Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance HP’s ability to follow the printer market Differentiation (Better) 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

28. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-28 Goods & Services and the 10 OM Decisions

29. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-29 Goods & Services and the 10 OM Decisions – Continued

30. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-30 Goods & Services and the 10 OM Decisions – Continued

31. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-31 Goods & Services and the 10 OM Decisions – Continued

32. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-32 Ex: How to find Process Design Strategy? Low Moderate High Volume High Moderate Low Variety of Products Process-focused Job Shops (Print shop, emergency room, machine shop, fine dining Repetitive (modular) focus Assembly line (Cars, appliances, TVs, fast-food restaurants) Product-focused Continuous (steel, beer, paper, bread, institutional kitchen) Mass Customization Customization at high Volume (Dell Computer’s PC)

33. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-33 Operations Strategies for Two Drug Companies

34. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-34 Operations Strategies for Two Drug Companies - Continued

35. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-35 Operations Strategies for Two Drug Companies - Continued

36. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-36 Operations Strategies for Two Drug Companies - Continued

37. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-37 Some Multinational Corporations Workforce CompanyHome Country % Sales Outside Home Country % Assets Outside Home Country % Foreign Colgate- Palmolive USA7263NA Dow Chemical USA6050NA GilletteUSA6253NA HondaJapan6336NA IBMUSA574751 Citicorp USA 3446 NA

38. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-38 Some Multinational Corporations Workforce CompanyHome Country % Sales Outside Home Country % Assets Outside Home Country % Foreign ICIBritain7850NA NestléSwitzerland989597 PhilipsNetherlands948582 SiemensGermany51NA38 Electronics Unilever Britain & Netherlands 957064

39. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-39 Issues in Operations Strategy  Characteristics that impact strategic OM decisions  Preconditions that should exist to develop an operations strategy  Dynamics of developed strategies: strategies change

40. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-40 Characteristics of high ROI firms  High quality product  High capacity utilization  High operating efficiency (expected/actual employee productivity)  Low investment intensity (capital required/produce 1 dollar sales)  Low direct cost per unit (relative to the competitors’ value) From the PIMS study of the Strategic Planning Institute

41. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-41 Preconditions - To Implement a Strategy Operations manager must understand that the firm is operating in an open system.  Strengths & weaknesses of competitors and new entrants into the market  Current and prospective environmental, legal, and economic issues  The notion of product life cycle  Resources available with the firm and within the OM function  Integration of OM strategy with company strategy and with other functions.

42. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-42 Dynamics Strategies change because of two reasons:  Changes in the organization: personnel, finance, technology, product life  Changes in the environment Ex: Microsoft, impact of internet, changing demand

43. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-43 Strategy and Issues During a Product’s Life

44. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-44 Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects Introduction Strategy & Issues During Product Life  Company Strategy & Issues  OM Strategy & Issues

45. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-45 Strategy & Issues During Product Life Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution Company Strategy & Issues OM Strategy & Issues Growth

46. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-46 Strategy & Issues During Product Life Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises Company Strategy & Issues OM Strategy & Issues Maturity

47. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-47 Strategy & Issues During Product Life Cost control critical to market share Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity Company Strategy & Issues OM Strategy & Issues Decline

48. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-48 Strategy Development Process Environmental Analysis Identify SWOT. Understand environment, customer, industry, competitors Determine Corporate Mission Form a Strategy Build a strategy such as low price, flexibility, quick delivery, dependability, after sale service, broad product lines

49. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-49 SWOT Analysis to Strategy Formulation Strategy Mission External Opportunities Internal Strengths Internal Weaknesses External Threats Competitive Advantage

50. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-50 Identifying Critical Success Factors DecisionsSample Option Chapter ProductCustomized, or standardized 5 QualityDefine customer expectations and how to achieve them 6, S6 ProcessFacility size, technology, capacity 7, S7 LocationNear supplier or customer 8 LayoutWork cells or assembly line 9 Human resourceSpecialized or enriched jobs 10, S10 Supply chain Single or multiple source suppliers 11, S11 InventoryWhen to reorder, how much to keep on hand 12, 14,16 ScheduleStable or fluctuating productions rate 13, 15 Maintenance Repair as required or preventive maintenance 17 Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Production/Operations

51. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-51 Southwest Airline’s Low Cost Competitive Advantage

52. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-52 How It Works Company Mission Business Strategy Functional Area Strategies Marketing Decisions Operations Decisions Fin./Acct. Decisions t

53. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-53 Global Operations Strategy Options  International Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy

54. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-54 Four International Operations Strategies

55. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-55 International Strategy Global markets are penetrated using exports and licenses Least advantageous with little local responsiveness (expost from home country) little cost advantage (use existing facility in home country).

56. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-56 Multidomestic Strategy Operating decisions are decentralized to each country to enhance local responsiveness Advantage is to maximize competitive response for the local market. But no cost advantage. Ex: Mc Donald’s call itself multilocal

57. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-57 Global Strategy Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities. Appropriate when strategic focus is cost reduction. Not recommended when there is also concerns about high responsiveness.

58. PowerPoint presentation to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 2-58 Transnational Strategies Combines the benefits of global-scale efficiencies with the benefits of local responsiveness. Recognizes that core competence is not only in the local country. Material, people and ideas cross national boundaries! Firms can pursue all strategies of cost, response and differentiation. Neither centralized, nor decentralized Resources and activities are dispersed, but specialized in a flexible interdependent network.