Operations Management - C2 Irfan Bashir - Sanskriti University (Management)

1. Operations
Management
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Operations Strategy &
Competitiveness
Chapter 2

2. Outline
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DEVELOPING MISSIONS AND STRATEGIES
 Mission
 Strategy
ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
 Competing on Differentiation
 Competing on Cost
 Competing on Response
TEN STRATEGIC OM DECISIONS

3. Outline - Continued
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 ISSUES IN OPERATIONS STRATEGY
 Research
 Preconditions
 Dynamics
 STRATEGY DEVELOPMENT AND IMPLEMENTATION
 Identify Critical Success Factors
 A Global view of Operations Cultural and Ethical Issues
 Build and Staff the Organization
 Integrate OM with Other Activities
 GLOBAL OPERATIONS STRATEGY OPTIONS
 International Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy

4. Learning Objectives
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When you complete this chapter, you should be able to :
Identify or Define:
 Mission
 Strategy
 Ten Decisions of OM
 Multinational Corporations
Describe or Explain:
 Specific approaches used by OM to achieve strategies
 Differentiation
 Low Cost
 Response
 Four Global Operations Strategies
 Why Global Issues are Important

5. Developing Missions and
Strategies
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6. Mission
 Mission - where are you
going?
 Organization’s purpose for being
 Provides boundaries & focus
 Answers ‘What do we provide
society?’
© 1995 Corel Corp.
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7. Mission of FedEx
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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.

8. Factors Affecting Mission
Mission
Philosophy &
Values
Environment
Customers
Profitability
& Growth
Public Image
Benefit to
Society
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9. Mission/Strategy
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Mission - where you are going
Strategy - how you are going to get there; an
action plan

10. Strategy
 Action plan to achieve
mission
 Shows how mission will be
achieved
 Company has a business
strategy
 Functional areas have
strategies © 1995 Corel Corp.
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11. Strategy Process
Marketing
Decisions
Operations
Decisions
Fin./Acct.
Decisions
Company
Mission
Business
Strategy
F
Fu
un
nc
cttiio
on
na
allA
Ar
re
ea
a
Strategies
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12. Strategies for Competitive
Advantage
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Differentiation
Cost leadership
Quick response

13. Competing on Differentiation
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Uniqueness can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts customer’s
perception of value

14. Competing on Cost
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Provide the maximum value as perceived by
customer
Does not imply low value or low quality

15. Competing on Response
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Flexibility
Reliability
Timeliness
Requires institutionalization within the firm of the
ability to respond

16. Competing, Regardless of the Basis,
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Requires the institutionalization within the firm of
the ability to change, and to adapt

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

18. 10 Strategic OM Decisions
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 Goods & service design









Quality
Process & capacity design
Location selection
Layout design
Human resource and job design
Supply-chain management
Inventory
Scheduling
Maintenance

19. Operations
Decisions
Goods Services
Goods &
services
decisions
Product is usually
tangible
Product is usually
intangible
Quality Objective quality
standards
Subjective quality
standards
Process
and
capacity
design
Customer not involved
in most of process
Customer may be directly
involved in process.
Capacity must match
demand to avoid lost sales
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Goods & Services and the 10 OM
Decisions

20. Operations
Decisions
Goods Services
Location
Selection
May need to be near raw
materials or labor force
Product is usually
intangible
Layout
Design
Layout can enhance
production efficiency
Subjective quality
standards
Human
Resources
and Job
Design
Workforce focused on
technical skills.
Labor standards consistent.
Output-based wage system.
Customer may be directly
involved in process.
Capacity matches
demand to avoid lost
sales
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Goods & Services and the 10 OM
Decisions – Continued

21. Operations
Decisions
Goods Services
Supply chain
management
Supply-chain
relationships critical to
final product
Supply-chain relationships
important, not necessarily
critical
Inventory Raw materials, work-
in-process, and
finished goods
Most services cannot be
stored
Scheduling Ability to convert
inventory may allow
leveling of production
rates
Primarily concerned with
meeting the customer's
immediate schedule
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Goods & Services and the 10 OM
Decisions – Continued

22. Goods & Services and the 10 OM
Decisions – Continued
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Operations
Decisions
Goods Services
Maintenance Maintenance is often
preventive and takes
place at the production
site
Maintenance is often
"repair" and takes place at
the customer's site

23. Process Design
Low High
Moderate
Volume
High
Moderate
Low
Variety
of
Products
Process-focused
Job Shops
(Print shop, emergency
room , machine shop,
fine dining
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Repetitive (modular)
focus
Assembly line
(Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Customization at high
Volume
Mass Customization
(Dell Computer’s PC)

24. Characteristics of High ROI Firms
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High quality product
High capacity utilization
High operating effectiveness
Low investment intensity
Low direct cost per unit
From the PIMS study of the Strategic
Planning Institute

25. Strategic Options Managers Use
to Gain Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
 4% - Financial resources
 3% - Other
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26. Strategic Options Managers Use
to Gain Competitive Advantage
28% Operations Management
 Low- cost product
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to consumers
 Engineering research development
 Location
 Scheduling
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27. Preconditions -
To Implement a Strategy
One must understand:
 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.
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28. Impetus for Strategy Change
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Changes in the organization
Stages in the product life cycle
Changes in the environment

29. Stages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
Growth
rate
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30. 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
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 Company
Strategy &
Issues
 OM Strategy
& Issues

31. 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
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32. 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
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33. 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
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34. Strategy and Issues During a
Product’s Life
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35. Strategy Development and
Implementation
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Identify critical success factors
Build and staff the organization

36. SWOT Analysis Process
Environmental Analysis
Determine Corporate Mission
Form a Strategy
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37. SWOT Analysis to Strategy
Formulation
Strategy
Mission
Internal
Strengths
Internal
Weaknesses
External
Opportunities
External
Threats
Competitive
Advantage
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38. Identifying
Critical Success Factors
Decisions
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
Sample Option
Customized, or standardized
Define customer expectations and how to achieve them
Facility size, technology, capacity
Near supplier or customer
Work cells or assembly line
Specialized or enriched jobs
Single or multiple source suppliers
When to reorder, how much to keep on hand
Stable or fluctuating productions rate
Repair as required or preventive maintenance
Chapter
5
6, S6
7, S7
8
9
10, S10
11, S11
12, 14,16
13, 15
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
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39. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
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Lean, productive
employees
Short haul, point-to-point
routes, often to secondary
airports
High aircraft
utilization
Standardized fleet of
Boeing 737 aircraft
Frequent, reliable
schedules
Competitive Advantage:
Low Cost

40. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
No seat assignments
No baggage transfers
Automated ticketing machines
No meals
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41. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
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Short haul, point-to-point
routes, often to secondary
airports
Lower gate costs at
secondary airports
High number of flights,
reduces employee idle
time between flights

42. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
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Frequent, reliable
schedules
High number of flights reduces
employee idle time between
flights
Saturate a city with flights
lowering administrative costs
per passenger for that city

43. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
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Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one type
of aircraft
Excellent supplier relations with
Boeing has aided financing
Standardized fleet of
Boeing 737 aircraft

44. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
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Flexible employees and
standard planes aids scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
High aircraft
utilization

45. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
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Lean, productive
employees
High level of stock ownership
Hire for attitude, then train
High employee compensation
Empowered employees
Automated ticket machines

46. Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service
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Lean, productive
employees
Short haul, point-to-point
routes, often to secondary
airports
High aircraft
utilization
Standardized fleet of
Boeing 737 aircraft
Frequent, reliable
schedules
Competitive Advantage:
Low Cost

47. Examples of Global Strategies
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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

48. Management Issues in
Global Operations
Global Strategic Context
 Differentiation
 Cost leadership
 Response
Logistics
Management
Location Decisions
Supply Chain
Management
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49. Supply-Chain Management
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Sourcing
Vertical integration
Make-or-buy decisions
Partnering

50. Location Decisions
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Country-related issues
Product-related issues
Government policy/political risk
Organizational issues

51. Materials Management
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Flow of materials
Transportation options and speed
Inventory levels
Packaging
Storage

52. Defining Global Operations
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 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
 Transnational company - seeks to combine the benefits of
global-scale efficiencies with the benefits of local
responsiveness

53. 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
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54. Trade and Tariff
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 Maquiladoras - Mexican factories located along the
U.S.-Mexico border that receive preferential tariff
treatment
 GATT - an international treaty that helps 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
 AFTA – a free trade agreement among the Asian
countries

55. Free trade may
take us into the era of the floating factory - a six
person crew will take a factory from port to port
in order to obtain the best market, material, labor
and tax advantages
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56. Achieving Global Operations
-Four Considerations-
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Global product design
Global process design and technology
Global factory location analysis
Impact of Culture and Ethics

57. Global
Product Design
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Remember social and cultural differences
 packaging and marketing can help make product seem
“domestic” but -
 “liter” versus “quart”
 “sweetness” and “taste”

58. Global
Process Design and Technology
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Information technology enables management of
integrated, globally dispersed operation
Texas Instruments: 50 plants in 19 countries
Hewlett-Packard - product development teams in
U.S., Japan, Great Britain, and Germany
Reduces time-to-market

59. Global
Facility Location Analysis
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Using CSFs for Country Selection
Select CSFs based on parent organization;’s
strategic or operations objectives
Obtain country-specific information on the CSFs
Evaluate each country’s CSFs using a 1 (bad) to
5 (good) rating scale
Sum the ratings

60. You May Wish To Consider
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 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

61. Global
Impact of Culture and Ethics
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Cultures differ! Some accept/expect:
 variations in punctuality
 long lunch hours
 expectation of thievery
 bribery
 little protection of intellectual property

62. To Establish Global Services
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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

63. Managing Global Service
Operations
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Must take a different perspective on
Capacity planning
Location Planning
Facilities design and layout
Scheduling

64. Some Definitions
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International business
 A firm that engages in cross-border
transactions.
Multinational Corporation (MNC)
 A firm that has extensive involvement in
international business, owning or controlling
facilities in more than one country

65. Some Global Strategies
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 International Strategy: uses exports and licenses to
penetrate the global area
 Multidomestic Strategy: uses decentralized authority with
substantial autonomy at each business
 Global Strategy: Uses a high degree of centralization, with
headquarters coordinating to seek standardization and
learning between plants
 Transnational Strategy: Exploits economies of scale and
learning, as well as pressure for responsiveness, by
recognizing that core competencies reside everywhere in
the organization

66. Four International Operations
Strategies
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