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									Operations Strategies
in a Global Economy
INTRODUCTION
Operational effectiveness is the ability to perform
 similar operations activities better than competitors.
It is very difficult for a company to compete
 successfully in the long run based just on operational
 effectiveness.
A firm must also determine how operational
 effectiveness can be used to achieve a sustainable
 competitive advantage.
An effective competitive strategy is critical.
FACTORS AFFECTING TODAY’S
GLOBAL BUSINESS CONDITIONS
Reality of global competition
Quality, customer service, and cost challenges
Rapid expansion of advanced technologies
Continued growth of the service sector
Scarcity of operations resources
Social responsibility issues
REALITY OF GLOBAL COMPETITION

Changing nature of world business
International companies
Strategic alliances and production sharing
Fluctuation of international financial conditions
CHANGING NATURE OF WORLD
BUSINESS
 The US gross domestic product (GDP) is, at around $15
  trillion, the largest in the world.
 Companies all over the globe are aggressively exporting
  their products/services to the US
 Many US companies are targeting foreign markets to shore
  up profits.
 The global economy that interconnects the economies of all
  nations has been termed the global village.
 One of the most important new markets is China.
INTERNATIONAL COMPANIES

International companies are those whose scope of
 operations spans the globe as they buy, produce,
 and sell.
International firms search out opportunities for
 profits relatively unencumbered by national
 boundaries.
Operations managers must coordinate
 geopraphically dispersed operations.
INTERNATIONAL COMPANIES
 World’s Largest Corporations (2010 data)
   1. Wal-Mart                               US
   2. Royal Dutch Shell                      Netherlands
   3. Exxon Mobil                            US
   4. BP                                     Britain
   5. Toyota                                 Japan
   6. Japan Post Holdings                    Japan
   7. Sinopec                                China
   8. State Grid                             China
   9. AXA                                    France
   10. China National Petroleum              China
STRATEGIC ALLIANCES
Strategic alliances are joint ventures among
 international companies to exploit global business
 opportunities.
Alliances are often motivated by
   Product or production technology
   Market access
   Production capability
   Pooling of capital
 STRATEGIC ALLIANCES
                           Kia might help sell
General Motors (US) &
                           and market GM cars
Kia Motor Corp. (S.K.)
                           in South Korea
                           Manufacture 100,000
Renault (France) &
                           vehicles annually
City of Moscow
                           near Moscow

Sino Aerospace Invest-     Forming Texas-based
ment Corp. (Taiwan) &      Sino Swearingen
Swearingen Aircraft (US)   Aircraft Co.
STRATEGIC ALLIANCES

Japanese companies have long practiced
 keiretsu, the linking of companies into
 industrial groups.
   A financial keiretsu links companies together with cross-
    holding of shares, sales and purchases within the group,
    and consultation.
   A production keiretsu is a web of interlocking
    relationships between a big manufacturer (Toyota) and
    its suppliers.
PRODUCTION SHARING

Production sharing means that a product might be
 designed and financed in one country, its materials
 produced in other countries, assembled in another
 country, and sold in yet other countries.
The country that is the highest-quality, lowest-cost
 producer for a particular activity would perform
 that portion of the production of the product.
PROS AND CONS OF GLOBALIZATION

Pros (Pluses)
   Productivity grows more quickly (living standards can go
    up faster)
   Global competition and cheap imports keep a lid on
    prices (inflation less likely to derail economic growth)
   Open economy spurs innovation (with fresh ideas from
    abroad)
   Export jobs often pay more than other jobs
   US has more access to foreign investment (keeps
    interest rates low)
PROS AND CONS OF GLOBALIZATION

Cons (Minuses)
   Millions of Americans have lost jobs due to imports or
    production shifts abroad
   Most displaced workers find new jobs that pay less
   Workers face pay-cuts demands from employers
   Service and white-collar jobs are increasingly vulnerable
   US employees lose their comparative advantage when
    companies build advanced factories abroad
INTERNATIONAL FINANCIAL
CONDITIONS
International financial conditions are
 complex due to:
   inflation
   fluctuating currency exchange rates
   turbulent interest rates
   volatility of international stock markets
   huge national debts of some countries
   enormous trade imbalances between countries
INTERNATIONAL FINANCIAL
CONDITIONS
Due, in part, to the fall in the value of the
  dollar between 1975 and 1995, the following
  occurred:
   Prices of US products/services abroad fell and demand
    increased
   Japan and other countries built factories in US
   Japanese manufacturers moved upscale toward higher
    priced products
INTERNATIONAL FINANCIAL
CONDITIONS
Companies must be ready to move quickly to
 shift strategies as world financial conditions
 change.
Opportunities are usually available to reduce
 risk
   Building smaller, more flexible factories
   Using foreign suppliers for materials, parts, or products
   Carefully planning and forecasting so that changing conditions
    can be anticipated
QUALITY, SERVICE, AND COST
CHALLENGES
Quality
   The goal of adequate quality must be replaced with the
    objective of perfect product and service quality.
   The entire corporate culture must be redirected and
    committed to the ideal of perfect quality.
   All employees must be empowered to act.
   A commitment to continuous improvement has to be
    organization-wide.
QUALITY, SERVICE, AND COST
CHALLENGES
Customer Service
   Companies must quickly develop innovative products
    and respond quickly to customers’ needs.
   Organizational structures must be made more
    horizontal to quickly accommodate change.
   Multidisciplined teams must have decision-making
    authority, responding better to the marketplace.
   Large, unwieldy companies are spinning off whole
    business units making them autonomous businesses that
    can compete with small, aggressive competitors.
 QUALITY, SERVICE, AND COST
 CHALLENGES
Cost
  There is continuing pressure to reduce direct costs (of
   producing and selling) and overhead costs.
  It cost the US automakers $1,500 more per auto for labor
   in 1980 than it cost the Japanese auto-makers. By the 1990s
   the difference was almost zero.
  Giant retailers (like Wal-Mart) squeezed weaker
   competitors out of the market, giving the retailers the
   leverage to force their suppliers to streamline operations
   and reduce costs/prices.
QUALITY, SERVICE, AND COST
CHALLENGES
Cost
   Cost-cutting measures being used include:
      Moving production to low-labor-cost countries
      Negotiating lower labor rates with unions and workers
      Automating processes to reduce the amount of labor needed,
       particularly processes that are labor intensive.
ADVANCED TECHNOLOGIES

 The use of automation is one of the most far-reaching
  developments to affect manufacturing and services in the
  past century.
 The initial cost of these assets is high.
 The benefits go far beyond a reduction in labor costs.
    Increased product/service quality
    Reduced scrap and material costs
    Faster responses to customer needs
    Faster introduction of new products and services
ADVANCED TECHNOLOGIES

US companies cannot use automated production
 technology as a long-term competitive advantage.
Automation systems are available to any company
 in the world today, although the price is prohibitive
 for some companies.
Not investing, or delaying investing in this
 technology could be disastrous for a company.
CONTINUED GROWTH OF SERVICE
SECTOR
 A robust service sector helps support the manufac-turing
  sector.
 There is much opportunity for quality improvement in US
  service firms.
 Many operations managers are being employed in services.
 Planning, analyzing, and controlling approaches from
  manufacturing are being adapted to service systems.
 The US service sector, like the manufacturing sector, must
  streamline and improve operations if it is to survive.
SCARCITY OF OPERATIONS RESOURCES

Raw materials like titanium, nickel, coal, natural gas,
 water, and petroleum products are periodically
 unavailable or in short supply.
A shortage of any necessary input to a conversion
 subsystem, including skilled personnel, can be a
 challenge for an operations manager.
An important issue in the formation of business
 strategy is how to allocate scarce resources among
 business opportunities.
SOCIAL-RESPONSIBILITY ISSUES

Corporate attitudes are evolving from doing what
 companies have a legal right to do, to doing what is
 right.
Factors influencing this evolution include:
   Consumer attitude -- Consumers are expressing their likes/dislikes
    by such means as stockholder meetings, liability suits, and buying
    preferences.
   Regulation – The EPA, OSHA, Clean Air Act, and Family Leave Act
    place constraints on businesses.
   Self-interests -- Companies realize that profits will be greater if they
    act responsibly.
SOCIAL-RESPONSIBILITY ISSUES

Environmental Impact
Product-Safety Impact
Employee Impact
SOCIAL-RESPONSIBILITY ISSUES

Environmental Impact
 Concerns about the global environment include:
   Landfill waste reduction
   Recycling
   Energy conservation
   Chemical spills
   Acid rain
   Radioactive waste disposal
   … and more
SOCIAL-RESPONSIBILITY ISSUES

Environmental Impact
   There is a need for standardizing government
    regulations of the environment.
   Otherwise, companies will gravitate to the less-regulated
    countries.
   The International Organization for Standardization has
    developed a set of environmental guidelines called ISO
    14000.
SOCIAL-RESPONSIBILITY ISSUES

Product-Safety Impact
 Harm to people or animals that results from
 poor product design can:
   Damage a company’s reputation
   Require a large expense to remedy
   Cause governments to impose more regulations
SOCIAL-RESPONSIBILITY ISSUES
Employee Impact
 Employee benefits and policies include:
   Safety and health programs
   Fair hiring and promotion practices
   Day-care
   Family leave
   Health care
   Retirement benefits
   Educational assistance
   … and more
SOCIAL-RESPONSIBILITY ISSUES

Employee Impact
 Employee benefits and policies impact long-term
 profitability due to their effect on:
   Employee morale and productivity
   Recruitment and retention of employees
   Demand for a company’s products
   Cost of defending against lawsuits and boycotts
DEVELOPING OPERATIONS STRATEGY
              Corporate Mission
Assessment                             Distinctive
 of Global                            Competencies
 Business      Business Strategy           or
Conditions                             Weaknesses
             Product/Service Plans

             Competitive Priorities

              Operations Strategy
CORPORATE MISSION

A corporate mission is a set of long-range
 goals and including statements about:
   the kind of business the company wants to be in
   who its customers are
   its basic beliefs about business
   its goals of survival, growth, and profitability
BUSINESS STRATEGY

Business strategy is a long-range game plan
 of an organization and provides a road map
 of how to achieve the corporate mission.
Inputs to the business strategy are
   Assessment of global business conditions - social,
    economic, political, technological, competitive
   Distinctive competencies or weaknesses - workers, sales
    force, R&D, technology, management
COMPETITIVE PRIORITIES

Low Production Costs
   Definition
     Unit cost (labor, material, and overhead) of each
    product/service
   Some Ways of Creating
      Redesign of product/service
      New technology
      Increase in production rates
      Reduction of scrap/waste
      Reduction of inventory
COMPETITIVE PRIORITIES
Delivery Performance
   Definition
    a) Fast delivery b) On-time delivery
   Some Ways of Creating
    a) larger finished-goods inventory
    a) faster production rates
    a) quicker shipping methods
    b) more-realistic promises
    b) better control of production of orders
    b) better information systems
COMPETITIVE PRIORITIES
High-Quality Products/Services
   Definition
     Customers’ perception of degree of excellence exhibited
    by products/services
   Some Ways of Creating
     Improve product/service’s
      Appearance
      Performance and function
      Wear, endurance ability
      After-sales service
COMPETITIVE PRIORITIES

Customer Service and Flexibility
   Definition
     Ability to quickly change production to other
    products/services. Customer responsiveness.
   Some Ways of Creating
      Change in type of processes used
      Use of advanced technologies
      Reduction in WIP through lean manufacturing
      Increase in capacity
OPERATIONS STRATEGY

Operations strategy is a long-range game
 plan for the production of a company’s
 products/services, and provides a road map
 for the production function in helping to
 achieve the business strategy.
ELEMENTS OF OPERATIONS STRATEGY

Positioning the production system
Product/service plans
Outsourcing plans
Process and technology plans
Strategic allocation of resources
Facility plans: capacity, location, and layout
POSITIONING THE PRODUCTION SYSTEM

Select the type of product design
   Standard
   Custom

Select the type of production processing system
   Product focused
   Process focused

Select the type of finished-goods inventory policy
   Produce-to-stock
   Produce-to-order
PRODUCT/SERVICE PLANS

    As a product is designed, all the detailed
  characteristics of the product are established.


       Each product characteristic directly
      affects how the product can be made.


      How the product is made determines
      the design of the production system.
STAGES IN A PRODUCT’S LIFE CYCLE

 Introduction- Sales begin, production and marketing are
  developing, profits are negative.
 Growth - sales grow dramatically, marketing efforts intensify,
  capacity is expanded, profits begin.
 Maturity - production focuses on high-volume, efficiency,
  low costs; marketing focuses on competitive sales
  promotion; profits are at peak.
 Decline - declining sales and profit; product might be
  dropped or replaced.
STAGES OF A PRODUCT’S LIFE CYCLE

                                Automobile
                                               Dot-Matrix
                             Fax Machine
                                                  Printer
                   Cell Phone
                                      Video Recorder
Internet Radio   Color Copier   CD Player          B&W TV


Introduction      Growth         Maturity       Decline
OUTSOURCING PLANS

 Outsourcing refers to hiring out or subcontracting some of
  the work that a company needs to do.
 This strategy is being used more and more as companies
  strive to operate more efficiently.
 Outsourcing has many advantages and disadvantages.
 Companies try to determine the best level of out-sourcing
  to achieve their operations & business goals.
 More outsourcing requires a company to have less
  equipment, fewer employees, and a smaller facility.
OUTSOURCING PLANS

A company might outsource any of the
 following manufacturing related functions:
   Designing the product
   Purchasing the basic raw materials
   Processing the subcomponents, subassemblies, major
    assemblies, and finished product
   Distributing the product
OUTSOURCING PLANS

Many companies even outsource some
 service functions such as:
   Payroll
   Billing
   Order processing
   Developing/maintaining a website
   Employee recruitment
   Facility maintenance
PROCESS AND TECHNOLOGY PLANS

An essential part of operations strategy is
 the determination of how products/services
 will be produced.
The range of technologies available to
 produce products/services is great and is
 continually changing.
STRATEGIC ALLOCATION OF RESOURCES

For most companies, the vast majority of the
 firm’s resources are used in
 production/operations.
Some or all of these resources are limited.
The resources must be allocated to
 products, services, projects, or profit
 opportunities in ways that maximize the
 achievement of the operations objectives.
FACILITY PLANS

How to provide the long-range capacity to
 produce the firm’s products/services is a critical
 strategic decision.
The location of a new facility may need to be
 decided.
The internal arrangement (layout) of workers,
 equipment, and functional areas within a facility
 affects the ability to provide the desired volume,
 quality, and cost of products/services.
COMPETITIVE PRIORITIES FOR SERVICES

 The competitive priorities listed earlier for manufacturers apply to
  service firms as well
    Low production costs
    Fast and on-time delivery
    High-quality products/services
    Customer service and flexibility

 Providing all the priorities simultaneously to customers is seldom
  possible.
POSITIONING STRATEGIES FOR SERVICES
Type of Service Design
   Standard or custom products
   Amount of customer contact
   Mix of physical goods and intangible services

Type of Production Process
   Quasi manufacturing
   Customer-as-participant
   Customer-as-product
POSITIONING STRATEGIES FOR SERVICES

Example: McDonald’s
   Highly standardized service design
   Low amount of customer contact
   Physical goods dominating intangible services
   Quasi-manufacturing approach to back-room production
    process
FORMING OPERATIONS STRATEGIES

Support the product plans and competitive
 priorities defined in the business strategy.
Adjust to the evolving positioning strategies.
Link to the marketing strategies.
Look at alternative operations strategies.
EVOLUTION OF POSITIONING
STRATEGIES
The characteristics of production systems tend to
 evolve as products move through their product life
 cycles.
Operations strategies must include plan for
 modifying production systems to a changing set of
 competitive priorities as products mature.
The capital and production technology required to
 support these changes must be provided.
EVOLUTION OF POSITIONING
STRATEGIES
   Life                 Early     Late
             Intro.                         Maturity
  Stage               Growth     Growth
                      Slightly               Highly
 Product    Custom               Standard
                      Standard              Standard
             Very                             Very
 Volume                Low        High
             Low                              High
  Focus     Process   Process    Product    Product
 Fin.Gds.   To-Order To-Order To-Stock To-Stock
  Batch      Very                            Very
                       Small      Large
  Size       Small                           Large
LINKING OPERATIONS AND MARKETING
STRATEGIES
Operations Strategy
   Product-focused
   Make-to-stock
   Standardized products
   High volume

Marketing Strategy
   Low production cost
   Fast delivery of products
   Quality

Example: TV sets
LINKING OPERATIONS AND MARKETING
STRATEGIES
Operations Strategy
     Product-focused
     Make-to-order
     Standardized products
     Low volume
Marketing Strategy
   Low production cost
   Keeping delivery promises
   Quality

Example: School buses
LINKING OPERATIONS AND MARKETING
STRATEGIES
Operations Strategy
     Process-focused
     Make-to-stock
     Custom products
     High volume
Marketing Strategy
   Flexibility
   Quality
   Fast delivery of products

Example: Medical instruments
LINKING OPERATIONS AND MARKETING
STRATEGIES
Operations Strategy
   Process-focused
   Make-to-order
   Custom products
   Low volume

Marketing Strategy
   Keeping delivery promises
   Quality
   Flexibility

Example: Large supercomputers
NO SINGLE BEST STRATEGY

Start-up and Small Manufacturers
  Usually prefer positioning strategies with:
   Custom products
   Process-focused production
   Produce-to-order policies
  These systems are more flexible and require less
  capital.
NO SINGLE BEST STRATEGY

Start-up and Small Services
  Successfully compete with large corporations by:
   Carving out a specialty niche
   Emphasizing close, personal customer service
   Developing a loyal customer base
NO SINGLE BEST STRATEGY

Technology-Intensive Business
   Production systems must be capable of producing new
    products and services in high volume soon after
    introduction
   Such companies must have two key strengths:
      Highly capable technical people
      Sufficient capital

								
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