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Operations Management: Sustainability and Supply Chain Management

Twelfth Edition

Chapter 2

Operations Strategy in a Global Environment

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Outline (1 of 2)

Global Company Profile: Boeing

A Global View of Operations and Supply Chains

Developing Missions and Strategies

Achieving Competitive Advantage Through Operations

Issues in Operations Strategy

Outline (2 of 2)

Strategy Development and Implementation

Strategic Planning, Core Competencies, and Outsourcing

Global Operations Strategy Options

Boeing’s Global Supply-Chain Strategy (1 of 3)

Some of the International Suppliers of Boeing 787 Components

Supplier	Headquarters Country	Component
Latecoere	France	Passenger doors
Labinel	France	Wiring
Dassault	France	Design and P L M software
Messier-Bugatti	France	Electric brakes
Thales	France	Electrical power conversion system
Messier-Dowty	France	Landing gear structure
Diehl	Germany	Interior lighting

Boeing’s Global Supply-Chain Strategy (2 of 3)

Supplier	Headquarters Country	Component
Cobham	UK	Fuel pumps and valves
Rolls-Royce	UK	Engines
Smiths Aerospace	UK	Central computer systems
B A E Systems	UK	Electronics
Alenia Aeronautica	Italy	Upper center fuselage
Toray Industries	Japan	Carbon fiber for wing and tail units
Fuji Heavy Industries	Japan	Center wing box

Boeing’s Global Supply-Chain Strategy (3 of 3)

Supplier	Headquarters Country	Component
Kawasaki Heavy Industries	Japan	Forward fuselage, fixed sections of wing
Teijin Seiki	Japan	Hydraulic actuators
Mitsubishi Heavy Industries	Japan	Wing box
Chengdu Aircraft	China	Rudder
Hafei Aviation	China	Parts
Korean Airlines	South Korea	Wingtips
Saab	Sweden	Cargo and access doors

Learning Objectives (1 of 2)

2.1 Define mission and strategy

2.2 Identify and explain three strategic approaches to competitive advantage

2.3 Understand the significant key success factors and core competencies

Learning Objectives (2 of 2)

When you complete this chapter you should be able to:

2.4 Use factor rating to evaluate both country and provider outsources

2.5 Identify and explain four global operations strategy options

Global Strategies (1 of 2)

Boeing – sales and supply chain are worldwide

Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

Global Strategies (2 of 2)

Volvo – considered a Swedish company, purchased by a Chinese company, Geely. The current Volvo S40 is assembled in Belgium, South Africa, Malaysia and China on a platform shared with the Mazda 3 (built in Japan) and the Ford Focus (built in Europe).

Haier – A Chinese company, produces compact refrigerators (it has one-third of the U . S. market) and wine cabinets (it has half of the U . S. market) in South Carolina

Growth of World Trade

Figure 2.1 Growth of World Trade as a Percent of World G D P

Reasons to Globalize

Improve the supply chain

Reduce costs and exchange rate risks

Improve operations

Understand markets

Improve products

Attract and retain global talent

Improve the Supply Chain

Locating facilities closer to unique resources

Auto design to California

Athletic shoe production to China

Perfume manufacturing in France

Reduce Costs

Risks associated with currency exchange rates

Reduce direct and indirect costs

Trade agreements can lower tariffs

Maquiladoras

World Trade Organization (W T O)

North American Free Trade Agreement (N A F T A)

A P E C, S E A T O, M E R C O S U R, C A F T A

European Union (E U)

Improve Operations

Understand differences between how business is handled in other countries

Japanese – inventory management

Germans – robots

Scandinavians – ergonomics

International operations can improve response time and customer service

Understand Markets

Interacting with foreign customers, suppliers, competition can lead to new opportunities

Cell phone design moved from Europe to Japan

Extend the product life cycle

Improve Products

Remain open to free flow of ideas

Toyota and B M W manage joint research and development

Reduced risk, state-of-the-art design, lower costs

Samsung and Bosch jointly produce batteries

Attract and Retain Global Talent

Offer better employment opportunities

Better growth opportunities and insulation against unemployment

Relocate unneeded personnel to more prosperous locations

Cultural and Ethical Issues

Social and cultural behavior differs

International laws, agreements, codes of conduct for ethical behaviors

Mobility of capital, information, goods, and people

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

Transportation infrastructure

Communication system

Match Product and Parent

Match Product and Country

Developing Missions and Strategies

Mission statements tell an organization where it is going

The Strategy tells the organization how to get there

Mission

Mission - where is the organization going?

Organization’s purpose for being

Answers “What do we contribute to society?”

Provides boundaries and focus

Figure 2.2 Mission Statements for Three Organizations (1 of 3)

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.

Figure 2.2 Mission Statements for Three Organizations (2 of 3)

PepsiCo

Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

Figure 2.2 Mission Statements for Three Organizations (3 of 3)

Arnold Palmer Hospital

Arnold Palmer Hospital for Children provides state of the art, family-centered healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope.

Factors Affecting Mission

Mission

Philosophy and Values

Profitability and Growth

Environment

Customers

Public Image

Benefit to Society

Strategic Process

Organization’s Mission

Functional Area Missions

Marketing

Operations

Finance/Accounting

Figure 2.3 Sample Missions for a Company, the Operations Function, and Major O M Departments (1 of 4)

Sample Company Mission

To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.

Sample Operations Management Mission

To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.

Figure 2.3 Sample Missions for a Company, the Operations Function, and Major O M Departments (2 of 4)

Sample O M Department Missions

Product design	To design and produce products and services with outstanding quality and inherent customer value.
Quality management	To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations
Process design	To determine, design, and produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.

Figure 2.3 Sample Missions for a Company, the Operations Function, and Major O M Departments (3 of 4)

Location	To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.
Layout design	To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.
Human resources	To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.

Figure 2.3 Sample Missions for a Company, the Operations Function, and Major O M Departments (4 of 4)

Supply-chain management	To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.
Inventory	To achieve low investment in inventory consistent with high customer service levels and high facility utilization.
Scheduling	To achieve high levels of throughput and timely customer delivery through effective scheduling.
Maintenance	To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.

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 – more responsive

Competing on Differentiation

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

Experience Differentiation

Engaging a customer with a product through imaginative use of the five senses, so the customer “experiences” the product

Theme parks use sight, sound, smell, and participation

Movie theatres use sight, sound, moving seats, smells, and mists of rain

Restaurants use music, smell, and open kitchens

Competing on Cost

Provide the maximum value as perceived by customer. Does not imply low quality.

Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment

Walmart – small overhead, shrinkage, and distribution costs

Franz Colruyt – no bags, no bright lights, no music, and doors on freezers

Competing on Response

Flexibility is matching market changes in design innovation and volumes

A way of life at Hewlett-Packard

Reliability is meeting schedules

German machine industry

Quickness in design, production, and delivery

Johnson Electric, Pizza Hut

O M’s Contribution to Strategy

Figure 2.4 Achieving Competitive Advantage Through Operations

Issues in Operations Strategy

Resources view

Value-chain analysis

Porter’s Five Forces model

Operating in a system with many external factors

Constant change

Figure 2.5 Product Life Cycle (1 of 2)

Figure 2.5 Product Life Cycle (2 of 2)

S W O T Analysis

Analysis

Internal Weaknesses

Internal Strengths

Mission

External Opportunities

External Threats

Strategy

Figure 2.6 Strategy Development Process

Analyze the Environment

Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.

Determine the Corporate Mission

State the reason for the firm’s existence and identify the value it wishes to create.

Form a Strategy

Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.

Strategy Development and Implementation

Identify key success factors

Integrate O M with other activities

Build and staff the organization

The operations manager’s job is to implement an O M strategy, provide competitive advantage, and increase productivity

Key Success Factors

Figure 2.7 Implement Strategy by Identifying and Executing Key Success Factors That Support Core Competencies

Activity Mapping at Southwest Airlines (1 of 7)

Figure 2.8 Activity Mapping at Southwest Airlines’ Low-Cost Competitive Advantage

Activity Mapping at Southwest Airlines (2 of 7)

Figure 2.8 [continued]

Activity Mapping at Southwest Airlines (3 of 7)

Figure 2.8 [continued]

Activity Mapping at Southwest Airlines (4 of 7)

Figure 2.8 [continued]

Activity Mapping at Southwest Airlines (5 of 7)

Figure 2.8 [continued]

Activity Mapping at Southwest Airlines (6 of 7)

Figure 2.8 [continued]

Activity Mapping at Southwest Airlines (7 of 7)

Figure 2.8 [continued]

Implementing Strategic Decisions (1 of 2)

Table 2.1 Operations Strategies of Two Drug Companies

Implementing Strategic Decisions (2 of 2)

Table 2.1 [continued]

Strategic Planning, Core Competencies, and Outsourcing (1 of 2)

Outsourcing – transferring activities that traditionally been internal to external suppliers

Accelerating due to

Increased technological expertise

More reliable and cheaper transportation

Rapid development and deployment of advancements in telecommunications and computers

Strategic Planning, Core Competencies, and Outsourcing (2 of 2)

Subcontracting - contract manufacturing

Outsourced activities

Legal services

I T services

Travel services

Payroll

Production

Surgery

Theory of Comparative Advantage

If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work

Purchasing firm focuses on core competencies

Drives outsourcing

Risks of Outsourcing

Table 2.2 Potential Advantages and Disadvantages of Outsourcing

Advantages	Disadvantages
Cost savings	Increased logistics and inventory costs
Gaining outside expertise that comes with specialization	Loss of control (quality, delivery, etc.)
Improving operations and service	Potential creation of future competition
Maintaining a focus on core competencies	Negative impact on employees
Accessing outside technology	Risks may not manifest themselves for years

Rating Outsourcing Providers

Insufficient analysis most common reason for failure

Factor-rating method

Points and weights assigned for each factor to each

Rating Provider Selection Criteria

Table 2.3 Factor Ratings Applied to National Architects’s Potential I T Outsourcing Providers

Global Operations Strategy Options (1 of 8)

Figure 2.9 Four International Operations Strategies

Global Operations Strategy Options (2 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (3 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (4 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (5 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (6 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (7 of 8)

Figure 2.9 [continued]

Global Operations Strategy Options (8 of 8)

Figure 2.9 [continued]

Ranking Corruption