WEB-BASED RESEARCH PAPER
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OM-Ch02-5s-BB1.pptxChapter 2: Operations Strategy in a Global Environment Chapter 5S: Sustainability in the Supply Chain
Chapter 2 Learning Objectives:
Define globalization and six reasons
Define mission and strategy
Understand the significant key success factors and core competencies
Calculate the value of a loyal customer
Chapter 5S Learning Objectives:
Describe corporate social responsibility
Describe sustainability
Explain the 3 R’s for sustainability
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Operations and Supply Chain Management
2-1
Globalization
Increasingly, firms find their customers and suppliers located around the _________ - the result is the growth of world trade
In response, organizations are extending their distribution channels and supply chains globally – firms compete not just with their own expertise but with the talent in their global _________
Growth of
World Trade as a
Percent of World GDP
(Goods & Services)
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Operations and Supply Chain Management
2-2
Reasons to Globalize
Globalization means customers, talent, and suppliers are worldwide. Six reasons why businesses change to some form of international operation:
_________ the supply chain
Reduce costs and exchange rate risks
Improve _________
Understand markets
Improve products
Attract and retain global talent
Tangible Reasons
Intangible Reasons
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2-3
Operations and Supply Chain Management
Reasons to Globalize: 1. Improve the Supply Chain
Locating facilities closer to unique _________
Auto design to California
Athletic shoe production to China
Perfume manufacturing in France
Honda Test Track, California City
French Flower Fields
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Operations and Supply Chain Management
2-4
Reasons to Globalize: 2. Reduce Costs
_________ locations with lower wage rates can lower direct and indirect costs
World Trade Organization (WTO)
APEC, SEATO, MERCOSUR, CAFTA
European Union (EU)
North American Free Trade Agreement (NAFTA, now “USMCA”, U.S.-Mexico-Canada Agreement – 11/18)
Maquiladoras
Maquiladoras
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Operations and Supply Chain Management
2-5
U.S.-Mexico-Canada _________
NAFTA has been a major driver of American trade for nearly two decades, but it has long been divisive, with critics blaming it for lost jobs and lower wages
USMCA (U.S.-Mexico-Canada Agreement, 11/18) the _________ will account for more than $1.2 trillion in trade in one of the world’s largest free trade zones. It’s essentially “NAFTA 2.0”. The pact has been tweaked to include changes for automakers, labor and environmental standards, intellectual property protections, and some digital trade provisions.
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Operations and Supply Chain Management
2-6
Reasons to Globalize: 3. Improve Operations
Internationalization provides access to great _________ from around the world
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
International operations can improve response time and customer _________
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Operations and Supply Chain Management
2-7
Reasons to Globalize: 4. Understand Markets
Interacting with foreign customers and suppliers can lead to new _________
Cell phone design moved from Europe to Japan and India
Extend the product life cycle
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Operations and Supply Chain Management
2-8
Reasons to Globalize: 5. Improve Products
Objective and subjective characteristics of goods and services
On-time deliveries
_________ variables
Improved customer service
Example: Toyota and BMW manage joint research and development
Reduced risk, state-of-the-art design, lower costs
Toyota Supra / BMW Z4
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Operations and Supply Chain Management
2-9
Reasons to Globalize: 6. Attract and Retain Global Talent
Offer better _________ opportunities
Better growth opportunities and insulation against unemployment
Relocate _________ personnel to more prosperous locations
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Operations and Supply Chain Management
2-10
Globalization: Cultural and Ethical Issues
Cultures can be quite _________
_________ can be quite different towards
Punctuality
Child labor
Intellectual property
Thievery
Bribery, corruption
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Operations and Supply Chain Management
2-11
Ranking _________
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Operations and Supply Chain Management
2-12
Corruption Perceptions Index (_____) 2017: The perceived levels of public sector corruption around the world
| Rank | Country | 2017 CPI Score (out of 100) |
| 1 | New Zealand | 89 |
| 2 | Denmark | 88 |
| 3 | Finland, Norway, Switzerland | 85 |
| 6 | Singapore, Sweden | 84 |
| 8 | Canada, UK | 82 |
| 12 | Germany | 81 |
| 16 | USA (was #17 in 2014, was #19 in 2009) | 75 |
| 20 | Japan | 73 |
| 51 | South Korea | 54 |
| 77 | China | 41 |
| 135 | Mexico, Russia | 29 |
| 180 | Somalia | 9 |
Least Corrupt
Most Corrupt
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Operations and Supply Chain Management
2-13
Other Considerations….
National literacy rate
Rate of innovation
Rate of technology change
Number of skilled workers
Political _________
Product liability laws
Export restrictions
Variations in language
Work ethic
Tax rates
Inflation
Availability of _________
Interest rates
Population
Number of miles of highway
Phone system
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Operations and Supply Chain Management
2-14
Strategy
Strategy integrates an organization’s major goals, policies, and action sequences into a cohesive whole
Mission Statement: tell an organization where it is going
Strategy: tells the organization how to get there
Strategic planning: the _________ of determining long-term goals, policies, and plans for an organization as a result of hierarchical decisions about goals, directions, and resources
Vision: where the organization is headed and what it intends to be
Mission: the reason for _________ for an organization
Goals: provide detail and scope of mission
Strategies: plans for achieving organizational goals
Tactics: methods and actions taken to accomplish strategies
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Operations and Supply Chain Management
2-15
_________ Development Process
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.
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
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Operations and Supply Chain Management
2-16
Strategic Planning
Most large corporations have three levels of strategy
Corporate Strategy: the businesses (Strategic Business Units, SBU’s) in which the corp will participate/develops plans for the acquisition and allocation of ________ among those businesses
Business Strategy: the focus for the SBU and involves which markets to pursue and how best to compete in those markets
Functional Strategy: the set of decisions that each functional area develops to support its particular _________ strategy
Operations, marketing, finance, R&D, engineering, etc.
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Operations and Supply Chain Management
2-17
Operations Strategy
Operations strategy: how an organization’s processes are designed and organized to produce the type of goods and services to support the business strategies
The value chain can be leveraged to provide a distinct competitive advantage, and that _________ is a core competency for the organization
Whoever has superior operational _________ over the long term is the odds-on-favorite to win the industry shakeout
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Operations and Supply Chain Management
2-18
Operations Management Decisions
Strategic decisions are _________ decisions and concern the determination of broad policies and plans for using the resources of a company to best support its long-term competitive strategy
Tactical decisions primarily address how to efficiently manage capacity, inventory and schedules within the constraints of previously made strategic decisions
Operations decisions are narrow and _________ by comparison and act under the operation constraints set out by the strategic and tactical management decisions
What: What resources will be needed? In what amounts?
When: When will resources be needed? When should work be scheduled? When should materials and supplies be ordered?
Where: Where will the work be done?
How: How will the product/service be designed? How will the work be done? How will resources be allocated?
Who: Who will do the work?
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Operations and Supply Chain Management
2-19
Competitive Priorities/Dimensions
Every organization is concerned with building and sustaining a competitive advantage in its markets
Competitive advantage: a firm’s ability to achieve market and financial superiority over its _________
Driven by customer needs and aligns the organization's resources with its business opportunities
A strong competitive advantage is difficult to _________, often because of a firm’s culture, habits, or sunk costs
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Operations and Supply Chain Management
2-20
Strategies for Competitive Advantage
Differentiation: better (or at least different)
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of _________
Cost leadership: cheaper
Provide the maximum value as perceived by customer
Does not imply low _________
Response: more responsive
Flexibility is matching market changes in design innovation and volumes
Reliability is meeting schedules
Timeliness is quickness in design, production, and delivery
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Operations and Supply Chain Management
2-21
OM’s _________ to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Scheduling
Maintenance
DIFFERENTIATION
Innovative design … Safeskin’s innovative gloves
Broad product line … Fidelity Security’s mutual funds
After-sales service … Caterpillar’s heavy equipment service
Experience … Hard Rock Café’s dining experience
COST LEADERSHIP
Low overhead … Franz-Colruyt’s warehouse-type stores
Effective capacity
use … Southwest Airline’s
aircraft utilization
Inventory
management … Wal Mart’s sophisticated
distribution system
RESPONSE
Flexibility … Hewlett-Packard’s response to volatile world market
Reliability … FedEx’s “absolutely, positively, on time”
Quickness … Pizza Hut’s 5-minute guarantee at lunchtime
10 Operations Competitive
Decisions Approach Example Advantage
Response
(faster)
Cost leadership
(cheaper)
Differentiation
(better)
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Operations and Supply Chain Management
2-22
Competitive Priorities/Dimensions
Competitive Priorities/Dimensions: the strategic emphasis that a firm places on certain performance measures and operational capabilities
Cost/Price: make the product or deliver the service cheap
Quality: make a great product or deliver a great service
Delivery speed: make the product or deliver the service _________
Delivery reliability: deliver it when _________
Coping with changes in demand: change its volume
Flexibility and new product introduction speed: change it
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Operations and Supply Chain Management
2-23
Competitive Priority: Cost
Almost every _________ has a low price market segment
Low-cost strategy firms: Honda Motor Co., Marriott's Fairfield Inns, Merck-Medco On-line Pharmacy, Southwest Airlines, and Walmart's Sam's Club
Southwest Airlines is one of the few airlines that have been consistently profitable. A low cost strategy can reshape industry structure such as in the airline industry
How does Southwest do it?
Keep operations simple!
Only one aircraft type (B737)
No seat assignments
Point-to-point routing
Quick aircraft turnaround (25 min)
Cross-trained employees
Bags fly free
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Operations and Supply Chain Management
2-24
Competitive Priority: _________
Researchers have found that:
Quality is positively and significantly related to a higher return on investment
A strategy of quality improvement usually leads to _________ market share, but at a cost in terms of reduced short-run profitability
High goods quality producers can usually charge premium prices
2019 Ford Fiesta S
$13,660
2019 Lamborghini Veneno Roadster
$4,500,000
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Operations and Supply Chain Management
2-25
Competitive Priority: _________
Time is perhaps the most important source of competitive advantage
Customers demand quick response, short waiting times, and consistency in performance
Reductions in flow time serve two _________ :
Speed up work processes so that customer response is improved. Deliveries can be made faster, and more often on-time
Reductions in flow time can be accomplished only by streamlining and simplifying processes to eliminate non-value-added steps such as rework and waiting time
Flow time reductions often drive simultaneous improvements in quality, cost, and productivity
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Operations and Supply Chain Management
2-26
Competitive Priority: _________
Mass customization: being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world
Flexible operations require sharing manufacturing lines and specialized _________ for employees
Flexible operations may also require attention to outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements, because delayed shipments and a complex supply chain can hinder flexibility
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Operations and Supply Chain Management
2-27
Dealing with Trade-offs
Operations cannot excel simultaneously on all competitive dimensions
Management must decide which parameters of performance are _________ to the firm’s success and concentrate on those
_________ occur when activities are incompatible so that more of one thing necessitates less of another
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Operations and Supply Chain Management
2-28
Understanding Customer Preferences & Requirements
Three classes of customer requirements:
Dissatisfiers: requirements that are _________ in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied
Satisfiers: requirements that customers say they want
Exciters/delighters: new or innovative good/service features that customers do not expect
Order qualifiers - basic customer expectations (dissatisfiers and satisfiers) are generally considered the _________ performance level required to stay in business
Order winners – goods/service features and performance characteristics (satisfiers and exciters) that cause customers to choose those over of its competitors and to win the customer's business
Can be considered to be a competitive advantages for the firm
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Operations and Supply Chain Management
2-29
Value of a Loyal Customer (VLC)
Value of a Loyal Customer (VLC): quantifies the total revenue or profit each target market customer _________ over the Buyers Life Cycle
By multiplying the VLC times the absolute number of customers gained or lost, the total market value can be found
VLC = P x CM x RF x BLC
Where
P = Price, the revenue per unit
CM = Contribution Margin, to profit
RF = Repurchase frequency = # purchases / # years
BLC = Buyers Life Cycle = 1/Defection Rate
Defection Rate = 1 – Customer Retention Rate
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Operations and Supply Chain Management
2-30
VLC Problem
What is the Value of a Loyal Customer (VLC) in the small contractor target market segment who buys an electric drill on average every 4 years for $100, when the gross margin on the drill averages 50 percent, and the customer retention rate is 60 percent?
What if the customer retention rate increases to 80 percent?
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Operations and Supply Chain Management
2-31
VLC Solution
VLC = P x CM x RF x BLC
P = Price, the revenue per unit
CM = Contribution Margin
RF = Repurchase frequency = # purchases / # years
BLC = Buyers Life Cycle = 1/Defection Rate
Defection Rate = 1 – Customer Retention Rate
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2-32
Operations and Supply Chain Management
Sustainable Strategy
The strategy should describe how a firm intends to create and sustain value for its current shareholders
Shareholders: individuals or companies that legally _________ one or more shares of stock in the company
Stakeholders: individuals or organizations who are influenced, either directly or indirectly, by the actions of the firm
Sustainability: being able to meet current needs without compromising the ability of _________ generations to meet their own needs
Corporate Social Responsibility (CSR): managerial decision making that considers environmental, societal and financial impact
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Operations and Supply Chain Management
2-33
Triple Bottom Line: “The 3Ps”
Economic
Prosperity
Social
Responsibility
Environmental
Stewardship
Triple Bottom Line: the systems necessary to support the “3Ps” (People, Planet and Profit):
“People” (Social Responsibility): pertains to fair and beneficial business _________ toward labor, the community, and the region in which a firm conducts is business
“Planet” (Environmental Stewardship): the firm’s impact on the environment
“Profit” (Economic Prosperity): the firm’s obligation to _________ shareholders who provide capital via competitive returns on investment
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Operations and Supply Chain Management
2-34
How Executives View the _________ of Corporate Responsibility
Three years
ago
Today
Three years
from now
Very
high
High
Moderate
Low
Very low
Don’t
know
Very
high
High
Moderate
Low
Low
Very low
Don’t
know
Very
high
High
Moderate
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Operations and Supply Chain Management
2-35
ISO Certification
The International Organization of Standardization (ISO) promotes worldwide _________ for improvement of quality, productivity and operating efficiency through a series of standards and guidelines
Internationally recognized (and sometimes required to do business in certain countries)
Standardizes key terms in quality and provides a set of basic _________ for initiating quality management systems
ISO 9000: Set of international standards on quality management and quality assurance (more in Chapter 6)
ISO 14000: A set of international standards for assessing a company’s environmental performance
ISO 26000: Set of international standards giving guidance on social responsibility (not for certification purposes)
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2-36
Operations and Supply Chain Management
ISO 14000 Environmental Standards
Management systems
Systems development and integration of environmental responsibilities into business planning
Operations
Consumption of natural resources and _________
Environmental systems
Measuring, assessing and managing _________, effluents, and other waste
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2-37
Operations and Supply Chain Management
ISO 26000 Social Responsibility Guidance
Sustainable business for means not only providing products and services that satisfy the customer, and doing so without jeopardizing the environment, but also operating in a socially _________ manner
_________ to do so comes from customers, consumers, governments, associations and the public at large
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2-38
Operations and Supply Chain Management
Design and Production for Sustainability
Life cycle assessment valuates the environmental _________ of a product, from raw material and energy inputs all the way to the disposal of the produce at its end-of-life
The goal is to make decisions that help _________ the environmental impact of a product throughout its entire life
Focuses on the “3Rs” - Reduce, Reuse, and Recycle
A fun
variation!
(Coors)
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Operations and Supply Chain Management
2-39
Identifying _________ Minimization in Packaging
Is
packaging
necessary?
Can
packaging
be reduced?
Eliminate
unwanted
packaging
Yes
No
Can
packaging
be re-used?
Reduce
packaging
No
Yes
Minimize
packaging
Recycle
No
Yes
Can
packaging
be recycled?
Re-use
Yes
No
Amazon’s
“Frustration-Free
Packaging” Option
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Operations and Supply Chain Management
2-40
Green Manufacturing
“Green Manufacturing” means companies can _________, refurbish or dispose of a product’s components safely and _________ total cost of ownership
BMW uses parts made of recycled plastics (blue) and parts that can be recycled (green)
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Operations and Supply Chain Management
2-41
Green Manufacturing
Nike introduced the Sustainable Business & Innovation Lab – the program will back startups focused on alternative _________ and efficient manufacturing
Nike’s World Cup jersey
made from recycled plastic!
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Operations and Supply Chain Management
2-42
Garmet Assy & Textile
Electric Accessories
Other Mfgr
Furniture Assy
Construction Eqmt
Service
Machinery Assy
Chemical
Food Assy
Toy Assy
Leather
Electronic Assy/Repair
Chart1
| Garmet Assy & Textile |
| Electric Accessories |
| Other Mfgr |
| Furniture Assy |
| Construction Eqmt |
| Service |
| Machinery Assy |
| Chemical |
| Food Assy |
| Toy Assy |
| Leather |
| Electronic Assy/Repair |
Sheet1
| Company | Home Country | % Sales Outside Home Country | % Assets Outside Home Country | % Foreign Workforce |
| Citicorp | USA | 34 | 46 | NA |
| Colgate-Palmolive | USA | 72 | 63 | NA |
| Dow Chemical | USA | 60 | 50 | NA |
| Gillette | USA | 62 | 53 | NA |
| Honda | Japan | 63 | 36 | NA |
| IBM | USA | 57 | 47 | 51 |
| ICI | Britain | 78 | 50 | NA |
| Nestle | Switzerland | 98 | 95 | 97 |
| Philips Electronics | Netherlands | 94 | 85 | 82 |
| Siemens | Germany | 51 | NA | 38 |
| Unilever | Britain & Netherlands | 95 | 70 | 64 |
Sheet2
| 10 OM Decisions | Goods | Services |
| 1. Goods and service design | Product is tangible | Product is not tangible |
| 2. Quality | Many objective standards | Many subjective standards |
| 3. Process and capacity design | Customers not involved | Customer may be directly involved. Capacity must match demand |
| 4. Location selection | Near raw materials and labor | Near customers |
| 5. Layout design | Production efficiency | Enhances product and production |
| 6. Human resources and job design | Technical skills, consistent labor standards, output based wages | Interact with customers, labor standards vary |
| 7. Supply-chain management | Relationship critical to final product | Important, but may not be critical |
| 8. Inventory | Raw materials, work-in-process, and finished goods may be held | Cannot be stored |
| 9. Scheduling | Level schedules possible | Meet immediate customer demand |
| 10. Maintenance | Often preventive and takes place at production site | Often “repair” and takes place at customer’s site |
Sheet3
| Garmet Assy & Textile | 28 |
| Electric Accessories | 16 |
| Other Mfgr | 15 |
| Furniture Assy | 11 |
| Construction Eqmt | 7 |
| Service | 6 |
| Machinery Assy | 5 |
| Chemical | 4 |
| Food Assy | 3 |
| Toy Assy | 2 |
| Leather | 2 |
| Electronic Assy/Repair | 1 |
