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BA 339, OM – Chapter 2. Chapter 2, Operations Strategy in a Global Environment Global view of operations – why companies move to global operations Mission & strategies Achieving competitive advantage through operations Issues in operations strategy Strategy development & implementation

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BA 339, OM – Chapter 2

  • Chapter 2, Operations Strategy in a Global Environment

    • Global view of operations – why companies move to global operations

    • Mission & strategies

    • Achieving competitive advantage through operations

    • Issues in operations strategy

    • Strategy development & implementation

    • Global operations strategy options


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BA 339, OM – Chapter 2

  • Global View of Operations

    • Reasons to globalize (increase wealth):

      • Reduce costs – labor, taxes, tariff, governmental regulations, etc. (Role of WTO, NAFTA, EU)

        • Example: Maquiladoras (free trade zones),

      • Improve supply chain

        • Example: Auto-styling studios moving to S. California to maintain expertise in contemporary auto design; athletic shoe production move from Korea to China

      • Provide better goods & services > closer to customers

      • Attract new markets

        • Example: Expanded product lifecycle of computers > mature in U.S. but introductory in Albania, Burma, etc.

      • Learn to improve operations – Joint GM/Toyota facility

      • Attract & retain global talent


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BA 339, OM – Chapter 2

  • Examples of Global Strategies

    • Boeing:

      • Sales and production are worldwide

        • Alenia (Italy) – wing flaps; Mitsubishi (Japan) – fuselage; GEC Avionics (UK) – flight computers

      • Countries/companies likely to buy if production is located in their country

      • Lower production cost

    • Sony

      • Purchases components from suppliers around the world

    • General Motors

      • Worldwide productions and component suppliers for worldwide markets/customers


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BA 339, OM – Chapter 2

  • Defining Global Operations

    • International business – engages in cross-border transactions

    • Multinational corporation – extensive involvement in international business, owning or controlling facilities in more than one country

      • Examples (sales/assets): Citicorp (34/46) - USA, IBM – (57/47) - USA; Honda (63/36) - Japan; Nestle (98/95) – Switzerland; Phillips Electronics (94/85) - Netherlands

    • 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


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BA 339, OM – Chapter 2

  • Management Issues in Global Operations

    • Supply chain management (SCM)

      • Sourcing

      • Vertical integration

      • Make-or-buy decisions

      • Partnering

    • Location decisions

      • Country-related issues

      • Product-related issues

      • Gov’t policy/political risk

      • Organizational issues

    • Logistics management

      • Flow of materials

      • Transportation option & speed

      • Inventory levels

      • Packaging & storage


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BA 339, OM – Chapter 2

  • Mission & Strategy

    • Mission: Where you’re going

      • Organization’s purpose (e.g., what it will contribute to society – goods, services, etc.)

      • Rationale for existence

      • Provide boundaries and focus > determines functional areas mission/strategy

      • Affected by philosophy, values, environment, customers, profitability, public image

      • Achieved in 3 ways:

        • Differentiation – Hunter Fans, quality

        • Cost leadership – Nucor, value at low cost

        • Quick response – Dell, quick, reliable response

    • Strategy: How you get there

      • Action plan to achieve the organization’s mission – SWOT analysis

      • Drives development of functional areas’ strategies to deliver products/services that are better, cheaper, or more responsive


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BA 339, OM – Chapter 2

  • Strategy – Change & Implementation

    • Impetus for strategy change – Why?

      • Changes in the organization – often driven by management, board of directors, or investors

      • Stage in the product lifecycle – pace often driven by market factors

      • Changes in the environment – can be legal, business climate (expansion vs. contraction), risk etc.

        • Example: Federal PMA and administration emphasis on outsourcing

    • Strategy implementation – must understand:

      • Strengths/weaknesses of competitors and new entrants

      • Current/future legal, environmental, & economic issues

      • Product lifecycle

      • Resources available w/in firm and OM function > CSFs

      • Integration of OM strategy with company strategy & other functions


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BA 339, OM – Chapter 2

  • Achieving Competitive Advantage via Operations

    • Competing via Differentiation

      • Uniqueness of product/service based on perceived value (quality)

      • Example: Safeskin Corporation

        • Strategy – Develop reputation for designing/producing reliable, state-of the art gloves

        • Designed gloves to prevent allergic reactions > Developed hypoallergenic gloves > textured gloves > synthetic disposal glove for those allergic to latex

      • Examples of services can include location of stores/distribution facilities, training, product delivery and installation, or repair & maintenance services

      • Experience differentiation – used in services to provide unique services

        • Examples: Hard Rock Café, Disney’s Magic Kingdom, food samples at supermarket


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BA 339, OM – Chapter 2

  • Achieving Competitive Advantage via Operations

    • Competing via Cost

      • Provide the maximum value as perceived by customer > does not imply low value or low quality

      • Example: Southwest Airlines

        • Standardized aircraft (Boeing 737) – reduced maintenance inventory & pilot training, excellent supplier relations

        • Short-haul, point-to-point service – use secondary airports, High no. of flights reduces employee idle time, no meals

        • Courteous but limited passenger service – no baggage transfers, no seat assignments, automated ticket machines

        • High aircraft utilization – maintenance personnel trained on one aircraft, 20 min. gate turnarounds, flexible unions/employees & standard planes aid scheduling

        • Frequent, reliable schedules – reduced pilot training, lower administrative costs by saturating city with flights (HR, advertising)


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BA 339, OM – Chapter 2

  • Achieving Competitive Advantage via Operations

    • Competing via Response

      • Includes flexibility, reliability, timeliness

      • Requires institutionalization within the organization/firm of the ability to respond (culture); communication critical

      • Example: Flexibility – HP

        • Responsive to design & volume changes – short lifecycles with frequent volume changes within those lifecycles

      • Example: Customer Focus – Pascor (Forest Grove, OR)

        • Consistent customer focus from all organizational functions

      • Reliability (scheduling – German machine industry)

        • Use meaningful schedules and perform to them

      • Example: Timeliness – Johnson Electric

        • Speed in design, production & delivery


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BA 339, OM – Chapter 2

  • Achieving Competitive Advantage via Operations

    • Differentiation, cost, and response are often implemented via six (seven) specific strategies:

      • Flexibility in design and volume

      • Low price

      • Delivery

      • Quality

      • After-sales service

      • Broad product line

      • (Customer Focus)


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BA 339, OM – Chapter 2

  • Issues in Operations Strategy

    • Research – what is tells us about effective OM strategies

      • ROI and role in strategy development

        • Associated with high product quality

        • High capacity utilization

        • High operating efficiency (ratio of expected to actual labor efficiency)

        • Low investment intensity (amount of capital used to produce a dollar of sales)

        • Low direct cost per unit (relative to competition)

      • Importance of 32 categories and contribution to sustainable competitive advantage:

        • 28% of categories fell under OM; 44% when “Q” is added >“Q” management is a core OM competency (IT)


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BA 339, OM – Chapter 2

  • Issues in Operations Strategy

    • Preconditions – what’s needed or needs to be known to implement an effective strategy (SWOT)

      • Strengths & Weaknesses of competitors and new market entrants, substitute products/services, and commitment of suppliers/distributors

      • Current/prospective environmental, technological, legal and economic issues (Opportunities & Threats)

      • SWOT analysis leads to identification of company’s critical success factors (CSFs)

      • Product lifecycle > may limit ops. Strategy

      • Resource available within firm and OM function

      • Integration of OM strategy with company strategy and other functional areas.


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BA 339, OM – Chapter 2

  • Issues in Operations Strategy

    • Dynamics – strategy driven by internal and environmental changes

      • Internal – personnel, finance, technology & product lifecycle (SW piece of SWOT)

      • External – finance/economic, marketplace, legal, environmental, product lifecycle OT piece of SWOT)

      • Product lifecycle & growth rate

        • Introduction – product/process design, R&D, quality critical

        • Growth – forecasting, product/process reliability, distribution critical

        • Maturity – standardization, process stability, cost competition critical

        • Decline – cost minimization, product/margin interaction, overcapacity critical


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BA 339, OM – Chapter 2

  • Strategy Development & Implementation

    • SWOT analysis (strengths, weaknesses, opportunities & threats) – most effective when integrated vertically and horizontally

    • Identify critical success factors & relationship to competitive advantage (activity maps are a useful tool) > for OM function, 10 decisions

    • Build staff and organization – Ops. Mgr. works w/ subordinate managers to develop plans, budgets & programs

    • Integrate OM w/other activities – HR, marketing, finance, IT

    • Class Exercise: Select company & conduct analysis


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BA 339, OM – Chapter 2

  • Global Operations Strategy Options

    • Four major strategies:

      • International:

        • Uses exports & licenses to penetrate global areas

        • Little responsiveness (licensing product from home country) and cost advantage (using existing production facilities)

        • Often the easiest to implement – little impact to existing operations; licensee assumes much of the risk

        • Example: U.S. Steel


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BA 339, OM – Chapter 2

  • Global Operations Strategy Options

    • Four major strategies:

      • Multidomestic strategy

        • Decentralized authority with substantial autonomy as business unit level (typically subsidiaries, franchises, or joint ventures); utilizes existing production and domestic markets

        • Little of no cost advantage

        • Responsive to local needs/tastes

        • Example: McDonald’s (serves beer in Germany, wine in France, hamburgers w/out beef in India, poached egg hamburger (McHuevo) in Uruguay; Heinz ketchup accommodates local tastes since production process is not critical


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BA 339, OM – Chapter 2

  • Global Operations Strategy Options

    • Four major strategies:

      • Global strategy:

        • High degree of centralization w/ HQ coordinating organization to pursue standardization and learning between plans, that lead to economies of scale

        • Used when focus is on cost reduction; little or no impact on local responsiveness (e.g., when it isn’t needed)

        • Examples:

          • Caterpillar – end products are the same throughout the world; individual factories produce limited line of of products to be shipped worldwide

          • Texas Instruments – use optimal sized plants with similar processes; maximize learning by aggressive learning between plants


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BA 339, OM – Chapter 2

  • Global Operations Strategy Options

    • Four major strategies:

      • Transnational strategy:

        • Exploits economies of scale & learning as well as pressure for responsiveness > recognizes that core competence can exist anywhere in the organization

        • People, materials & ideas transgress national boundaries; Key activities are neither centralized in parent co. nor decentralized in subsidiaries

        • Resources, activities are dispersed, but specialized to be both efficient & flexible.

        • Examples: nestle, ABB, Reuters, Citicorp

          • Nestle - (95% of assts and 98% of sales are outside Switzerland, 10% of workers are Swiss

          • ABB – Swedish firm headquartered in Switzerland with multiple operations/factories in many countries


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