MGT 563OPERATIONS STRATEGIES

Dr. Aneel SALMANDepartment of Management Sciences

COMSATS Institute of Information Technology, Islamabad

Recap Lecture 24• The Procurement Process• Strategic Sourcing is a collaborative and

systematic process• World Class Procurement can be defined

using the following seven dimensions

C H A N G E L E A D E R S H I P · Develop vision and strategy

· Enroll stakeholders· Develop new values, skills, and behaviours

· Redesign infrastructure· Measure performance

· Communicate vision and strategy

Diagnose

Opportunity

Design

Program

AssessOpportunityAssessOpportunity

Assess Internal Supply Chain

Assess Internal Supply Chain

AssessSupplyMarket

AssessSupplyMarket

DevelopSourcingStrategy

DevelopSourcingStrategy

ImplementSourcingStrategy

ImplementSourcingStrategy

InstitutionaliseStrategyInstitutionaliseStrategy

1 2 3 4 5 6

Key Change Leadership fundamentals are necessary throughout implementation of the methodology to ensure successful results

RECAP-Deloitte Consulting’s six-step methodology

Global Strategies

• Boeing – Headquartered in Chicago, Boeing employs more than 170,000 people across the United States and in 70 countries. Its sales and production are worldwide.

• Benetton –The Italian-based fashion designer and manufacturer has over 6,000 retail stores in more than 83 countries on every continent. Using Computer-Aided Design (CAD) of garments along with computerized garment cutting and assembly is the secret to a fast and flexible manufacturing operation.

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

Global Strategies

• Volvo – considered a Swedish company but until recently was controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform 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 US market) and wine cabinets (it has half of the US market) in South Carolina

Reasons to Globalize

Reasons to Globalize

1. Reduce costs (labor, taxes, tariffs, etc.)2. Improve supply chain3. Provide better goods and services4. Understand markets5. Learn to improve operations6. Attract and retain global talent

Tangible Reasons

Intangible Reasons

Reduce Costs• Foreign locations with lower wage rates

can lower direct and indirect costs– Maquiladora (Mexican border export zone,

populated by foreign owned factories)– World Trade Organization (WTO)– North American Free Trade Agreement

(NAFTA) - Between Canada, Mexico and U.S.

Reduce Costs

– APEC (Asia-Pacific Economic Cooperation between the US, Canada, Japan, South Korea, Australia, New Zealand, China, Taiwan, Hong Kong, and members of ASEAN)

– SEATO (Australia, New zealand, Japan, HongKong, South Korea, Chile and New Guinea)

– MERCOSUR (Argentina, Brazil, Paraguay and Uruguay

– European Union (EU)

Improve the Supply Chain

• Locating facilities closer to unique resources– Auto design to California– Athletic shoe production to China– Perfume manufacturing in France

Provide Better Goods and Services

• Objective and subjective characteristics of goods and services– On-time deliveries– Cultural variables– Improved customer service

Reasons to GlobalizeUnderstand Markets

• Interacting with foreign customers and suppliers can lead to new opportunities

• Whirlpool• refrigerators • sold in Bangkok• are bright colors.

• Extend the • product life cycle

Learn to Improve Operations

• 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

Attract and Retain Global Talent

• Offer better employment opportunities– Better growth opportunities and

insulation against unemployment– Relocate unneeded personnel to more

prosperous locations

Reconciling Differences in Cultural and Social Behavior is key to the success of GLOBALIZATION EFFORTS

• Cultures can be quite different• Attitudes can be quite different towards

Punctuality Lunch breaks Environment Intellectual

property

Thievery Bribery Child labor

Developing Missions and Strategies

Mission statements tell an organization where it is going

The Strategy tells the organization how to get there

Developing Missions and Strategies

• Developing a good strategy is difficult, but it is much easier if the mission has been well defined.

MISSION:Hard Rock Cafe

• To spread the spirit of Rock ’n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

Strategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission

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 – rapid response

Competing on Differentiation

Uniqueness can go beyond both the physical characteristics and service

attributes to encompass everything that impacts customer’s perception of value

Handmade Silk Turkish Rugs Walt Disney Magic Kingdom – experience differentiation Hard Rock Cafe – dining experience

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

Wal-Mart –small overheads, direct shipments from manufacturers, reduced distribution costs with faster transportation

Pegasus Airlines -

Competing on Response:Flexible, Reliable and Quick Response

• Flexibility is matching market changes in design innovation and volumes– Products of Hewlett-Packard have a life cycle of months

• Reliability is in meeting schedules– German machine industry

• Quickness in design, production, and delivery– Benetton, Motorola

OM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATIONInnovative 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

Figure 2.4

10 Operations CompetitiveDecisions Approach Example Advantage

Response(faster)

Cost leadership(cheaper)

Differentiation(better)

Strategy Development for a culinary school graduate who wants to open an outstanding French fine dining restaurant

(DIFFERENTIATION)

Product design (Menus, meals) Location planning Facilities design and layout Human Resources, Scheduling

Process Design

Low Moderate HighVolume

High

Moderate

Low

Varie

ty o

f Pro

duct

s

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop, fine-

diningrestaurant)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances, TVs, fast-food restaurants)

Product focusedCONTINUOUS

(Steel, beer, paper, bread, institutional

kitchen)

Mass CustomizationCustomization at high

Volume(Dell Computer’s PC,

cafeteria)

Mass Customization

• The use of flexible computer-aided manufacturing systems to produce custom output.

• Combines the low unit costs of mass production processes with the flexibility of individual customization.

Issues In Operations Strategy• Resources view • Porter’s Value Chain analysis to identify

opportunities for competitive advantage• Porter’s Five Forces model to analyze

competitors (1. immediate rivals, 2. potential entrants, 3. customers, 4. suppliers, 5. substitute products)

• External factors (political, economical factors)

• Product Life Cycle

Product Life Cycle

Best period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Com

pany

Str

ateg

y/Is

sues

Figure 2.5

Internet search engines

Sales

Drive-through restaurants

CD-ROMs

Analog TVs

iPods

Boeing 787

LCD & plasma TVs

Twitter, iphone5

Avatars

Xbox 360

Product Life Cycle

Product design and development criticalFrequent product and process design changesShort production runsHigh production costsLimited modelsAttention to quality

Introduction Growth Maturity Decline

OM

Str

ateg

y/Is

sues

Forecasting criticalProduct and process reliabilityCompetitive product improvements and optionsIncrease capacityShift toward product focusEnhance distribution

StandardizationFewer product changes, more minor changesOptimum capacityIncreasing stability of processLong production runsProduct improvement and cost cutting

Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returning good marginReduce capacity

Figure 2.5

Strategy

Analysis

SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

Nike SWOT Analysis

• Strengths• - strong at research and development.• - Nike is a global brand.• Opportunities• - to develop new products such as sunglasses and jewellery.• Weaknesses• - The retail sector is very price sensitive.• Threats• - The market for sports shoes and garments is very

competitive. Consumers are shopping around for a better deal.

SWOT Analysis

• SWOT Analysis, which is a key tool in the strategic planning process can also be applied to personal career planning.

Strategy Development Process

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.

Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats. Understand

the environment, customers, industry, and competitors.

Figure 2.6

Strategy Development and Implementation

• Identify key success factors• Build and staff the organization• Integrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and

increase productivity

Key Success Factors

Production/Operations

Figure 2.7

Marketing

ServiceDistributionPromotionChannels of distributionProduct positioning (image, functions)

Finance/Accounting

LeverageCost of capitalWorking capitalReceivablesPayablesFinancial controlLines of credit

Decisions Sample Options Chapter

ProductQualityProcessLocationLayoutHuman resourceSupply chainInventoryScheduleMaintenance

Customized, or standardizedDefine customer expectations and how to achieve themFacility size, technology, capacityNear supplier or near customerWork cells or assembly lineSpecialized or enriched jobsSingle or multiple suppliersWhen to reorder, how much to keep on handStable or fluctuating production rateRepair as required or preventive maintenance

56, S67, S7

89

1011, S11

12, 14, 1613, 15

17

Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas

Strategy Development and Implementation

• Only by identifying Key Success Factors(KSFs) and Core Competencies can an organization achieve sustainable competitive advantage.

• One of the KSFs for McDonads is layout.• Core Competency for Honda is its gas-

powered engines.

GLOBAL OPERATIONS STRATEGY OPTIONS

• Operations managers of international and multinational companies (IBM is a multinational company)approach global opportunies with one of four operations strategies:

• International Strategy• Global Strategy• Multidomestic Strategy• Transnational Strategy

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Figure 2.9

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Figure 2.9

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Figure 2.9

Standardized product Economies of scale Cross-cultural learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Figure 2.9

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Figure 2.9

Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé

Transnational Strategy

Four International Operations Strategies

Cost

Red

uctio

n Co

nsid

erati

ons

High

Low

HighLowLocal Responsiveness Considerations(Quick Response and/or Differentiation)

Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy Transnational Strategy Move material, people, ideas

across national boundaries Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé

International Strategy

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.9