OPERATIONS MANAGEMENT
OPERATIONS MANAGEMENT
PhD. Thien-Vu Tran
[Link]@[Link]
Operational
Strategy 2
Outline
• Developing missions and strategies
• Mission
• Strategy
• Achieving competitive advantage through operations:
Difference, Cost, and Response.
• Ten strategic OM decisions
• Issues in operations strategy
• Strategy development and implementation
• Global operations strategy options
Learning objectives
• Students should be able to:
• Identify or define mission, strategy, ten decisions of OM,
multinational corporations.
• Describe or explain specific approaches used by OM to
achieve strategies, four global operations strategies, and
why global issues are important.
Developing Missions, Visions and Strategies
• Mission – why do you exist?
• Organization’s purposes for being
• Provides boundaries & focus
• Answers “What do we provide society?”
• Vision – what are you aspiring for the
future?
• Organization intends to be in the future
• Values – what are you stand for?
• The beliefs, principles and philosophy of
your organizations.
Factors Affecting Mission
Philosophy &
Values
Profitability
Environment
& Growth
Mission
Customers Public Image
Benefit
Benefits to
to Society
Strategy – How an organization expects to achieve its
missions and goals?
• Action plan to achieve mission
• Shows how mission will be achieved
• Company has a business strategy
• Functional areas have strategies
Operations Strategy
Corporate Strategy
• Environmental scanning Market Analysis
• Core competencies • Market segmentation
• Core processes • Needs assessment
• Global strategies
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility
New Service/
Product Development
• Design
• Analysis No
• Development
• Full launch
Performance
Gap?
Operations Strategy Yes
Competitive Capabilities
Decisions
• Current
• Managing processes
• Needed
• Managing supply chains
• Planned
Strategy Process
Strategy is a set of analytic Corporate strategy is concerned
Corporate with the match between your
techniques for understanding
Strategy company’s internal capabilities
and influencing your company’s
position in the market place and its external environment.
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing Operations Fin./Acct.
Decisions Decisions Decisions
Strategies for Competitive Advantage
Cost Quick
leadership Response
Differentiation
Michael Porter (1747-)
Five
forces
model
OM’s Contribution to Strategy
10 Strategic OM Decisions
1. Goods & service design 6. Human resource and job
2. Quality design
3. Process & capacity 7. Supply Chain Management
design 8. Inventory
4. Location selection 9. Scheduling
5. Layout design 10. Maintenance
Goods & Services and the 10 OM
Decisions
Operations Goods Services
Decisions
Goods & Product is usually Product is usually
services tangible intangible
decisions
Quality Objective quality Subjective quality
standards standards
Process Customer not involved Customer may be directly
and in most of process involved in process.
capacity Capacity must match
design demand to avoid lost sales
Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Location May need to be near raw Product is usually
Selection materials or labor force intangible
Layout Layout can enhance Subjective quality
Design production efficiency standards
Human Workforce focused on Customer may be directly
Resources technical skills. involved in process.
and Job Labor standards consistent. Capacity matches
Design Output-based wage system. demand to avoid lost
sales
Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Supply chain Supply-chain Supply-chain relationships
management relationships critical to important, not necessarily
final product critical
Inventory Raw materials, work- Most services cannot be
in-process, and stored
finished goods
Scheduling Ability to convert Primarily concerned with
inventory may allow meeting the customer's
leveling of production immediate schedule
rates
Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Maintenance Maintenance is often Maintenance is often
preventive and takes "repair" and takes place at
place at the production the customer's site
site
Process Design
Customization at high
High Process-focused Volume
Job Shops Mass Customization
(Print shop, emergency
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
fine dining
focus
Variety of Products
Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low Moderate High
Volume
Operations Strategies for Two Drug
Companies
Brand Name Drugs, Generic Drug Corp.
Inc.
Product Heavy R & D; Low R & D investment; focus on
Selection Extensive labs; focus development of generic drugs
and Design on development in
broad range of \drug
categories
Quality Quality is a major Meets regulatory requirements on
priority; a country-by-country basis as
Standards exceed necessary
regulatory
requirements
Operations Strategies for Two Drug
Companies - Continued
Brand Name Drugs, Generic Drug Corp.
Inc.
Process Product & modular Process focused
production processes General production processes;
Long product runs in “Job Shop” approach, short run;
specialized facilities Focus on high utilization
Build capacity ahead of
demand
Location Still located in city in Recently moved to low tax, low labor cost
which it was founded environment
Scheduling Central production Many short run products complicate
planning scheduling
Operations Strategies for Two Drug
Companies - Continued
Brand Name Drugs, Generic Drug Corp.
Inc.
Human Hires the best; nation- Very experienced top executives
Resources wide searches provide direction; other
personnel paid below average
Supply Long term supplier Tends to purchase competitively
Chain relationship to find bargains
Inventory Maintains high finished Process focus drives up WIP
goods inventory, inventory.
primarily to ensure all Finished goods inventory tends
demands are met to be low
Operations Strategies for Two Drug
Companies - Continued
Brand Name Generic Drug Corp.
Drugs, Inc.
Maintenance Highly trained staff; Highly trained staff to meet
Extensive parts challenging demands
inventory
Characteristics of High ROI Firms
• High quality product
• High capacity utilization
• High operating effectiveness
• Low investment intensity
• Low direct cost per unit
From the PIMS study of the Strategic Planning Institute
Strategic Options Managers Use to Gain
Competitive Advantage
• 18% - Marketing/distribution
28%
• 17% - Momentum/name recognition
• 16% - Quality/service
• 14% - Good management
Operations
Management • 4% - Financial resources
• 3% - Other
Strategic Options Managers Use to Gain
Competitive Advantage
28% • Low- cost product
• Product-line breadth
• Technical superiority
• Product characteristics/differentiation
• Continuing product innovation
• Low-price/high-value offerings
Operations • Efficient, flexible operations adaptable to
Management consumers
• Engineering research development
• Location
• Scheduling
Preconditions -
To Implement a Strategy
One must understand:
• Strengths & weaknesses of competitors
and new entrants into the market
• Current and prospective environmental,
legal, and economic issues
• The notion of product life cycle
• Resources available with the firm and
within the OM function
• Integration of OM strategy with company
strategy and with other functions.
Impetus for Strategy Change
• Changes in the organization
• Stages in the product life cycle
• Changes in the environment
Stages in the
Product Life Cycle
Strategy & Issues During Product Life
Introduction
• Company Best period to increase market share
Strategy & R&D engineering are critical
Issues
Product design and development are critical
Frequent product and process design changes
Over-capacity
Short production runs
• OM Strategy High skilled-labor content
& Issues High production costs
Limited number of models
Utmost attentions to quality
Quick elimination of market-revealed design defects
Strategy & Issues During Product Life
Growth
Company Practical to change prices or quality image
Strategy Marketing is critical
Strengthen niche
& Issues
Forecasting is critical
Product and process reliability
OM Strategy Competitive product improvements and options
& Issues Shift toward product oriented
Enhance distribution
Strategy & Issues During Product Life
Maturity
Poor time to increase market share
Company Competitive costs become critical
Strategy Poor time to change price, image, or quality
Defend position via fresh promotional and distribution
& Issues approaches
Standardization
Less rapid product changes and more minor annual model
changes
OM Strategy Optimum capacity
Increasing stability of manufacturing process
& Issues Lower labor skills
Long production runs
Attention to product improvement and cost cutting
Re-examination of necessity of design compromises
Strategy & Issues During Product
Life
Decline
Company Strategy Cost control critical to market share
& Issues
Little product differentiation
OM Strategy Cost minimization
& Issues Overcapacity in the industry
Prune line to eliminate items not returning
Good margin
Reduce capacity
Strategy Development and
Implementation
• Identify critical success factors
• Build and staff the organization
SWOT Analysis Process
• Environmental Analysis
• Determine Corporate Mission
• Form a Strategy
SWOT Analysis to Strategy Formulation
Mission
Internal External
Strengths Opportunities
Strategy
Internal External
Weaknesses Threats
Competitive
Advantage
Activity Mapping: Southwest Airline’s Low Cost
Competitive Advantage
Courteous, but limited
passenger service
Short haul, point-to-point
Lean, productive
routes, often to secondary
employees
airports
High aircraft Frequent, reliable
utilization schedules
Standardized fleet of
Boeing 737 aircraft
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
Courteous, but limited
passenger service
No seat assignments
No baggage transfers
Automated ticketing machines
No meals
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
Lower gate costs at
secondary airports Short haul, point-to-point
routes, often to secondary
High number of flights,
airports
reduces employee idle
time between flights
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
High number of flights reduces
employee idle time between
flights
Saturate a city with flights
lowering administrative costs Frequent, reliable
per passenger for that city schedules
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one type
of aircraft
Excellent supplier relations with
Boeing has aided financing
Standardized fleet of
Boeing 737 aircraft
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
Flexible employees and
standard planes aids scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
High aircraft
utilization
Activity Mapping: Southwest Airline’s Low
Cost Competitive Advantage
High level of stock ownership
Hire for attitude, then train
High employee compensation
Empowered employees
Automated ticket machines
Lean, productive
employees
Activity Mapping: Southwest Airline’s Low Cost
Competitive Advantage
Courteous, but limited
passenger service
Short haul, point-to-point
Lean, productive
routes, often to secondary
employees
airports
High aircraft Frequent, reliable
utilization schedules
Standardized fleet of
Boeing 737 aircraft
Southwest Airline’s Low Cost Competitive Advantage
Four International Operations Strategies
Multidomestic Strategy
Operating decisions are decentralized to each country
to enhance local responsiveness
Global Strategy
Operating decisions are centralized and headquarters
coordinates the standardization and learning between
facilities
Global Strategy
Transnational Strategies
Combines the benefits of global-scale efficiencies with
the benefits of local responsiveness
International Strategy
Global markets are penetrated using exports and
licenses
Group Assignment
• Choose one corporate/company to analyse vision,
mission, strategy, functional strategy, tactical actions
aiming to overall strategy.
Further Reading
Examples of Global Strategies
• Boeing – both sales and product are worldwide.
• Benetton – moves inventory to stores around the
world faster than its competitor by building flexibility
into design, production, and distribution.
• Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world.
• GM is building four similar plants in Argentina,
Poland, China and Thailand.
Boeing Suppliers (777)
Firm Country Parts
Alenia Italy Wing flaps
AeroSpace Australia Rudder
Technologies
CASA Spain Ailerons
Fuji Japan Landing gear
doors, wing section
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
Menasco Aerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
Singapore Singapore Landing gear doors
Aerospace
Management issues in
global operations
Global Strategic Context
• Differentiation
• Cost leadership
• Response
Supply Chain Location Logistics
Management Decisions Management
Supply Chain Management
• Sourcing
• Vertical integration
• Make-or-Buy decisions
• Partnering
Location Decisions
• Country-related issues
• Product-related issues
• Government policy/ political risk
• Organizational issues
Materials Management
• Flow of materials
• Transportation options and speed
• Inventory levels
• Packages
• Storage
Defining Global Operations
• International business - engages in cross-border transactions
• Multinational Corporation - has extensive involvement in
international business, owning or controlling facilities in more
than one country
• 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
Reasons to Globalize Operations
Tangible
• Reduce costs (labor, taxes, tariffs, etc.)
• Improve the supply chain
• Provide better goods and services
• Attract new markets
• Learn to improve operations
• Attract and retain global talent
Intangible
Achieving Global Operations –
Four Considerations
• Global product design
• Global process design and technology
• Global factory location analysis
• Impact of Culture and Ethics
Global Product Design
• Remember social and cultural differences
• Packaging and marketing can help make product seem
“domestic”.
Global Process Design and Technology
• Information technology enables management of
integrated, globally dispersed operation.
• Texas instruments: 50 plants in 19 countries.
• Hewlett-Packard – product development teams in US.,
Japan, Great Britain, and Germany.
• Reduces time-to-market.
Global Facility Location Analysis
• Using CSFs for Country Selection
Mission of FedEx
• FedEx is committed to our People-Service-Profit
philosophy. We will produce outstanding financial returns
by providing total reliable, competitively superior, global
air-ground transportation of high priority goods and
documents that require rapid, time-certain delivery.
Equally important, positive control of each package will be
maintained using real time electronic tracking and tracing
systems. A complete record of each shipment and delivery
will be presented with our request for payment. We will
be helpful, courteous, and professional to each other and
the public. We will strive to have a completely satisfied
customer at the end of each transaction.
Mission of Merch
• 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
Mission of the 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.
Thank you