Operations Strategy in a

2 Global Environment

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl

© 2011 Pearson Education, Inc. publishing as Prentice Hall 2-1

 Global Strategies
 Boeing – sales and production 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

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 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

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 Growth of World Trade
35 –

30 – Collapse of the
Berlin Wall
25 –
Percent

20 –

15 –

10 –

5–

0 –| | | | | | | | | | |
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 (est*)
Year
Figure 2.1
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 Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Citicorp USA 34 46 NA
Colgate- USA 72 63 NA
Palmolive
Dow USA 60 50 NA
Chemical
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51

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 Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

ICI Britain 78 50 NA
Nestle Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Unilever Britain & 95 70 64
Netherlands

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 Reasons to Globalize

Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons 6. Attract and retain global talent

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 Reduce Costs
 Foreign locations with lower wage
rates can lower direct and indirect
costs
 Maquiladoras
 World Trade Organization (WTO)
 North American Free Trade
Agreement (NAFTA)
 APEC, SEATO, MERCOSUR, CAFTA
 European Union (EU)
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 Improve the Supply Chain
 Locating facilities closer to
unique resources
 Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France

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 Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
 On-time deliveries
 Cultural variables
 Improved customer service

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 Understand Markets
 Interacting with foreign customers
and suppliers can lead to new
opportunities
 Cell phone
design from
Europe
 Cell phone
fads from
Japan
 Extend the product life cycle

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 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

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 Attract and Retain Global
Talent
 Offer better employment
opportunities
 Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations

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 Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different
towards
 Punctuality  Thievery
 Lunch breaks  Bribery
 Environment  Child labor
 Intellectual
property

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 Developing Missions and
Strategies
Mission statements tell an
organization where it is going

The Strategy tells the

organization how to get there

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 Mission

 Mission - where are

you going?
 Organization’s
purpose for being
 Answers ‘What do
we provide society?’
 Provides boundaries
and focus

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 Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

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 Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

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 Strategies for Competitive
Advantage

 Differentiation – better, or at
least different
 Cost leadership – cheaper
 Response – rapid response

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 OM’s Contribution to Strategy
10 Operations Competitive
Decisions Approach Example Advantage

Product DIFFERENTIATION
Innovative design … Safeskin’s innovative gloves
Broad product line … Fidelity Security’s mutual funds
Quality After-sales service … Caterpillar’s heavy equipment
service
Process Experience … Hard Rock Café’s dining
experience

Location COST LEADERSHIP

Low overhead … Franz-Colruyt’s warehouse-type Differentiation
stores
Layout (better)
Effective capacity
use … Southwest Airline’s
Human aircraft utilization
resource Inventory Response
management … Wal Mart’s sophisticated
(faster)
distribution system
Supply chain Cost
RESPONSE leadership
Inventory Flexibility … Hewlett-Packard’s response to (cheaper)
volatile world market
Reliability … FedEx’s “absolutely, positively,
Scheduling on time”
Quickness … Pizza Hut’s 5-minute guarantee
at lunchtime
Maintenance Figure 2.4

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 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

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 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 overhead, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers

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 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
 Timeliness is quickness
in design, production,
and delivery
 Johnson Electric,
Pizza Hut, Motorola

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 10 Strategic OM Decisions

1. Goods and 6. Human resources

service design and job design
2. Quality 7. Supply-chain
3. Process and management
capacity design
8. Inventory
4. Location
selection 9. Scheduling
5. Layout design 10. Maintenance

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 Four International
Operations Strategies
High Figure 2.9
Global Strategy Transnational Strategy
Cost Reduction Considerations

 Standardized product  Move material, people, ideas

 Economies of scale across national boundaries
 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples:
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries

Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
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 Ranking Corruption
Rank Country 2009 CPI Score (out of 10)
1 New Zealand 9.4 Least
2 Demark 9.3 Corrupt
3 Singapore, Sweden 9.2
5 Switzerland 9.0
8 Australia, Canada, Iceland 8.7
12 Hong Kong 8.2
14 Germany 8.0
17 Japan, UK 7.7
19 USA 7.5
37 Taiwan 5.6
39 South Korea 5.5
56 Malaysia 4.5
79 China 3.6 Most
89 Mexico 3.3 Corrupt
146 Russia 2.2
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