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© 2008 Prentice Hall, Inc. 2 – 1
Operations ManagementOperations ManagementSession 2 – Session 2 – Operations Strategy in Operations Strategy in a Global Environmenta Global Environment
© 2008 Prentice Hall, Inc. 2 – 2
Learning ObjectivesLearning Objectives
1.1. Define mission and strategyDefine mission and strategy
2.2. Identify and explain three strategic Identify and explain three strategic approaches to competitive approaches to competitive advantageadvantage
3.3. Identify and define the 10 decisions Identify and define the 10 decisions of operations managementof operations management
When you complete this chapter you When you complete this chapter you should be able to:should be able to:
© 2008 Prentice Hall, Inc. 2 – 3
Learning ObjectivesLearning Objectives
4.4. Identify five OM strategy insights Identify five OM strategy insights provided by PIMS researchprovided by PIMS research
5.5. Identify and explain four global Identify and explain four global operations strategy optionsoperations strategy options
When you complete this chapter you When you complete this chapter you should be able to:should be able to:
© 2008 Prentice Hall, Inc. 2 – 4
Global StrategiesGlobal Strategies
Boeing – sales and production are Boeing – sales and production are worldwideworldwide
Benetton – moves inventory to stores Benetton – moves inventory to stores around the world faster than its around the world faster than its competition by building flexibility into competition by building flexibility into design, production, and distributiondesign, production, and distribution
Sony – purchases components from Sony – purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world
© 2008 Prentice Hall, Inc. 2 – 5
Global StrategiesGlobal Strategies
Volvo – considered a Swedish company Volvo – considered a Swedish company but it is controlled by an American but it is controlled by an American company, Ford. The current Volvo S40 is company, Ford. The current Volvo S40 is built in Belgium and shares its platform built in Belgium and shares its platform with the Mazda 3 built in Japan and the with the Mazda 3 built in Japan and the Ford Focus built in Europe.Ford Focus built in Europe.
Haier – A Chinese company, produces Haier – A Chinese company, produces compact refrigerators (it has one-third of compact refrigerators (it has one-third of the US market) and wine cabinets (it has the US market) and wine cabinets (it has half of the US market) in South Carolinahalf of the US market) in South Carolina
© 2008 Prentice Hall, Inc. 2 – 6
Some Multinational Some Multinational CorporationsCorporations
% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
CiticorpCiticorp USAUSA 3434 4646 NANA
Colgate-Colgate- USAUSA 7272 6363 NANAPalmolivePalmolive
Dow Dow USAUSA 6060 5050 NANAChemicalChemical
GilletteGillette USAUSA 6262 5353 NANA
HondaHonda JapanJapan 6363 3636 NANA
IBMIBM USAUSA 5757 4747 5151
© 2008 Prentice Hall, Inc. 2 – 7
Some Multinational Some Multinational CorporationsCorporations
% Sales% Sales % Assets% AssetsOutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% ForeignCompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
ICIICI BritainBritain 7878 5050 NANA
NestleNestle SwitzerlandSwitzerland 9898 9595 9797
PhilipsPhilips NetherlandsNetherlands 9494 8585 8282ElectronicsElectronics
SiemensSiemens GermanyGermany 5151 NANA 3838
UnileverUnilever Britain &Britain & 9595 7070 6464NetherlandsNetherlands
© 2008 Prentice Hall, Inc. 2 – 8
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
LatecoereLatecoere FranceFrance Passenger doorsPassenger doors
LabinelLabinel FranceFrance WiringWiring
DassaultDassault FranceFrance Design and Design and PLM softwarePLM software
Messier-BugattiMessier-Bugatti FranceFrance Electric brakesElectric brakes
ThalesThales FranceFrance Electrical power Electrical power conversion system conversion system and integrated and integrated standby flight displaystandby flight display
Messier-DowtyMessier-Dowty FranceFrance Landing gear structureLanding gear structure
DiehlDiehl GermanyGermany Interior lightingInterior lighting
© 2008 Prentice Hall, Inc. 2 – 9
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
CobhamCobham UKUK Fuel pumps and valvesFuel pumps and valves
Rolls-RoyceRolls-Royce UKUK EnginesEngines
Smiths AerospaceSmiths Aerospace UKUK Central computer Central computer systemsystem
BAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronics
Alenia AeronauticsAlenia Aeronautics ItalyItaly Upper center Upper center fuselage & fuselage & horizontal stabilizerhorizontal stabilizer
Toray IndustriesToray Industries JapanJapan Carbon fiber for Carbon fiber for wing and tail unitswing and tail units
© 2008 Prentice Hall, Inc. 2 – 10
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
Fuji HeavyFuji Heavy JapanJapan Center wing boxCenter wing box IndustriesIndustries
Kawasaki HeavyKawasaki Heavy JapanJapan Forward fuselage,Forward fuselage, IndustriesIndustries fixed section of wing, fixed section of wing,
landing gear welllanding gear well
Teijin SeikiTeijin Seiki JapanJapan Hydraulic actuatorsHydraulic actuators
Mitsubishi Heavy Mitsubishi Heavy JapanJapan Wing boxWing box IndustriesIndustries
Chengdu Aircraft Chengdu Aircraft ChinaChina RudderRudderGroupGroup
Hafei AviationHafei Aviation ChinaChina PartsParts
© 2008 Prentice Hall, Inc. 2 – 11
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
Korean AviationKorean Aviation SouthSouth WingtipsWingtips KoreaKorea
SaabSaab SwedenSweden Cargo access doorsCargo access doors
© 2008 Prentice Hall, Inc. 2 – 12
Reasons to GlobalizeReasons to Globalize
Reasons to GlobalizeReasons to Globalize
1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)
2.2. Improve supply chainImprove supply chain
3.3. Provide better goods and servicesProvide better goods and services
4.4. Understand marketsUnderstand markets
5.5. Learn to improve operationsLearn to improve operations
6.6. Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
© 2008 Prentice Hall, Inc. 2 – 13
Reduce CostsReduce Costs
Foreign locations with lower wage Foreign locations with lower wage rates can lower direct and indirect rates can lower direct and indirect costscostsMaquiladorasMaquiladoras
World Trade Organization (WTO)World Trade Organization (WTO)
North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)
APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR
European Union (EU)European Union (EU)
© 2008 Prentice Hall, Inc. 2 – 14
Improve the Supply ChainImprove the Supply Chain
Locating facilities closer to Locating facilities closer to unique resourcesunique resourcesAuto design to CaliforniaAuto design to California
Athletic shoe production to ChinaAthletic shoe production to China
Perfume manufacturing in FrancePerfume manufacturing in France
© 2008 Prentice Hall, Inc. 2 – 15
Provide Better Goods Provide Better Goods and Servicesand Services
Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservicesOn-time deliveriesOn-time deliveries
Cultural variablesCultural variables
Improved customer serviceImproved customer service
© 2008 Prentice Hall, Inc. 2 – 16
Understand MarketsUnderstand Markets
Interacting with foreign customers Interacting with foreign customers and suppliers can lead to new and suppliers can lead to new opportunitiesopportunitiesCell phone Cell phone
design from design from EuropeEurope
Cell phone Cell phone fads from fads from JapanJapan
Extend the product life cycleExtend the product life cycle
© 2008 Prentice Hall, Inc. 2 – 17
Learn to Improve OperationsLearn to Improve Operations
Remain open to the free flow of Remain open to the free flow of ideasideasGeneral Motors partnered with a General Motors partnered with a
Japanese auto manufacturer to Japanese auto manufacturer to learnlearn
Equipment and layout have been Equipment and layout have been improved using Scandinavian improved using Scandinavian ergonomic competenceergonomic competence
© 2008 Prentice Hall, Inc. 2 – 18
Attract and Retain Global Attract and Retain Global TalentTalent
Offer better employment Offer better employment opportunitiesopportunitiesBetter growth opportunities and Better growth opportunities and
insulation against unemploymentinsulation against unemployment
Relocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locations
Incentives for people who like to Incentives for people who like to travel travel
© 2008 Prentice Hall, Inc. 2 – 19
Cultural and Ethical IssuesCultural and Ethical Issues
Cultures can be quite differentCultures can be quite different
Attitudes can be quite different Attitudes can be quite different towards towards
PunctualityPunctuality
Lunch breaksLunch breaks
EnvironmentEnvironment
Intellectual Intellectual propertyproperty
ThieveryThievery
BriberyBribery
Child laborChild labor
© 2008 Prentice Hall, Inc. 2 – 20
Developing Missions and Developing Missions and StrategiesStrategies
MissionMission statements tell an statements tell an organization where it is goingorganization where it is going
The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there
© 2008 Prentice Hall, Inc. 2 – 21
MerckMerck
The mission of Merck is to provide The mission of Merck is to provide society with superior products and society with superior products and
services - innovations and solutions services - innovations and solutions that improve the quality of life and that improve the quality of life and
satisfy customer needs - to provide satisfy customer needs - to provide employees with meaningful work and employees with meaningful work and
advancement opportunities and advancement opportunities and investors with a superior rate of returninvestors with a superior rate of return
Figure 2.2Figure 2.2
© 2008 Prentice Hall, Inc. 2 – 22
Strategic ProcessStrategic Process
Marketing Operations Finance/ Accounting
Functional Area Missions
Organization’s Mission
© 2008 Prentice Hall, Inc. 2 – 23
StrategyStrategy
Action plan to Action plan to achieve missionachieve mission
Functional areas Functional areas have strategieshave strategies
Strategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses
© 2008 Prentice Hall, Inc. 2 – 24
Strategies for Competitive Strategies for Competitive AdvantageAdvantage
Differentiation – better, or at least Differentiation – better, or at least differentdifferent
Cost leadership Cost leadership –– cheaper cheaper
Response – rapid responseResponse – rapid response
© 2008 Prentice Hall, Inc. 2 – 25
Competing on Competing on DifferentiationDifferentiation
Uniqueness can go beyond both the Uniqueness can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything
that impacts customer’s perception of that impacts customer’s perception of valuevalue
Safeskin gloves – leading edge productsSafeskin gloves – leading edge products
Walt Disney Magic Kingdom – Walt Disney Magic Kingdom – experience differentiationexperience differentiation
Hard Rock Cafe – dining experienceHard Rock Cafe – dining experience
© 2008 Prentice Hall, Inc. 2 – 26
Competing on CostCompeting on Cost
Provide the maximum value as Provide the maximum value as perceived by customer. Does not perceived by customer. Does not
imply low quality.imply low quality.
Southwest Airlines – secondary Southwest Airlines – secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipment
Wal-Mart – small overheads, shrinkage, Wal-Mart – small overheads, shrinkage, distribution costsdistribution costs
Franz Colruyt – no bags, low light, no Franz Colruyt – no bags, low light, no music, doors on freezersmusic, doors on freezers
© 2008 Prentice Hall, Inc. 2 – 27
Competing on ResponseCompeting on Response
Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes Institutionalization at Hewlett-PackardInstitutionalization at Hewlett-Packard
Reliability is meeting schedulesReliability is meeting schedules German machine industryGerman machine industry
Timeliness is quickness Timeliness is quickness in design, production, in design, production, and deliveryand delivery Johnson Electric, Johnson Electric,
Bennigan’s, MotorolaBennigan’s, Motorola
© 2008 Prentice Hall, Inc. 2 – 28
OM’s Contribution to StrategyOM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Scheduling
Maintenance
FLEXIBILITY:Sony’s constant innovation of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY: Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY: Motorola’s HDTV converters….……........Conformance Motorola’s pagers………………………..….Performance
Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE
Figure 2.4Figure 2.4
OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response(Faster)
Cost leadership(Cheaper)
Differentiation(Better)
© 2008 Prentice Hall, Inc. 2 – 29
10 Strategic OM Decisions10 Strategic OM Decisions
1.1. Goods and Goods and service design service design
2.2. Quality Quality
3.3. Process and Process and capacity designcapacity design
4.4. Location Location selectionselection
5.5. Layout designLayout design
6.6. Human resources Human resources and job designand job design
7.7. Supply chain Supply chain managementmanagement
8.8. InventoryInventory
9.9. SchedulingScheduling
10.10. MaintenanceMaintenance
© 2008 Prentice Hall, Inc. 2 – 30
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
OperationsOperationsDecisionsDecisions GoodsGoods ServicesServices
Goods and Goods and service service designdesign
Product is usually Product is usually tangibletangible
Product is not Product is not tangibletangible
QualityQuality Many objective Many objective standardsstandards
Many subjective Many subjective standardsstandards
Process Process and and capacity capacity designdesign
Customers not Customers not involvedinvolved
Customer may be Customer may be directly involveddirectly involved
Capacity must Capacity must match demandmatch demand
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 31
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
OperationsOperationsDecisionsDecisions GoodsGoods ServicesServices
Location Location selectionselection
Near raw Near raw materials and materials and laborlabor
Near customersNear customers
Layout Layout designdesign
Production Production efficiencyefficiency
Enhances product Enhances product and productionand production
Human Human resources resources and job and job designdesign
Technical skills, Technical skills, consistent labor consistent labor standards, output standards, output based wagesbased wages
Interact with Interact with customers, labor customers, labor standards varystandards vary
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 32
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
OperationsOperationsDecisionsDecisions GoodsGoods ServicesServices
Supply Supply chain chain
Relationship Relationship critical to final critical to final productproduct
Important, but Important, but may not be may not be criticalcritical
InventoryInventory Raw materials, Raw materials, work-in-process, work-in-process, and finished and finished goods may be goods may be heldheld
Cannot be storedCannot be stored
SchedulingScheduling Level schedules Level schedules possiblepossible
Meet immediate Meet immediate customer demandcustomer demand
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 33
Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions
OperationsOperationsDecisionsDecisions GoodsGoods ServicesServices
MaintenanceMaintenance Often preventive Often preventive and takes place and takes place at production siteat production site
Often “repair” and Often “repair” and takes place at takes place at customer’s sitecustomer’s site
Table 2.1Table 2.1
© 2008 Prentice Hall, Inc. 2 – 34
Managing Global Service Managing Global Service OperationsOperations
Capacity planningCapacity planning
Location planningLocation planning
Facilities design and layoutFacilities design and layout
SchedulingScheduling
Requires a different perspective on:Requires a different perspective on:
© 2008 Prentice Hall, Inc. 2 – 35
Process DesignProcess Design
LowLow ModerateModerate HighHighVolumeVolume
HighHigh
ModerateModerate
LowLow
Var
iety
of
Pro
du
cts
Var
iety
of
Pro
du
cts
Process-focusedJOB SHOPS
(Print shop, emergency room, machine shop,
fine-diningrestaurant)
Repetitive (modular) focus
ASSEMBLY LINE(Cars, appliances,
TVs, fast-food restaurants) Product focused
CONTINUOUS(steel, beer, paper, bread, institutional
kitchen)
Mass CustomizationCustomization at high
Volume(Dell Computer’s PC,
cafeteria)
© 2008 Prentice Hall, Inc. 2 – 36
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
Product Product Selection and Selection and DesignDesign
Heavy R&D investment; Heavy R&D investment; extensive labs; focus on extensive labs; focus on development in a broad development in a broad range of drug range of drug categoriescategories
Low R&D investment; Low R&D investment; focus on development focus on development of generic drugsof generic drugs
QualityQuality Major priority, exceed Major priority, exceed regulatory requirementsregulatory requirements
Meets regulatory Meets regulatory requirements on a requirements on a country by country country by country basisbasis
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 37
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
ProcessProcess Product and modular Product and modular process; long process; long production runs in production runs in specialized facilities; specialized facilities; build capacity ahead of build capacity ahead of demanddemand
Process focused; Process focused; general processes; “job general processes; “job shop” approach, short-shop” approach, short-run production; focus run production; focus on high utilizationon high utilization
LocationLocation Still located in the city Still located in the city where it was foundedwhere it was founded
Recently moved to low-Recently moved to low-tax, low-labor-cost tax, low-labor-cost environmentenvironment
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 38
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
SchedulingScheduling Centralized production Centralized production planningplanning
Many short-run Many short-run products complicate products complicate schedulingscheduling
LayoutLayout Layout supports Layout supports automated product-automated product-focused productionfocused production
Layout supports Layout supports process-focused “job process-focused “job shop” practicesshop” practices
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 39
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
Human Human ResourcesResources
Hire the best; Hire the best; nationwide searchesnationwide searches
Very experienced top Very experienced top executives; other executives; other personnel paid below personnel paid below industry averageindustry average
Supply ChainSupply Chain Long-term supplier Long-term supplier relationshipsrelationships
Tends to purchase Tends to purchase competitively to find competitively to find bargainsbargains
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 40
Operations Strategies for Operations Strategies for Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
InventoryInventory High finished goods High finished goods inventory to ensure all inventory to ensure all demands are metdemands are met
Process focus drives up Process focus drives up work-in-process work-in-process inventory; finished inventory; finished goods inventory tends goods inventory tends to be lowto be low
MaintenanceMaintenance Highly trained staff; Highly trained staff; extensive parts extensive parts inventoryinventory
Highly trained staff to Highly trained staff to meet changing demandmeet changing demand
Table 2.2Table 2.2
© 2008 Prentice Hall, Inc. 2 – 41
Issues In Operations StrategyIssues In Operations Strategy
Research about effective Research about effective operations management operations management strategiesstrategies
Preconditions for developing Preconditions for developing effective OM strategieseffective OM strategies
The dynamics of OM strategy The dynamics of OM strategy developmentdevelopment
© 2008 Prentice Hall, Inc. 2 – 42
Characteristics of Characteristics of High ROI FirmsHigh ROI Firms
High product quality High product quality
High capacity utilizationHigh capacity utilization
High operating efficiencyHigh operating efficiency
Low investment intensityLow investment intensity
Low direct cost per unitLow direct cost per unit
From the PIMS program of the Strategic Planning InstituteFrom the PIMS program of the Strategic Planning Institute
© 2008 Prentice Hall, Inc. 2 – 43
Strategic Options to Gain a Strategic Options to Gain a Competitive AdvantageCompetitive Advantage
28% - Operations Management28% - Operations Management
18% - Marketing/distribution18% - Marketing/distribution
17% - Momentum/name recognition17% - Momentum/name recognition
16% - Quality/service16% - Quality/service
14% - Good management14% - Good management
4% - Financial resources4% - Financial resources
3% - Other3% - Other
© 2008 Prentice Hall, Inc. 2 – 44
Elements of Operations Elements of Operations Management StrategyManagement Strategy
Low-cost productLow-cost product Product-line breadthProduct-line breadth Technical superiorityTechnical superiority Product characteristics/differentiationProduct characteristics/differentiation Continuing product innovationContinuing product innovation Low-price/high-value offeringsLow-price/high-value offerings Efficient, flexible operations adaptable to Efficient, flexible operations adaptable to
consumersconsumers Engineering research developmentEngineering research development LocationLocation SchedulingScheduling
© 2008 Prentice Hall, Inc. 2 – 45
PreconditionsPreconditions
Strengths and weaknesses of competitors and Strengths and weaknesses of competitors and possible new entrants into the marketpossible new entrants into the market
Current and prospective environmental, Current and prospective environmental, technological, legal, and economic issuestechnological, legal, and economic issues
The product life cycleThe product life cycle
Resources available within the firm and within Resources available within the firm and within the OM functionthe OM function
Integration of OM strategy with company’s Integration of OM strategy with company’s strategy and with other functional areasstrategy and with other functional areas
One must understand:One must understand:
© 2008 Prentice Hall, Inc. 2 – 46
Dynamics of Dynamics of Strategic ChangeStrategic Change
Changes within the organizationChanges within the organization PersonnelPersonnel FinanceFinance TechnologyTechnology Product lifeProduct life
Changes in the environmentChanges in the environment
© 2008 Prentice Hall, Inc. 2 – 47
Product Life CycleProduct Life Cycle
Best period to Best period to increase market increase market shareshare
R&D engineering is R&D engineering is criticalcritical
Practical to change Practical to change price or quality price or quality imageimage
Strengthen nicheStrengthen niche
Poor time to Poor time to change image, change image, price, or qualityprice, or quality
Competitive costs Competitive costs become criticalbecome criticalDefend market Defend market positionposition
Cost control Cost control criticalcritical
Introduction Growth Maturity Decline
Co
mp
an
y S
tra
teg
y/Is
sue
sC
om
pa
ny
Str
ate
gy/
Issu
es
Figure 2.5Figure 2.5
Internet search enginesInternet search engines
SalesSales
Xbox 360Xbox 360
Drive-through Drive-through restaurantsrestaurants
CD-ROMsCD-ROMs
3 1/2” 3 1/2” Floppy Floppy disksdisks
LCD & plasma TVsLCD & plasma TVsAnalog TVsAnalog TVs
iPodsiPods
© 2008 Prentice Hall, Inc. 2 – 48
Product Life CycleProduct Life Cycle
Product design Product design and and development development criticalcritical
Frequent Frequent product and product and process design process design changeschanges
Short production Short production runsruns
High production High production costscosts
Limited modelsLimited models
Attention to Attention to qualityquality
Introduction Growth Maturity Decline
OM
Str
ate
gy
/Issu
es
OM
Str
ate
gy
/Issu
es
Forecasting Forecasting criticalcritical
Product and Product and process process reliabilityreliability
Competitive Competitive product product improvements improvements and optionsand options
Increase capacityIncrease capacity
Shift toward Shift toward product focusproduct focus
Enhance Enhance distributiondistribution
StandardizationStandardization
Less rapid Less rapid product changes product changes – more minor – more minor changeschanges
Optimum Optimum capacitycapacity
Increasing Increasing stability of stability of processprocess
Long production Long production runsruns
Product Product improvement and improvement and cost cuttingcost cutting
Little product Little product differentiationdifferentiation
Cost Cost minimizationminimization
Overcapacity Overcapacity in the in the industryindustry
Prune line to Prune line to eliminate eliminate items not items not returning returning good margingood margin
Reduce Reduce capacitycapacity
Figure 2.5Figure 2.5
© 2008 Prentice Hall, Inc. 2 – 49
Strategy Development ProcessStrategy Development Process
Determine Corporate MissionState the reason for the firm’s existence and identify the
value it wishes to create.
Form a StrategyBuild a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.
Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6Figure 2.6
© 2008 Prentice Hall, Inc. 2 – 50
Strategy Development and Strategy Development and ImplementationImplementation
Identify critical success factorsIdentify critical success factors
Build and staff the organizationBuild and staff the organization
Integrate OM with other activitiesIntegrate OM with other activities
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity
© 2008 Prentice Hall, Inc. 2 – 51
Critical Success FactorsCritical Success Factors
Decisions Sample Options Chapter
ProductProduct Customized, or standardizedCustomized, or standardized 55QualityQuality Define customer expectations and how to achieve themDefine customer expectations and how to achieve them 6, S66, S6ProcessProcess Facility size, technology, capacityFacility size, technology, capacity 7, S77, S7LocationLocation Near supplier or near customerNear supplier or near customer 88LayoutLayout Work cells or assembly lineWork cells or assembly line 99Human resourceHuman resource Specialized or enriched jobsSpecialized or enriched jobs 10, S1010, S10Supply chainSupply chain Single or multiple suppliersSingle or multiple suppliers 11, S1111, S11InventoryInventory When to reorder, how much to keep on handWhen to reorder, how much to keep on hand 12, 14, 1612, 14, 16ScheduleSchedule Stable or fluctuating production rateStable or fluctuating production rate 13, 1513, 15Maintenance Maintenance Repair as required or preventive maintenanceRepair as required or preventive maintenance 1717
Marketing
ServiceServiceDistributionDistributionPromotionPromotionChannels of distributionChannels of distributionProduct positioningProduct positioning (image, functions)(image, functions)
Finance/Accounting
LeverageLeverageCost of capitalCost of capitalWorking capitalWorking capitalReceivablesReceivablesPayablesPayablesFinancial controlFinancial controlLines of creditLines of credit
Production/Operations
Figure 2.7Figure 2.7
© 2008 Prentice Hall, Inc. 2 – 52
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8
© 2008 Prentice Hall, Inc. 2 – 53
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Automated ticketing machines
No seat assignments
No baggage transfers
No meals (peanuts)
© 2008 Prentice Hall, Inc. 2 – 54
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
No meals (peanuts)
Lower gate costs at secondary airports
High number of flights reduces employee idle time
between flights
© 2008 Prentice Hall, Inc. 2 – 55
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8
High number of flights reduces employee idle time
between flights
Saturate a city with flights, lowering administrative
costs (advertising, HR, etc.) per passenger for that city
Pilot training required on only one type of aircraft
Reduced maintenance inventory required because of only one type of aircraft
© 2008 Prentice Hall, Inc. 2 – 56
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Pilot training required 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
© 2008 Prentice Hall, Inc. 2 – 57
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Reduced maintenance inventory required because of only one type of aircraft
Flexible employees and standard planes aid
scheduling
Maintenance personnel trained only one type of
aircraft
20-minute gate turnarounds
Flexible union contracts
© 2008 Prentice Hall, Inc. 2 – 58
Activity MappingActivity Mapping
Courteous, but Limited Passenger
Service
Standardized Fleet of Boeing
737 Aircraft
Competitive Advantage:Low Cost
Lean, Productive Employees
Short Haul, Point-to-Point Routes, Often to
Secondary Airports
High Aircraft
Utilization
Frequent, Reliable
Schedules
Figure 2.8Figure 2.8
Automated ticketing machines
Empowered employees
High employee compensation
Hire for attitude, then train
High level of stock ownership
High number of flights reduces employee idle time
between flights
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HighHigh
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
International Strategy
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
© 2008 Prentice Hall, Inc. 2 – 61
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product
Economies of scale Cross-cultural
learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
© 2008 Prentice Hall, Inc. 2 – 63
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe
Multidomestic Strategy
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas 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
© 2008 Prentice Hall, Inc. 2 – 65
International StrategyInternational 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
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
Four International Four International Operations StrategiesOperations Strategies
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HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural
learning
ExamplesCoca-ColaNestlé
Transnational Strategy
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas 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