Handout Topic 2 Global Environment and Operations Startegy.pptx

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1. The Global Environment and Operations Strategy

2. Learning Objectives Define mission and strategy Identify and explain three strategic approaches to competitive advantage Understand the significant key success factors and core competencies When you complete this chapter you should be able to:

3. Learning Objectives Use factor rating to evaluate both country and provider outsources Identify and explain four global operations strategy options When you complete this chapter you should be able to:

4. Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components SUPPLIER HEADQUARTERS COUNTRY COMPONENT Latecoere France Passenger doors Labinel France Wiring Dassault France Design and PLM software Messier-Bugatti France Electric brakes Thales France Electrical power conversion system and integrated standby flight display Messier- Dowty France Landing gear structure Diehl Germany Interior lighting © 2014 Pearson Education

5. Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components SUPPLIER HEADQUARTERS COUNTRY COMPONENT Cobham UK Fuel pumps and valves Rolls-Royce UK Engines Smiths Aerospace UK Central computer systems BAE Systems UK Electronics Alenia Aeronautica Italy Upper center fuselage and horizontal stabilizers Toray Industries Japan Carbon fiber for wing and tail units Fuji Heavy Industries Japan Center wing box © 2014 Pearson Education

6. Boeing’s Global Supply-Chain Strategy Some of the International Suppliers of Boeing 787 Components SUPPLIER HEADQUARTERS COUNTRY COMPONENT Kawasaki Heavy Industries Japan Forward fuselage, fixed sections of wing, landing gear wheel well Teijin Seiki Japan Hydraulic actuators Mitsubishi Heavy Industries Japan Wing box Chengdu Aircraft Group China Rudder Hafei Aviation China Parts Korean Airlines South Korea Wingtips Saab Sweden Cargo and access doors © 2014 Pearson Education

7. Global Strategies: Examples Boeing – sales and supply chain are worldwide Benetton –inventories kept in 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 Volvo ( Swedish company ) – recently purchased by a Chinese company, Geely . The current Volvo S40 is assembled in Belgium, South Africa, Malaysia and China on a platform shared with the Mazda 3 built in Japan and the Ford Focus built in Europe. Haier (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 Heizer&Render (2014)

8. Figure 2.1 60 – 55 – 50 – 45 – 40 – 35 – 30 – 25 – 20 – 15 – 10 – | | | | | | | | | 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Percent Steady Growth of World Trade Heizer&Render (2014)

9. Reasons to Globalize Domestic business operations decide to change to some form of international operations for 6 reasons: Improve the supply chain Reduce costs (labor, taxes, tariffs, etc.) Improve operations Understand markets Improve products Attract and retain global talent

10. R1: Improve the Supply Chain Locating facilities closer to unique resources i.e. particular expertise Auto design to California Athletic shoe production to China Perfume manufacturing in France

11. R2: Reduce Costs A very common reason to globalize is to reduce costs, especially labour or tariff costs Foreign locations with lower wage rates can lower direct and indirect costs Example: saving $10 per/hour/worker with 40-hour workweeks (52 weeks/year ) and 1000 workers  savings in excess of $20 million annually! Trade agreements and organisations give preferential tariff treatment  can lower tariffs Maquiladoras World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) APEC, SEATO, MERCOSUR, CAFTA European Union (EU)

12. R3: Improve Operations Internationalization provides access to great ideas from around the world To understand differences between how business is handled in other countries Japanese – inventory management Scandinavians – ergonomics International operations can improve response time and customer service Closer to customers

13. R4: Understand Markets Interacting with foreign customers, suppliers and competition can lead to new opportunities Opportunities for new products & services Cell phone design moved from Europe to Japan Extend the product life cycle May be able to sell maturing products longer in less developed countries

14. R5: Improve Products Teaming up with a foreign partner to learn from each other and develop products and processes based on the unique knowledge of both firms Toyota and BMW manage joint research and development Reduced risk, state-of-the-art design, lower costs Samsung and Bosch jointly produce batteries

15. R6: Attract and Retain Global Talent Offer better employment opportunities Great employees are attracted to firms that offer more worldwide employment opportunities Better growth opportunities and insulation against unemployment Relocate unneeded personnel to more prosperous locations

16. Cultural and Ethical Issues Managers must become aware of cultural differences  should adjust their expectations and management styles accordingly Attitudes can be quite different towards: Punctuality Lunch breaks Environment Intellectual property Thievery Bribery Child labor

17. Companies Want To Consider National literacy rate Rate of innovation Rate of technology change Number of skilled workers Political stability Product liability laws Export restrictions Variations in language Work ethic Tax rates Inflation Availability of raw materials Interest rates Population Number of miles of highway Phone system

18. Match Product & Parent Volkswagen Bridgestone Campbell Soup Tata Motors Limited Proctor and Gamble Nestlé Pillsbury Sony Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods Heizer&Render (2014)

19. Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods Match Product & Parent Volkswagen Bridgestone Campbell Soup Tata Motors Limited Proctor and Gamble Nestlé Pillsbury Sony Heizer&Render (2014)

20. Match Product & Country Great Britain Germany Japan United States Switzerland India Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods Heizer&Render (2014)

21. Match Product & Country Great Britain Germany Japan United States Switzerland India Braun Household Appliances Firestone Tires Godiva Chocolate Haagen-Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Alpo Petfoods Heizer&Render (2014)

22. Developing Missions and Strategies Mission Statement tells an organization where it is going ( where to go? ) The Strategy Tells the organization how to get there ( how to go? ) Heizer&Render (2014)

23. Mission Mission - where is the organization going? The purpose or rationale for an organisation’s existence Answers ‘What do we contribute to the society?’ Provides boundaries and focus

24. The vision of IIUM: IIUM aims to become a leading international centre of educational excellence which seeks to restore the dynamic and progressive role of the Muslim Ummah in all branches of knowledge and intellectual discourse. The summary of the IIUM Mission : IIICE I ntegration ; I slamization; I nternationalization; and C omprehensive E xcellence

25. Figure 2.2 Merck 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. Heizer&Render (2014)

26. Figure 2.2 PespsiCo Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity. Heizer&Render (2014)

27. Figure 2.2 Arnold Palmer Hospital Arnold Palmer Hospital for Children provides state of the art, family- centered healthcare focused on restoring the joy of childhood in an environment of compassion, healing, and hope. Heizer&Render (2014)

28. Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment Customers Public Image Heizer&Render (2014)

29. Strategic Process Marketing Operations Finance/ Accounting Functional Area Missions Organization’s Mission Heizer&Render (2014)

30. Sample Missions Sample Company Mission To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations. Sample Operations Management Mission To produce products consistent with the company’s mission as the worldwide low-cost manufacturer. Figure 2.3 Heizer&Render (2014)

31. Sample Missions Sample OM Department Missions Product design To design and produce products and services with outstanding quality and inherent customer value. Quality management To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations Process design To determine, design, and produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost. Figure 2.3 Heizer&Render (2014)

32. Sample Missions Sample OM Department Missions Location To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community. Layout design To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life. Human resources To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels. Figure 2.3 Heizer&Render (2014)

33. Sample Missions Sample OM Department Missions Supply-chain management To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply. Inventory To achieve low investment in inventory consistent with high customer service levels and high facility utilization. Scheduling To achieve high levels of throughput and timely customer delivery through effective scheduling. Maintenance To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment. Figure 2.3 Heizer&Render (2014)

34. 2- 34 Mission/Strategy/Tactics How do mission, strategies and tactics relate to decision making and distinctive competencies? Strategy Tactics Mission Stevenson & Chuong (2014)

35. 2- 35 Planning and Decision Making Mission Organizational Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating Procedures Operating Procedures Operating Procedures Figure 2.1 Stevenson & Chuong (2014)

36. Figure 2.1 Mission Explains the existence for an organization Mission Statement States the purpose of an organization Goals Provide detail and scope of mission How to be perceived by the public & its stakeholders Strategies Plans for achieving organizational goals (roadmaps) Effective when it supports mission & goals Tactics The methods and actions taken to accomplish strategies Stevenson & Chuong (2014)

37. Strategy Example Jun Hee is a university student. She would like to have a career in business, have a good job, and earn enough income to live comfortably Mission : Live a good life Goal: Successful career, good income Strategy: Obtain a university education Tactics: Select a university and a major Operations: Register, buy books, take courses, study Example 1 Stevenson & Chuong (2014)

38. Operations Strategy Strategy is action plan to achieve mission Exploits opportunities & strengths; neutralize threats; and avoid weaknesses Operations strategy is the organization’s action plan to achieve the mission Organisation strategy provides overall direction  broad scope, entire organisation Operations strategy Narrower in scope; deals primarily with operations Related to products, processes, methods, operating resources, quality, costs, lead times, scheduling Need to be consistent with strategies of the organisation and other functional areas  synergistic effects Can have major influence on the competitiveness of organisation

39. Significance of Strategic OM Decision Decision Area Affects Product and service design Costs, quality liability and environmental Capacity Cost structure, flexibility Process selection and layout Costs, flexibility, skill level, capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems Table 2.4 Stevenson & Chuong (2014)

40. Supermarkets, dry cleaners Convenience Location Disneyland, Hewlett-Packard, IBM Superior customer service Service Burger King McDonald’s Variety Volume Flexibility Coca-Cola, PepsiCo, Kodak, McDonald’s restaurants, UPS Pizza Hut, FedEx Rapid delivery On-time delivery Time Sony TV, Lexus, Disneyland High-performance design and/or high quality Consistent quality Quality National first-class postage, Carrefour, Jetstar , AirAsia Low Cost Price Examples of Operations Strategies Table 2.2 Stevenson & Chuong (2014)

41. Competitive advantage The creation of a unique advantage over competitors To create customer value in an efficient and sustainable way Chosen strategy of an organisation very much shapes how it approaches the 10 OM decisions 3 strategic approaches to create competitive advantage; any or combination: Differentiation, Cost leadership or Response Operations managers translate these strategic concepts into tangible tasks to be accomplished Strategies of Competitive Advantage

42. Differentiation: “ better or at least differentI ” Uniqueness can go beyond physical characteristics & service attributes; encompass everything that impacts customer’s perception of value Operations managers: to define everything about a product that will influence potential value to a customer: Including breadth of product line, product features, service related to a product Service sector: experience differentiation = engaging customer with a product through imaginative use of the 5 senses, so customer “experience” the product Walt Disney Magic Kingdom – experience differentiation; Hard Rock Cafe – dining experience 1 st : Competing on Differentiation

43. Low-cost leadership: “ cheaper” Achieving maximum value, as perceived by the customer; Does not imply low quality The key is to effectively utilise a facility Operations managers: to examine each of the 10 OM decisions to drive down costs while meeting customer expectations of value Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment Walmart – small overhead & distribution costs; rapid goods transportation reduced warehousing costs, direct shipment from manufacturers lead to high inventory turnover 2 nd : Competing on Cost

44. 3 rd : Competing on Response More responsive Response is a set of values related to rapid, flexible, and reliable performance Flexibility is matching market changes in design innovation and volumes A way of life at Hewlett-Packard Reliability is meeting schedules  reliable response to customers German machine industry Timeliness is quickness in design, production, delivery Johnson Electric, Pizza Hut, Motorola

45. Strategy and Tactics Distinctive Competencies Special attributes or abilities that give an organization a competitive edge Most effective when being developed based on customer needs and what the competitor is doing  Marketing and operations work closely to match customer needs with operational capabilities Strategy Factors: organizations compete among them in a variety of ways Price Quality Time Flexibility Service Location Stevenson & Chuong (2014)

46. Examples of Strategies Low cost Outsource operations to 3 rd -world countries Scale-based strategies Use capital-intensive methods  high output volume + low unit cost Specialization Narrow product line or limited service  h igher quality Flexible operations Quick response and/or customisation High quality Focus on achieving higher quality than competitors Service Various aspects of service Stevenson & Chuong (2014)

47. 1- 47 Class Activity #1 Choose 2 stores that offer identical products or services. Explain 3 primary reasons that make you shop there rather than at the other shop? What is/are its competitive advantage(s) does the store have over its competitors?

48. OM’s Contribution to Strategy Heizer&Render (2014)

49. Issues In Operations Strategy Regardless of chosen OM strategy, useful to understand alternative perspectives  establish and implement strategies Resources view Value-chain analysis Porter’s Five Forces model Operating in a system with many external factors Constant change

50. Issues In Operations Strategy Resources view A view in which managers evaluate the resources at their disposal and manage or alter them to achieve competitive advantage Consider the available financial, physical, human & technological resources in devising potential strategies to ensure consistency

51. Issues In Operations Strategy Value-chain analysis A way to identify those elements in the production/service chain that uniquely add value Used to identify activities that represent strengths or potential strengths and opportunities  develop competitive advantage Through product research, product design, HR, supply-chain management, process innovation or quality management

52. Issues In Operations Strategy Porter’s Five Forces model Analysis of competitors; a method to analyse the 5 forces in the competitive environment Immediate rivals Potential entrants Customers Suppliers Substitute products

53. Issues In Operations Strategy Constant scanning of the environment Analysis of external factors to firm’s operating system Because the firm operates in a system with many external factors  constant scanning of the environment is required Factors related to economics, legal, cultural Constant change Strategies need to be dynamic to deal with constant internal and external changes Changes in resources, technology, stage in PLC

54. 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 critical Defend market position Cost control critical Introduction Growth Maturity Decline Company Strategy/Issues Figure 2.5 Internet search engines Sales Drive-through restaurants DVDs Analog TVs Boeing 787 Electric vehicles iPods 3-D game players 3D printers Xbox 360 Heizer&Render (2014)

55. Product Life Cycle Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Introduction Growth Maturity Decline OM Strategy/Issues Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Figure 2.5 Heizer&Render (2014)

56. Heizer&Render (2014) Strategy Formulation: SWOT Analysis

57. Strategy Formulation: SWOT Analysis Stevenson & Chuong (2014)

58. 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 Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6 Heizer&Render (2014)

59. Strategy Development and Implementation Identify key success factors Integrate OM with other activities Build and staff the organization The operations manager ’ s job is to implement an OM strategy, provide competitive advantage, and increase productivity

60. 1st SDI: Key Success Factors and Core Competencies No firm does everything exceptionally well  i dentify + build KSFs & core competencies  provide sustainable competitive advantage + support successful strategy Key Success Factors Necessary activities or factors to achieve competitive advantage Must get them right to survive Core competencies Set of skills, talents & capabilities in which a firm is particularly strong To be identified and nurtured by firms Stevenson & Chuong (2014)

61. Key Success Factors Production/Operations Figure 2.7 Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit 10 OM Decisions Sample Options Chapter Product Quality Process Location Layout Human resource Supply chain Inventory Schedule Maintenance Customized, or standardized; sustainability Define customer expectations and how to achieve them Facility size, technology, capacity, automation Near supplier or near customer Work cells or assembly line Specialized or enriched jobs Single or multiple suppliers When to reorder, how much to keep on hand Stable or fluctuating production rate Repair as required or preventive maintenance 5, S5 6, S6 7, S7 8 9 10 11, S11 12, 14, 16 13, 15 17 Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas Heizer&Render (2014)

62. 2nd SDI: Integrating OM with Other Activities Regardless of KSFs & core competencies  must be supported by the related activities  use activity map; links competitive advantages + KSFs + supporting activities KSFs support operations  in turn KSFs supported by other activities The activities fit together and reinforce each other  all of the areas support the company’s objectives The better the activities are integrated and reinforce each other  the more sustainable competitive advantage To focus on enhancing its core competencies & KSFs with supporting activities

63. 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 Activity Mapping at Southwest Airlines Heizer&Render (2014)

64. 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 Automated ticketing machines No seat assignments No baggage transfers No meals (peanuts) Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

65. 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 No meals (peanuts) Lower gate costs at secondary airports High number of flights reduces employee idle time between flights Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

66. 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 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 Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

67. 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 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 Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

68. 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 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 Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

69. 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 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 Activity Mapping at Southwest Airlines Figure 2.8 Heizer&Render (2014)

70. I decided that I would run the airline my way, not as others might You don’t get the Ritz-Carlton by creating budget hotels. If you lose your focus, you are going to lose Many Malaysian companies are top heavy, inflexible and don’t listen to employees

71. 3rd SDI: Build and Staff the Organization Strategy + KSFs + necessary integration identified  to group necessary activities into organisational structure  staff organisation with appropriate personnel Managers works with subordinate managers to build plans, budget, programs to successfully implement strategies  achieve missions

72. Implementing Strategic Decisions TABLE 2.1 Operations Strategies of Two Drug Companies COMPETITIVE ADVANTAGE BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY Product selection and design Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories Low R&D investment; focus on development of generic drugs Quality Quality is major priority, standards exceed regulatory requirements Meets regulatory requirements on a country-by-country basis, as necessary Process Product and modular production process; tries to have long product runs in specialized facilities; builds capacity ahead of demand Process focused; general production processes; “job shop” approach, short-run production; focus on high utilization Location Still located in city where it was founded Recently moved to low-tax, low-labor-cost environment Heizer&Render (2014)

73. TABLE 2.1 Operations Strategies of Two Drug Companies COMPETITIVE ADVANTAGE BRAND NAME DRUGS, INC. GENERIC DRUGS CORP. PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY Layout Layout supports automated product-focused production Layout supports process-focused “job shop” practices Human resources Hire the best; nationwide searches Very experienced top executives provide direction; other personnel paid below industry average Supply chain Long-term supplier relationships Tends to purchase competitively to find bargains Inventory Maintains high finished goods inventory primarily to ensure all demands are met Process focus drives up work-in-process inventory; finished goods inventory tends to be low Scheduling Centralized production planning Many short-run products complicate scheduling Maintenance Highly trained staff; extensive parts inventory Highly trained staff to meet changing demands Implementing Strategic Decisions Heizer&Render (2014)

74. Strategic Planning, Core Competencies and Outsourcing Outsourcing is transferring activities that traditionally been internal to external suppliers Non-core activities which can be sizable portion of organisation’s total business Instead of doing the activities internally, a firm “purchase” the service from other firms Accelerating due to 3 global trends I ncreased technological expertise More reliable and cheaper transportation Rapid development and deployment of advancements in telecommunications and computers

75. Outsourcing of manufacturing is an extension of the long-standing practice of subcontracting When performed on a continuing basis, this becomes contract manufacturing Contract manufacturing Continuing basis of subcontracting production activities Outsourced activities: non-core internal service functions Legal services Travel services Payroll Production Surgery Strategic Planning, Core Competencies and Outsourcing

76. Theory of Comparative Advantage Definition: If an external provider (regardless of geographic location) can perform activities more productively than the purchasing firm  the external provider should do the work This theory states that countries benefit from specialising in (and exporting) products and services in which they have relative advantage and importing goods in which they have a relative disadvantage Purchasing firm could focus on core competencies; what it does best Motivation for international outsourcing

77. Risks of Outsourcing TABLE 2.2 Potential Advantages and Disadvantages of Outsourcing ADVANTAGES DISADVANTAGES Cost savings Increased logistics and inventory costs Gaining outside expertise Loss of control (quality, delivery, etc.) Improving operations and service Potential creation of future competition Maintaining a focus on core competencies Negative impact on employees Accessing outside technology Risks may not manifest themselves for years The substantial risks of outsourcing requires managers to invest in the effort to make sure they do it right !

78. Rating Outsourcing Providers Most common reason for outsourcing failure: Decision was made without sufficient understanding and analysis Factor Rating method Excellent tool for country risk assessment Excellent tool for provider selection Assign points for each factor to each provider  assign importance weights to each of the factors Managers can find substantial efficiencies in outsourcing non-core activities But must be cautious in outsourcing those elements of the products and services that provide a competitive advantage

79. Rating Provider Selection Criteria TABLE 2.3 Factor Ratings Applied to National Architects’s Potential IT Outsourcing Providers IMPORTANCE WEIGHTS OUTSOURCING PROVIDERS FACTOR (CRITERION) BIM (U.S.) S.P.C . (INDIA) TELCO (ISRAEL) 1. Can reduce operating costs .2 3 3 5 2. Can reduce capital investment .2 4 3 3 3. Skilled personnel .2 5 4 3 4. Can improve quality .1 4 5 2 5. Can gain access to technology not in company .1 5 3 5 6. Can create additional capacity .1 4 2 4 7. Aligns with policy/philosophy/culture .1 2 3 5 Totals 1.0 3.9 3.3 3.8 Score for BIM = (.2 * 3) + (.2 * 4) + (.2 * 5) + (.1 * 4) + (.1 * 5) + (.1 * 4) + (.1 * 2) = 3.9

80. Experiential learning #1 Identify and briefly describe a company in Malaysia that has successfully adopted each of the following strategies: Cost minimisation Product - differentiation Response (Time-based) strategies

81. Many operations strategies nowadays require an international dimension International business A firm that engages in cross-border transactions (trades or investment) Multinational corporation ( MNC ) A firm that has extensive involvement in international business, owning or controlling facilities in more than 1 country MNCs buy resources, create G&S, sell G&S in various countries Global Operations Strategy Options

82. 4 international strategies for operations managers  to approach global competitiveness based on local responsiveness and cost reduction : International strategy Multidomestic strategy Global strategy Transnational strategy Global Operations Strategy Options

83. International strategy Global markets are penetrated using exports & licenses with little local responsiveness Least advantageous strategy but easiest Exports can require little change in existing operations Licensing agreements transfer much of the risk to the licensee Global Operations Strategy Options

84. Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Import/export or license existing product International strategy ( eg , Harley-Davidson U.S. Steel) Global Operations Strategy Options

85. Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Global Operations Strategy Options

86. Global strategy Operating decisions are centralised  HQ coordinates standardisation and learning between facilities Has high degree of centralisation  generating economies of scale Appropriate when The strategic focus is cost reduction; end products are similar throughout the world Inappropriate when The demand for local responsiveness is high Examples: Caterpillar earth-moving equipment; Texas Instruments semiconductors Global Operations Strategy Options

87. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Standardize product Economies of scale Cross-cultural learning Global strategy ( eg , Caterpillar Texas Instruments Otis Elevator) Global Operations Strategy Options

88. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Global Operations Strategy Options

89. Multidomestic strategy Operating decisions are decentralised to each country to enhance local responsiveness Decentralised authority with substantial autonomy at each business Including subsidiaries, franchises, joint ventures with substantial independence; food producers The concept: Due to success in home market, export management talent and processes, not necessarily the product, to accommodate another market Advantage: Maximising a competitive response for the local market Disadvantage: Little or no cost advantage Example: Heinz food producer to accommodate local tastes because global integration of production process is not critical Global Operations Strategy Options

90. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Use existing domestic model globally Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Global Operations Strategy Options

91. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Use existing domestic model globally Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Global Operations Strategy Options

92. Transactional strategy Has potential to pursue all the 3 operations strategies (differentiation, low cost, response) Combines the benefits of global-scale efficiencies with local responsiveness  transgress national boundaries Materials + people + ideas cross (transgress) national boundaries Firms can be thought of as “world companies” Whose country identity is not as important as its interdependent network of worldwide operations Exploits the economies of scale and learning as well as pressure for responsiveness By recognising that core competence does not reside in just the “home” country but can exist anywhere in the organisation Example : Nestle Global Operations Strategy Options

93. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Use existing domestic model globally Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Transnational strategy (eg, Coca-Cola, Nestlé) Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Global Operations Strategy Options

94. Import/export or license existing product International strategy (eg, Harley-Davidson U.S. Steel) Standardize product Economies of scale Cross-cultural learning Global strategy (eg, Caterpillar Texas Instruments Otis Elevator) Cost Reduction High Low High Low Local Responsiveness (Quick Response and/or Differentiation) Figure 2.9 Use existing domestic model globally Franchise, joint ventures, subsidiaries Multidomestic strategy (eg, Heinz, McDonald’s The Body Shop Hard Rock Cafe) Transnational strategy (eg, Coca-Cola, Nestlé) Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Global Operations Strategy Options

95. Ranking Corruption Rank Country 2012 CPI Score (out of 100 ) 1 Demark , Finland, New Zealand 9 4 Sweden 88 5 Singapore 87 6 Switzerland 86 7 Australia , Norway 85 9 Canada, Netherlands 84 13 Germany 79 14 Hong Kong 77 17 Japan, UK 74 19 USA 73 37 Taiwan 61 39 Israel 60 45 South Korea 5 6 80 China 39 123 Vietnam 31 133 Russia 2 8 Least Corrupt Most Corrupt