Topic 2

Operations Strategy in a Global Environment

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 Outline

• Global Company Profile: Boeing

• A Global View of Operations
• Developing Missions and Strategies
• Achieving Competitive Advantage Through
Operations
• Issues in Operations Strategy

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 Outline – Continued

• Strategy Development and Implementation

• Strategic Planning, Core Competencies, and
Outsourcing
• Global Operations Strategy Options

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Boeing’s Global Supply-Chain
Strategy
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER 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
Messier-Dowty France Landing gear structure
Diehl Germany Interior lighting
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Boeing’s Global Supply-Chain
Strategy
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Cobham UK Fuel pumps and valves
Rolls-Royce UK Engines
Smiths Aerospace UK Central computer system
BAE Systems UK Electronics
Alenia Aeronautica Italy Upper center fuselage
Toray Industries Japan Carbon fiber for wing and
tail units
Fuji Heavy Industries Japan Center wing box
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Boeing’s Global Supply-Chain
Strategy
Some of the International Suppliers of Boeing 787
Components
HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Kawasaki Heavy Japan Forward fuselage, fixed
Industries sections of wing
Teijin Seiki Japan Hydraulic actuators
Mitsubishi Heavy Japan Wing box
Industries
Chengdu Aircraft China Rudder
Hafei Aviation China Parts
Korean Airlines South Korea Wingtips
Saab Sweden Cargo and access doors
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 Global Strategies
• Boeing – sales and supply chain 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,

purchased by a Chinese company, Geely.
Assembles cars in Sweden, Belgium,
Malaysia and China.
• 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 and other
appliances in Kentucky.

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 Growth of World Trade

Figure 2.1
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 Reasons to Globalize

1. Improve the supply chain

2. Reduce costs and exchange rate risks
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent

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 Improve the Supply Chain

• Locating facilities closer to unique resources

- Auto design to California
- Perfume manufacturing in France

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Reduce Costs

• Risks associated with currency exchange rates

• Reduce direct and indirect costs
• Trade agreements can lower tariffs
- Maquiladoras
- World Trade Organization (WTO)
- North American Free Trade Agreement (NAFTA)
- APEC, SEATO, MERCOSUR, CAFTA
- European Union (EU)

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 Improve Operations

• Understand differences between how business is

handled in other countries
- Japanese – inventory management
- Germans – robots
- Scandinavians – ergonomics
• International operations can improve response
time and customer service

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 Understand Markets
• Interacting with foreign customers, suppliers,
competition can lead to new opportunities
- Cell phone design moved from Europe to Japan
and India
- Extend the product life cycle

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 Improve Products

• Remain open to free flow of ideas

• Toyota and BMW manage joint research and
development
- Reduced risk, state-of-the-art design, lower costs
• Samsung and Bosch jointly produce batteries

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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
• Social and cultural behavior differs
• International laws, agreements, codes of conduct
for ethical behaviors
• Despite cultural and ethical differences, we observe
extraordinary mobility of capital, information, goods,
and people

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

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 Match Product & Parent
► Braun Household
Appliances 1. Volkswagen
► Firestone Tires 2. Bridgestone
► Godiva Chocolate 3. Campbell Soup
► Haagen-Dazs Ice 4. Tata Motors Limited
Cream
5. Proctor and Gamble
► Jaguar Autos
6. Nestlé
► GE Appliances
7. Pillsbury
► Lamborghini Autos
8. Haier
► Alpo Petfoods

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 Match Product & Country
► Braun Household
Appliances
► Firestone Tires 1. Great Britain
► Godiva Chocolate 2. Germany
► Haagen-Dazs Ice 3. Japan/China
Cream
4. United States
► Jaguar Autos
5. Switzerland
► GE Appliances
6. India
► Lamborghini Autos
► Alpo Petfoods

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Developing Missions and Strategies

Mission statements tell an organization where it

is going
Strategies tell the organization how to get there

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 Mission

• Mission - the purpose or rationale for an

organization’s existence
- Organization’s purpose for being
- Answers ‘What do we contribute to
society?’
- Provides boundaries and focus

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 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.

Figure 2.2

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 PepsiCo

Our mission is to be the world's premier con

sumer products company focused on conve
nient foods and beverages. We seek to prod
uce financial rewards to investors as we pro
vide 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, fairn
ess and integrity.
Figure 2.2

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 Arnold Palmer Hospital

Arnold Palmer Hospital for Children provides

state of the art, family-centered healthcare fo
cused on restoring the joy of childhood in an
environment of compassion, healing, and ho
pe.

Figure 2.2

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 Factors Affecting Mission

Philosophy
and Values

Profitability and
Environment Growth

Mission

Customers Public Image

Benefit to
Society

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 Strategic Process
Organization’s
Mission

Functional Area
Missions

Finance/
Marketing Operations Accounting

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 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
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 Sample Missions

Figure 2.3
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 Sample Missions

Figure 2.3
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 Sample Missions

Figure 2.3
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Strategy

Strategies require managers to

• Develop action plan to achieve mission
• Ensure functional areas have supporting
strategies
• Exploit opportunities and strengths, neutralize
threats, and avoid weaknesses

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Strategies for Competitive Advantage

1. Differentiation – better, or at least different

2. Cost leadership – cheaper
3. Response – more responsive

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Competing on Differentiation
Distinguishing the offerings of an organization in a
way that the customer perceives as adding value
Uniqueness can go beyond both the physical
characteristics and service attributes to encompass
everything that impacts the customer’s perception
of value.
• Safeskin gloves – leading edge products
• Walt Disney Magic Kingdom – experience
differentiation
• Hard Rock Cafe – dining experience
Copyright
© 2017 Pearson
© 2020,
Education,
2017, 2014
Inc.Pearson Education, Inc. Slide 94
Experience Differentiation

Engaging a customer with a product through

imaginative use of the five senses, so the customer
“experiences” the product
• Theme parks use sight, sound, smell, and
participation
• Movie theatres use sight, sound, moving seats,
smells, and mists of rain
• Restaurants use music, smell, and open kitchens

Copyright © 2020, 2017, 2014 Pearson Education, Inc.

Competing on Cost

Low-cost leadership means achieving maximum

value, as perceived by the customer.
Does not imply low quality
• Southwest Airlines – secondary airports, no frills
service, efficient utilization of equipment
• Walmart – small overhead, shrinkage, and
distribution costs
• Franz Colruyt – no bags, no bright lights, no
music

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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
• Quickness in design,
production, and delivery
- Johnson Electric, Pizza Hut

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OM’s Contribution to Strategy

Figure 2.4
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 Issues In Operations Strategy

• Resources view - a method that managers use to evaluate the

resources at their disposal and manage or alter them to achieve
competitive advantage.
• Value-chain analysis - a way to identify those elements in the
production/service chain that uniquely add value
• Porter’s Five Forces model - a method of analyzing the
five forces in the competitive environment: immediate rivals, potential
entrants, customers, suppliers, and substitute products.
• Operating in a system with many external
factors
• Constant change

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 Product Life Cycle

Figure 2.5
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 SWOT Analysis

Mission

Internal External
Strengths Opportunities

Analysis

Internal External
Weaknesses Threats

Strategy

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 Strategy Development Process
Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

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.
Figure 2.6
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Strategy Development and
Implementation
• Identify key success factors that support core
competencies
• Integrate O M with other activities
• Build and staff the organization

The operations manager’s job is to implement

an O M strategy, provide competitive advantage
, and increase productivity

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Key Success Factors
Figure 2.7

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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Point-to-Point Routes,

Productive Often to Secondary
Employees Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Automated ticketing machines Secondary Airports
No seat assignments
Competitive Advantage:
Low
“Bags Costand
fly free”
no baggage transfers
High No meals Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
No meals
Lean,
Lower gate costs at secondary Point-to-Point Routes,
Productive Often to Secondary
Employees airports Airports
High number of flights reduces
Competitive Advantage:
employee idle time between flights
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Point-to-Point Routes,

Productive Often to Secondary
Employees Airports
High number of flights reduces employee
idleCompetitive Advantage:
time between flights
Saturate a city with Low
flights, Cost
lowering
administrative costs (advertising, HR, etc.)
High per passenger for that city Frequent,
Aircraft
Pilot training required on only one type of Reliable
Utilization aircraft
Standardized Schedules
Reduced maintenanceFleet of Boeing
inventory required
because of only one 737 Aircraft
type of aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Pilot training required on only one type of
Lean, aircraft Point-to-Point Routes,
Productive Often to Secondary
Employees Reduced maintenance inventory required Airports
because of only one type of aircraft
Competitive
Excellent Advantage:
supplier relations with Boeing
have
Lowaided financing
Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Point-to-Point Routes,

Productive Often to Secondary
Employees Airports
Reduced maintenance inventory required
because of only one type of aircraft
Competitive Advantage:
Flexible employees and standard planes aid
Low Cost scheduling
Maintenance personnel trained only one
High type of aircraft Frequent,
Aircraft Reliable
Utilization 20-minute gate turnarounds Schedules
Standardized
Fleet of Boeing
737 Aircraft
Figure 2.8
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 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Automated ticketing machines
Service
Empowered employees
Lean, High employee compensation
Point-to-Point Routes,
Productive Often to Secondary
Hire for attitude, then train
Employees High level of stock ownership Airports
High number
Competitive of flights reduces employee
Advantage:
idle time between flights
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
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Implementing Strategic Decisions
Table 2.1 Operations Strategies of Two Drug Companies
Blank

BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.

COMPETITIVE PRODUCT DIFFERENTIATION
ADVANTAGE STRATEGY LOW-COST STRATEGY
Product selection and Heavy R&D investment; extensive Low R&D investment; focus on
design labs; focus on development in a development of generic drugs
broad range of drug categories
Quality Quality is major priority, standards Meets regulatory requirements
exceed regulatory requirements on a country-by-country basis,
as necessary
Process Product and modular production Process focused; general
process; tries to have long product production processes; “job
runs in specialized facilities; builds shop” approach, short-run
capacity ahead of demand production; focus on high
utilization
Location Still located in city where it was Recently moved to low-tax, low-
founded labor-cost environment

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Implementing Strategic Decisions

Table 2.1 Operations Strategies of Two Drug Companies

Blank

BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.

COMPETITIVE PRODUCT DIFFERENTIATION
ADVANTAGE STRATEGY LOW-COST STRATEGY
Layout Layout supports automated Layout supports process-focused “job shop”
product-focused production practices
Human Hire the best; nationwide Very experienced top executives provide
resources searches 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 Process focus drives up work-in-process
inventory primarily to ensure all inventory; finished goods inventory tends to be
demands are met low
Scheduling Centralized production planning Many short-run products complicate scheduling

Maintenance Highly trained staff; extensive Highly trained staff to meet changing process
parts inventory and equipment demands
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Strategic Planning, Core
Competencies, and Outsourcing
• Outsourcing – transferring activities that have traditionally
been internal to external suppliers
• Accelerating due to
1. Increased technological expertise
2. More reliable and cheaper transportation
3. Rapid development and deployment of advancements
in telecommunications and computers

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Strategic Planning, Core
Competencies, and Outsourcing

• Subcontracting - contract manufacturing

• Outsourced activities
- Legal services
- I T services
- Travel services
- Payroll
- Production
- Surgery

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 Theory of Comparative Advantage
• If an external provider can perform activities more
productively than the purchasing firm, then the
external provider should do the work
• Purchasing firm focuses on core competencies
• Drives outsourcing

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Risks of Outsourcing
Table 2.2 Potential Advantages and Disadvantages of
Outsourcing

ADVANTAGES DISADVANTAGES
Cost savings Increased logistics and inventory costs
Gaining outside expertise that comes Loss of control (quality, delivery, etc.)
with specialization
Improving operations and service Potential creation of future competition
Maintaining a focus on core competen Negative impact on employees
cies
Accessing outside technology Risks may not manifest themselves for
years

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Rating Outsourcing Providers

• Insufficient analysis most common reason for

failure
• Factor rating method
• Points are assigned for each factor for each
provider
• Weights are assigned to each factor

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Rating Provider Selection Criteria
TABLE 2.3 Factor Ratings Applied to National Architects’s Potential IT Outsourcing Providers
OUTSOURCING PROVIDERS
IMPORTANCE BIM S.P.C. TELCO
FACTOR (CRITERION) WEIGHTS (U.S.) (INDIA) (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

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 Global Operations Strategy Options
Figure 2.9

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Ranking Corruption

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