Operations Strategy in

a Global Environment 2
PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Twelfth Edition
Principles of Operations Management, Tenth Edition

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Inc. 2-1

 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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 1. Improve the Supply Chain
▶ Locating facilities closer to unique
resources: Human recourse expertise, low-
cost labor, or raw material
▶ Auto design to California (advantage of
expertise)
▶ Athletic shoe production from south Korea to
China ( advantage of low-cost labor)

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 2. Reduce Costs
▶ Risks associated with currency
rates
▶ Reduce direct and indirect costs Produced in Asia and India
Because less government
( shifting low – skilled jobs to another regulations
countries has advantages:
• Reduce costs
• Moving the lower – skilled jobs to lower – cost location
frees higher – cost workers for more valuable tasks.
• Reducing wage costs allows the savings to be
invested in improved products and facilities and
retraining workers
• Reducing curreuncy risk

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▶ Trade agreements can lower
tariffs
▶ World Trade Organization
(WTO)
▶ North American Free Trade
Agreement (NAFTA)
▶ APEC, SEATO, MERCOSUR,
CAFTA
▶ European Union (EU)
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 3. Improve Operations
▶ Understand differences between how
business is handled in other countries
▶ Japanese – inventory management
▶ Germans – robots
▶ Scandinavians – ergonomics ((‫بيئة العمل‬
▶ International operations can improve
response time and customer service
( by locating facilities in their home
countries)
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 4. Understand Markets
▶ Interacting with foreign customers,
suppliers, competition can lead to new
opportunities
▶ Cell phone
design moved
from Europe
to Japan
▶ Extend the
product life
cycle (wile some products in one country are in a
mature stage of their product life cycle, they may
represent state – of – the art products in less –
developed countries)
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 5. 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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 6. Attract and Retain Global
Talent
▶ Global organizations can attract and
retain better employees by offering more
employment opportunities
▶ Better growth opportunities and insulation
against unemployment
▶ Relocate unneeded personnel to more
successful locations

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 Cultural and Ethical Issues
Many challenges remain .

▶ Differences in social and cultural

behavior.(ranging from bribery, to child
labor, to the environment)
▶ International laws, agreements, codes of
conduct for ethical behaviors
▶ 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 ► Inflation
change ► Availability of raw
▶ Number of skilled materials
workers ► Interest rates
▶ Political stability ► Population
▶ Product liability laws ► Transportation
▶ Export restrictions infrastructure
▶ Variations in language ► Communication
system
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 Developing Missions and
Strategies
 Mission statements tell an
organization where it is going

 Strategy tells the organization

how to get there goals

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 Mission
► Mission - where is the organization
going?
► 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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 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.
Figure 2.2

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 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.

Figure 2.2

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 Al-Quds university

The mission of Al Quds University is to

equip students with the necessary tools
to overcome overwhelming challenges
and to shape a successful future. This is
made possible through the promotion
of academic research and professional
excellence
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 Factors Affecting Mission
Philosophy
and Values

Environment Profitability and

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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 Strategy
► Action plan to achieve mission
► Functional areas have
strategies
► Strategies exploit
opportunities and strengths,
neutralize threats, and avoid
weaknesses
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 Strategies for Competitive
Advantage
Firms achieve mission in three conceptual ways
1. Differentiation – better, or at
least different
2. Cost leadership – cheaper
3. Response – more responsive
OM managers are called on to deliver goods and
services that are :
a)better, or at least different
b)Cheaper.
c)More
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Pearson Education, Inc. 2 - 22
Each of the three strategies provides
an opportunity for operations
managers competitive advantage
competitive advantage : The
creation of a unique advantage
over competitors

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 1. Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer's perception of value
► Safeskin gloves – leading edge products
► Walt Disney Magic Kingdom –
experience differentiation
► Hard Rock Cafe – dining experience

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 Effective operations managers assist in
defining everything about a product or
service that will influence the potential value
to the customer. This may be:
• The convenience of a broad product line.
• Product features.
• A service related to the product. Such services
can manifest themselves through convenience
(location of distribution centers, stores, or
branches), training, product delivery and
installation, or repair and maintenance
services.

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 In the service sector, one option for
extending product differentiation is
through an 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
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 2. Competing on Cost
Provide the maximum value as perceived
by customer. Does not imply low quality.

► Southwest Airlines – secondary airports,

no frills service, efficient utilization of
equipment
► Walmart – small overhead, and distribution
costs

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 3. Competing on Response
Response: A set of values related to rapid, flexible,
and reliable performance.
(three aspects: Flexibility, Reliability, and Quickness )
▶ Flexibility is matching market changes in design innovation
and volumes
▶ A way of life at Hewlett-Packard (Hewlett-Packard
Company, American manufacturer of software and computer services. The
company split in 2015 into two companies: HP Inc. and Hewlett Packard Enterprise)

▶ Reliability is meeting schedules

▶ German machine industry
▶ Quickness in design, production and delivery
▶ Johnson Electric: (makes 83 million tiny motors each
month)
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▶ Pizza: delivery in 5 minutes
 Issues In Operations Strategy
some alternate perspectives may be helpful
▶ Resources view: thinking in terms of the
financial, physical, human, and technological
resources available and ensuring that the
potential strategy is compatible with those
resources.
▶ Value-chain analysis: A way to
identify those elements in the
product/service chain that uniquely
add value.

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▶ 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 (These factors range from economic, to legal, to
cultural).
▶ Constant change (Everything from resources, to
technology, to product life cycles is in flux. Consider the
significant changes required within the firm as its products
move from introduction, to growth, to maturity, and to
decline )

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Copyright © 2017 Pearson Education, Inc. 2 - 31
 Product Life Cycle
Introduction Growth Maturity Decline

Best period to Practical to change Poor time to Cost control

increase market price or quality change image, critical
share image price, or quality
Company Strategy/Issues

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position
Hybrid engine vehicles Laptop computers

Boeing 787 Xbox One

DVDs
3D printers

Life Cycle Curve

Electric
vehicles
Apple Video
SmartWatch 3-D game physical
players rentals

Figure 2.5
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 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting critical Standardization Little product
and development Fewer rapid differentiation
Product and
critical product changes, Cost
process reliability
Frequent product more minor minimization
Competitive
and process changes
Strategy/Issues

product Overcapacity in
OMStrategy/Issues

design changes improvements and Optimum capacity the industry

Short production options Increasing stability Prune line to
runs Increase capacity of process eliminate items
High production not returning
Shift toward
costs good margin
product focus
Limited models Reduce
Enhance Long production capacity
Attention to quality distribution
OM

runs
Product
improvement and
cost cutting

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, after-sale service, broad product
lines.

Figure 2.6
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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 Negative impact on employees
competencies
Accessing outside technology Risks may not manifest‫يظهر‬
themselves for years

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Rating Outsourcing Providers
▶ Insufficient analysis most common
reason for failure
▶ Factor-rating method
▶ Points and weights assigned for each
factor to each

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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. XYZ
FACTOR (CRITERION) WEIGHTS (U.S.) (INDIA) France
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
Total Weighted Score 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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 Q: 2.10 /p: 54
Fernando Garza’s firm wishes to use factor rating to help select an outsourcing
provider of logistics services.
a ) With weights from 1–5 (5 highest) and ratings 1–100 (100 highest), use the
following table to help Garza make his decision:

Factor Ratings Applied to National Architects’s Potential IT Outsourcing Providers

RATING OF LOGISTICS PROVIDERS
UNITED
IMPORTANCE OVERNIGHT WORLDWIDE FREIGHT
FACTOR (CRITERION) WEIGHTS SHIPPING DELIVERY
1. Quality 5 90 80 75
2. Delivery 3 70 85 70
3. Cost 2 70 80 95

b ) Garza decides to increase the weights for quality, delivery, and cost to 10, 6,
and 4, respectively. How does this change your conclusions? Why?

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 Global Operations Strategy
Options Global OS
options
1.International
1. International 2.Multidomestic
strategy 3.Global
4.transnational
• Import/export or uses exports and licenses to
license existing penetrate the global arena. This
strategy is the least
product advantageous, with little local
responsiveness and little cost
Examples: advantage. But an international
U.S. Steel strategy is often the easiest, as
Harley-Davidson exports can require little change
in existing operations, and
licensing agreements often leave
much of the risk to the licensee.
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 Global Operations Strategy
Options
Figure 2.9

2. Global has a high degree of centralization,

strategy with headquarters coordinating the
• Standardize product organization to seek out
standardization and learning between
• Economies of scale plants, thus generating economies of
• Cross-cultural scale.
This strategy is appropriate when
learning the strategic focus is cost
reduction but has little to
Examples: recommend it when the demand for
Texas Instruments local responsiveness is high.
Caterpillar Caterpillar, find this strategy
advantageous because the end
Otis Elevator products are similar throughout the
world.
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 Global Operations Strategy
Options
Figure 2.9
has decentralized authority with
substantial autonomy at each business.
3.Multidomestic These are typically subsidiaries,
strategy franchises, or joint ventures with
substantial independence.
• Use existing domestic The advantage of multidomestic
model globally strategy
• Franchise, joint is maximizing a competitive
ventures, subsidiaries response for the local market;
however, the strategy has little or no
cost advantage. Many food producers,
Examples: such as Heinz, use a multidomestic
Heinz, McDonald’s strategy to accommodate local tastes
The Body Shop because global integration of the
Hard Rock Cafe production process is not critical.

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 Global Operations Strategy
Options
Figure 2.9
exploits the economies of scale and
learning, as well as pressure for
4. Transnational responsiveness, by recognizing that core
competence does not reside in just the
strategy “home” country but can exist anywhere in
• Move material, people, or the organization.
ideas across national Transnational describes a condition in
which material, people, and ideas cross—
boundaries or transgress —national boundaries.
• Economies of scale These firms have the potential to pursue
• Cross-cultural learning all three operations strategies (i.e.,
differentiation, low cost, and response).
Examples: Such firms can be thought of as “world
Coca-Cola, Nestlé companies” whose country identity is not
as important as their interdependent
network of worldwide operations. Nestlé is
a good example of such a company
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Assignment 2:
Q1: Discuss the four Global Operations
Strategy Options. Provide examples on
each one of them.
Q2: Explain Strategies for Competitive
Advantage.
Q:3 solve Q2.8/page 54 in your text.

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Q2.8/page 54 : Claudia Pragram Technologies, Inc., has narrowed its choice of
outsourcing provider to two firms located in different countries. Pragram wants to
decide which one of the two countries is the better choice, based on risk-avoidance
criteria. She has polled her executives and established four criteria. The resulting
ratings for the two countries are presented in the table below, where 1 is a lower risk
and 3 is a higher risk.

a) Using the factor-rating method, which country would you select?

b) Double each of the weights used in part (a) (to 0.2, 1.0, 0.4,
and 0.4, respectively). What effect does this have on your answer? Why?
c) Which is the most important factor? Why?
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