Operation Management by Heizer

1. © 2008 Prentice Hall, Inc. 2 – 1
Operations
Management
Chapter 2 –Chapter 2 –
Operations Strategy inOperations Strategy in
a Global Environmenta Global Environment
PowerPoint presentation to accompanyPowerPoint presentation to accompany
Heizer/RenderHeizer/Render
Principles of Operations Management, 7ePrinciples of Operations Management, 7e
Operations Management, 9eOperations Management, 9e

2. © 2008 Prentice Hall, Inc. 2 – 2
OutlineOutline
 Global Company Profile: BoeingGlobal Company Profile: Boeing
 A Global View of OperationsA Global View of Operations
 Cultural and Ethical IssuesCultural and Ethical Issues
 Developing Missions AndDeveloping Missions And
StrategiesStrategies
 MissionMission
 StrategyStrategy

3. © 2008 Prentice Hall, Inc. 2 – 3
OutlineOutline –– ContinuedContinued
 Achieving Competitive AdvantageAchieving Competitive Advantage
Through OperationsThrough Operations
 Competing On DifferentiationCompeting On Differentiation
 Competing On CostCompeting On Cost
 Competing On ResponseCompeting On Response
 Ten Strategic OM DecisionsTen Strategic OM Decisions

4. © 2008 Prentice Hall, Inc. 2 – 4
OutlineOutline –– ContinuedContinued
 Issues In Operations StrategyIssues In Operations Strategy
 ResearchResearch
 PreconditionsPreconditions
 DynamicsDynamics

5. © 2008 Prentice Hall, Inc. 2 – 5
OutlineOutline –– ContinuedContinued
 Strategy Development andStrategy Development and
ImplementationImplementation
 Critical Success Factors and CoreCritical Success Factors and Core
CompetenciesCompetencies
 Build and Staff the OrganizationBuild and Staff the Organization
 Integrate OM with Other ActivitiesIntegrate OM with Other Activities

6. © 2008 Prentice Hall, Inc. 2 – 6
OutlineOutline –– ContinuedContinued
 Global Operations StrategyGlobal Operations Strategy
OptionsOptions
 International StrategyInternational Strategy
 Multidomestic StrategyMultidomestic Strategy
 Global StrategyGlobal Strategy
 Transnational StrategyTransnational Strategy

7. © 2008 Prentice Hall, Inc. 2 – 7
Learning ObjectivesLearning Objectives
1.1. Define mission and strategyDefine mission and strategy
2.2. Identify and explain three strategicIdentify and explain three strategic
approaches to competitiveapproaches to competitive
advantageadvantage
3.3. Identify and define the 10 decisionsIdentify and define the 10 decisions
of operations managementof operations management
When you complete this chapter youWhen you complete this chapter you
should be able to:should be able to:

8. © 2008 Prentice Hall, Inc. 2 – 8
Learning ObjectivesLearning Objectives
4.4. Identify five OM strategy insightsIdentify five OM strategy insights
provided by PIMS researchprovided by PIMS research
5.5. Identify and explain four globalIdentify and explain four global
operations strategy optionsoperations strategy options
When you complete this chapter youWhen you complete this chapter you
should be able to:should be able to:

9. © 2008 Prentice Hall, Inc. 2 – 9
Global StrategiesGlobal Strategies
 Boeing – sales and production areBoeing – sales and production are
worldwideworldwide
 Benetton – moves inventory to storesBenetton – moves inventory to stores
around the world faster than itsaround the world faster than its
competition by building flexibility intocompetition by building flexibility into
design, production, and distributiondesign, production, and distribution
 Sony – purchases components fromSony – purchases components from
suppliers in Thailand, Malaysia, andsuppliers in Thailand, Malaysia, and
around the worldaround the world

10. © 2008 Prentice Hall, Inc. 2 – 10
Global StrategiesGlobal Strategies
 Volvo – considered a Swedish companyVolvo – considered a Swedish company
but it is controlled by an Americanbut it is controlled by an American
company, Ford. The current Volvo S40 iscompany, Ford. The current Volvo S40 is
built in Belgium and shares its platformbuilt in Belgium and shares its platform
with the Mazda 3 built in Japan and thewith the Mazda 3 built in Japan and the
Ford Focus built in Europe.Ford Focus built in Europe.
 Haier – A Chinese company, producesHaier – A Chinese company, produces
compact refrigerators (it has one-third ofcompact refrigerators (it has one-third of
the US market) and wine cabinets (it hasthe US market) and wine cabinets (it has
half of the US market) in South Carolinahalf of the US market) in South Carolina

11. © 2008 Prentice Hall, Inc. 2 – 11
Some MultinationalSome Multinational
CorporationsCorporations
% Sales% Sales % Assets% Assets
OutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% Foreign
CompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
CiticorpCiticorp USAUSA 3434 4646 NANA
Colgate-Colgate- USAUSA 7272 6363 NANA
PalmolivePalmolive
DowDow USAUSA 6060 5050 NANA
ChemicalChemical
GilletteGillette USAUSA 6262 5353 NANA
HondaHonda JapanJapan 6363 3636 NANA
IBMIBM USAUSA 5757 4747 5151

12. © 2008 Prentice Hall, Inc. 2 – 12
Some MultinationalSome Multinational
CorporationsCorporations
% Sales% Sales % Assets% Assets
OutsideOutside OutsideOutside
HomeHome HomeHome HomeHome % Foreign% Foreign
CompanyCompany CountryCountry CountryCountry CountryCountry WorkforceWorkforce
ICIICI BritainBritain 7878 5050 NANA
NestleNestle SwitzerlandSwitzerland 9898 9595 9797
PhilipsPhilips NetherlandsNetherlands 9494 8585 8282
ElectronicsElectronics
SiemensSiemens GermanyGermany 5151 NANA 3838
UnileverUnilever Britain &Britain & 9595 7070 6464
NetherlandsNetherlands

13. © 2008 Prentice Hall, Inc. 2 – 13
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
LatecoereLatecoere FranceFrance Passenger doorsPassenger doors
LabinelLabinel FranceFrance WiringWiring
DassaultDassault FranceFrance Design andDesign and
PLM softwarePLM software
Messier-BugattiMessier-Bugatti FranceFrance Electric brakesElectric brakes
ThalesThales FranceFrance Electrical powerElectrical power
conversion systemconversion system
and integratedand integrated
standby flight displaystandby flight display
Messier-DowtyMessier-Dowty FranceFrance Landing gear structureLanding gear structure
DiehlDiehl GermanyGermany Interior lightingInterior lighting

14. © 2008 Prentice Hall, Inc. 2 – 14
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 computerCentral computer
systemsystem
BAE SYSTEMSBAE SYSTEMS UKUK ElectronicsElectronics
Alenia AeronauticsAlenia Aeronautics ItalyItaly Upper centerUpper center
fuselage &fuselage &
horizontal stabilizerhorizontal stabilizer
Toray IndustriesToray Industries JapanJapan Carbon fiber forCarbon fiber for
wing and tail unitswing and tail units

15. © 2008 Prentice Hall, Inc. 2 – 15
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 HeavyMitsubishi Heavy JapanJapan Wing boxWing box
IndustriesIndustries
Chengdu AircraftChengdu Aircraft ChinaChina RudderRudder
GroupGroup
Hafei AviationHafei Aviation ChinaChina PartsParts

16. © 2008 Prentice Hall, Inc. 2 – 16
Some Boeing Suppliers (787)Some Boeing Suppliers (787)
FirmFirm CountryCountry ComponentComponent
Korean AviationKorean Aviation SouthSouth WingtipsWingtips
KoreaKorea
SaabSaab SwedenSweden Cargo access doorsCargo access doors

17. © 2008 Prentice Hall, Inc. 2 – 17
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
TangibleTangible
ReasonsReasons
IntangibleIntangible
ReasonsReasons

18. © 2008 Prentice Hall, Inc. 2 – 18
Reduce CostsReduce Costs
 Foreign locations with lower wageForeign locations with lower wage
rates can lower direct and indirectrates can lower direct and indirect
costscosts
MaquiladorasMaquiladoras
World Trade Organization (WTO)World Trade Organization (WTO)
North American Free TradeNorth American Free Trade
Agreement (NAFTA)Agreement (NAFTA)
APEC, SEATO, MERCOSURAPEC, SEATO, MERCOSUR
European Union (EU)European Union (EU)

19. © 2008 Prentice Hall, Inc. 2 – 19
Improve the Supply ChainImprove the Supply Chain
 Locating facilities closer toLocating facilities closer to
unique resourcesunique resources
Auto design to CaliforniaAuto design to California
Athletic shoe production to ChinaAthletic shoe production to China
Perfume manufacturing in FrancePerfume manufacturing in France

20. © 2008 Prentice Hall, Inc. 2 – 20
Provide Better GoodsProvide Better Goods
and Servicesand Services
 Objective and subjectiveObjective and subjective
characteristics of goods andcharacteristics of goods and
servicesservices
On-time deliveriesOn-time deliveries
Cultural variablesCultural variables
Improved customer serviceImproved customer service

21. © 2008 Prentice Hall, Inc. 2 – 21
Understand MarketsUnderstand Markets
 Interacting with foreign customersInteracting with foreign customers
and suppliers can lead to newand suppliers can lead to new
opportunitiesopportunities
Cell phoneCell phone
design fromdesign from
EuropeEurope
Cell phoneCell phone
fads fromfads from
JapanJapan
Extend the product life cycleExtend the product life cycle

22. © 2008 Prentice Hall, Inc. 2 – 22
Learn to Improve OperationsLearn to Improve Operations
 Remain open to the free flow ofRemain open to the free flow of
ideasideas
General Motors partnered with aGeneral Motors partnered with a
Japanese auto manufacturer toJapanese auto manufacturer to
learnlearn
Equipment and layout have beenEquipment and layout have been
improved using Scandinavianimproved using Scandinavian
ergonomic competenceergonomic competence

23. © 2008 Prentice Hall, Inc. 2 – 23
Attract and Retain GlobalAttract and Retain Global
TalentTalent
 Offer better employmentOffer better employment
opportunitiesopportunities
Better growth opportunities andBetter growth opportunities and
insulation against unemploymentinsulation against unemployment
Relocate unneeded personnel toRelocate unneeded personnel to
more prosperous locationsmore prosperous locations
Incentives for people who like toIncentives for people who like to
traveltravel

24. © 2008 Prentice Hall, Inc. 2 – 24
Cultural and Ethical IssuesCultural and Ethical Issues
 Cultures can be quite differentCultures can be quite different
 Attitudes can be quite differentAttitudes can be quite different
towardstowards
 PunctualityPunctuality
 Lunch breaksLunch breaks
 EnvironmentEnvironment
 IntellectualIntellectual
propertyproperty
 ThieveryThievery
 BriberyBribery
 Child laborChild labor

25. © 2008 Prentice Hall, Inc. 2 – 25
You May Wish To ConsiderYou May Wish To Consider
 National literacy rateNational literacy rate
 Rate of innovationRate of innovation
 Rate of technologyRate of technology
changechange
 Number of skilledNumber of skilled
workersworkers
 Political stabilityPolitical stability
 Product liability lawsProduct liability laws
 Export restrictionsExport restrictions
 Variations in languageVariations in language
 Work ethicWork ethic
 Tax ratesTax rates
 InflationInflation
 Availability of rawAvailability of raw
materialsmaterials
 Interest ratesInterest rates
 PopulationPopulation
 Number of miles ofNumber of miles of
highwayhighway
 Phone systemPhone system

26. © 2008 Prentice Hall, Inc. 2 – 26
Match Product & ParentMatch Product & Parent
 Braun HouseholdBraun Household
AppliancesAppliances
 Firestone TiresFirestone Tires
 Godiva ChocolateGodiva Chocolate
 Haagen-Dazs IceHaagen-Dazs Ice
CreamCream
 Jaguar AutosJaguar Autos
 MGM MoviesMGM Movies
 Lamborghini AutosLamborghini Autos
 Alpo PetfoodsAlpo Petfoods
1.1. VolkswagenVolkswagen
2.2. BridgestoneBridgestone
3.3. Campbell SoupCampbell Soup
4.4. Ford Motor CompanyFord Motor Company
5.5. GilletteGillette
6.6. NestléNestlé
7.7. PillsburyPillsbury
8.8. SonySony

27. © 2008 Prentice Hall, Inc. 2 – 27
Match Product & ParentMatch Product & Parent
 Braun HouseholdBraun Household
AppliancesAppliances
 Firestone TiresFirestone Tires
 Godiva ChocolateGodiva Chocolate
 Haagen-Dazs IceHaagen-Dazs Ice
CreamCream
 Jaguar AutosJaguar Autos
 MGM MoviesMGM Movies
 Lamborghini AutosLamborghini Autos
 Alpo PetfoodsAlpo Petfoods
1.1. VolkswagenVolkswagen
2.2. BridgestoneBridgestone
3.3. Campbell SoupCampbell Soup
4.4. Ford Motor CompanyFord Motor Company
5.5. GilletteGillette
6.6. NestléNestlé
7.7. PillsburyPillsbury
8.8. SonySony

28. © 2008 Prentice Hall, Inc. 2 – 28
Match Product & CountryMatch Product & Country
Braun HouseholdBraun Household
AppliancesAppliances
Firestone TiresFirestone Tires
Godiva ChocolateGodiva Chocolate
Haagen-Daz IceHaagen-Daz Ice
CreamCream
Jaguar AutosJaguar Autos
MGM MoviesMGM Movies
Lamborghini AutosLamborghini Autos
Alpo Pet FoodsAlpo Pet Foods
1.1. Great BritainGreat Britain
2.2. GermanyGermany
3.3. JapanJapan
4.4. United StatesUnited States
5.5. SwitzerlandSwitzerland

29. © 2008 Prentice Hall, Inc. 2 – 29
Match Product & CountryMatch Product & Country
Braun HouseholdBraun Household
AppliancesAppliances
Firestone TiresFirestone Tires
Godiva ChocolateGodiva Chocolate
Haagen-Daz IceHaagen-Daz Ice
CreamCream
Jaguar AutosJaguar Autos
MGM MoviesMGM Movies
Lamborghini AutosLamborghini Autos
Alpo Pet FoodsAlpo Pet Foods
1.1. Great BritainGreat Britain
2.2. GermanyGermany
3.3. JapanJapan
4.4. United StatesUnited States
5.5. SwitzerlandSwitzerland

30. © 2008 Prentice Hall, Inc. 2 – 30
Developing Missions andDeveloping Missions and
StrategiesStrategies
MissionMission statements tell anstatements tell an
organization where it is goingorganization where it is going
TheThe StrategyStrategy tells thetells the
organization how to get thereorganization how to get there

31. © 2008 Prentice Hall, Inc. 2 – 31
MissionMission
 Mission - where areMission - where are
you going?you going?
Organization’sOrganization’s
purpose for beingpurpose for being
Answers ‘What doAnswers ‘What do
we provide society?’we provide society?’
Provides boundariesProvides boundaries
and focusand focus

32. © 2008 Prentice Hall, Inc. 2 – 32
FedExFedEx
FedEx is committed to our People-Service-ProfitFedEx is committed to our People-Service-Profit
philosophy. We will produce outstanding financialphilosophy. We will produce outstanding financial
returns by providing total reliable, competitivelyreturns by providing total reliable, competitively
superior, global air-ground transportation of highsuperior, global air-ground transportation of high
priority goods and documents that require rapid,priority goods and documents that require rapid,
time-certain delivery. Equally important, positivetime-certain delivery. Equally important, positive
control of each package will be maintained usingcontrol of each package will be maintained using
real time electronic tracking and tracing systems. Areal time electronic tracking and tracing systems. A
complete record of each shipment and delivery willcomplete record of each shipment and delivery will
be presented with our request for payment. We willbe presented with our request for payment. We will
be helpful, courteous, and professional to each otherbe helpful, courteous, and professional to each other
and the public. We will strive to have a completelyand the public. We will strive to have a completely
satisfied customer at the end of each transaction.satisfied customer at the end of each transaction.
Figure 2.2Figure 2.2

33. © 2008 Prentice Hall, Inc. 2 – 33
MerckMerck
The mission of Merck is to provideThe mission of Merck is to provide
society with superior products andsociety with superior products and
services - innovations and solutionsservices - innovations and solutions
that improve the quality of life andthat improve the quality of life and
satisfy customer needs - to providesatisfy customer needs - to provide
employees with meaningful work andemployees with meaningful work and
advancement opportunities andadvancement opportunities and
investors with a superior rate of returninvestors with a superior rate of return
Figure 2.2Figure 2.2

34. © 2008 Prentice Hall, Inc. 2 – 34
Hard Rock CafeHard Rock Cafe
Our Mission: To spread the spirit of Rock ‘n’Our Mission: To spread the spirit of Rock ‘n’
Roll by delivering an exceptionalRoll by delivering an exceptional
entertainment and dining experience. Weentertainment and dining experience. We
are committed to being an important,are committed to being an important,
contributing member of our community andcontributing member of our community and
offering the Hard Rock family a fun, healthy,offering the Hard Rock family a fun, healthy,
and nurturing work environment whileand nurturing work environment while
ensuring our long-term success.ensuring our long-term success.
Figure 2.2Figure 2.2

35. © 2008 Prentice Hall, Inc. 2 – 35
Arnold Palmer HospitalArnold Palmer Hospital
Arnold Palmer Hospital is a healingArnold Palmer Hospital is a healing
environment providing family-centeredenvironment providing family-centered
care with compassion, comfort andcare with compassion, comfort and
respect… when it matters the most.respect… when it matters the most.
Figure 2.2Figure 2.2

36. © 2008 Prentice Hall, Inc. 2 – 36
Benefit to
Society
Mission
Factors Affecting MissionFactors Affecting Mission
Philosophy
and Values
Profitability
and Growth
Environment
Customers Public Image

37. © 2008 Prentice Hall, Inc. 2 – 37
Sample MissionsSample Missions
Sample Company MissionSample Company Mission
To manufacture and service an innovative, growing, and
profitable worldwide microwave communications business
that exceeds our customers’ expectations.
Sample Operations Management MissionSample Operations Management Mission
To produce products consistent with the company’s mission
as the worldwide low-cost manufacturer.
Figure 2.3Figure 2.3

38. © 2008 Prentice Hall, Inc. 2 – 38
Sample MissionsSample Missions
Figure 2.3Figure 2.3
Sample OM Department MissionsSample 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 and design or 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.

39. © 2008 Prentice Hall, Inc. 2 – 39
Sample MissionsSample Missions
Figure 2.3Figure 2.3
Sample OM Department MissionsSample 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.

40. © 2008 Prentice Hall, Inc. 2 – 40
Sample MissionsSample Missions
Figure 2.3Figure 2.3
Sample OM Department MissionsSample 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.

41. © 2008 Prentice Hall, Inc. 2 – 41
Strategic ProcessStrategic Process
Marketing Operations
Finance/
Accounting
Functional
Area Missions
Organization’s
Mission

42. © 2008 Prentice Hall, Inc. 2 – 42
StrategyStrategy
 Action plan toAction plan to
achieve missionachieve mission
 Functional areasFunctional areas
have strategieshave strategies
 Strategies exploitStrategies exploit
opportunities andopportunities and
strengths, neutralizestrengths, neutralize
threats, and avoidthreats, and avoid
weaknessesweaknesses

43. © 2008 Prentice Hall, Inc. 2 – 43
Strategies for CompetitiveStrategies for Competitive
AdvantageAdvantage
 Differentiation – better, or at leastDifferentiation – better, or at least
differentdifferent
 Cost leadershipCost leadership –– cheapercheaper
 Response – rapid responseResponse – rapid response

44. © 2008 Prentice Hall, Inc. 2 – 44
Competing onCompeting on
DifferentiationDifferentiation
Uniqueness can go beyond both theUniqueness can go beyond both the
physical characteristics and servicephysical characteristics and service
attributes to encompass everythingattributes to encompass everything
that impacts customer’s perception ofthat 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

45. © 2008 Prentice Hall, Inc. 2 – 45
Competing on CostCompeting on Cost
Provide the maximum value asProvide the maximum value as
perceived by customer. Does notperceived by customer. Does not
imply low quality.imply low quality.
 Southwest Airlines – secondarySouthwest Airlines – secondary
airports, no frills service, efficientairports, 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, noFranz Colruyt – no bags, low light, no
music, doors on freezersmusic, doors on freezers

46. © 2008 Prentice Hall, Inc. 2 – 46
Competing on ResponseCompeting on Response
 Flexibility is matching market changes inFlexibility 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 quicknessTimeliness is quickness
in design, production,in design, production,
and deliveryand delivery
 Johnson Electric,Johnson Electric,
Bennigan’s, MotorolaBennigan’s, Motorola

47. © 2008 Prentice Hall, Inc. 2 – 47
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 CompetitiveCompetitive
DecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response
(Faster)
Cost
leadership
(Cheaper)
Differentiation
(Better)

48. © 2008 Prentice Hall, Inc. 2 – 48
10 Strategic OM Decisions10 Strategic OM Decisions
1.1. Goods andGoods and
service designservice design
2.2. QualityQuality
3.3. Process andProcess and
capacity designcapacity design
4.4. LocationLocation
selectionselection
5.5. Layout designLayout design
6.6. Human resourcesHuman resources
and job designand job design
7.7. Supply chainSupply chain
managementmanagement
8.8. InventoryInventory
9.9. SchedulingScheduling
10.10. MaintenanceMaintenance

49. © 2008 Prentice Hall, Inc. 2 – 49
Goods and Services andGoods and Services and
the 10 OM Decisionsthe 10 OM Decisions
OperationsOperations
DecisionsDecisions GoodsGoods ServicesServices
Goods andGoods and
serviceservice
designdesign
Product is usuallyProduct is usually
tangibletangible
Product is notProduct is not
tangibletangible
QualityQuality Many objectiveMany objective
standardsstandards
Many subjectiveMany subjective
standardsstandards
ProcessProcess
andand
capacitycapacity
designdesign
Customers notCustomers not
involvedinvolved
Customer may beCustomer may be
directly involveddirectly involved
Capacity mustCapacity must
match demandmatch demand
Table 2.1Table 2.1

50. © 2008 Prentice Hall, Inc. 2 – 50
Goods and Services andGoods and Services and
the 10 OM Decisionsthe 10 OM Decisions
OperationsOperations
DecisionsDecisions GoodsGoods ServicesServices
LocationLocation
selectionselection
Near rawNear raw
materials andmaterials and
laborlabor
Near customersNear customers
LayoutLayout
designdesign
ProductionProduction
efficiencyefficiency
Enhances productEnhances product
and productionand production
HumanHuman
resourcesresources
and joband job
designdesign
Technical skills,Technical skills,
consistent laborconsistent labor
standards, outputstandards, output
based wagesbased wages
Interact withInteract with
customers, laborcustomers, labor
standards varystandards vary
Table 2.1Table 2.1

51. © 2008 Prentice Hall, Inc. 2 – 51
Goods and Services andGoods and Services and
the 10 OM Decisionsthe 10 OM Decisions
OperationsOperations
DecisionsDecisions GoodsGoods ServicesServices
SupplySupply
chainchain
RelationshipRelationship
critical to finalcritical to final
productproduct
Important, butImportant, but
may not bemay not be
criticalcritical
InventoryInventory Raw materials,Raw materials,
work-in-process,work-in-process,
and finishedand finished
goods may begoods may be
heldheld
Cannot be storedCannot be stored
SchedulingScheduling Level schedulesLevel schedules
possiblepossible
Meet immediateMeet immediate
customer demandcustomer demand
Table 2.1Table 2.1

52. © 2008 Prentice Hall, Inc. 2 – 52
Goods and Services andGoods and Services and
the 10 OM Decisionsthe 10 OM Decisions
OperationsOperations
DecisionsDecisions GoodsGoods ServicesServices
MaintenanceMaintenance Often preventiveOften preventive
and takes placeand takes place
at production siteat production site
Often “repair” andOften “repair” and
takes place attakes place at
customer’s sitecustomer’s site
Table 2.1Table 2.1

53. © 2008 Prentice Hall, Inc. 2 – 53
Managing Global ServiceManaging Global Service
OperationsOperations
 Capacity planningCapacity planning
 Location planningLocation planning
 Facilities design and layoutFacilities design and layout
 SchedulingScheduling
Requires a different perspectiveRequires a different perspective
on:on:

54. © 2008 Prentice Hall, Inc. 2 – 54
Process DesignProcess Design
LowLow ModerateModerate HighHigh
VolumeVolume
HighHigh
ModerateModerate
LowLow
VarietyofProductsVarietyofProducts
Process-focused
JOB SHOPS
(Print shop, emergency
room, machine shop,
fine-dining
restaurant)
Repetitive (modular)
focus
ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, beer, paper,
bread, institutional
kitchen)
Mass Customization
Customization at high
Volume
(Dell Computer’s PC,
cafeteria)

55. © 2008 Prentice Hall, Inc. 2 – 55
Operations Strategies forOperations Strategies for
Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
CompetitiveCompetitive
AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
ProductProduct
Selection andSelection and
DesignDesign
Heavy R&D investment;Heavy R&D investment;
extensive labs; focus onextensive labs; focus on
development in a broaddevelopment in a broad
range of drugrange of drug
categoriescategories
Low R&D investment;Low R&D investment;
focus on developmentfocus on development
of generic drugsof generic drugs
QualityQuality Major priority, exceedMajor priority, exceed
regulatory requirementsregulatory requirements
Meets regulatoryMeets regulatory
requirements on arequirements on a
country by countrycountry by country
basisbasis
Table 2.2Table 2.2

56. © 2008 Prentice Hall, Inc. 2 – 56
Operations Strategies forOperations Strategies for
Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
CompetitiveCompetitive
AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
ProcessProcess Product and modularProduct and modular
process; longprocess; long
production runs inproduction runs in
specialized facilities;specialized facilities;
build capacity ahead ofbuild capacity ahead of
demanddemand
Process focused;Process focused;
general processes; “jobgeneral processes; “job
shop” approach, short-shop” approach, short-
run production; focusrun production; focus
on high utilizationon high utilization
LocationLocation Still located in the cityStill located in the city
where it was foundedwhere it was founded
Recently moved to low-Recently moved to low-
tax, low-labor-costtax, low-labor-cost
environmentenvironment
Table 2.2Table 2.2

57. © 2008 Prentice Hall, Inc. 2 – 57
Operations Strategies forOperations Strategies for
Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
CompetitiveCompetitive
AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
SchedulingScheduling Centralized productionCentralized production
planningplanning
Many short-runMany short-run
products complicateproducts complicate
schedulingscheduling
LayoutLayout Layout supportsLayout supports
automated product-automated product-
focused productionfocused production
Layout supportsLayout supports
process-focused “jobprocess-focused “job
shop” practicesshop” practices
Table 2.2Table 2.2

58. © 2008 Prentice Hall, Inc. 2 – 58
Operations Strategies forOperations Strategies for
Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
CompetitiveCompetitive
AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
HumanHuman
ResourcesResources
Hire the best;Hire the best;
nationwide searchesnationwide searches
Very experienced topVery experienced top
executives; otherexecutives; other
personnel paid belowpersonnel paid below
industry averageindustry average
Supply ChainSupply Chain Long-term supplierLong-term supplier
relationshipsrelationships
Tends to purchaseTends to purchase
competitively to findcompetitively to find
bargainsbargains
Table 2.2Table 2.2

59. © 2008 Prentice Hall, Inc. 2 – 59
Operations Strategies forOperations Strategies for
Two Drug CompaniesTwo Drug Companies
Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.
CompetitiveCompetitive
AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost
InventoryInventory High finished goodsHigh finished goods
inventory to ensure allinventory to ensure all
demands are metdemands are met
Process focus drives upProcess focus drives up
work-in-processwork-in-process
inventory; finishedinventory; finished
goods inventory tendsgoods inventory tends
to be lowto be low
MaintenanceMaintenance Highly trained staff;Highly trained staff;
extensive partsextensive parts
inventoryinventory
Highly trained staff toHighly trained staff to
meet changing demandmeet changing demand
Table 2.2Table 2.2

60. © 2008 Prentice Hall, Inc. 2 – 60
Issues In Operations StrategyIssues In Operations Strategy
 Research about effectiveResearch about effective
operations managementoperations management
strategiesstrategies
 Preconditions for developingPreconditions for developing
effective OM strategieseffective OM strategies
 The dynamics of OM strategyThe dynamics of OM strategy
developmentdevelopment

61. © 2008 Prentice Hall, Inc. 2 – 61
Characteristics ofCharacteristics of
High ROI FirmsHigh ROI Firms
 High product qualityHigh 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

62. © 2008 Prentice Hall, Inc. 2 – 62
Strategic Options to Gain aStrategic 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

63. © 2008 Prentice Hall, Inc. 2 – 63
Elements of OperationsElements 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 toEfficient, flexible operations adaptable to
consumersconsumers
 Engineering research developmentEngineering research development
 LocationLocation
 SchedulingScheduling

64. © 2008 Prentice Hall, Inc. 2 – 64
PreconditionsPreconditions
 Strengths and weaknesses of competitors andStrengths 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 withinResources available within the firm and within
the OM functionthe OM function
 Integration of OM strategy with company’sIntegration of OM strategy with company’s
strategy and with other functional areasstrategy and with other functional areas
One must understand:One must understand:

65. © 2008 Prentice Hall, Inc. 2 – 65
Dynamics ofDynamics of
Strategic ChangeStrategic Change
 Changes within the organizationChanges within the organization
 PersonnelPersonnel
 FinanceFinance
 TechnologyTechnology
 Product lifeProduct life
 Changes in the environmentChanges in the environment

66. © 2008 Prentice Hall, Inc. 2 – 66
Product Life CycleProduct Life Cycle
Best period toBest period to
increase marketincrease market
shareshare
R&D engineering isR&D engineering is
criticalcritical
Practical to changePractical to change
price or qualityprice or quality
imageimage
Strengthen nicheStrengthen niche
Poor time toPoor time to
change image,change image,
price, or qualityprice, or quality
Competitive costsCompetitive costs
become criticalbecome critical
Defend marketDefend market
positionposition
Cost controlCost control
criticalcritical
Introduction Growth Maturity Decline
CompanyStrategy/IssuesCompanyStrategy/Issues
Figure 2.5Figure 2.5
Internet search enginesInternet search engines
SalesSales
Xbox 360Xbox 360
Drive-throughDrive-through
restaurantsrestaurants
CD-ROMsCD-ROMs
3 1/2”3 1/2”
FloppyFloppy
disksdisks
LCD & plasma TVsLCD & plasma TVs
Analog TVsAnalog TVs
iPodsiPods

67. © 2008 Prentice Hall, Inc. 2 – 67
Product Life CycleProduct Life Cycle
Product designProduct design
andand
developmentdevelopment
criticalcritical
FrequentFrequent
product andproduct and
process designprocess design
changeschanges
Short productionShort production
runsruns
High productionHigh production
costscosts
Limited modelsLimited models
Attention toAttention to
qualityquality
Introduction Growth Maturity Decline
OMStrategy/IssuesOMStrategy/Issues
ForecastingForecasting
criticalcritical
Product andProduct and
processprocess
reliabilityreliability
CompetitiveCompetitive
productproduct
improvementsimprovements
and optionsand options
Increase capacityIncrease capacity
Shift towardShift toward
product focusproduct focus
EnhanceEnhance
distributiondistribution
StandardizationStandardization
Less rapidLess rapid
product changesproduct changes
– more minor– more minor
changeschanges
OptimumOptimum
capacitycapacity
IncreasingIncreasing
stability ofstability of
processprocess
Long productionLong production
runsruns
ProductProduct
improvement andimprovement and
cost cuttingcost cutting
Little productLittle product
differentiationdifferentiation
CostCost
minimizationminimization
OvercapacityOvercapacity
in thein the
industryindustry
Prune line toPrune line to
eliminateeliminate
items notitems not
returningreturning
good margingood margin
ReduceReduce
capacitycapacity
Figure 2.5Figure 2.5

68. © 2008 Prentice Hall, Inc. 2 – 68
Strategy
Analysis
SWOT AnalysisSWOT Analysis
Internal
Strengths
Internal
Weaknesses
External
Opportunities
External
Threats
Mission

69. © 2008 Prentice Hall, Inc. 2 – 69
Strategy Development ProcessStrategy Development Process
Determine 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.
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6Figure 2.6

70. © 2008 Prentice Hall, Inc. 2 – 70
Strategy Development andStrategy 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

71. © 2008 Prentice Hall, Inc. 2 – 71
Critical Success FactorsCritical Success Factors
Decisions Sample Options Chapter
ProductProduct Customized, or standardizedCustomized, or standardized 55
QualityQuality Define customer expectations and how to achieve themDefine customer expectations and how to achieve them 6, S66, S6
ProcessProcess Facility size, technology, capacityFacility size, technology, capacity 7, S77, S7
LocationLocation Near supplier or near customerNear supplier or near customer 88
LayoutLayout Work cells or assembly lineWork cells or assembly line 99
Human resourceHuman resource Specialized or enriched jobsSpecialized or enriched jobs 10, S1010, S10
Supply chainSupply chain Single or multiple suppliersSingle or multiple suppliers 11, S1111, S11
InventoryInventory When to reorder, how much to keep on handWhen to reorder, how much to keep on hand 12, 14, 1612, 14, 16
ScheduleSchedule Stable or fluctuating production rateStable or fluctuating production rate 13, 1513, 15
MaintenanceMaintenance Repair as required or preventive maintenanceRepair as required or preventive maintenance 1717
Marketing
ServiceService
DistributionDistribution
PromotionPromotion
Channels of distributionChannels of distribution
Product positioningProduct positioning
(image, functions)(image, functions)
Finance/Accounting
LeverageLeverage
Cost of capitalCost of capital
Working capitalWorking capital
ReceivablesReceivables
PayablesPayables
Financial controlFinancial control
Lines of creditLines of credit
Production/Operations
Figure 2.7Figure 2.7

72. © 2008 Prentice Hall, Inc. 2 – 72
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

73. © 2008 Prentice Hall, Inc. 2 – 73
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)

74. © 2008 Prentice Hall, Inc. 2 – 74
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

75. © 2008 Prentice Hall, Inc. 2 – 75
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

76. © 2008 Prentice Hall, Inc. 2 – 76
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

77. © 2008 Prentice Hall, Inc. 2 – 77
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

78. © 2008 Prentice Hall, Inc. 2 – 78
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

79. © 2008 Prentice Hall, Inc. 2 – 79
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations
(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
International
Strategy

80. © 2008 Prentice Hall, Inc. 2 – 80
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
HighHigh
LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations
(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson

81. © 2008 Prentice Hall, Inc. 2 – 81
International StrategyInternational Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global
Strategy

82. © 2008 Prentice Hall, Inc. 2 – 82
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson

83. © 2008 Prentice Hall, Inc. 2 – 83
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Heinz
McDonald’s
The Body Shop
Hard Rock Cafe
Multidomestic
Strategy

84. © 2008 Prentice Hall, Inc. 2 – 84
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe

85. © 2008 Prentice Hall, Inc. 2 – 85
International StrategyInternational Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe
 Standardized product
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global StrategyGlobal Strategy
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Coca-Cola
Nestlé
Transnational
Strategy

86. © 2008 Prentice Hall, Inc. 2 – 86
Four InternationalFour International
Operations StrategiesOperations Strategies
CostReductionConsiderationsCostReductionConsiderations
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
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy Transnational Strategy
 Move material, people, ideas
across national boundaries
 Economies of scale
 Cross-cultural learning
Examples
Coca-Cola
Nestlé
International Strategy
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe

87. © 2008 Prentice Hall, Inc. 2 – 87
Ranking CorruptionRanking Corruption
RankRank CountryCountry 2006 CPI Score (out of 10)2006 CPI Score (out of 10)
11 FinlandFinland 9.69.6
11 IcelandIceland 9.69.6
11 New ZealandNew Zealand 9.69.6
55 SingaporeSingapore 9.49.4
77 SwitzerlandSwitzerland 9.19.1
1111 UKUK 8.68.6
1414 CanadaCanada 8.58.5
1515 Hong KongHong Kong 8.38.3
1616 GermanyGermany 8.08.0
1717 JapanJapan 7.67.6
2020 USA, BelgiumUSA, Belgium 7.37.3
3434 Israel, TaiwanIsrael, Taiwan 5.95.9
7070 Brazil, China, MexicoBrazil, China, Mexico 3.33.3
121121 RussiaRussia 2.52.5
LeastLeast
CorruptCorrupt
MostMost
CorruptCorrupt
Table 8.2Table 8.2