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2 CHAPTER Operations Strategy in a Global Environment DISCUSSION QUESTIONS Human Resources 1 . Global seems the better label for Boeing since authority and responsibility reside in the U. S. ??”the home country. Supply Chain 2. Six reasons to internationalize: Reduce costs, improve supply chain, provide better goods and services, attract new markets, learn to improve operations, attract and retain global talent. Scheduling 3. No. Sweetness at Coca-Cola is adjusted for the tastes of individual countries. 4.
A mission is an organization’s purpose??”what good or service it will contribute to society. 5. Strategy is an organization’s action plan??”how it is going to achieve its purpose. 6. A mission specifies where the organization is going and a Strategy specifies how it is going to get there. 7. The answer to this question will depend on the establishment studied, but should probably include some of the following considerations: The mission: diagnose automobile problems and make the necessary repair at a fair price for the local customer.
Points to consider, or options, within the 10 decision areas are: Decision: Option: Product Repair work of American and/or foreign vehicles; specialized (tune-ups, lubrication, heel alignment, etc. ) versus general repair; frame and body repair versus engine and power train repair; repair and maintenance only, versus repair, maintenance, and sales of fuel; professional staffing versus rental of Appropriate level of quality; warranty; method of measuring and maintaining quality (customer complaints, inspection by supervising mechanic, etc. Use of general versus special purpose diagnostic and repair equipment (in particular, the degree to which computer controlled diagnostic equipment is employed) In-town, shopping mall, highway Single bay/multibay; general-purpose bay ersus special-purpose bay (lubrication/tire repairs and installation/wheel alignment/ engine and power train repair, etc. ) Quality Process Location Layout 6 Inventory Employment of certified versus noncertified repair persons; employment of specialists versus general mechanics Choice of supplier(s) for both general and original manufacturer parts and supplies Hours of operation (8:00 A.
M. -5:00 P. M. ; 24-hour towing; weekends/holidays), repairs versus motor vehicle safety inspections, etc. ; service by appointment versus walk-in (or drive-up) service Quantity and variety of repair parts (fan belts, ilters, mufflers, headlights, etc. ) to stock; whether to stock generic or original manufacturer parts 8. Library or Internet assignment: Student is to identify a mission and strategy for a firm. Business Week, Fortune, Wall Street Journal, and Forbes all have appropriate articles. 9. M strategy change during a product’s life cycle: During the introduction stage, issues such as product design and development are critical, then during the growth stage the emphasis changes to product and process reliability; from there we move to concern for increasing the stability of the manufacturing process and cost cutting; ood margin becomes important. Figure 2. 5 provides a more expansive list. 10. The text focuses on three conceptual strategies??”cost leadership, differentiation and response.
Cost leadership by Wal-Mart??”via low overhead, vicious cost reduction in the supply chain; Differentiation, certainly any premium product??”all fine dining restaurants, up-scale autos??”Lexus, etc. ; Response, your local pizza delivery service, FedEx, etc. 11. The PIMs research suggest that high ROI results from (1) high product quality, (2) high capacity utilization, (3) high operating effectiveness, 4) low investment intensity, and (5) low direct cost per unit. 12.
An operations strategy statement for Southwest Airlines would include a focus on efficient low cost service with high capital utilization (high aircraft and gate utilization), flexible nonunion employees, low administrative overhead, etc. 13. The integration of 0M with marketing and accounting is pervasive. You might want to cite examples such as developing new products. (Marketing must help with the design, the forecast and target costs; accounting must ensure adequate cash for development and the necessary capital equipment.
Similarly, new technology CHAPTER 2 OPERATIONS STRATEGY or new processes emanating from operations must meet the approval of marketing and the capital constraints imposed by the accounting department. ETHICAL DILEMMA Here is an interesting scenario. A firm can save $10 million in production costs per year. All it has to do is locate manufacturing in China, which is not a democracy and where some employees are exploited. Nike faced a similar dilemma in Vietnam, where it was accused of paying less than a livable wage ($1. 60 per day). Students may be prepared to discuss this current and sensitive subject.
END-OF-CHAPTER PROBLEMS 2. 1 The three methods are cost leadership, differentiation, and response. Cost leadership can be illustrated by Wal-Mart, which uses its buying power to pressure its suppliers into concessions. Differentiation can be illustrated by almost any restaurant or restaurant chain, such as Red Lobster, which offers a distinct menu and style of service than others. Response can be illustrated by a courier service such as FedEx, that guarantees specific delivery schedules; or by a custom tailor, who will hand make a suit specifically for the customer. . Cost leadership: institutional food services, such as SodhexoMarriott, provide meal service to college campuses and similar institutions. Such firms often get their contracts by being low bidder to provide service. Response: a catering firm (the customer picks the menu, the customer picks the time and date). Differentiation: particularly true of fine dining restaurants, but also true of fast food restaurants. For instance, Burger King likes to talk about meals “anyw???ay you what them” and McDonald’s has a playground for the children. . 3 Students may find articles about German work rules or Latin American siestas hat interfere with work schedules. Also, some Hindu workers will not touch metal objects, or touch objects touched by “untouchables. ” There are rules concerning kitchen equipment and ingredient mixing in Kosher food preparation. Computer keyboards in English versus Chinese pose a serious training issue. There are many other possibilities. 2. 4 2. 5 Arrow; Bidermann International, France Braun Household Appliances; Procter & Gamble, U. S.
Lotus Autos; Proton, Malaysia Firestone Tires; Bridgestone, Japan Godiva Chocolate; Campbell Soup, U. S. Haagen-Dazs Ice Cream; Grand Metropolitan, Great Britain Jaguar Autos; Ford, U. S. MGM Movies; Credit Lyonnais, France Lamborghini; Volkswagen, Germany Goodrich; Michelin, France Alpo Pet Foods; Nestle, Switzerland (a) The maturing of a product may move the 0M function to focus on more standardization, make fewer product changes, find optimum capacity, stabilize the manufacturing process, lower labor skills, use longer production runs, and institute cost cutting and design compromises.
GLOBAL ENVIRONMENT 7 (b) Technological innovation in the manufacturing process may mean new human resources skills (either new personnel and/or training of xisting personnel), and added capital investment for new equipment or processes. Product design, layout, maintenance procedures, purchasing, inventory, quality standards, and procedures may all need to be revised. (c) A change for a move from 3 1/2 drives to CD-ROM drives will, at least potentially, require the same changes as noted in (b) above. general thoughts follow. a) For a producer with high energy costs, major oil prices change the cost structure, result in higher selling prices, and, if the company is energy inefficient compared to other producers, result in a change in competitive position. Conversely, when oil prices dropped in 1997, it was a bonanza for heavy fuel users such as airlines. (b) More restrictive quality of water and air legislation increases the cost of production and may, in some cases, prohibit the use of specific technologies. The high cost of process modification to meet more rigid standards has resulted in the closing of numerous plants including paper mills and steel mills. c) A decrease in the number of young prospective employees entering the U. S. labor market in 1985-1998 contributed to a much tighter Job market. It is also required rganizations to “slimdown” (reduce personnel and add automation) as it became increasingly difficult to replace persons who left. (d) Inflation, especially at high or uncertain rates, makes it more difficult to predict both the cost of production and the market demand. (e) Legislation moving health insurance from a before-tax benefit to taxable income will reduce the take-home pay of employees by the amount of the taxes.
This could have a significant effect on the income of employees in the lower pay classifications, putting substantial pressure on operations managers to increase wages in these classifications. This does not mean that it is not a good idea for society??”i. e. , to make employees more sensitive to the cost of health insurance. ) 2. 7 The corruption perception index maintained by Transparency International (www. transparency. de/documents/cpi/) gives a 1 to 99 scale (1 being least corrupt to 99 being most corrupt). Also see Chapter 8, Table 8. . A lively class discussion can also take place regarding who pays bribes, as shown on the same Web site. Other perspectives of “corruption” are shown on the Asia Pacific Management News page (http://www. pmforum. com/news/). 2. The Economist does an analysis similar to this on occasion but the “Growth Competitiveness Index,” World Economic Forum, Geneva (www. weforum. org/pdf/gcr) does one every year. (Also see Table 8. 1 in the text) For 2004-2005 U. S. 2; U. K. 11; Singapore 7; Hong Kong 21; Italy 47 are the rankings. CASE STUDY VIDEO CASE STUDY Minit-Lube, Inc. STRATEGY AT REGAL MARINE There is a short video (7 minutes) available from Prentice Hall and filmed specifically for this text that supplements this case. There is a 2 minute version of this video that also appears on the student CD in the text. (a) What constitutes the mission of Minit-Lube? To provide economical preventative maintenance and interior auto cleaning, primarily to vehicles owned by individuals (as opposed to businesses), in the U. S. (b) How does the Minit-Lube strategy provide competitive advantage? 2.
This case is a good way to get the student thinking about the 10 decisions around which the text is organized. Minit-Lube’s approach to these 10 decisions includes: Product Design: A narrow product strategy could be defined as “lubricating automobiles” (more in Chapter 5). Quality Strategy: Because of limited task variety, high repetition, good training, and good manuals, uality should be relatively easy to maintain. Process Strategy: The process strategy allows employees and capital investment to focus on doing this mission well, rather than trying to be a “general purpose” garage or gas station.
Location Strategy: Facilities are usually located near residential areas. Layout Strategy: The three bays are designed specifically for the lubrication and vacuuming tasks to minimize wasted movement on the part of the employees and to contribute to the speedier service. Supply Chain Strategy: Purchasing is facilitated by negotiation of large purchases Human Resources Strategy: Human resources strategy focuses on hiring a few employees with limited skills and training them in a limited number of tasks during the performance of which they can be closely supervised.
Inventory: Inventory investment should be relatively low, and they should expect a high turnover. Scheduling: Scheduling is quite straightforward with similar times for most cars. Once volume and fluctuation in volume are determined, scheduling should be very direct??”assisting both staffing and customer relations. Maintenance: There is relatively little equipment to be maintained, therefore little preventive aintenance required. With three bays and three systems, there is backup available in the case of failure. 3.
Specialization of personnel and facilities should make MinitLube more efficient. Jobs/ tasks accomplished per man hour would be a good place to start. 1 . Regal Marine’s mission is to provide luxury performance boats to the world through constant innovation, unique features, and high quality that will differentiate the boats in the marketplace. 2. A strength of Regal Marine is continued innovation that is being recognized in the marketplace. One current weakness is maintaining an ffective, well-trained labor force in a tight Florida labor market.
The opportunities for Regal include an increase in boat sales brought about through the reduction of the luxury tax and Regal Marine’s increasing market presence in the world boat market. The threats to Regal are a huge number of small competitors going after various parts of the market. Brunswick goes after the mass market, and hundreds of small boat manufacturers go after various niche markets. 3. Regal Marine’s strategy is to focus constant innovation, high quality, and good value for the money with sales through effective dealers. 4. Each of the 10 Operations Management decisions is important to Regal’s success.
Product: Must be unique, full of features, and richly appointed, which puts constant pressure on the design, styling, and appointments Quality: Because the typical Regal Marine customer is interested in exceptional quality for his/her substantial investment Process Selection and Design: Because of the large number of boats and custom features, building via repetitive processes in a modular way has proven to be an effective and efficient process. must maintain inventory of purchased parts to meet changing production schedules. Additionally, the tooling inventory, that is the various molds, create an inventory problem all their own.
This is a good point for class discussion, as most students may not be familiar with the process. Regal tries to move the components from workstation to workstation on a one-day JIT basis. Good, reliable schedules are necessary to get the job done. Supply Chain Management: Of course suppliers are important because of many of the appointments??”from galley features through engines, and hardware make a huge difference in the perceptions and performance of marine craft. Consequently, the selection of hese suppliers and their performance is critical to Regal.
Much of Regal’s maintenance hinges on keeping fiberglass guns and molds ready for use. Location: Because Florida is one of the major markets for boats in America, Regal is positioned to supply this large market rapidly and economically. Layout: Because of the bulkiness of the product, the layout must be designed, as it is, to minimize loads times the distances times the difficulty factor. There is a clean logical flow of material through the plant. Human Resources: Is important because boat hulls, decks, assembly, and finishing out the boats have a igh labor content.
Additionally, the diverse labor market of the early 2000’s in Florida creates special challenges for operations managers at Regal. HARD ROCK CAFE’S GLOBAL STRATEGY There is a short video (9 minutes) available from Prentice Hall and filmed specifically for this text that supplements this case. This video also appears in a 2 minute version on the student CD in the text 1 . Identify the strategic changes that have taken place at Hard Rock Caf?©. What we want to do here is help the student understand that an optimum mix of internal strengths and opportunities drives strategies in a changing nvironment. Initially, Hard Rock was a London Caf?© serving classic American food. – Then it – Then it added stores. – Then it added live music and a rock concert. – Then it became an established name and began opening hotels and casinos. – Then it upgraded its menu. – Then it moved into cities that are not the typical tourist destination. 2. As these strategic changes have taken place – the 10 decisions of 0M change: – Location (from a London Caf?©, to tourist destinations, to nontourist locations) – Product Design (new menu items) – Quality – (the entire evaluation of quality and quality control got much more omplex. – Process – (the kitchen process changed when Hard Rock went from hamburgers to lobster and additional changes were made as the firm moved to retail merchandising. ) – Layout (added retail stores, added live music facilities) – Supply chain – (purchase memorabilia and lobsters – new expectations of the supply chain) – Inventory (from food to clothing to memorabilia, to expanded food items in inventory – how do you keep lobsters alive and how long? ). Human Resources – (the range of talents needed keeps expanding; from cooks of classic American fare and wait staff and bartenders, 9 o merchandisers, to cooks for a wider more expensive menu, to coordinators and performers for the live music facilities. ) The case says little about scheduling and maintenance, but every change in product (food or merchandise and every change in equipment and processes changes scheduling and maintenance. ) 3. Hard Rock fits in the multidomestic strategy, which uses the existing domestic model globally.
INTERNET CASE STUDIES* JOHANNSEN STEEL COMPANY This is a great case to discuss mission and matching 0M strategy to that mission. The case can address these issues at several levels of sophistication to meet the needs of ither undergraduate or graduate students. Johannsen Steel Company (name disguised) did actually exist from the late 1920s until its final bankruptcy in 1982. The case writer worked for the company as an industrial engineer for nearly six years. 1 . (a) Johannsen Steel’s mission did change over time.
Some students will focus on what the mission was, others on Perhaps what it was and might have remained is a good mission with which to start. The JSC mission was (could have remained): To identify and sell to those markets for which JSC’s engineering and processing provide a competitive advantage. Specifically, o be a high quality “finished wire” Job shop/small batch producer working closely with customers to manufacture high-quality high-margin products to the mutual advantage of both the customer and JSC in the U. S. market. b) The production function mission: To provide state-of-theart processes and systems that maximize the traditional capability of JSC to manufacture high-quality, customwire in Job lots and small batches, and to maintain advantages in engineering, cost, and delivery that will keep JSC a leader in its industry segment. 2. In the early 1960s the external conditions for competition changed: a) External threats/opportunities Prompted by the steel shortage caused by the 1960 steel strike (lasting 14 weeks), the Japanese got their feet in the U.
S. industry door??”never again to be shut out. This resulted in: falling prices on margins for steel products, particularly for common grades, shapes, and finishes more pressure on reduced delivery times (The Japanese would produce steel wire in Japan, ship to warehouses in Connecticut, and offer better delivery times to the New England area than U. S. steel mills operating in Massachusetts. ) Grades of steel wire, which at one time were considered difficult to make (e. . , music wire for pianos, violins, etc. nd coated wires), were now near-commodities and could not attract their historical high margins. *Solutions to cases that appear on our companion web site (www. prenhall. com/heizer). 10 With the U. S. , Japanese, and Germans strongly competing to sell steel wire-drawing equipment in the later 1960s and 1970s, the state of wire-drawing technology advanced dramatically. No longer were JSC’s process machinery competitive for standard or even semi-difficult quality grades and no longer could it design and build its own machinery that could rival the newest equipment offered