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Why study OM? Critical decisions of OM
Design of goods and services
OM is one of three major functions (marketing, – What good or service should we offer?
finance, and operations) of any organization – How should we design these products and services?
We want (and need) to know how goods and Managing quality
– How do we define quality?
services are produced
– Who is responsible for quality?
We want to understand what operations managers
Process and capacity design
do – What process and what capacity will these products require?
OM is such a costly part of an organisation – What equipment and technology is necessary for these
processes?
Location strategy
– Where should we put the facility?
– On what criteria should we base the location decision?
Layout strategy
– How should we arrange the facility?
– How large must the facility be to meet our plan?
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Significant events in OM The heritage of OM
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Frederick W. Taylor Frank & Lillian Gilbreth
Born 1856; died 1915
Known as ‘father of scientific management’ Frank (1868-1924); Lillian (1878-1972)
In 1881, as chief engineer for Midvale Steel, studied how Husband-and-wife engineering team
tasks were done ‘Father of motion study’ – Frank
Began first motion and time studies – Principle that there is one best method to
Created efficiency principles perform task
Further developed work measurement methods
Applied efficiency methods to their home and 12
children!
Book & Movie: “Cheaper by the Dozen,” book:
“Bells on Their Toes”
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Characteristics of goods
Tangible product
Consistent product definition
Production usually separate from
consumption
Goods and Services Can be inventoried
Low customer interaction
Some aspects of quality are
measurable
Product is transportable
Often easy to automate
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New trends in OM New trends in OM
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Global view of operations
Operations managers today must have a global view of
operations strategy
Advance in technology, reliable shipping and cheaper
communications – growth in world trade and global capital
markets – organizations are quickly extending their
Operations Strategy operations globally with innovative strategies
Globalization means that domestic (local) production and
exporting may no longer be a viable business model
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2. Improve the supply chain 3. Provide better goods and services
Characteristics of goods can be objective and measurable
Supply chain can be improved by locating facilities (e.g. no of on-time deliverables) can also be subjective
closer to where unique resources are available and less measurable (e.g. sensitivity to culture)
– Auto design to California – On-time deliveries
– Perfume manufacturing in France – Cultural variables
– Improved customer service
Interacting with foreign customers and suppliers can Remain open to free flow of ideas
lead to new opportunities – General Motors partnered with a Japanese auto
Knowledge of market helps firms understand where manufacturer to learn – built auto assembly plant in
market is going and also helps to diversify customer California
base, production flexibility
– Strategy allows GM to contribute capital and
Extend the product life cycle
knowledge of US labour laws – Japanese contributed
production and inventory ideas
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6. Attract and retain global talent Cultural and ethical issues
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Developing mission and strategy Mission
Mission - where are you going?
Organization’s purpose for being
Mission statements tell an Answers ‘What do we provide society?’
organization where it is going Provides boundaries and focus
Benefit to
Society
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Strategy Strategy in an organization
After mission is established – strategy implementation can
Corporate
begin strategy
Action plan to achieve mission
Functional areas have strategies
Strategies exploit opportunities and strengths, neutralize Business
strategy
threats, and avoid weaknesses
Functional
strategy
Marketing Operations
Financial
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2. Competing on cost 3. Competing on response
Low-cost leadership – achieving maximum value as perceived
by customer Response – a set of value related to rapid, flexible, and
reliable performance
Does not imply low value or quality
– Include entire range of values related to timely product
One driver of low-cost strategy – facility that is effectively development and delivery, as well as reliable
utilised scheduling and flexible performance
Example: Flexibility is matching market changes in design innovation
Wal-Mart and volumes
– Superstores, open 24 hours a day Reliability is meeting schedules
Timeliness is quickness in design, production, and delivery
– Small overheads, shrinkage, distribution costs
– Rapid transportation of goods, reduced warehousing costs
and direct shipment from suppliers – high inventory
turnover – low cost-leader
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Order winners and order qualifiers Strategy development and
These are marketing-oriented dimensions that are key to implementation
competitive success
Order winner – criterion that differentiates
products/services of one firm from another Mission
– What gets you to win the business Internal External
Order qualifier – screening criterion that permits a firm’s Strengths Opportunities
products to even be considered as possible candidates for Analysis
purchase
Internal External
Weaknesses Threats
Strategy
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Global operations strategy options
Many operations strategies now require an international
dimension
Firm with international dimension is called international
business or a multinational corporation (MNC)
4 Global/International International business – any firm that engages in
Operations Strategy international trade or investment, cross-border transactions
MNC – firm with extensive international business involvement
Options Op managers of international and MNCs approach global
opportunities with1of 4 operations strategies:
– International
– Multi-domestic
– Global
– Transnational
E.g. Otis Elevator, E.g. Coca-Cola, Nestle Often the easiest as exports require little change in existing
Caterpillar
operations
Multidomestic
International Strategy Licensing agreements often leave much of the risk to the
Strategy licensee
• Use existing domestic model
• Import/export or license globally, decentralised control
existing product • Franchise, joint ventures,
subsidiaries
E.g. Harley-Davidson E.g. McDonald’s
Hard Rock Cafe
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation necessary for local market)
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2. Multidomestic strategy 3. Global strategy
A strategy in which operating decisions are decentralised to A strategy in which operating decisions are centralised and
each country to enhance local responsiveness headquarters coordinates the standardisation and learning
Organisations are typically franchises or joint ventures with between facilities
substantial independence Appropriate when strategic focus is cost reduction, but not
Advantage – maximising competitive response for the local good to use if the demand for local responsiveness is high
market
Little or no cost advantage
4. Transnational strategy
A strategy that combines the benefits of global-scale
efficiencies with the benefits of local responsiveness
Transnational – condition in which material, people, and ideas
cross national boundaries
‘world companies’ whose country identity is not as important
as its interdependent network of worldwide operations
Resources and activities are dispersed but specialised
National identities of transnational companies continue to
fade
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