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CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

C H A P T E R

Operations Strategy in a Global


Environment

DISCUSSION QUESTIONS
1.GlobalseemsthebetterlabelforBoeingsinceauthorityand
responsibilityresideintheU.S.thehomecountry.

Humanresources

2.Sixreasonstointernationalize:Reducecosts,improvesupply
chain,providebettergoodsandservices,attractnewmarkets,learn
toimproveoperations,attractandretainglobaltalent.

SupplyChain

3.No.SweetnessatCocaColaisadjustedforthetastesofindi
vidualcountries.

Scheduling

4.Amissionisanorganizationspurposewhatgoodorservice
itwillcontributetosociety.
5.Strategyisanorganizationsactionplanhowitisgoingto
achieveitspurpose.

Inventory

6.A mission specifies where the organization is going and a


Strategyspecifieshowitisgoingtogetthere.
7.The answer to this question will depend on the establish
mentstudied,butshouldprobablyincludesomeofthefollowing
considerations:
Themission:diagnoseautomobileproblemsandmaketheneces
saryrepairatafairpriceforthelocalcustomer.
Pointstoconsider,oroptions,withinthe10decisionareasare:
Decision:

Option:

Product

Repair work of American and/or foreign


vehicles; specialized (tuneups, lubrication,
wheelalignment,etc.)versusgeneralrepair;
frame and body repair versus engine and
power train repair; repair and maintenance
only,versusrepair,maintenance,andsalesof
fuel; professional staffing versus rental of
toolsandspacefordoityourselfrepairwork
Appropriatelevelofquality;warranty;method
of measuring and maintaining quality
(customer complaints, inspection by
supervisingmechanic,etc.)
Useofgeneralversusspecialpurpose diag
nostic and repair equipment (in particular,
the degree to which computer controlled
diagnosticequipmentisemployed)
Intown,shoppingmall,highway
Single bay/multibay; generalpurpose bay
versus specialpurpose bay (lubrication/tire

Quality

Process

Location
Layout

Maintenance

repairs and installation/wheel alignment/


engineandpowertrainrepair,etc.)
Employmentofcertifiedversusnoncertified
repair persons; employment of specialists
versusgeneralmechanics
Choice of supplier(s) for both general and
originalmanufacturerpartsandsupplies
Hours of operation (8:00 A.M.5:00 P.M.;
24hourtowing;weekends/holidays),repairs
versusmotorvehiclesafetyinspections,etc.;
service by appointment versus walkin
(ordriveup)service
Quantityandvarietyofrepairparts(fanbelts,
filters, mufflers, headlights, etc.) to stock;
whethertostockgenericororiginalmanu
facturerparts
Bays with hydraulic lifts vs. easierto
maintainbasementworkareas.Preventive
maintenanceofequipmentvs.breakdown.

8.LibraryorInternetassignment:Studentistoidentifyamis
sion and strategy for a firm. BusinessWeek, Fortune, The Wall
StreetJournal,andForbesallhaveappropriatearticles.
9.OMstrategychangeduringaproductslifecycle:Duringthe
introductionstage,issuessuchasproductdesignanddevelopment
arecritical,thenduringthegrowthstagetheemphasischangesto
productandprocessreliability;fromtherewemovetoconcernfor
increasingthestabilityofthemanufacturingprocessandcostcut
ting;andfinally,inthedeclinestagepruningthelinetoeliminate
items not returning good margin becomes important. Figure 2.5
providesamoreexpansivelist.
10.The text focuses on three conceptual strategiescost
leadership,differentiationandresponse.CostleadershipbyWalmart
via
lowoverhead,viciouscostreductioninthesupplychain;Differen
tiation, certainly any premium productall fine dining restau
rants, upscale autosLexus, etc.; Response, your local pizza
deliveryservice,FedEx,etc.
11.An operations strategy statement for Southwest Airlines
would include a focus on efficient, lowcost service with high
capitalutilization(highaircraftandgateutilization),flexiblenon
unionemployees,lowadministrativeoverhead,etc.Southwests
strategyiscomplicatedbythepurchaseofAirTran.First,thereis
a major organizational culture issue. Southwests culture is
unique.Thecompanyreallydoesthinkofitselfasafamily,witha

CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

fun culture. AirTrans culture is different. Integrating the two


cultureswillbeachallenge.Relatedtothisarehumanresources
issuesuchasseniority,payrate,andpromotionpolicies,allof
which are complicated by union issues. On the tangible side,
SouthwestsuseofjustBoeing737siscomplicatedbyAirTrans
useofseveralothertypesofplanes.Tomaintaintheoneplane
efficiency(pilottrainingmaintenance,inventory,etc.),Southwest
is going to have to replace all those planes. This will be
expensive,butsowillnotgettingridofthem.

Hereisaninterestingscenario.Afirmcansave$10millioninpro
ductioncostsperyear.Allithastodoislocatemanufacturingin
China,whichisnotademocracy,wheresustainabilityisnotan
issue, and where some employees are exploited. Nike faced a
similardilemmainVietnam,whereitwasaccusedofpayingless
thanalivablewage($1.60perday).Studentsmaybepreparedto
discussthiscurrentandsensitivesubject.

12.The integration of OM with marketing and accounting is


pervasive.Youmightwanttociteexamplessuchasdevelopingnew
products.(Marketingmusthelpwiththedesign,theforecastandtar
getcosts;accountingmustensureadequatecashfordevelopment
andthenecessarycapitalequipment.)Similarly,newtechnology
or new processes emanating from operations must meet the
approvalofmarketingandthecapitalconstraintsimposedbythe
accountingdepartment.

2.1Thethreemethodsarecostleadership,differentiation,and
response.CostleadershipcanbeillustratedbyWalmart,withlow
overhead and huge buying power to pressure its suppliers into
concessions. Differentiation can be illustrated by almost any
restaurantorrestaurantchain,suchasRedLobster,whichoffersa
distinctmenuandstyleofservicethanothers.Responsecanbe
illustrated by a courier service such as FedEx, that guarantees
specificdeliveryschedules;orbyacustomtailor,whowillhand
makeasuitspecificallyforthecustomer.

13.Tosummarizeoutsourcingtrends:
Noteveryonewhooutsourcesis100%satisfied,and
futurearrangementsmayberevisedorinsourced.
IT will be a major expansion area, according to
Gartner,Inc.
MorelawsmaybepassedtoprotectU.S.jobs.
ForeignfirmswillincreasetheiroutsourcingtotheU.S.
Outsourcingwillcontinuetogrow.
Currentpracticeswillbeimproved.
14.Cost savings in recent years from outsourcing has been
significant.Itmaybepossibletoreducelaborcostsbyasmuch
75%.Butmorerealistically,thisfigureisinthe20%40%range.
Overallsavingsinthe10%30%rangearepossible.
15.Internalissueinclude:
Employmentmorale may drop, and employees may
losetheirjobs.
Facilitiesmay need to be changed if components
arriveindifferentstagesofassembly.
Logisticsnowincludescustoms,timingandinsurance.
16.Thecompanyshouldidentifyitsowncorecompetenciesand
thenconsideralistofcandidateactivitiesandfirmsforoutsourcing.
Thefactorratingmethodcanbeusedtocomparevariouscompanies
onasetoffactorsthatmanagementconsidersimportant.
17.Badoutsourcingdecisionsmayresultin:
Highertransportationcost
Lossofcontrol
Futurecompetitionfromtheprovider
Negativeimpactonemployees
Quickgainsattheexpenseoflongtermobjectives
18.McDonalds fits the categorization in the text as a
multidomestic, as opposed to international, global, or
transnational. Thisistheconceptofexportingthemanagement
talentandprocess allowingflexibilityintheproductitself.Inthe
case of McDonalds, this export is operations management
expertise,

which

it

has

implementedworldwide.Interestingly,McDonaldslikestocall
itselfmultilocal.

ETHICAL DILEMMA

END-OF-CHAPTER PROBLEMS

2.2Cost leadership: institutional food services, such as


Sodexho,providemealservicetocollegecampusesandsimilar
institutions. Such firms often get their contracts by being low
biddertoprovideservice.Response:acateringfirm(thecustomer
picks the menu, time, and date). Differentiation: virtually all
restaurantsseekdifferentiationinmenu,intaste,inservice.This
isparticularlytrueoffinediningrestaurants,butalsotrueoffast
food restaurants. For instance, Burger King likes to talk about
meals anyway you want them, and McDonalds has a
playgroundorseatingareaforchildren.
2.3Arrow;BidermannInternational,France
BraunHouseholdAppliances;Procter&Gamble,U.S.
VolvoAutos;Geely,China
FirestoneTires;Bridgestone,Japan
GodivaChocolate;CampbellSoup,U.S.
HaagenDazs Ice Cream; great globalization discussion
example: HaagenDazs was established in New York
City; nowownedbyPillsbury(U.S.A.),whichisowned
byGeneralMills(U.S.A.),butNestlSA(Switzerland)is
licensedtosellHaagenDazsintheU.S.
JaguarAutos;Tata,India
MGMMovies;CreditLyonnais,France
Lamborghini;Volkswagen,Germany
Goodrich;Michelin,France
AlpoPetFoods;Nestl,Switzerland
2.4(a) ThematuringofaproductmaymovetheOMfunction
tofocusonmorestandardization,makefewerproduct
changes, find optimum capacity, stabilize the manufac
turingprocess,lowerlaborskills,uselongerproduction
runs,andinstitutecostcuttinganddesigncompromises.
(b) Technologicalinnovationinthemanufacturingprocess
may mean new human resources skills (either new
personnel and/or training of existing personnel), and
addedcapitalinvestmentfornewequipmentorprocesses.
Product design, layout, maintenance procedures,
purchasing,inventory,qualitystandards,andprocedures
mayallneedtoberevised.
(c) Adesignchangewill,atleastpotentially,requirethesame
changesasnotedin(b).

CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

2.5Specificanswerstothisquestiondependontheorganization
considered.Somegeneralthoughtsfollow:

(b) Wheneachoftheweightsisdoubled,theselectionstays
thesame:Canada.

(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

2.9Withweightsgiven,theresultsare:

(b)

(c)

(d)

(e)

competitive position. Conversely, when oil prices


drop it is a bonanza for heavy fuel users such as
airlines.
More restrictive quality of water and air legislation
increases the cost of production and may, in some
cases,prohibittheuseofspecifictechnologies.Thehigh
costofprocessmodificationtomeetmorerigidstandards
hasresultedintheclosingofnumerousplantsincluding
papermillsandsteelmills.
A decrease in the number of young prospective
employees entering the U.S. labor market can
contributetoatighterjobmarket.Highunemployment
ratescanhavetheoppositeeffect.
Inflation,especiallyathighoruncertainrates,makesit
moredifficulttopredictboththecostofproductionand
themarketdemand.
Legislation moving health
Selection
insurance from a beforetax
Criteria
benefit to taxable income will
reduce the takehome pay of
1. Flexibility
employeesbytheamountofthe
2.
taxes. This could have a
Trustworthiness
significanteffectontheincome
of employees in the lower pay
3. Price
classifications,

putting
4. Delivery
substantial pressure on
Total score
operationsmanagerstoincrease
wagesintheseclassifications.(Thisdoesnotmeanthat
it is not a good idea for societyi.e., to make
employees more sensitive to the cost of health
insurance.)

2.6ThecorruptionperceptionindexmaintainedbyTransparency
International(www.transparency.org)givesa1to10scale(10being
leastcorruptto1beingmostcorrupt).AlsoseeChapter8,Table8.2.
Alivelyclassdiscussioncanalsotakeplaceregardingwho
paysbribes,asshownonthesameWebsite.Otherperspectivesof
cultureareshownontheAsiaPacificManagementForumpage
(www.apmforum.com).

Mexico=3.3=[.4(1)+.2(7)+.1(3)+.1(5)+.1(4)+.1(3)]
Panama=4.1
CostaRica=4.4
Peru=4.2
Mexicoisthelowestriskcountryforthefirmtooutsourceto.
2.10(a) Theresultsofthefactorratingmethodare:
Worldwid
e Delivery

United
Freight

800

815

775

Weighted total
Weighted
average

80

81.5

77.5

ThebestoutsourceproviderisWorldwideDelivery.
(b) Nothing changes in the weighted averages if every
oneoftheweightsisdoubled.Theweightedtotalswill
double.
Criterion
Weight

Computations
for Manila

Computatio
ns
for Delhi

Computatio
ns for
Moscow

0.5
0.1

0.5 5 = 2.5

0.5 1 = 0.5

0.5 9 = 4.5

0.1 5 = 0.5

0.1 5 = 0.5

0.1 2 = 0.2

0.2

0.2 4 = 0.8

0.2 3 = 0.6

0.2 6 = 1.2

0.2

0.2 5 = 1.0

0.2 6 = 1.2

0.2 6 = 1.2

1.0

4.8

2.8

7.1

(c) If the three Overnight Shipping ratings increase by


10%,to99,77,and77,respectively,thenewweighted
averageis88,andtheweightedsumis880.SoOvernight
isnowthepreferredlogisticsprovider.
2.11
MoscowBellisclearlythehighestratedforWalkershelpdesk.
2.12
Provider

2.7TheEconomist doesananalysissimilartothisonoccasion
buttheGlobalCompetitivenessIndex,WorldEconomicForum,
Geneva (www.weforum.org) does one every year. (Also see
Table8.1inthetext.)For20112012,Switzerland,1;Singapore,
2;Sweden,3;Finland,4;andU.S,5aresomerankings.
2.8(a) Using the weighted model, with the four weights
totaling1.0,Englandhasariskof2.3andCanadaarisk
of1.7.NowCanadaisselected.

Overnig
ht
Shipping

Score

5W + 320 = (60 + 15 + 125 + 15 + 30 +


75)

4W + 330

3W + 370

5W + 255

Findallwfrom130sothat:

3w+3705w+320,or502w,orw25
3w+3704w+330,or40w,orw40

England=.1(2)+.6(3)+.2(1)+.1(1)=2.3

3w+3705w+255,or1152w,orw57.5

Canada=.1(3)+.6(1)+.2(3)+.1(2)=1.7

CompanyCisrecommendedforallwsuchthat1.0w25.0

10

CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

ADDITIONAL HOMEWORK PROBLEM


Problem2.13appearsatwww.myomlab.comand
www.pearsonhighered.com/heizer.
2.13Global.Itslevelofintegrationgoesbeyondmultinational.
The collection of parts and subassemblies coming from other
countriesiscarefullyorchestrated.Itisnottransnationalbecause
itshomeisclearlytheU.S.,andthereislittlesenseof local
responsiveness.

CASE STUDY
MINITLUBE
1.WhatconstitutesthemissionofMinitLube?

To provide economical preventative maintenance and


interiorautocleaning,primarilytovehiclesownedbyindi
viduals(asopposedtobusinesses),intheU.S.
2.How does the MinitLube strategy provide competitive
advantage?

Thiscaseisagoodwaytogetthestudentthinkingaboutthe10
decisionsaroundwhichthetextisorganized.MinitLubesap
proachtothese10decisionsincludes:
Product design: A narrow product strategy could be
definedaslubricatingautomobiles(moreinChapter5).
Quality strategy: Because of limited task variety, high
repetition,goodtraining,andgoodmanuals,qualityshould
berelativelyeasytomaintain.
Process strategy: The process strategy allows employees
andcapitalinvestmenttofocusondoingthismissionwell,
ratherthantryingtobeageneralpurposegarageorgas
station.
Locationstrategy: Facilitiesareusuallylocatednearresi
dentialareas.
Layoutstrategy:Thethreebaysaredesignedspecificallyfor
the lubrication and vacuuming tasks to minimize wasted
movementonthepartoftheemployeesandtocontributeto
thespeedierservice.
Supplychain management: Purchasing is facilitated by
negotiationoflargepurchasesandcustompackaging.
Human resources strategy: Human resources strategy
focusesonhiringafewemployeeswithlimitedskillsand
training them in a limited number of tasks during the
performanceofwhichtheycanbecloselysupervised.
Inventory: Inventoryinvestmentshouldberelativelylow,
andtheyshouldexpectahighturnover.
Scheduling: Scheduling is quite straightforward with
similartimesformostcars.Oncevolumeandfluctuationin
volumearedetermined,schedulingshouldbeverydirect
assistingbothstaffingandcustomerrelations.
Maintenance: There is relatively little equipment to be
maintained, and therefore little preventive maintenance is
required.Withthreebaysandthreesystems,thereisbackup
availableinthecaseoffailure.
3.SpecializationofpersonnelandfacilitiesshouldmakeMinit
Lubemoreefficient.Jobs/tasksaccomplishedpermanhour
wouldbeagoodplacetostart.

1.RegalMarinesmissionistoprovideluxuryperformanceboats
totheworldthroughconstantinnovation,uniquefeatures,andhigh
qualitythatwilldifferentiatetheboatsinthemarketplace.
2.A strength of Regal Marine is continued innovation that is
being recognized in the marketplace. One current weakness is
maintaininganeffective,welltrainedlaborforceinatightFlorida
labormarket.The opportunities forRegalincludeanincreasein
boatsalesbroughtaboutthroughthereductionoftheluxurytax
andRegalMarinesincreasingmarketpresenceintheworldboat
market.The threats toRegalareahugenumberofsmallcompeti
tors goingaftervariouspartsofthemarket.Brunswickgoesafter
the mass market, and hundreds of small boat manufacturers go
aftervariousnichemarkets.
3.RegalMarinesstrategyistofocusonconstantinnovation,high
quality,andgoodvalueforthemoneywithsalesthrougheffective
dealers.
4.Eachofthe10operationsmanagementdecisionsisimportant
toRegalssuccess:
Product: Must be unique, full of features, and richly
appointed, which puts constant pressure on the design,
styling,andappointments.
Quality: Because the typical Regal Marine customer is
interested in exceptional quality for his/her substantial
investment.
Processselectionanddesign:Becauseofthelargenumber
ofboatsandcustomfeatures,buildingviarepetitivepro
cessesinamodularwayhasproventobeaneffectiveand
efficientprocess.
Inventory: Regal tries to drive down finished goods
inventorybutmustmaintaininventoryofpurchasedparts
to meet changing production schedules. Additionally, the
tooling inventory, that is the various molds, create an
inventoryproblemalltheirown.Thisisagoodpointfor
classdiscussion,asmoststudentsmaynotbefamiliarwith
theprocess.
Scheduling: Regal tries to move the components from
workstationtoworkstationonaonedayJITbasis.Good,
reliableschedulesarenecessarytogetthejobdone.
Supplychain management: Of course suppliers are
important because of many of the appointmentsfrom
galleyfeaturesthroughengines,andhardwaremakeahuge

VIDEO CASE STUDIES


1

STRATEGYATREGALMARINE

Thereisashortvideo(7minutes)availablefromPearsonPrentice
Hallandfilmedspecificallyforthistextthatsupplementsthiscase.

differenceintheperceptionsandperformanceofmarine
craft. Consequently, the selection of these suppliers and
theirperformanceiscriticaltoRegal.
Maintenance: Much of Regals maintenance hinges on
keepingfiberglassgunsandmoldsreadyforuse.
Location:BecauseFloridaisoneofthemajormarketsfor
boatsinAmerica,Regalispositionedtosupplythislarge
marketrapidlyandeconomically.
Layout:Becauseofthebulkinessoftheproduct,thelayout
must be designed, as it is, to minimize loads times the
distances times the difficulty factor. There is a clean
logicalflowofmaterialthroughtheplant.
Humanresources: Isimportantbecauseboathulls,decks,
assembly, and finishing out the boats have a high labor
content. Additionally, the current diverse labor market in

CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

Floridacreatesspecialchallengesforoperationsmanagersat
Regal.

2 HARDROCKCAFESGLOBALSTRATEGY
Thereisashortvideo(9minutes)availablefromPearsonPrentice
Hall,andfilmedspecificallyforthistext,thatsupplementsthiscase.
1.IdentifythestrategicchangesthathavetakenplaceatHard
Rock Cafe. What we want to do here is help the student
understand that an optimum mix of internal strengths and
opportunitiesdrivesstrategiesinachangingenvironment.
Initially, Hard Rock was a London cafe serving classic
Americanfood.
Then it became a theme chain with memorabilia in
touristdestinations.
Thenitaddedstores.
Thenitaddedlivemusicandarockconcert.
Thenitbecameanestablishednameandbeganopening
hotelsandcasinos.
Thenitupgradeditsmenu.
Thenitmoved into cities that arenot thetypical tourist
destination.
2.Asthesestrategicchangeshavetakenplacethe10decisions
ofOMchange:
Location: FromaLondoncafe,totouristdestinations,to
nontouristlocations.
Productdesign:Newmenuitems
Quality: The entire evaluation of quality and quality
controlgotmuchmorecomplex.
Process: The kitchen process changed when Hard Rock
wentfromhamburgerstolobsterandadditionalchanges
weremadeasthefirmmovedtoretailmerchandising.
Layout:Addedretailstores,addedlivemusicfacilities.
Supplychain management: Purchase memorabilia and
lobstersnewexpectationsofthesupplychain.
Inventory: From food to clothing to memorabilia, to
expanded food items in inventoryhow do you keep
lobstersaliveandhowlong?
Human resources: The range of talents needed keeps
expanding; fromcooks of classicAmericanfareandwait
staffandbartenders,tomerchandisers,tocooksforawider
moreexpensivemenu,tocoordinatorsandperformersfor
thelivemusicfacilities.
Thecasesayslittleaboutschedulingandmaintenance,butevery
change in product (food or merchandise) and every change in
equipmentandprocesseschangesschedulingandmaintenance.
3.HardRockfitsinthemultidomesticstrategy,whichusesthe
existingdomesticmodelglobally.

CHAPTER 2O P E R AT I O N S S T R AT E G Y I N A G LO B A L E N V I R O N M E N T

3 OUTSOURCINGOFFSHOREATDARDEN
The10minutevideothataccompaniesthiscasestudyisavailable
fromPearsonPrenticeHallandwasfilmedspecificallyfortext.
1.Therearenumerousoutsourcingopportunitiesavailabletoa
restaurant,includingfoodsupplies,allothersupplies,janitorial,
dataprocessing,benefits,marketing,andbookkeeping.Darden
outsourcestheseafoodandproducepartofitssupplychain,but
maintainstightqualitystandardsfromfarmtofork.
2.WhenagiantlikeDardenprocuressuppliesin35countries,it
needstohavealargestaffonthegroundtoarrangefortraining,
quality control, contracts, expediting, language/cultural issues,
andsoon.Withverytightstandards,itwillnotuseasupplier
until all its expectations for reliability/quality are met. Once
trained,asupplierneednotbemanagedasclosely,freeingDarden
supplychainpersonneltoseekoutthenextprovider.
3.Inotherindustries,perhapswhere48hourfreshnessisnot
acriticalissue,supplychainsmaydiffer.Challengescomefrom
culture, communications, distance, and documents. Companies
like Walmart have used alliances. P&G reorganized along
product lines instead of geography to increase coordination.
MercedesdecidedtobuildsomemodelsintheU.S.togetcloser
tocustomers.
4.Darden outsources seafood harvesting and preparation
offshorebecause(a)itmaynotlegallyown/controlthecatchin
foreignwaters;(b)laborintensityoffoodpreparationmeansitis
cheaperforthatworktobedoneoffshore;(c)bulkfoodpurchases
arecapitalintensiveandnotpartofDardenscorecompetence.