OM/U1 Topic 5 Operations Strategy
When taking a worldwide look — take what is currently performed domestically and move it to another country or countries — there are six main reasons why an organization might change to an international organization:
- Provide better goods and services.
- Improve the organization’s supply chain.
- Reduce costs, such as labor, tariffs, taxes, and more.
- Learn to improve operations.
- Understand other markets.
- Employ top-of-the-line contributors from all over the world.
PROVIDE BETTER GOODS AND SERVICES
The goal of every business is to provide the best goods or services they possibly can. Learning from businesses in other countries can provide insight into how to do that. Taking advantage of being in their location, especially for service industries, can open whole new markets and provide the next level of quality in service provision. Providing new customers with quick and adequate service creates returning customers. The same applies when a customer is satisfied with a good and keeps buying more of the same.
IMPROVE THE SUPPLY CHAIN
The supply chain is a critical piece in an organization’s success. There is significant benefit to moving or locating new facilities in countries that are close to unique resources, such as expertise, materials, or workforce. Much like the Silicon Valley in the 1980s was known for its computer expertise, such center points of knowledge or technology are all over the world. Smart operations managers are looking for ways to get their inputs better or faster across the entire spectrum of resources.
There are very evident ways to reduce costs, and then some not-so-visible ways that exist when looking at global possibilities. Moving production to international locations can save money. Low-skill jobs shifted to countries with lower wage costs saves money. It also frees higher skilled workers to perform more high-skill jobs, instead of tasks that are less challenging and make inefficient use of their time. Such savings can be used as capital investment funds, another variable in productivity.
There are also advantages in trade agreements. Agreements between the United States and other countries that make trade free, lower tariffs, or otherwise reduce costs may be less visible to the general public, shareholders, and other stakeholders, but are something of which operations managers need to be aware. The World Trade Organization (WTO) has helped reduce tariffs to an average of 3 percent today, down from 40 percent in the 1940s. This is a huge cost savings and should be explored. Some such trade agreements are NAFTA (USA, Canada, Mexico), APEC (the Pacific Rim countries), MERCOSUR (Argentina, Brazil, Paraguay and Uruguay), and SEATO (Australia, New Zealand, Japan, Hong Kong, South Korea, New Guinea, and Chile), just to name a few.
LEARN TO IMPROVE OPERATIONS
Learning does not happen in isolation. It is best served when encouraging the free flow of ideas. Customers benefit from this the most, as do the firms that actively participate. Look for opportunities to partner or exchange one strength for another. One country may excel at production, while your firm has excellent inventory control. Working together on a product line may improve efficiency for both parties — something that translates into lower prices or improved quality for your customers.
One of the best side effects of participating in international business is the requirement to interact with foreign customers. This can provide great insight into current markets, trends, and customer demands that can help your organization plot a course for the future. This helps with diversification of product lines, add production flexibility, and can smooth out a business cycle.
Mission and Strategy
Mission is the purpose or rationale for an organization’s existence.
For example: What does your organization contribute to society?
The mission of your company will be the compass by which all other decisions are made. It is all about satisfying a customer’s needs and wants. A good mission statement will provide the boundaries and focus around which the firm can rally. Developing a good strategy is difficult but can be made easier if the organization has a well-defined mission.
Strategy is the organization’s plan of action to achieve the mission. Every functional area has its own strategy on how to do its part to help the entire organization achieve its mission. Such strategies consider strengths, weaknesses, threats, and opportunities — and how to best take advantage of them, or conversely, minimize them. Taken as a whole, the contributions of the functional area strategies support the mission and the success of the organization.
3. Competitive Advantage
There are three ways that firms strategize to meet mission: differentiation, cost leadership, and response. Operations managers turn these into tasks to be completed in order to deliver goods and services cheaper, better, or more responsively.
A key factor in any of those strategies and tasks is to establish competitive advantage. What makes your goods or service more unique than anyone else who may offer the same? Competitive advantage is the creation of an exclusive advantage over competitors.
It is important to set your product up as different from competitors. It needs to be special or unique in some way. There are ways to make this happen in almost every function within a company. The goal is to find something that adds value to the customer. It may not be in price, but in quality. It could be in accessibility, like location, or offering follow-up customer service, like repair and maintenance. The only limit is the imagination of the operations manager.
Cost is not all about the dollars and cents; it also includes what your customer perceives as maximum value. It means driving down costs, without making it low-cost or low-quality. There are ways to do this behind the scenes, in resource allocation, turnover times, shifts and routes, just to name a few. This can turn into a dollar-and-cents saving to the customer, although he or she may not know why. As long as the low-cost leadership is in line with strategy and mission, anything is possible.
Response is broader than just delivery to a customer of a good or service. It also includes the organization’s ability to adjust timely to other factors or changes in the marketplace. It is the set of values related to rapid, flexible, and reliable performance. The operations manager who can design a system to do so in all three regard is a formidable one.
STRATEGIC OM DECISIONS
These three concepts come into play as operations managers make good decisions in the seven major functional areas of operations management, otherwise known as operations decisions.
- Product and Service Management. What good or service do we offer and what is the design of it?
- Operations and Supply Chain Management. Should we make or buy what we need to produce our good or service? If we purchase it, who can supply it?
- Inventory Management. How much should we keep on hand? When do we re-order?
- Forecasting and Capacity Planning. What does the short-term and long-term schedule look like? How much can we make in what period of time?
- Operations Scheduling. What do we need for materials? Personnel?
- Management of Quality. What quality system should we use? What impact does quality have on our organization?
- Facilities Planning and Management. How is the facility used in production? What is its relationship to other resources? How should it be arranged?
When sound operations management decisions are made, it shows that the strategies were effective, and the organization’s mission can be met.