Reading 2 – Strategy

MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 1
From the early 1900s thru 1960s, U.S. manufacturing emphasized mass markets, standard
product designs, and high-volume production. Built-in obsolescence played a part in marketing.
In the 1970s and 1980s, Japanese companies began offering products to U.S. consumers having
perceived superior quality, reliability, and durability – and at a lower price.
Japanese companies were able to avoid the perceived trade-off between product cost and
product quality via their manufacturing strategy.
How could they do this?
Waste reduction resulted in great cost savings.
As U.S. companies lost market share (think electronics, cameras and autos) to Japanese
counterparts, there was a frantic effort in the U.S. to copy Japanese manufacturing practices.
U.S. manufacturing companies sent managers and executives (not workers) to visit Japanese
factories to observe things such as:
Statistical Process Control (SPC)
Just in Time (JIT)
Kanban
Kaizen
Quality Circles
Set-up-Reduction
Efforts to copy Japanese manufacturing processes/programs by U.S. manufacturers resulted in
very few improvements in perceived quality.
Merely copying the Japanese operational tactics was not enough for success. A new way of
life was needed.
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 2
Two things were missing.
1. Operational Effectiveness: The ability to perform similar operations activities better
than competitors
2. Competitive Strategy: Action plan for how the enterprise will compete in the
marketplace
Examples of Global Trade Alliances:

 Name 2 pluses and 2 negatives related to NAFTA.
 Be prepared to define CAFTA and its members
The U.S. balance of trade deficit is due largely to trade with China. Current growth rates will
result in China’s economy will being #1 in the world by 2020, if not sooner.
India is gaining, especially in customer service jobs for U.S. enterprises (outsourcing). India has
a population of 1 billion comprised of highly educated, English speakers.
Africa will be the last location for cheap labor to be exploited by multi-national enterprises.
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 3
Former Soviet Republics are emerging as major players in world trade as they develop their
natural resources that industrial giants (USA, Russia, China, and India) need.
Questions:

Strategic Global Alliances: Joint ventures between international enterprises used to exploit
global business opportunities.
Can you list two +s and 2 -s of globalization?
Global business and political environments change rapidly; sometimes overnite (Tunisia, Egypt,
Jordan, Yemen, Syria, Iraq, Turkey)
Suggested Strategies for global operations:

 Purchases of foreign currency futures to lock-in prices
 Purchases commodity futures to lock-in prices
 Lobby governments for favorable legislation (tariffs, quotas, duties)
 Conduct business via virtual enterprises
*** There are 3 basic strategies used to compete in any marketplace: Quality, Cost and
Customer Service.
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 4
Big losers in the “race to survive” global competition have been millions of American
workers. High paying manufacturing jobs have been lost forever, or replaced with lower paying
service jobs. An estimated 45% of US workers do not earn enough to be subject to federal or
state income taxes. America’s “working poor” receive billions from state and federal programs
including: food, housing, education, healthcare, utilities, and child care.
Healthcare costs in U.S. are a major part of operations strategy for both domestic and
foreign enterprises.
Question: What large cost would be considered by a manufacturer deciding whether to build a
plant in Canada versus the US? Why? What is different about healthcare (sick care) in USA
versus Canada?
Thinking Time: Does your hometown have fewer manufacturing jobs today than 10 years ago?
How many retailers in your hometown have closed because you and other shoppers, like you,
switched to Wal*Mart or Target?
Many global competitors have unfavorable labor rates (wages paid per hour) e.g. USA, Germany,
Canada, and Japan versus wages in China, Mexico, Viet Nam and Korea.
Strategies to offset unfavorable labor rates include:
 Higher productivity (e.g. U.S. agriculture)
 Negotiate lower wages and benefits
 Automate operations
 Lobby government for protection
 Outsource – move operations to other countries or use contracted
manufacturing
Good news: Manufacturing is returning to the USA. What is the bad news?
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 5
Questions 4 U:
Do you want lower consumer prices, even if it means fewer U.S, jobs? Explain.
If you were the King of Saudi Arabia, what is your long-range strategy for your oil
industry?
Service Sector
As U.S. manufacturing jobs continue to decline, relatively lower paying service jobs increase.
Congress resists increasing the minimum wage. What city(s) raised the minimum wage above
$10 per hour?
Question: What does the U.S. manufacture for export markets?
Many service enterprises exist only to serve the manufacturing sector.
Examples include: industrial distribution, transportation, pollution control, temporary
employment agencies, printing, advertising, broadcasting, publishing, education & training,
seminars & conference providers, financial services, insurance, healthcare, security, banking,
telecommunications, utilities, and e-business.
If the U.S. services sector is to prosper, like manufacturing, it must continue to improve
quality, flexibility, customer service, and cost.
What are some poor services that you have encountered? Do you think these issues are being
addresses by the strategies of these enterprises?
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 6
Social Responsibility
Corporate America has been charged with unethical behavior and greedy motives.
 Mortgages made to home buyers not having good credit, for price-inflated houses
 Investment bankers sliced the mortgages into “derivatives”, bundled them into
investments, and sold them on the world market.
 Bernie Madoff swindled billions from investors via a Ponzi scheme – he went to prison.
What drives this type of behavior?
GREED!
Examples of Regulations and Laws:
EPA, OSHA, EEOC, FLSA, ADA, FMLA, ERISA, Clean Air Act, Sarbanes Oxley, and others
reflect actions taken to reduce corruption.
Components of Social Responsibility
(You need to remember only the underlined titles)
Environmental Impact – some firms relocate to foreign manufacturing sites having less or no
environmental regulation – the Mexican side of the U.S. border is a prime example.
Safety Impact – harm to people or animals resulting from poor product design damages an
enterprise’s reputation, require larges expenses to correct, and can result in government
regulations. Producers may need to recall, replace and repair the defective products.
MGMT 3344 – OSCM
Reading 2 – Strategy
DKI rev Jul 2016 7
Employee Impact: Labor shortages in key sectors, society/consumer pressure, ethics, and
governmental laws all work together to cause employers to develop policies governing the fair
and ethical treatment of workers.
Look up “Peonage” and find the year that it was finally ended in the US.
Ethics: The code of behavior that is considered to be morally right or wrong; or “Doing the
right thing”.
The 2 Most Important Production Strategies
Produce-to-stock: Products are produced and placed into inventory. When sales orders
are received, they are filled from inventory.
Produce-to-order: Products are not produced until an order is in hand. Some call this
JIT.
Summary:
No single operation strategy exists that is best for all enterprises.
An enterprise must develop its own operation strategy to best achieve its strategies and
mission.
Quality begins with the people you hire.
THAT’S ALL, FOLKS!!

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