International Business Strategy and

Production Process Organization

Daniel Hui
Seneca Business

The Strategy Hierarchy

The Strategic Making Pyramid

Alignment of Strategies
Business
Strategy

A plan for
choosing
how to
compete

Organizational
Strategy

A plan for how

a company
will function in its
environment

Production &
SCM
Strategy

A plan for how

manufacturing and
supply chain will
function in its
environment to meet
business goals and
strategies

Generic Competitive Strategies

Five generic competitive strategies

Balanced plans for

Pleasing customers
Responding to market
conditions
Securing competitive
advantage

Market target

Countering rivals

Broad
crosssection of
buyers

Narrow
buyer
segment
and market
niche

Overall
low-cost
provider
strategy

Broad
differentiation
strategy
Best-cost
provider
strategy

Focused
low-cost
strategy
Lower cost

Focused
differentiation
strategy
Differentiation

Type of competitive advantage being

pursued

Source: Crafting & Executing Strategy, Thompson et al., 19th edition, The McGraw-Hill Companies, Inc.

Competition, Market Conditions, and Global

Why Compete Globally?

Gain access to new customers.

Achieve lower costs; increase competitiveness.
Exploit core competencies.
Spread business risk.
Industry leadership must be global, not just domestic.

Market Life Cycle and Strategy Evolution

Strategic
factors

Emerging
phase

Rapidly
growing phase

Competitive
strategy and focus

Low-cost or
differentiation

Product strategy

Marketing strategy

Distribution
channels

Maturing phase

Declining
phase

Further
differentiation

Low-cost leader

Harvest cash flow or

sell and invest
elsewhere

Perfection of
technology and
product

Innovation to
expand product
lines; lower prices

Emphasis on cost and

service; product
pruning

Selective innovation
and differentiation

Awareness, then
brand loyalty

Operations Expand sales to current

New geographical
customers,
strategy
markets;
brand
international markets;
building
brand promotion

First mover Generic

Access
to new
Closure of low-volume
performance
objectives
advantage
high-cost channels
costchannels
dependability speed
flexibility

Supply chain

Partnerships to
gain resources,
expertise

Further cost
reduction

Selective promotions

Further
consolidation

quality

Technology and
flexibility to lower
costs; mergers

Intense focus on
efficiency; low cost
leadership

The Integration-Responsiveness Framework

Source: Strategic Management, Frank Mathaermel, McGraw Hill

Four Global Strategies

International strategy

Leveraging home-based core competencies

Standard products
Selling the same products or services in both domestic and foreign markets
Example: Selling Starbucks coffee internationally

Localization (product differentiation) strategy

Maximize local responsiveness via a multi-domestic strategy

Logistics Costs
Local compliance issues
Consumers will perceive them to be domestic companies
Example: Nestls customized product offerings

Source: Strategic Management, Frank Mathaermel, McGraw Hill

Four Global Strategies

Global standardization (cost leadership) strategy

Economies of scale and location economies

Capital intensive industry
Pursuing a global division of labor based on best-of-class capabilities reside at
the lowest cost
Example: Lenovos R&D in Beijing, Shanghai, and Raleigh; production center
in Mexico, India, and China

Transnational strategy

Combination of localization strategy (high responsiveness) with global

standardization strategy (lowest cost position attainable)
Local regulatory compliance
Example: German multimedia conglomerate Bertelsmann

Source: Strategic Management, Frank Mathaermel, McGraw Hill

The Integration-Responsiveness Framework

What Supply Chain Strategy would be suitable for each of these global
business strategy?
International
Niche product/market,
responsive SC

Localization
Customizable products,
mass customization,
Low cost, efficient SC

Global Stardardization
Standard low value product,
MTS,
local production distribution

Transnational
proprietary, customizable product, strong brand,
centralized production of key modules,
postponement / localized production of final product
Source: Strategic Management, Frank Mathaermel, McGraw Hill

Business and Operations/Production Strategy Alignment

Business
strategy

Operations
strategy
Generic
performance objectives:
cost dependability speed
flexibility
quality

Operations/Production Strategy and Objectives

Operations strategy
-

Operations strategy is a pattern of decisions and actions that shape the vision,
objectives, and capabilities of an organizations operations.

Objectives of operations strategy

-

Align operations with business strategy and market requirements.

Provide vision of an operations strategy.
Define performance objectives.
Reconcile strategic decisions to performance objectives.

Increasing strategic impact

Operations/Production Strategys Vision

Stage 4
Give an
operations
advantage

Redefine
industry
expectations
Stage 3
Link strategy
with
operations

Clearly the
best in the
industry
Stage 2
Adopt best
practice

As good as
competitors

Holding the
organization
back

Stage 1
Correct the
worst
problems
Implementing
strategy

Supporting
strategy

Driving
strategy

Increasing operations capabilities

Source: Operations Strategy, Slack and Lewis, 3rd ed.; reprinted by permission of Pearson Education

Performance Objectives
Steel plant
Generic performance
objectives

Examples of aspects of each performance objective

Speed

Lead-time from enquiry to quotation

Lead-time from order to delivery

Dependability

Percent of deliveries on-time, in-full

Customers kept informed of delivery dates

Flexibility

Possible range of sizes, gauges, coatings, and so on

Rate of new product introduction
Ability to change quantity, composition and timing of an
order

Quality

Percent of products conforming to their specification

Absolute specification of products

Cost

Price of products
Price of technical advice

Source: Operations Strategy, Slack and Lewis, 3rd ed.; reprinted by permission of Pearson Education

Use of Performance Objectives

Can be adapted to support different competitive strategies

-

Overall low-cost provider

Focused low-cost provider
Best-cost provider
Broad differentiation
Focused differentiation

Strategy Decisions and Performance Objectives

Quality

Customer care

Speed

Supply chain
management

Dependability

Supply chain
management

Flexibility
Cost

IT

SCM and mass

customization

Regional location

Service
agreements

Regional repair
center

Design
decisions

Delivery
decisions

Development
decisions

Source: Operations Strategy, Slack and Lewis, 3rd ed.; reprinted by permission of Pearson Education

How market requirements are met

Operations performance
objectives

How operations resources are used

Volume-Variety (Product-Process) Matrix

The processs volume-variety position

High
Low

Low
High

Variety

Process-design
characteristics
Performance
objectives
Tasks
Flow
Layout
Technology
Job design

Variety
Volume

B
Volume
Source: Operations Strategy, Slack and Lewis, 3rd ed.; reprinted by permission of Pearson Education

Process Types: Manufacturing Environment

Diverse
and
complex

Intermittent

High

Project

Manufacturing process
types
Jobbing

Process
tasks

Process
flow

Variety

Batch
Repetitive
Mass/
continuous

Repeated
and
divided

Continuous
Low

Volume

Adapted from Operations and Process Management, Slack et al., 2nd ed., 2009; reprinted by permission of Pearson Education

High

Volume and Variety Relationships

vs. Production Strategies / Manufacture Environment
High

Product variety

Engineer-to-order
Mass
customization
Make-to-order

Assemble-to-order

Make-to-stock
Low

Product volume

High

Volume and Variety Relationships

vs. Process Layouts
Based around High
process resources

Fixed position
layout

Functional
layout

Cell layout
Product
layout

Variety

Process
layout

Based around
Products and services
Low

Volume

Source: Operations and Process Management, Slack et al., 2nd ed., 2009; reprinted by permission of Pearson Education

High

Functional Layout / Intermittent Manufacturing

Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Product Layout / Flow Manufacturing

Workstations are in the sequence needed to make the

product.
Work flows at a nearly constant rate.
There is little WIP inventory.

Layout Selection
Manufacturing
process type

Potential layout types

Project

Fixed-position layout
Functional layout

Jobbing

Functional layout
Cell layout

Batch

Functional layout
Cell layout

Repetitive

Cell layout
Product layout

Mass/
continuous

Product layout

Service
process types

Fixed position layout

Functional layout
Cell layout

Professional
service

Functional layout
Cell layout

Service shop

Cell layout
Product layout

Mass service

Source: Operations and Process Management, Slack et al., 2nd ed., 2009; reprinted by permission of Pearson Education

Manufacturing Environment, Layout, Processes,

Systems and Execution
Manufacturing Environment
Order Fulfillment
Strategies

ETO

MTO

Manufacturing Processes

Job

Batch /
Intermittent

Fixed

Process /
Functional

MPC system

Project

Complex

Complex

Simple

Execution

Project

Push

Pull / Push

Pull

Factory Layout

1 26

APICS CONFIDENTIAL AND PROPRIETARY

ATO

MTS

Sub-assembly Flow / Continuous

MTS / Flow /
Product
FG - MTO / Batch
Product
/ Process

Determinants of Process Type / Manufacturing

Environments

Lead time expectations

Product design input from customers
Product volume and variety
Product life cycle
Degree of automation
Scale and scalability
Coupling and connectivity

Lead Time and Manufacturing Environments

ETO delivery lead time
Design

Purchase

Manufacture

Ship

Assemble

Engineer-toorder

MTO delivery lead time

Make-to-order

Inventory

Manufacture

Assemble

Ship

ATO delivery lead time

Manufacture

Inventory

Assemble

Ship
MTS delivery
lead time

Manufacture

Assemble

Inventory

Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Ship

Assemble-toorder

Make-to-stock

Layout Characteristics
Layout types
Characteristics
Unit cost
Work in process
Product mix flexibility
Variety of tasks for workers
Plant utilization

Ease of plant and worker supervision

Cost of plant and equipment
Ease of scheduling
Throughput
Worker involvement
Complexity of flow
Need for specialized equipment

Fixed position

Functional

Cell

Product

Solution
Layout types
Characteristics

Fixed position

Functional

Cell

Product

Unit cost

High

Medium

Medium

Low

Work in process

High

High

Medium

Low

Product mix flexibility

High

High

Medium

Low

Variety of tasks for workers

High

High

Medium

Low

Plant utilization

Low

Medium

High

High

Ease of plant and worker supervision

Low

Low

High

High

Cost of plant and equipment

Low

Low

Medium

High

Ease of scheduling

Low

Low

Medium

High

Low

Low

High

High

High

Low

Throughput
Worker involvement

cost dependability speed

flexibility
quality
High
High

Complexity of flow

Low

High

Medium

Low

Need for specialized equipment

Low

Low

Medium

High

Infrastructure Choices

Organizational design
Quality management systems
Information systems
Operations planning and control systems

Centralized Versus Decentralized Structure

Attribute

Centralized

Decentralized

Strategic decisions

Corporatewide

Autonomous and
semiautonomous; division level

Profit and loss responsibility

Corporate

Plant or division level

Types of products and

companies

Mature; commodities; process

industry

Various life cycle phases;

discrete products and shorter
lead times; various products
and industries

Plant operations

Planned centrally

Plant management

Performance objectives and

competitive strategy(ies)

Cost; low-cost provider

Flexibility and delivery reliability

Issues

Slow to respond to market

changes

Resource duplication among

decentralized operations; lowcost producer not likely

Hierarchical Versus Horizontal Structure

Decision-making and
related attributes

Hierarchical

Horizontal

Strategic decision making and

long-range planning

Top management

Top management

Chain of authority

Top-down

Collaboration; matrix
leadership; teams

Supply chain management

decisions

Functional and departmental

orientation

Cross-functional focus and

work teams

Job definitions

Stratified; highly structured

Allow flexible job and decision

making responsibilities

Employee decision making

(empowerment)

Low or none

Encouraged; norm at the

operational level

Organizational flexibility

Low

High

Integrated Measurement Model

Market
strategic
objectives

Functional
strategic
measures
Composite
performance
measures

Customer
satisfaction

Generic operations
performance
measures

Examples of
detailed
performance
measures

High strategic
relevance and
aggregation

Overall
strategic
objectives

Broad
strategic
measures

Quality

Defects per
unit

Level of
complaints

Operations Financial
strategic
strategic
objectives objectives

Agility

Dependability Speed
Mean time
between
Customer
failures
query time
Lateness
Throughput
complaints time

Source: Operations Strategy, Slack and Lewis, 3rd ed.; reprinted by permission of Pearson Education

Resilience

Flexibility

Cost

Time to Transaction
market
costs
Product Labor
range
productivity

High
diagnostic
power and
frequency of
measurement