Lecture International business (11/e) - Chapter 19: Global operations and supply chain management

The goals of this chapter are: Understand the concept of supply chain management, recognize the relationship between design and supply chain management, describe the five global sourcing arrangements, appreciate the importance of added costs of global sourcing,…

Global Operations and Supply

Chain Management

chapter nineteen

Learning Objectives

• Understand the concept of supply chain management

• Recognize the relationship between design and supply

chain management

• Describe the five global sourcing arrangements

• Appreciate the importance of added costs of global

sourcing

• Understand the increasing role of electronic

purchasing for global sourcing

 Explain the potential of global standardization of

production processes and procedures, and identify impediments to standardization efforts

 Know the two general classes of activities in

Supply Chain Management

• Process of coordinating and integrating

the flow of materials, information,

finances, and services within and among companies in the value chain from

suppliers to the ultimate consumer

Lower Costs/Improved Products

• Desired results may be obtained through

– Improvement within existing operations

– Opening new operations

– finding outside sources for inputs

• Outsourcing

and decision making in a company’s value chain, rather than having the company and its employees continue to perform those activities

– Combination of above

Global Supply Chain Management

• Involves total systems approach to

Supply Chain Network: A Hypothetical Example of an American Laptop Computer

Company

Design of Products and Services

• Design has fundamental relationship with type of inputs required

• Important consideration is extent to which

products and services will be standardized or

• Increasingly common option

outside of the company

– Can outsource in same country or another country

• Offshoring: a foreign location– Choices increased by

• Global access to vendors

• Falling costs of interactions

• Improved information technology and communication

Global Sourcing

• The Lure of Global Sourcing

– Suppliers with improved competitiveness

Global Sourcing Arrangements

• Arrangement that provide a firm with

foreign products

– Wholly owned subsidiary

– Overseas joint venture

– In-bond plant contractor

– Overseas independent contractor

Use of Electronic Purchasing for Global Sourcing

• Growth of electronic procurement

exchanges

– Identify potential suppliers or customers

– Facilitate efficient and dynamic interactions

among prospective buyers and suppliers

– Recognize strategic function of purchasing

Global Electronic Procurement

• Electronic Exchange Options

– Catalog purchases

– Permits buyers and suppliers to interact through a

standard bid/quote system

– Facilitates obtaining letters of credit, contracting for

logistics and distribution, and monitoring daily

• Benefits

– Cut costs and invoice and ordering errors

– Improve productivity and internal purchasing processes– Reduce trading cycle time, paper

– Compare bids

Added Costs

• International freight, insurance and packing

• Import duties

• Customhouse broker’s fees

• Transit or pipeline inventory

• Cost of letter of credit

• International travel and communication costs

• Company import specialists

• Reworking of products out of specification

Advanced Production Techniques

• Systems to improve competitiveness

– Just-in-time supply chains (JIT)

– Highly synchronized manufacturing

systems

Japan’s Use of JIT

• Requirements to operate without

Total Quality Management

• System in which organization is

managed so that it excels on all

dimensions of product and service that are important to the customer

• TQM uses Quality Circles

– Small work groups meet to discuss ways to

improve functional areas and product quality

Problems with JIT in U.S.

• Failure to realize JIT is a total system, includes TQM

• Cultural differences in U.S workers

– Highly specialized work

– No company loyalty

• Failure to train and integrate suppliers

• JIT restricted to operations that produce same parts

repeatedly

• If one operation stops, entire production line stops

• Achieving a balanced system difficult: production capacities

differ among machines

• No allowances for contingencies

Advanced Production Techniques

• Synchronous Manufacturing

– Manufacturing system with unbalanced

operations that emphasizes total system

• Movement of materials

– Must interface with sourcing ,

manufacturing, design, engineering and

Standards for Global Operations

• Standards

– Documented agreements on technical

specifications or other precise criteria used consistently as guidelines, rules, or

definitions of the characteristics of a

product, process, or service

• ISO 9000 (International Organization for

Standards) most used in Europe, for quality

• ISO 9001 most comprehensive standard

Impediments to Standardization

• Economic Forces

– Wide range of market sizes

– Cost of production

– Backward vertical Integration

• Arrangement in which facilities are established to manufacture inputs used in the production of firm’s final products

Impediments to Standardization

• Cultural Forces

– Developing countries may lack skilled workers

– Resources directed to professional vs technical education

– Use of specialized machines favored

– Absenteeism

Impediments to Standardization

• Political Forces

– Country needs new jobs

– Government insists on most modern equipment

Some Design Solutions

Local Manufacturing System

• Commonly scaled-down version of that

found in the parent company

• Horizontal/Vertical integration

– Vertical more traditional

– Horizontal less prevalent in foreign

subsidiaries

Design of the Manufacturing System

Design of the Manufacturing System

• Plant location

– Affects both production and distribution costs

– Needs labor, raw materials, water and power

– Must locate in export processing zones

• Plant layout

– Arrangement of machinery, personnel and service facilities

• Materials Handling

– Careful planning can save production costs

– Poor handling leads to excessive inventory, idle machinery,

late deliveries and damaged goods

• Human element

– Effectiveness depends on people

Operation of the Manufacturing System

• Manufacturing system has two classes

of activities

– Productive activities

– Supportive activities

Operation of the Manufacturing System

Obstacles to Meeting Manufacturing Standards

– Low output

– Inferior quality

– Excessive manufacturing costs

Obstacles to Meeting Manufacturing

Standards

• Low Output

– Supplier problems, absenteeism

– Poor coordination of production scheduling

– Culture differences,attitudes, educational levels, planning

• Inferior Product Quality

– Good quality is relative

– Lack of maintenance and operating skills

• Excessive Manufacturing Costs

– Low output

– Budget problems

– Overoptimistic sales forecast

– Supply problems, supplier, water/power

– Overstocked inventory