International business

Angela gomez

chapter18.pptx

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International Business

Sixteenth Edition

Chapter 18

Global Operations and Supply Chain Management

Learning Objectives (1 of 2)

18-1 Define what is meant by global supply-chain

management

18-2 Describe the different facets of global

operations strategies

18-3 Show how global sourcing is an important

aspect of global supply-chain and operations

management

Learning Objectives for the chapter.

Learning Objectives (2 of 2)

18-4 Explain how information technology is used in global operations and supply-chain management

18-5 Summarize how quality management is important in global operations

Learning Objectives for the chapter.

Global Supply Chain Strategy

Objective 18-1

Figure 18.1 An Integrated Global Supply Chain and Operations Strategy

Source: S. Thomas Foster, Scott Sampson, Cindy Wallin, and Scott Webb, Managing Supply Chain and Operations: An Integrative Approach(Pearson Education, Inc., 2016): 2.

Learning Objective 1: Define what is meant by global supply-chain management.

This figure explains how supply, logistics and operations come together to form a global supply chain strategy.

What is Supply Chain Management?

Objective 18-1

Supply Chain Management

Operations Management (Logistics Management)

Learning Objective 1: Define what is meant by global supply-chain management.

Supply-chain management refers to activities in the value chain that occur outside the company, whereas operations management (also known as logistics management) refers to internal activities.

Operations Management Strategy

Objective 18-2

Compatibility

Configuration

Coordination

Control

Learning Objective 2: Describe the different facets of global operations strategies.

One piece in the supply-chain strategy for both manufacturing and services is operations: the conversion of inputs into outputs. The success of a global operations strategy depends on four key factors: compatibility, configuration, coordination, and control.

Compatibility in this context is the degree of consistency between the foreign investment decision and the company’s competitive strategy. Some companies such as Walmart adopt a low-cost strategy. Others, like Apple, have adopted a differentiation strategy where they design products that are relatively unique.

Manufacturing Configuration In the global supply chain, suppliers transform raw materials into parts which make up the inputs that go into the conversion of parts into final products in the operations management phase.

Coordination is the or integrating of activities into a unified system.15 The activities include everything along the global supply chain, from purchasing to warehousing to shipment. It is hard to coordinate supplier relations and logistics activities if those issues are not considered when the manufacturing configuration is set up.

Control Once the company determines the manufacturing configuration it will use, it must adopt a control system to ensure that company strategies are carried out. Control can be the measuring of performance so a firm can respond appropriately to changing conditions.

Global Sourcing Visual

Objective 18-3

Figure 18.2 When a company wants to source raw materials, parts, or components as a function of its global strategy, it’s faced with some key decisions. It may, for example, decide to source components at home, assemble them abroad, and then export the final product to the home market, to foreign markets, or to both.

Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.

Global sourcing is the first step in the process of materials management, which includes obtaining a supply of inputs used in the production process, inventory management, and transportation between suppliers, manufacturers, and customers.

When a company wants to source raw materials, parts, or components as a function of its global strategy, it’s faced with some key decisions. It may, for example, decide to source components at home, assemble them abroad, and then export the final product to the home market, to foreign markets, or to both. This figure shows that process.

Global Sourcing

Objective 18-3

Outsourcing Definition

Why Global Sourcing?

Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.

Outsourcing, for instance, refers to a situation in which one company externalizes a process or function to another company.

Companies pursue global sourcing strategies for a number of reasons:

To reduce costs through cheaper labor, laxer work rules, and lower land and facilities costs.

To improve quality.

To increase exposure to worldwide technology.

To improve the delivery-of-supplies process.

To strengthen the reliability of supply by supplementing domestic suppliers with foreign ones.

To gain access to materials that are only available abroad, possibly because of technical specifications or product capabilities.

To establish a presence in a foreign market.

To satisfy offset requirements.

To react to competitors’ offshore sourcing practices.

Major Sourcing Configurations

Objective 18-3

Vertical Integration

Industrial Clusters

Make or Buy Decisions

Supplier Relationships

Conflict Minerals

Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.

Vertical integration occurs when a company owns the entire supplier network, or at least a significant part of it as was the case with Apple before it began to outsource to suppliers and use contract manufacturers.

Utilizing industrial clusters is an alternative way to reduce transportation and transaction costs. Under clustering, buyers and suppliers locate close to each other to facilitate doing business.

Make or Buy Decisions When it comes to production activities, MNE managers struggle with a make-or-buy decision: Which should be performed internally and which could be subcontracted to independent companies? In the case of subcontracting, a company must also decide whether the activities should be carried out in the home market or abroad. This often involves developing a strategy that might be a combination of outsourcing, offshoring, and/or supply chaining.

Supplier relationships are very important but sometimes complicated, especially for MNEs trying to manage them around the world.

Conflict Minerals is a real challenge for U.S.-based MNEs is compliance with a provision in the Dodd–Frank Act that requires companies to disclose the use of certain minerals mined in war-torn or conflict areas, primarily in Africa.

Technology in Global Operations

Objective 18-4

EDI (Electronic Data Interchange)

ERP (Enterprise Resource Planning)

RFID (Radio Frequency ID)

Learning Objective 4: Explain how information technology is used in global operations and supply-chain management.

EDI The key to making a global information system work is getting the relevant information in a timely manner. Apple, for example, has established a B2B (business to business) gateway that all of its suppliers are required to use, which basically allows suppliers to share electronic data with Apple. Many companies use electronic data interchange (EDI) to link suppliers, manufacturers, customers, and intermediaries, especially in the food-manufacturing and car-making industries, in which suppliers replenish in high volumes.

The next wave of technology affecting the global supply chain was the implementation of IT packages known as enterprise resource planning (ERP). Companies such as Oracle, Baan, PeopleSoft, and German software giant SAP introduced software to integrate everything in the back office (the part of the business dealing with internal matters, as opposed to the front office, which deals with the customer). ERP is essential for bringing together the information inside the firm with information from different geographic areas, but its inability to tie in to the customer and take advantage of e-commerce has been a problem.

A newer wave has recently swept the technology scene in the form of radio frequency ID (RFID), a system that labels a product with an electronic tag that stores and transmits

Information on the product’s origin, destination, and quantity. When electronic readers scan the tags by means of radio waves, the data can be rewritten or captured and sent to a computer-network database, which collects, organizes, stores, and moves the data—often in conjunction with an ERP system.

E-Commerce

Objective 18-4

Extranet

Intranet

PTX (Private Technology Exchange)

The Digital Divide

Learning Objective 4: Explain how information technology is used in global operations and supply-chain management.

Companies with web-based systems usually establish an extranet for suppliers—a linkage to its information system via the Internet—so they can organize production and delivery of parts. The real attraction of the Internet in global supply-chain management is that it not only helps automate and speed up internal processes in a company through an intranet, but also spreads efficiency gains to the business systems of its customers and suppliers.43 A recent development in technology is private technology exchange (PTX), an online collaboration model that brings manufacturers, distributors, value-added resellers, and customers together through the Internet to execute trading transactions and share information about demand, production, availability, and more.

The Digital Divide The challenge in global supply-chain management is that although some networks can be managed through the Internet, others—particularly in emerging markets—cannot because of the lack of technology or low Internet speeds. The use of the Internet varies by location and by industry.

What is Quality?

Objective 18-5

Definition of Quality

Zero Defects

Acceptable Quality Level (AQL)

Learning Objective 5: Summarize how quality management is important in global operations.

Quality can be defined here as meeting or exceeding customer expectations. More specifically, it is conformance to specifications, value, fitness for use, support (provided by the company), and psychological impressions.

Quality also refers to zero defects, an idea perfected by Japanese manufacturers who refuse to tolerate flaws of any kind. Before this strong emphasis on getting rid of defects, many companies operated according to the premise of acceptable quality level (AQL), which held that a few faulty products would be dealt with through repair facilities and service warranties.

Lean Manufacturing and TQM

Objective 18-5

What is TQM?

TQM and Foreign Sourcing

Kanban System

Learning Objective 5: Summarize how quality management is important in global operations.

Total quality management (TQM) is a process that stresses three principles: customer satisfaction, continuous improvement, and employee involvement.52 The goal is to eliminate all defects. TQM often focuses on benchmarking world-class standards, product and service design, process design, and purchasing.

Foreign sourcing can create big risks for companies that use lean manufacturing and JIT because interruptions in the supply line can cause havoc. MNEs are becoming expert at meeting the requirements of JIT—ships that take two weeks to cross the Pacific docking within an hour of scheduled arrival, factories that are able to more easily fill small orders, and so on. However, because of distances alone, the supply chain is open to more problems and delays.

The Kanban System One system pioneered by Toyota to facilitate its JIT strategies is the kanban system, named after the Japanese word for “card” or “visible record.” Kanban cards are used to control the flow of production through a factory.

Quality Standards

Objective 18-5

Six Sigma

ISO Standards

Industry Specific Standards

Company Specific Standards

Learning Objective 5: Summarize how quality management is important in global operations.

Six Sigma is an effective statistical approach to quality management developed by Motorola and popularized by General Electric. As a highly focused system of quality control that scrutinizes a company’s entire production system, it aims to eliminate defects, slash product cycle times, and cut costs across the board. The system uses data and rigorous statistical analysis to identify “defects” in a process or product, reduce variability, and achieve as close to zero defects as possible.

General-Level Standards The International Organization for Standardization (ISO) in Geneva was formed in 1947 to facilitate the international coordination and unification of industrial standards. From the beginning, it has partnered with the IEC (International Electrotechnical Commission), which is the originator of global technical standards. It also collaborates with the International Telecommunications Union and the World Trade Organization. As an NGO, the ISO represents a network of standard setters in 161 countries and has established over 21,000 international quality standards.

Industry-Specific Standards In addition to the general standards described earlier, there are industry-specific standards for quality, especially for suppliers to follow.

Company-Specific Standards Individual companies also set their own standards for suppliers to meet if they are going to continue to supply them. Most large MNEs with large supply chains have set and published supply-chain standards, often in the context of a sustainability report.