International Business
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Gaspar2eChapter13.pptx© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chapter 13 Global Operations and Supply-Chain Management
Introduction to Global Business
Explain what global operations management is and how it operates.
Describe the advantages and disadvantages of global procurement, and compare the reasons why companies outsource and insource.
Identify the advantages and disadvantages of global production.
Discuss the considerations for locating and relocating production facilities.
Illustrate the benefits of global supply-chain management, and describe how the Internet and enterprise resource planning systems are affecting global supply chains.
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After studying this chapter, you should be able to:
Global Operations Management
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Production System
The system businesses use to produce products
Manufacturing System
A production system in which goods dominate the value of the product
Service System
A production system in which services dominate the value of the product
EXHIBIT 13.1 A PRODUCTION SYSTEM MODEL
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Production System Transformation Processes
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Physical
Locational
Informational
Psychological
Physiological
Exchange
Storage
Production Systems Terms
Production facility
The site where production takes place
Components
Goods and services that integrate a product
Raw materials
Materials used to produce components
Production stages
Steps in the production process
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Defining Operations Management
Operations management—management of the direct resources that are involved in the production system of a business organization
Domestic operations management—when all production system direct resources of a firm originate from and reside in only one country
Global operations management—when one or more of the production system direct resources originate from or are located in more than one country
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Procurement
Acquisition of goods and services
Production
Transformations required by the production process
Logistics
Movement of materials in the production system
Research and development
Design of new products
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Operations Management Activities
Global Procurement
Make-or-buy (or “sourcing”) decision
Determining which components and raw materials should be produced in-house and which components and raw materials should be acquired from suppliers
Global procurement
When a firm buys components and raw materials globally
Global production
When a firm produces goods and services globally
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No need to invest money associated with making.
Focus is on the production stages and components with the most value added.
Maximizes flexibility by allocating orders among the suppliers in a dynamic way.
Input purchase costs are lower due to economies of scale and lower costs achieved by global sellers of components.
Buying firm does not need to learn a new business.
Avoids the business risks that suppliers are taking.
Simplifies the production process.
Sets stage for offsets through direct procurement purchasing in and indirect support of local markets.
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Advantages of Global Procurement
Risk of relying upon suppliers on important production process dimensions such as quality, delivery, and cost.
Difficulty in enforcing contracts with foreign suppliers.
Competing against other competitors for the attention of critical component suppliers.
Profits earned by producing goods and services in-house will go instead to suppliers.
Buying that gives power to the suppliers of industry standard components or that creates a scarcity of those components.
Buying from suppliers could tempt suppliers into becoming direct competitors.
Procuring goods and services from suppliers carries the risk of those suppliers providing the same goods and services to direct competitors.
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Disadvantages of Global Procurement
Outsourcing and Insourcing
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Outsourcing
When a firm has been making goods and services in-house, then decides to buy these goods and services from suppliers
Domestic Outsourcing
When the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in the same country
Global Outsourcing (Offshoring)
Insourcing
When the firm has been buying goods and services from suppliers, then decides to make these goods and services in-house
When the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in different countries
Global Production: Advantages of Making
Knowledge of the product may provide process and production efficiencies, and cost advantages over potential suppliers.
Allows for control of component and process quality.
Maintains control over component and product deliveries.
In-house production may be required for highly specialized raw materials and components.
In-house production provides a secure source of supply for critical components.
Making affords secure protection of the intellectual property associated with components and processes.
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Global Production: Disadvantages of Making
Making requires the firm to have expertise in the production of its components or raw materials.
Without dual sourcing, internal suppliers may have no incentive to reduce costs or upgrade processes to improve quality.
Internal demand for a component may not be sufficient to reduce costs through economies of scale in production.
In-house processing activities increase the complexity of the firm’s production process.
The firm incurs both fixed and variable costs, while when buying, the firm would only incur variable costs.
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Location Decision
Once an organization has decided which components and raw materials to make in-house, a location decision must be made.
The location decision consists of determining
If making will be done at one or more production facilities
If these facilities will be located in one or more countries
Businesses face the one-versus-many production facilities decision when making location decisions.
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Location of Production Facilities for Components and Raw Materials
Considerations for one-versus-many production facilities decision:
The level of fixed costs associated with having one or more production facilities
The minimum efficient scale of a production facility in comparison to demand for its output
Transportation costs related to the value-to-weight of the facility’s unit of output
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Location of Production Facilities for Components and Raw Materials (continued)
Considerations for where to locate the production facilities:
The comparative advantage afforded a location due to its factor endowments
Availability of infrastructure to support production facility
Trade policies, financial and economic risks, direct investment incentives, and political considerations
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Location of Production Facilities for Products
If a product can serve all customers worldwide, then production facilities can be in one country.
If the product must be customized for different countries, then multiple facilities will be needed.
Proximity to customer markets, suppliers, component production facilities, and raw materials are important considerations.
Location of the production facility can affect the customer’s image of the product’s tangible and intangible qualities.
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Relocation of Production Facilities
Location of a production facility is a long-term decision; location has the power to provide success to a company.
Companies may relocate production facilities as new opportunities appear around the world.
Relocation can cut costs but may result in significant loss of jobs.
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Global Supply-Chain Management
Supply chain
All activities associated with the flow and transformation of goods and services from the raw material stage to the end user, together with the corresponding flows of monetary funds and information
Supply-chain management
The management of all activities in the supply chain in order to minimize the total cost of the supply chain and to maximize the value of the product to the end user
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EXHIBIT 13.2 A SIMPLE SUPPLY CHAIN
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Improving Global Supply-Chain Management
The best-run firms usually have the best supply chain, in that superior supply-chain management
Drives standardization and centralization
Increases accountability for product quality and process controls
Reduces product cycle times
Decreases customer response times
Reduces overall product costs
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The Role of Information Technologies
Telecommunication networks
Collections of computer hardware and software arranged to transmit information from one place to another
Internetworking
The linking of separate networks into an interconnected network, where each network retains its own identity
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The Role of Information Technologies (continued)
Enterprise resource planning (ERP) systems
Software packages designed to:
Integrate the majority of a firm’s business processes
Execute all transactions related to the firm’s business processes being integrated
Store each piece of data only once in an enterprise-wide database
Allow access to data and information in real time
Operate in a client-server environment, traditional or web-based
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EXHIBIT 13.3 ANATOMY OF AN ERP SYSTEM
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Properties of ERP Systems Software
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Multi-language
Multi-national
Multi-currency
Simultaneous operations in multiple languages
Handles the accounting standards of multiple countries
Handles multiple currencies
production system
manufacturing system
service system
production facility
components
raw materials
production stages
operations management
make-or-buy decision
global procurement
global production
outsourcing
domestic outsourcing
global outsourcing
offshoring
hollow corporation
insourcing
dual sourcing
location decision
supply chain
supply-chain management
telecommunication networks
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Key Terms
internetworking
enterprise resource planning (ERP) systems
multi-language
multi-national
multi-currency
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Key Terms (continued)
