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Global Operations andGlobal Operations andSupply Chain ManagementSupply Chain Management

International Businessby Ball, McCulloch, Frantz,

Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

This chapter covers:

•Supply chain management

•Global sourcing

•JIT production

•Synchronous manufacturing

•Six Sigma

•Impediments to global standardization

•Importance of technology

•Classes of activities in manufacturing

Chapter ObjectivesChapter Objectives

Understand supply chain management and the relationship with design

Describe the five global sourcing arrangements and appreciate the importance of the added costs of global sourcing

Understand the increasing role of electronic purchasing for global sourcing

Understand the Japanese efforts to improve quality and lower costs

Know the just-in-time production system and its problems Understand synchronous manufacturing and customization Understand Six Sigma systems Identify the impediments to global standardization of

production processes and procedures Know the two general classes of activities in manufacturing

systems21-2

Lower Costs/Improved ProductsLower Costs/Improved Products Desired results may be

obtained through Improvement within

existing operations Opening new

operations or finding outside sources for inputs

Outsourcing Combination of above

Process is referred to as supply chain management

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Global Supply Chain ManagementGlobal Supply Chain Management

Supply chain management refers to activities involved in producing a company’s products and services, and how these activities are linked together

Involves total systems approach to managing flow of Materials Information Finances Services

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Design of Products and ServicesDesign of Products and Services

Design has a fundamental relationship with type of inputs required

Important consideration is extent to which products and services will be standardized or adapted

Over-the-Wall approach traditional approach Sequential steps

Alternative approach cross-functional participation Can involve customers

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Sourcing GloballySourcing Globally

Important Reasons for Sourcing Globally Lower price available from foreign

sources Availability of foreign products not

available locally Firm’s worldwide operation and attitude Advanced technology available from

foreign sources Higher-quality products available from

foreign sources

OutsourcingOutsourcing

An increasingly common option Focus on core

competencies Leverage skills of

other companies Reduce costs Improve flexibility

and speed of response

Enhance quality

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Can outsource in same country or another country

Choices increased by Global access to

vendors Falling costs of

interactions Improved information

technology and communication

OutsourcingOutsourcing

Any part of value chain can be outsourced Product design Input supply Manufacturing or

assembly Logistics Distribution Marketing Sales Service Human resources

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OutsourcingOutsourcing

Considerations Costs Control Expertise required Distance Languages Laws and regulations

Initially better to outsource simple activities then gradually outsource more complex activities

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The Lure of Global Outsourcing Suppliers with

improved competitiveness in terms of Cost Quality Timeliness

Less developed countries with low-cost labor Attractive for labor-

intensive products with low skill requirements

Global Sourcing ArrangementsGlobal Sourcing Arrangements

Arrangement that provide a firm with foreign products. Wholly owned subsidiary Overseas joint venture In-bond plant contractor Overseas independent contractor Independent overseas manufacturer

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Use of ElectronicUse of ElectronicPurchasing for Global SourcingPurchasing for Global Sourcing

In recent years, many firms have set up electronic procurement exchanges to identify potential

suppliers or customers to facilitate efficient

and dynamic interactions among these prospective buyers and suppliers

Purchasing is increasingly being viewed as a strategic function

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Global Electronic ProcurementGlobal 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 prices and order flows

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Benefits Cut costs Improve productivity Cut invoice and

ordering errors Reduce trading cycle

time Reduce supply base Improve internal

purchasing processes Easily compare bids Reduce paper

Global SourcingGlobal Sourcing Problems

Firm’s may be surprised that what initially appeared to be a lower price is not really lower

An increase in price occurs due to currency fluctuations

E-procurement and electronic commerce as a whole cannot be isolated from the company’s overall business system

Exposing internal business systems to access via the Internet can expose the firm to a wide range of potential security issues

21-13

Added CostsAdded 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 specification21-14

Advanced Production TechniquesAdvanced Production Techniques

Growing international competition requires companies to achieve efficiency and effectiveness in production

To improve competitiveness companies have put into place systems such as Just-in-time supply chains (JIT) Highly synchronized manufacturing

systems Computer Integrated Manufacturing (CIM) Robots

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Japan’s Use of JITJapan’s Use of JIT

Requirements to operate without inventoryComponents had to be defect-freeComponents had to be delivered to each point at

the time they were neededSellers maintained inventory of finished productsProcess time required reductionManufacturers had to simplify product linesSuppliers had to cooperateDesigners, managers, purchasing people and

marketers had to work as a team

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Total Quality ManagementTotal Quality Management

Managing the entire organization so that it excels on all dimensions of product and services that are important to the customer

TQM used Quality Circles Small work groups

that meet periodically to discuss ways to improve their functional areas and the quality of the product21-17

Problems with JIT in the U.S.Problems with JIT in the U.S. Failure to realize JIT is a

total system which includes TQM

Cultural differences in U.S. workers Highly specialized

work No company loyalty

Failure to train and integrate suppliers

JIT is restricted to operations that produce the same parts repeatedly because it is a balanced system

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Because JIT is a balanced system, if one operation stops, the entire production line stops

Achieving a balanced system is difficult because production capacities differ among the various classes of machines

JIT makes no allowances for contingencies.

Much trial and error are required to put the system into effect

Advanced Production TechniquesAdvanced Production Techniques

Synchronous Manufacturing Also called Theory of Constraints (TOC) Scheduling and manufacturing control system Focus on bottlenecks

Mass Customization Use of flexible, computer-aided manufacturing

systems Can customize for demands of individual customers

Six Sigma A business management process that combines

analytical tools with infrastructure and leadership to solve problems and optimize processes

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LogisticsLogistics

Movement of materials Must interface with

sourcing , manufacturing, design, engineering and marketing

Packaging and transportation requirements can greatly increase logistics costs

Many companies now outsource logistics

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Standardization of Global OperationsStandardization of Global Operations

In most countries standards have been developed across product lines and for various functions In Europe, the most-used standard for

quality is the ISO 9000 The most comprehensive of standards is

the ISO 9001 This standard applies to industries

involved in the design, development, manufacturing, installation, and servicing or products and services

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Reasons for GlobalReasons for GlobalStandardization of SystemsStandardization of Systems

Advantage of synchronous manufacturing and TQM

Customers everywhere want quality products at low prices

Simplifies the manufacturing organization at HQ

Increases effectiveness in keeping production specifications current

Guarantees parts manufactured in various plants will be interchangeable

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Reasons for GlobalReasons for GlobalStandardization of SystemsStandardization of Systems

Manufacturing rationalization Division of production among a number of

production units thus, enabling each unit to produce only a limited number of components for all of a firm’s assembly plants

Purchasing Control

Quality control Production and maintenance control

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Reasons for GlobalReasons for GlobalStandardization of SystemsStandardization of Systems

Building new plants will be both simpler and quicker with standardizationDesign engineers need only to copy the drawings

and list of materials that they have in their filesVendors will be requested to furnish equipment

that they have supplied previously The technical department can send the current

manufacturing specifications without alterations Labor trainers experienced in the operation of the

machinery can be sent to the new location without undergoing special training on new equipment

Reasonably accurate forecasts of plant erection time and output can be based on experience with existing facilities

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Impediments to StandardizationImpediments to Standardization

Economic Forces Wide range of

market sizes capital-intensive labor-intensive

process computer-

integrated manufacturing

Cost of production High-capacity

machines Backward vertical

integration21-25

Impediments to StandardizationImpediments to Standardization

Cultural Forces Developing

countries may lack skilled workers

Resources directed to professional vs. technical education

Use of specialized machines favored

Absenteeism creates further problems

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Political Forces Country needs new

jobs Government insists on

most modern equipment

Design solutions include Hybrid designs Intermediate

technology Appropriate technology

depends on economic, sociocultural and political variables

Design of the Manufacturing SystemDesign of the Manufacturing System

A manufacturing system is essentially a functionally related group

of activities for creating value Factors involved in the efficient

operation of a manufacturing system Plant location Plant layout Materials handling Human element

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Design of the Manufacturing SystemDesign of the Manufacturing System

Plant location Effects both

production and distribution costs

Need labor, raw materials, water and power

Must locate in export processing zones

Plant layout Arrangement of

machinery, personnel and service facilities

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Materials Handling Careful planning can

save production costs

Poor handling can result in excessive inventory, idle machinery, late deliveries and damaged goods

Human element Effectiveness

depends on people People are affected

by the system

Operation of the Operation of the Manufacturing SystemManufacturing System

Once the manufacturing system has been put into operation, two general classes of activities must be performed Productive

activities Supportive

activities

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Operation of the Operation of the Manufacturing SystemManufacturing System

Manufacturing Activities After the initial trial period

management will expect the system to produce at a rate sufficient to satisfy market demand

Obstacles to Meeting Manufacturing Standards Low output Inferior quality Excessive manufacturing costs

Obstacles to Meeting Obstacles to Meeting Manufacturing StandardsManufacturing Standards

Low Output Supplier problems Poor coordination of

production scheduling Culture differences in

attitudes, educational levels, and planning

Absenteeism Inferior Product Quality

Good quality is relative

Lack of maintenance and operating skills

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Excessive Manufacturing Costs Low output Budget problems Overoptimistic sales

forecast Supplier problems Water or power

failures Overstocked

inventory Resistance to lay off

workers

Supportive ActivitiesSupportive Activities

Quality control Inventory control Purchasing

Must consider costs Have to seek out

and develop suppliers

Must know import procedures and have connections with key government officials

Must monitor foreign exchange21-32

Supportive ActivitiesSupportive Activities

Maintenance Goal is to ensure acceptable level of

production Two alternatives

Preventive Breakdown

Technical Function Provides operations with manufacturing

specifications Check quality of inputs and finished products Influential in selecting sources of supply

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The ISO 9000 family is primarily concerned with "quality management". This means what the organization does to fulfil: - the customer's quality requirements, and

- applicable regulatory requirements, while aiming to- enhance customer satisfaction, and - achieve continual improvement of its performance in pursuit of these objectives.

The ISO 14000 family is primarily concerned with "environmental management". This means what the organization does to: - minimize harmful effects on the environment

caused by its activities, and to- achieve continual improvement of its environmental performance.