INTRODUCTION TO INTRODUCTION TO OPERATIONS OPERATIONS

MANAGEMENTMANAGEMENT

What is operations?

The part of a business organization that is responsible for producing goods or services

How can we define operations management?

The design, operation and improvement of the systems or processes that create goods and/or provide services

OPERATIONS OPERATIONS MANAGEMANAGEMENTMENT

SUPPLY & DEMANDSUPPLY & DEMAND

Supply Demand>

Supply Demand<

Supply Demand=

WastefulCostly

Opportunity LossCustomer Dissatisfaction

Ideal

Operations & Supply Chains Sales & Marketing

Operations as a transformation process

Operations as a basic function Operations as the technical core

THE OPERATIONS THE OPERATIONS FUNCTIONFUNCTION

THE TRANSFORMATION THE TRANSFORMATION PROCESSPROCESS

Inputs•Land•Materials•Labor•Management•Capital•Information

Outputs•Goods•Services

Transformation/Conversion

Process

Control

Feedback

Feedback Feedback

Value-Added

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to determine if corrective action is needed.

WHAT IS VALUE ADDED?WHAT IS VALUE ADDED?

The essence of operations function is to add value during the transformation process

Value added is the difference between the cost of intputs and the value or price of outputs.

FIRMS USE THE MONEY FIRMS USE THE MONEY GENERATED BY VALUE GENERATED BY VALUE

ADDED FOR:ADDED FOR:R&DInvestment in new facilities and equipmentPaying workersPaying for materialsPaying for general expensesProfits

TRANSFORMATION PROCESS TRANSFORMATION PROCESS OF A CANNED FOOD OF A CANNED FOOD

PROCESSORPROCESSORInputs Processing Outputs

• Cleaning Canned vegetables• Making cans

• Cutting• Cooking• Packing• Labeling

Metal sheets Raw vegetablesWaterEnergyLaborBuildingEquipment

TRANSFORMATION TRANSFORMATION PROCESS OF A HOSPITALPROCESS OF A HOSPITAL

Inputs Processing

OutputsDoctors, nurses Examination Healthy

patientsHospital SurgeryMedical SuppliesMonitoringEquipment MedicationLaboratories Therapy

EXAMPLES OF VARIOUS EXAMPLES OF VARIOUS OPERATIONSOPERATIONS

Operations ExamplesGoods Producing Farming, mining, construction ,

manufacturing, power generation

Storage/Transportation

Warehousing, trucking, mail

service, moving, taxis, buses,

hotels, airlines

Exchange Retailing, wholesaling, banking,

renting, leasing, library, loans

Entertainment Films, radio and television,

concerts, recording

Communication Newspapers, radio and television

newscasts, telephone, satellites

TYPES OF TRANSFORMATION TYPES OF TRANSFORMATION PROCESSESPROCESSES

Physical- manufacturingLocational- transportationExchange- retailingStorage- warehousingPhysiological- health careInformational- telecommunicationsPsychological- entertainment

MarketingGenerates demand

gets customers

Operationscreates product or service

Finance/AccountingObtains fundsTracks organizational performance

OPERATIONS AS A BASIC OPERATIONS AS A BASIC FUNCTIONFUNCTION

Operations FinanceMarketing

Organization

BASIC FUNCTIONS OF BASIC FUNCTIONS OF THE BUSINESS THE BUSINESS ORGANIZATIONORGANIZATION

SUPPLY CHAINSUPPLY CHAIN

Suppliers’suppliers

Directsuppliers

Producer DistributorFinal

Customers

Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service

IMPORTANCE OF OM IMPORTANCE OF OM (WHY STUDY OM?) (WHY STUDY OM?) (1 of (1 of

2)2) Operations is one of the three major

functions of an organizationOffers a major opportunity for an

organization to improve its productivity and profitabilityOM affects 1) the companies’ ability to

compete and 2) the nation’s ability to compete internationallyNearly half of the employed people

over the world have jobs in operations

IMPORTANCE OF OM IMPORTANCE OF OM (WHY STUDY OM?) (WHY STUDY OM?) (2 of (2 of

2)2)The OM function is responsible for a

major portion of the assets of most organizationsOM is a costly part of an organization

The concepts, tools and techniques of OM are widely used in managing other functions.Presents career opportunities

OPTIONS FOR OPTIONS FOR INCREASING INCREASING

CONTRIBUTIONCONTRIBUTION

Marketing Option

Finance & Accounting

Option

OM Option

Current Sales

Revenue : +50% Finance Costs: -50%

P roduction Costs: -20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods Sold

-80,000 -120,000 -80,000 -64,000

Gross Margin

20,000 30,000 20,000 36,000

Finance Costs

-6,000 -6,000 -3,000 -6,000

Net Margin

14,000 24,000 17,000 30,000

Taxes @ 25%

-3,500 -6,000 -4,250 -7,500

Contribution 10,500 18,000 12,750 22,500

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TYPES OF PRODUCTION TYPES OF PRODUCTION PROCESSESPROCESSES

(PROCESS FLOW (PROCESS FLOW STRUCTURESSTRUCTURES))

INTERMITTENTJob shopBatch production

CONTINOUSMass productionContinuous flow production

PROJECT

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EMERGENCY ROOMEMERGENCY ROOMSu

rger

y

RadiologyE.R. beds Pharmacy Billing/

exit

E.R.Triage room

E.R. AdmissionsPatient B - erratic pacemaker

Patient A - broken leg

Hallway

2020

Raw materialsor customer

F GStation 2

Station 2

Station 3

Station 3

Station 4

Station 4

Material and/or labor

Station 1

Material and/or labor

Material and/or labor

Material and/or labor

Used for Repetitive or Continuous Processing

AUTOMOBILE PLANTAUTOMOBILE PLANT sequential

PRODUCTION OF PRODUCTION OF GOODS VS. GOODS VS.

DELIVERY OF DELIVERY OF SERVICESSERVICES

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Tangible Act-Oriented

Goods Services

Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.

MANUFACTURING MANUFACTURING vs. SERVICEvs. SERVICE

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Automobile Assembly, Steelmaking

Products are typically neither purely service- or purely goods-based.

Goods Services

Home Remodeling, Retail Sales

Computer Repair, Restaurant Meal

Songwriting, Software Development

Surgery, Teaching

GOODS-SERVICE GOODS-SERVICE CONTINUUMCONTINUUM

GOODS VS. SERVICES GOODS VS. SERVICES (1 of (1 of 3)3)

CHARACTERISTICS GOODS

SERVICE

Customer contact Low High

Uniformity of inputs and outputs

High Low

Labor content Low High

Automation Easy Generally difficult

Output Tangible

Intangible, often unique

Measurement of productivity

Easy Difficult

Opportunity to correct problems

High Low

Inventory Much Little

Quality evaluation Easier Difficult

Production activities Obvious

Not so obvious

GOODS VS. SERVICES GOODS VS. SERVICES (2 (2 of 3)of 3)

CHARACTERISTICS GOODS SERVICEProduction and consumption Separate Generally take

place at the same time

Location Centralized Generally dispersed

Locational factors to be considered

Cost-oriented

Revenue-oriented

Reselling Possible Not possiblePatentability Usually Not usuallyActivities Smooth and

efficientSlower and awkward

Inventoriability andTransportability

Inventoriable &Transportable

Non inventoriable and so nontransportable

CHARACTERISTICS GOODS SERVICE

Job structure More structured

Less structured

Worker skill levels Generally higher

Generally lower

Employee turnover Generally lower

Generally higher

GOODS VS. SERVICES GOODS VS. SERVICES (3 of 3)(3 of 3)

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MANAGING SERVICES IS MANAGING SERVICES IS CHALLENGINGCHALLENGING

Jobs in services are often less structured than in manufacturing Customer contact is generally much higher in services compared

to manufacturing In many services, worker skill levels are low compared to those of

manufacturing employees Services are adding many new workers in low-skill, entry-level

positions Employee turnover is high in services, especially in low-skill jobs Input variability tends to be higher in many service environments

than in manufacturing Service performance can be adversely affected by many factors

outside of the manager’s control (e.g., employee and customer attitudes)

SERVICE JOB CATEGORIES SERVICE JOB CATEGORIES

(1 of 2)(1 of 2)Governmental servicesMunicipal servicesTrade services (wholesale/retail)Finance, insurance, real estateMedical (healthcare)Personal services

SERVICE JOB SERVICE JOB CATEGORIESCATEGORIES

(2 of 2)(2 of 2)Business servicesEducationFood, lodging and entertainmentUtilities and transportationLegal, consultingRepair

SERVICES IN SERVICES IN MANUFACTURINGMANUFACTURING

In manufacturing, services can be divided into two groups:Core ServicesValue-added Services

Core services are basic things that customers want from products they

purchase

CORE SERVICESCORE SERVICES

CORE SERVICES CORE SERVICES PERFORMANCE OBJECTIVESPERFORMANCE OBJECTIVES

OperationsManagement

Flexibility

Quality

Speed

Price (or cost Reduction)

Value-added services differentiate the organization from competitors and

build relationships that bind customers to the firm in a positive way

VALUE-ADDED VALUE-ADDED SERVICESSERVICES

VALUE-ADDED SERVICE VALUE-ADDED SERVICE CATEGORIESCATEGORIES

OperationsManagement Information

Problem Solving

Sales Support

Field Support

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PROCESS MANAGEMENTPROCESS MANAGEMENTProcess - one or more actions that transform inputs into outputs

Three Categories of Business ProcessesThree Categories of Business Processes::

Upper-management processes

These govern the operation of the entire organization.

Operational processes

These are core processes that make up the value stream.

Supporting processes

These support the core processes.

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PROCESS VARIATIONPROCESS VARIATIONFour Sources of Variation:

Variety of goods or services being offered

The greater the variety of goods and services offered, the greater the variation in production or service requirements.

Structural variation in demand

These are generally predictable. They are important for capacity planning.

Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers.

Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.

The Scope of OM: What The Scope of OM: What Do Operations Managers Do Operations Managers

Do?Do?

Plan - Organize - Staff - Lead - Control

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The operations function includes many interrelated activities such as:

– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– Deciding where to locate facilities– And more . . .

SCOPE OF OPERATIONS SCOPE OF OPERATIONS MANAGEMENTMANAGEMENT

The scope of operations management ranges across the organization.

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The Operations Function consists of all activities directly related to producing goods or providing services.

A primary function of the operations manager is to guide the system by decision making.

–System Design Decisions–System Operation Decisions

ROLE OF THE OPERATIONS ROLE OF THE OPERATIONS MANAGERMANAGER

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SYSTEM DESIGN SYSTEM DESIGN DECISIONSDECISIONS

System DesignSystem Design Decisions Decisions – Capacity– Facility location– Facility layout– Product and service planning– Process planning– Technology planning– Acquisition and placement of equipment

These are typically strategic decisions that These are typically strategic decisions that requirerequire

• long-term commitment of resources• Determine parameters of system operation

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SYSTEM OPERATION SYSTEM OPERATION DECISIONSDECISIONS

System OperationSystem Operation Decisions Decisions – Management of personnel– Inventory management and control– Scheduling– Project management– Quality assurance

Operations managers spend more time on system operation decision than any other decision area but they still have a vital stake in system design

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U.S. MU.S. MANUFACTURING ANUFACTURING vs. vs. SSERVICE EMPLOYMENTERVICE EMPLOYMENT Insert Figure 1.7Insert Figure 1.7

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THE DECLINE IN THE DECLINE IN MANUFACTURING MANUFACTURING

EMPLOYMENTEMPLOYMENTProductivity

– Increasing productivity allows companies to maintain or increase their output using fewer workers

Outsourcing– Some manufacturing work has been outsourced to

more productive companiesA Statistical Artifact

– Manufacturers are increasingly using contract and temporary labor which no longer show up in the statistics as manufacturing employment

Most operations decisions involve many alternatives that can have quite different impacts on costs or profitsTypical operations decisions include: What: What resources are needed, and in what amounts?

When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered?

Where: Where will the work be done?

How: How will he product or service be designed? How will the work be done? How will resources be allocated?

Who: Who will do the work?

OPERATIONS MANAGEMENT OPERATIONS MANAGEMENT AND DECISION MAKINGAND DECISION MAKING

OPERATIONS MANAGEMENT OPERATIONS MANAGEMENT AND DECISION MAKING AND DECISION MAKING

Models Quantitative approaches Analysis of tradeoffs Systems approach Establishing priorities

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GENERAL APPROACH TO GENERAL APPROACH TO DECISION MAKINGDECISION MAKING

Modeling is a key tool used by all decision makers– Model - an abstraction of reality; a

simplification of something.– Common features of models:

They are simplifications of real-life phenomena

They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system

MODELSMODELS

Types of Models:– Physical Models

Look like their real-life counterparts– Schematic Models

Look less like their real-life counterparts than physical models

– Mathematical ModelsDo not look at all like their real-life

counterparts

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UNDERSTANDING UNDERSTANDING MODELSMODELS

Keys to successfully using a model in decision making– What is its purpose?– How is it used to generate results?– How are the results interpreted and used?

– What are the model’s assumptions and limitations?

BENEFITS OF MODELSBENEFITS OF MODELSModels are generally easier to use and less expensive than

dealing with the real systemRequire users to organize and sometimes quantify informationProvide a systematic approach to problem solvingIncrease understanding of the problemEnable managers to analyze “What if?” questionsEnable managers to specify objectives Serve as a consistent tool for evaluation and provide a

standardized format for analyzing a problemEnable users to bring the power of mathematics to bear on a

problem.

MODEL LIMITATIONSMODEL LIMITATIONS

Quantitative information may be emphasized at the expense of qualitative information

Models may be incorrectly applied and the results misinterpreted This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users.

The use of models does not guarantee good decisions.

QUANTITATIVE APPROACHES QUANTITATIVE APPROACHES (ANALYTICAL TOOLS USED IN (ANALYTICAL TOOLS USED IN

OM)OM)A decision making approach that frequently seeks to obtain a mathematically optimal solutionLinear programmingQueuing techniquesForecasting techniquesInventory modelsProject modelsStatistical modelsSimulationDecision analysis

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METRICS AND TRADE-OFFSMETRICS AND TRADE-OFFS

Performance Metrics– All managers use

metrics to manage and control operations Profits Costs Productivity Forecast accuracy

Analysis of Trade-Offs– A trade-off is giving

up one thing in return for something else Carrying more

inventory (an expense) in order to achieve a greater level of customer service

Tradeoffs

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ESTABLISHING PRIORITIESESTABLISHING PRIORITIES

In nearly all cases, certain issues or items are more important than others

Recognizing this allows managers to focus their attention to those efforts that will do the most good

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ESTABLISHING PRIORITIES: ESTABLISHING PRIORITIES: PARETO PHENOMENONPARETO PHENOMENON

How do we identify the vital few?

Pareto Phenomenon - a few factors account for a high percentage of occurrence of some event(s)

The critical few factors should receive the highest priority80/20 Rule- 80% of the problems are caused by 20% of the activities This is a concept that is appropriately applied to all areas and levels of management

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SYSTEMS APPROACHSYSTEMS APPROACHSystem - a set of interrelated parts that must work together

The business organization is a system composed of subsystemsmarketing subsystemoperations subsystemfinance subsystem

The systems approach Emphasizes interrelationships among subsystemsMain theme is that the whole is greater than the sum of

its partsThe output and objectives of the organization take

precedence over those of any one subsystem

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Relative to other standardized products and services customized products:

Tend to be more labor intensiveTend to be more time consumingTend to require more highly-skilled peopleTend to require more flexible equipmentHave much lower volume of outputHave higher price tags

Degree of customization has a significant influence on the entire organization

Process selectionJob designAffects marketing, sales, accounting, finance, and information systems

DEGREE OF CUSTOMIZATIONDEGREE OF CUSTOMIZATION

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ETHICAL ISSUES IN ETHICAL ISSUES IN OPERATIONSOPERATIONS

Ethical issues arise in many aspects of operations management:

Financial statementsWorker safetyProduct safetyQualityThe environmentThe communityHiring and firing

workersClosing facilitiesWorkers rights

THE HISTORICAL EVOLUTION THE HISTORICAL EVOLUTION OF OPERATIONS OF OPERATIONS MANAGEMENTMANAGEMENT

HISTORICAL EVENTS IN HISTORICAL EVENTS IN OMOM

Industrial Revolution (1770s) Scientific Management (1911) Human Relations Movement (1920-1960) Decision Models – Management Science

(1915, 1940-70s) Influence of Japanese Manufacturers-Quality

Revolution & JIT (1970s-1990s ) Globalization (1970s- ) Information Age/Internet Revolution

(1990s-)

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INDUSTRIAL REVOLUTIONINDUSTRIAL REVOLUTION Pre-Industrial Revolution

– Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods

Some key elements of the industrial revolution– Began in England in the 1770s– Division of labor - Adam Smith, 1776– Application of the “rotative” steam engine, 1780s– Cotton Gin and Interchangeable Parts - Eli Whitney,

1792 Management theory and practice did not advance

appreciably during this period

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SSCIENTIFIC MANAGEMENTCIENTIFIC MANAGEMENT

Movement was led by efficiency engineer, Frederick Winslow Taylor– Believed in a “ Science of Management”

based on observation, measurement, analysis and improvement of work methods, and economic incentives

– Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities

– Emphasis was on maximizing output

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SCIENTIFIC SCIENTIFIC MANAGEMENT- MANAGEMENT- CONTRIBUTORSCONTRIBUTORS

Frank Gilbreth - father of motion studies Henry Gantt - developed the Gantt chart

scheduling system and recognized the value of non-monetary rewards for motivating employees

Harrington Emerson - applied Taylor’s ideas to organization structure

Henry Ford - employed scientific management techniques to his factories

Moving assembly line Mass production

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HUMAN RELATIONS HUMAN RELATIONS MOVEMENTMOVEMENT

The human relations movement emphasized the importance of the human element in job design– Lillian Gilbreth– Elton Mayo – Hawthorne studies on worker

motivation, 1930– Abraham Maslow – Motivation theory, 1940s;

Hierarchy of Needs, 1954– Frederick Hertzberg – Two Factor Theory,

1959– Douglas McGregor – Theory X and Theory Y,

1960s– William Ouchi – Theory Z, 1981

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DECISION MODELS AND DECISION MODELS AND MANAGEMENT SCIENCEMANAGEMENT SCIENCE

F.W. Harris – Mathematical Model for Inventory Management, 1915

Dodge, Romig, and Shewart – Statistical Procedures for Sampling and Quality Control, 1930s

Tippett – Statistical Sampling Theory, 1935 Operations Research (OR) Groups – OR

applications in Warfare George Dantzig – Linear Programming,

1947

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INFLUENCE OF JAPANESE INFLUENCE OF JAPANESE MANUFACTURERSMANUFACTURERS

Refined and developed management practices that increased productivity–Credited with fueling the “quality revolution”

–Just-in-Time production

EXCITING NEW EXCITING NEW CHALLENGES IN CHALLENGES IN

OPERATIONS OPERATIONS MANAGEMENTMANAGEMENT

NEW TRENDS AND NEW TRENDS AND ISSUES IN OMISSUES IN OM

Mass Customization Supply Chain ManagementOutsourcingLean manufacturingAgilityE-Business and E-CommerceManagement of TechnologyGlobalizationEthical Behavior

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NEW CONCEPTS AND NEW CONCEPTS AND TRENDS:TRENDS:

MASS CUSTOMIZATION MASS CUSTOMIZATION

The rapid, low cost production of goods and services that fulfill constantly changing and increasingly unique customer desires.

NEW CONCEPTS AND NEW CONCEPTS AND TRENDS: TRENDS:

SUPPLY CHAIN SUPPLY CHAIN MANAGEMENTMANAGEMENTThe management of the sequence of

organizations- their facilities, functions and activities- that are involved in producing and delivering a product or service

SCM requires the application of a systems approach to managing the flow of information, materials and services from raw material suppliers through factories and warehoses to the end user (customer)

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In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems such as:

Oscillating inventory levelsInventory stockoutsLate deliveriesQuality problems

THE NEED FOR THE NEED FOR MANAGING THE SUPPLY MANAGING THE SUPPLY

CHAINCHAIN

Stage of ProductionValue Added

Value of

Product

Farmer produces and harvests wheat

$0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store

$0.08 $1.08

Grocery store displays and sells bread

$0.21 $1.29

Total Value-Added $1.29

A SUPPLY CHAIN FOR BREADA SUPPLY CHAIN FOR BREAD

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ELEMENTS OF SUPPLY ELEMENTS OF SUPPLY CHAIN MANAGEMENT (1 CHAIN MANAGEMENT (1

of 2)of 2) Customers – what products/services do

customers want Forecasting – predicting timing and

volume of customer demand Design – incorporating customer wants,

manufacturability, and time to market Capacity planning – matching supply and

demand Processing – controlling quality,

scheduling work

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ELEMENTS OF SUPPLY ELEMENTS OF SUPPLY CHAIN MANAGEMENT (2 CHAIN MANAGEMENT (2

of 2)of 2) Inventory – meeting demand requirements while

managing costs Purchasing – evaluating potential suppliers,

supporting the needs of operations on purchased goods and services

Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations

Location – determining the location of facilities Logistics – deciding how to best move information

and materials$

NEW CONCEPTS AND NEW CONCEPTS AND TRENDS: OUTSOURCINGTRENDS: OUTSOURCING

Buying goods or services rather than producing goods or performing services within the organization

NEW CONCEPTS AND NEW CONCEPTS AND TRENDS: LEAN TRENDS: LEAN

MANUFACTURINGMANUFACTURINGSystems that use minimal amounts of Systems that use minimal amounts of resources - less space, less inventory, fewer resources - less space, less inventory, fewer workers, fewer levels of management- to workers, fewer levels of management- to produce a high volume of high-quality goods produce a high volume of high-quality goods with some varietywith some variety

An adaptation of mass production that prizes An adaptation of mass production that prizes quality and flexibility quality and flexibility

Incorporates advantages of mass production Incorporates advantages of mass production (high volume, low unit cost) and craft (high volume, low unit cost) and craft production (variety and flexibility)production (variety and flexibility)

NEW CONCEPTS AND NEW CONCEPTS AND TRENDS: AGILITYTRENDS: AGILITY

The ability of an organization to respond quickly to demands or opportunities.

Involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings

NEW CONCEPTS AND NEW CONCEPTS AND TRENDS: ELECTRONIC TRENDS: ELECTRONIC

COMMERCECOMMERCE

The use of computer networks, primarily the internet, to buy and sell products, services, and information.

OTHER TRENDS OTHER TRENDS (1 of 2)(1 of 2)

Enhancing Value-Added ServicesManagement of TechnologyEmphasis on Operations StrategyIncreasing Emphasis on Cost Control

and Productivity ImprovementQuality and Process ImprovementsIncreasing emphasis on business and

social responsibility

OTHER TRENDS (2 of 2)OTHER TRENDS (2 of 2)

Developing flexible supply chains to enable mass customization of products and services

Achieving the Service Factory

GLOBALIZATIONGLOBALIZATION

GLOBALIZATION CAN GLOBALIZATION CAN TAKE THE FORM OF:TAKE THE FORM OF:

Selling in foreign marketsSelling in foreign markets Producing in foreign landsProducing in foreign lands Purchasing from foreign Purchasing from foreign supplierssuppliers Partnering with foreign firms Partnering with foreign firms

REASONS TO GLOBALIZE REASONS TO GLOBALIZE OPERATIONS (1 of 2)OPERATIONS (1 of 2)

To take advantage of favorable costsTo gain access to and attract

international marketsTo build reliable sources of supply To improve the supply chainTo be more responsive to changes in

demand

REASONS TO GLOBALIZE REASONS TO GLOBALIZE OPERATIONS (2 of 2)OPERATIONS (2 of 2)

To provide better goods and servicesTo learn to improve operationsTo attract and retain global talentTo keep abreast of the latest trends

and technologies

EXAMPLES OF GLOBAL EXAMPLES OF GLOBAL STRATEGIESSTRATEGIES

Boeing – both sales and production are worldwide.

Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

GM is building four similar plants in Argentina, Poland, China, and Thailand

SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (1 of 3)CORPORATIONS (1 of 3)

Country Foreign SalesCompany of Origin as % of Total

Nestlé Switzerland 98.2Nokia Finland 97.6Philips Netherlands 94.0Bayer Germany 89.8ABB Germany 87.2SAP Germany 80.0Exxon Mobil United States 79.6Royal Dutch/Shell Netherlands 73.3IBM United States 62.7McDonald’s United States 61.5

SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (2 of 3)CORPORATIONS (2 of 3)

WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

Colgate-Palmolive

USA 72 63 NA

DowChemical

USA 60 50 NA

Gillette USA 62 53 NA

Honda Japan 63 36 NA

IBM USA 57 47 51

Citicorp USA 34 46 NA

SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (3 of 3)CORPORATIONS (3 of 3)

WorkforceWorkforceCompanyCompany HomeHome

CountryCountry% Sales% SalesOutsideOutsideHomeHomeCountryCountry

% Assets% AssetsOutsideOutsideHomeHomeCountryCountry

% Foreign% Foreign

ICI Britain 78 50 NA

Nestlé Switzerland98 95 97

Philips Netherlands94 85 82

Siemens Germany 51 NA 38

Electronics

Unilever

Britain & Netherlands

95

70 64

BOEING SUPPLIERSBOEING SUPPLIERS

Firm Country PartsAlenia Italy Wing flaps

AeroSpaceTechnologies

Australia Rudder

CASA Spain Ailerons

doors, wing sectionFuji Japan Landing gear

GEC Avionics United KingdomFlight computersKorean Air Korea Flap supportsMenascoAerospaceCanada Landing gears

Short Brothers Ireland Landing gear doors

SingaporeAerospace

Singapore Landing gear doors

| | | | | |19751975 19801980 19851985 19901990 19951995 20002000

$ 35 –

$ 30 –

$ 25 –

$ 20 –

$ 15 –

$ 10 –

$ 5 –

$ 0 –

GermanyJapan

United StatesEU

Asian NIEsMexico

AN INTERNATIONAL AN INTERNATIONAL COMPARISON OF COMPARISON OF

HOURLY WAGE RATESHOURLY WAGE RATES

COMPETITIVENESSCOMPETITIVENESS

COMPETITIVENESSCOMPETITIVENESS

The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.

COMPETITIVENESS OF COMPETITIVENESS OF SELECTED COUNTRIESSELECTED COUNTRIES

US SingaporeFinlandIreland Germany UK Japan Mexico Russia

100

80

60

40

20

0