2. Global Operations and Supply Chain Management McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter nineteen

3. 19-3 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 Understand the just-in-time (JIT) production system and potential problems with its implementation

4. 19-4 Chapter Objectives  Understand synchronous manufacturing and customization  Understand Six Sigma systems  Identify impediments to global standardization of production processes and procedures  Know the two general classes of activities in manufacturing systems

5. 19-5 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

6. 19-6 Lower Costs/Improved Products Desired results may be obtained through –Improvement within existing operations –Opening new operations –finding outside sources for inputs Outsourcing –Hiring others to perform some of the noncore activities 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

7. 19-7 Global Supply Chain Management Involves total systems approach to managing flow of –Materials –Information –Finances –Services

8. 19-8 Supply Chain Network: A Hypothetical Example of an American Laptop Computer Company

9. 19-9 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 adapted Over-the-Wall approach is traditional approach –Sequential steps Alternative approach is cross-functional participation –May involve customers

10. 19-10 Outsourcing Increasingly common option –Relocating some or all of a business’s activities or processes outside of the company Focus on core competencies Leverage skills of other companies Reduce costs Improve flexibility and speed of response Enhance quality –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

11. 19-11 Global Sourcing Considerations –Costs –Control –Expertise –Distance –Languages –Laws and regulations Begin simple –Then move to complex

12. 19-12 Global Sourcing The Lure of Global Sourcing –Suppliers with improved competitiveness Cost Quality Timeliness –Suppliers in less developed countries with low- cost labor Attractive for labor-intensive products with low skill requirements

13. 19-13 Global 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

14. 19-14 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

15. 19-15 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

16. 19-16 Global Sourcing Problems –Unanticipated added costs Currency fluctuations Transportation cost increases –E-procurement exposes business systems to wide range of potential security issues

17. 19-17 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

18. 19-18 Advanced Production Techniques Systems to improve competitiveness –Just-in-time supply chains (JIT) –Highly synchronized manufacturing systems –Mass customization –Six Sigma

19. 19-19 Japan’s Use of JIT Requirements to operate without inventory –Components defect-free –Components delivered to each point at specified time –Sellers maintain inventory of finished products –Process time reduced –Manufacturers simplified product lines –Suppliers cooperate –Designers, managers, purchasing people and marketers work as a team

20. 19-20 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

21. 19-21 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 Much trial and error are required to put system into effect

22. 19-22 Advanced Production Techniques Synchronous Manufacturing –Manufacturing system with unbalanced operations that emphasizes total system performance Mass Customization –Flexible manufacturing system to produce customized products and services Six Sigma –Business management process for reducing defects and eliminating variation

23. 19-23 Logistics Movement of materials –Must interface with sourcing, manufacturing, design, engineering and marketing –Packaging and transportation requirements can greatly increase logistics costs –Many companies outsource logistics

24. 19-24 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

25. 19-25 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

26. 19-26 Impediments to Standardization Cultural Forces –Developing countries may lack skilled workers –Resources directed to professional vs. technical education –Use of specialized machines favored –Absenteeism

27. 19-27 Impediments to Standardization Political Forces –Country needs new jobs –Government insists on most modern equipment

28. 19-28 Some Design Solutions Hybrid Design –Hybrid capital-intensive mixed with labor intensive processes when abundant unskilled labor Intermediate Technology –Production methods between capital- and labor-intensive methods

29. 19-29 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

30. 19-30 Design of the Manufacturing System Manufacturing system: –Functionally related group of activities for creating value –Factors involved in efficient operation Plant location Plant layout Materials handling Human element

31. 19-31 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 –People are affected by the system

32. 19-32 Operation of the Manufacturing System Manufacturing system has two classes of activities –Productive activities –Supportive activities

33. 19-33 Operation of the Manufacturing System Obstacles to Meeting Manufacturing Standards –Low output –Inferior quality –Excessive manufacturing costs

34. 19-34 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 –Resistance to lay off workers

35. 19-35 Supportive Activities Quality control Inventory control Purchasing –Must consider costs –Develop suppliers –Know import procedures and key government officials –Monitor foreign exchange

36. 19-36 Supportive Activities Maintenance –Goal to ensure acceptable level of production –Two alternatives Preventive Breakdown Technical Function –Provides operations with manufacturing specifications –Checks quality of inputs and finished products –Influential in selecting sources of supply