2. © 2014 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.13–2 1.Explain what global operations management is and how it operates. 2.Describe the advantages and disadvantages of global procurement, and compare the reasons why companies outsource and insource. 3.Identify the advantages and disadvantages of global production. 4.Discuss the considerations for locating and relocating production facilities. 5.Illustrate the benefits of global supply-chain management, and describe how the Internet and enterprise resource planning systems are affecting global supply chains.

3. Global Operations Management © 2014 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.13–3 The system that businesses use to produce products Production System A production system in which goods dominate the value of the product Manufacturing System A production system in which services dominate the value of the product Service System

4. © 2014 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.13–4 EXHIBIT 13.1 A PRODUCTION SYSTEM MODEL

5. Production System Transformation Processes © 2014 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.13–5 PhysicalPhysical LocationalLocational InformationalInformational PsychologicalPsychologicalPhysiologicalPhysiological ExchangeExchange StorageStorage

6. 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 © 2014 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.13–6

7. 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 © 2014 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.13–7

8. Operations Management Activities Procurement – Acquisition of goods and services Production – Transformations applied in the production process Logistics – Movement of materials in the production system Research and Development – Design of new products © 2014 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.13–8

9. 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 globally produces goods and services © 2014 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.13–9

10. Advantages of Global Procurement No need to invest the money that is 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 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 © 2014 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.13–10

11. Disadvantages of Global Procurement Risk of relying upon suppliers on important production process dimensions such as quality, delivery, and cost 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 © 2014 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.13–11

12. Outsourcing and Insourcing © 2014 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.13–12

13. 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 Provides secure source of supply for critical components Affords secure protection of the intellectual property associated with components and processes © 2014 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.13–13

14. Global Production: Disadvantages of 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 © 2014 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.13–14

15. Location of Production Facilities for Components and Raw Materials 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 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 © 2014 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.13–15

16. 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 © 2014 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.13–16

17. 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 © 2014 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.13–17

18. © 2014 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.13–18 EXHIBIT 13.2 A SIMPLE SUPPLY CHAIN

19. 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 © 2014 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.13–19

20. 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 inter- connected network, where each network retains its own identity © 2014 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.13–20

21. The Role of Information Technologies 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 © 2014 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.13–21

22. © 2014 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.13–22 EXHIBIT 13.3 ANATOMY OF AN ERP SYSTEM

23. Properties of ERP Systems Software © 2014 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.13–23 Simultaneously operates in multiple languages Multi-language Handles accounting standards of multiple countries Multi-national Handles multiple currencies Multi-currency

24. © 2014 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.13–24 KEY TERMS 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 internetworking enterprise resource planning (ERP) systems multi-language multi-national multi-currency