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21
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
21-3
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
21-4
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
21-5
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
21-7
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
21-8
OutsourcingOutsourcing
Considerations Costs Control Expertise required Distance Languages Laws and regulations
Initially better to outsource simple activities then gradually outsource more complex activities
21-9
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
21-10
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
21-11
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
21-12
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
21-15
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
21-16
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
21-18
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
21-19
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
21-20
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
21-21
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
21-22
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
21-23
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
21-24
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
21-26
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
21-27
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
21-28
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
21-29
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
21-31
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
21-33
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.