Operations Management Operations in a Global Environment Chapter 3

1. Operations ManagementOperations in a Global EnvironmentChapter 3 © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

2. Outline • Global Company Profile: Boeing • Why Global Operations are Important • Achieving Global Operations • Global Product Design • Global Process Design and Technology • Global Facility Location • Impact of Culture and Ethics • Global Issues in Service Operations © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

3. Outline - continued • Global Issues in Service Operations • Managing Global Service Operations • Global Operations Strategies • International Strategy • Multi-domestic Strategy • Global Strategy • Transnational Strategy © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

4. Learning Objectives When you complete this chapter, you should be able to : • Identify or Define: • International business • Multinational corporation • Transnational Strategy • Maquiladora • Critical success factors in location analysis © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

5. Learning Objectives - continued When you complete this chapter, you should be able to : • Describe or Explain: • Global facility location analysis • Cultural and ethical issues in operations • Why global issues are important • Four global operations strategies © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

6. Firm Country Parts Alenia Italy Wing flaps AeroSpace Australia Rudder Technologies CASA Spain Ailerons Fuji Japan Landing gear doors, wing section GEC Avionics United Kingdom Flight computers Korean Air Korea Flap supports Aerospace Menasco Canada Landing gears Short Brothers Ireland Landing gear doors Singapore Singapore Landing gear doors Aerospace Boeing Suppliers (777) © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

7. Examples • Boeing - flourishes because both its sales and production are world-wide • Benetton - moves inventory to stores around the world faster than its competitors • Sony - purchases components from suppliers in Thailand, Malaysia, etc. • General Motors - simultaneously building four similar plants in Argentine, Poland, China, and Thailand so that they can learn from each other and drive down cost while increasing quality © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

8. Management Issues in Global Operations Global Strategic Context • Differentiation • Cost leadership • Response Supply Chain Management Location Decisions Logistics Management © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

9. Supply-Chain Management • Sourcing • Vertical integration • Make-or-buy decisions • Partnering © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

10. Location Decisions • Country-related issues • Product-related issues • Government policy/political risk • Organizational issues © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

11. Materials Management • Flow of materials • Transportation options and speed • Inventory levels • Packaging • Storage © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

12. Defining Global Operations • International business - engages in cross-border transactions • Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country • Global company - integrates operations from different countries, and views world as a single marketplace • Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

13. Company Home % Sales % Assets % Foreign Country Outside Outside Workforce Home Home Country Country NA Citicorp 34 46 USA Colgate- USA 65 47 NA Palmolive Dow USA 54 45 NA Chemical Gillette USA 68 66 NA Honda Japan 63 36 NA IBM USA 59 55 51 Some Multinational Corporations © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

14. ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Netherlands 94 85 82 Electronics Siemens Germany 51 NA 38 Some Multinational Corporations Company Home % Sales % Assets % Foreign Country Outside Outside Workforce Home Home Country Country © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

15. Global Operations Strategies © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

16. Pontiac - the LeMans Included the Following • About $6,000 heads to South Korea for auto’s assembly • $3,500 goes to Japan for engines, axles, and electronics • $1,500 goes to Germany for design • $800 goes to Taiwan, Singapore, and Japan for smaller parts • $500 heads to England for marketing • $100 goes to Ireland for information technology • the rest  $7,600, goes to GM and its US bankers, insurance agents, and attorneys. © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

17. Reasons to Globalize Operations Tangible Intangible • Reduce costs (labor, taxes, tariffs, etc.) • Improve the supply chain • Provide better goods and services • Attract new markets • Learn to improve operations • Attract and retain global talent © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

18. Trade and Tariff • Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment • GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders • NAFTA - a free trade agreement between Canada, Mexico, and the United States © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

19. Free trade may take us into the era of the floating factory - a six person crew will take a factory from port to port in order to obtain the best market, material, labor and tax advantages © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

20. Achieving Global Operations-Four Considerations- • Global product design • Global process design and technology • Global factory location analysis • Impact of Culture and Ethics © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

21. Singapore …………………... United States ………………. Hong Kong …………………. Taiwan ………………………. Canada ………………………. Switzerland …………………. Luxembourg ……………….. United Kingdom …………... Netherlands ………………... Ireland ………………………. Australia ……………………. Finland ……………………… New Zealand ………………. Japan ……………………….. ……... Russia ………………………. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 ….. 59 Global Competitiveness of Countries Country 1999 Ranking © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

22. Global Product Design • Remember social and cultural differences • packaging and marketing can help make product seem “domestic” but - • “liter” versus “quart” • “sweetness” and “taste” © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

23. Global Process Design and Technology • Information technology enables management of integrated, globally dispersed operation • Texas Instruments: 50 plants in 19 countries • Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany • Reduces time-to-market © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

24. Global Facility Location Analysis Using CSFs for Country Selection • Select CSFs based on parent organization;’s strategic or operations objectives • Obtain country-specific information on the CSFs • Evaluate each country’s CSFs using a 1 (bad) to 5 (good) rating scale • Sum the ratings © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

25. You May Wish To Consider • work ethic • tax rates • inflation • availability of raw materials • interest rates • population • number of miles of highway • national literacy rate • rate of innovation • rate of technology change • number of skilled workers • stability of government • product liability laws • export restrictions • similarity in language © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

26. CSF in Location Analysis © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

27. CSF in Location Analysis - continued © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

28. GlobalImpact of Culture and Ethics • Cultures differ! Some accept/expect: • variations in punctuality • long lunch hours • expectation of thievery • bribery • little protection of intellectual property © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

29. Ranking Corruption 1. Denmark 10.0 2. Finland 9.6 3. Sweden 9.5 4. New Zealand 9.4 5. Iceland 9.3 17. United States 7.5 76. Russia 2.4 77. Ecuador 2.3 79. Columbia 2.2 80. Indonesia 2.0 85. Cameroon 1.4 © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

30. To Establish Global Services • Determine if sufficient people or facilities exist to support the service • Identify foreign markets that are open - not controlled by governments • Determine what services are of most interest to foreign customers • Determine how to reach global customers © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

31. Managing Global Service Operations Must take a different perspective on • Capacity planning • Location Planning • Facilities design and layout • Scheduling © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

32. Some Definitions • International business • A firm that engages in cross-border transactions. • Multinational Corporation (MNC) • A firm that has extensive involvement in international business, owning or controlling facilities in more than one country © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

33. Some Global Strategies • International Strategy: uses exports and licenses to penetrate the global area • Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business • Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants • Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

34. High Global Strategy Standardized product Economies of scale Cross-cultural learning Transnational Strategy Move material, people, ideas, across national boundaries Cross-cultural learning Cost Reductions Multi-domestic strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries International Strategy Import.export or license existing product Low Low High Local Responsiveness Four International Operations Strategies Caterpillar Otis Elevator Coca-Cola Nestlés U.S. Steel Harley Davidson Heinz McDonalds © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

35. Match Product & Parent • a. Volkswagen • b. Bidermann International • c. Bridgestone • d. Campbell Soup • e. Credit Lyonnais • f. Ford Motor Company • g. Gillette • h. Grand Metropolitan • i. Michelin • j. Nestlé • Arrow shirts • Braun Household Appliances • Burger King • Firestone Tires • Godiva Chocolate • Haagen_dazs Ice Cream • Jaguar Autos • MGM Movies • Lamborghini Autos • Goodrich Tires • Alpo Petfoods © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458

36. Match Product & Country • 1. France • 2. Great Britain • 3. Germany • 4. Japan • 5. United States • 6. Switzerland • Arrow shirts • Braun Household Appliances • Burger King • Firestone Tires • Godiva Chocolate • Haagen_Dazs Ice Cream • Jaguar Autos • MGM Movies • Lamborghini Autos • Goodrich Tires • Alpo Petfoods © 2001 by Prentice Hall, Inc. y, Upper Saddle River, N.J. 07458