Learning Objectives

1. Learning Objectives Welcome to class of International Operations Management Dr. Satyendra Singh University of Winnipeg

2. Objectives… 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

3. Objectives • Understand synchronous manufacturing and customization • Comprehend the concept of Six Sigma systems and their application • Explain the potential of global standardization of production processes and procedures, and identify impediments to standardization efforts • Know the two general classes of activities in manufacturing systems, productive and supportive, that must be performed in all manufacturing systems

4. 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

5. 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

6. Global Supply Chain Management • Involves total systems approach to managing flow of • Materials • Information • Finances • Services

7. International Operations management Make • Outsourcing (Core vs. Peripheral) • Make • Yourself • Partnership • Controlled • uncontrolled • Buy • Short-term supplier relationship • Long-term supplier relationship • Strategic Vulnerability vs. Potential Competitive Advantage (PCA) • Problems with Outsourcing • International freight, insurance, packaging (10%) • Import duty (0-50%) • Cost of letter of credit (1%) • International travel and communications (2-10%) • Reworking on product specification (0-15%) • JIT vs. JIC • Standardization vs. Customization • ISO 9000 vs. ISO 14001 • 3BL  Financial. Environmental and Social PCA Contract Buy Strategic vulnerability

8. Make or Buy Decision Production Costs 1 2 Make 3 Buy Market Orientation

9. Supply Chain Network: A Hypothetical Example of an American Laptop Computer Company

10. 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

11. 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 Outsourcing

12. Considerations Costs Control Expertise Distance Languages Laws and regulations Begin simple Then move to complex Global Sourcing…

13. 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

14. 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

15. Use of ElectronicPurchasing 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

16. 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 Global Electronic Procurement

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

18. 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

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

20. 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

21. 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

22. Failure to realize JIT is a total system, includes TQM Cultural differences in U.S./Canada 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 Problems with JIT in U.S./Canada

23. 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

24. 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

25. 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 9001most comprehensive standard

26. 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

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

28. Political Forces Country needs new jobs Government insists on most modern equipment Impediments to Standardization

29. 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

30. 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

31. 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

32. 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 Design of the Manufacturing System

33. Operation of the Manufacturing System… • Manufacturing system has two classes of activities • Productive activities • Supportive activities

34. Operation of the Manufacturing System Obstacles to Meeting Manufacturing Standards • Low output • Inferior quality • Excessive manufacturing costs

35. 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 Obstacles to Meeting Manufacturing Standards

36. Supportive Activities… • Quality control • Inventory control • Purchasing • Must consider costs • Develop suppliers • Know import procedures and key government officials • Monitor foreign exchange

37. 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