01b. Introduction to International Operations Management

International Operations Management

 Agenda Describe the nature of international operations management Analyze the supply chain management and vertical integration decisions facing international production managers Analyze the meaning of productivity and discuss how international firms work to improve it Explain how firms control quality and discuss total quality management in international business Analyze nalyze how international firms control the information their managers need to make effective decisions

International Operations Management Operations Management

- the set of activities an organization uses to transform different kinds of inputs into final goods and services

International Operations Management

- the transformation-related activities of an international firm

The International Operations Management Process Strategic Context •Differentiation •Cost leadership •Focus Standardized vs. Customized Production

Acquisition of Resources •Supply Chain •Management •Make-or-buy decision

17-4

Location Decisions •Country-related issues •Product-related issues •Government policies •Organizational issues

Logistics and Materials Management •Flow of materials •Transportation options •Inventory levels •Packaging  ©2004 Prentice Hall

Competitive Strategy

Competitive Strategy Essential to achieving objectives Reflects overall firm strategy Low-cost leadership Differentiation Focus

Competitive Strategy Process Planning Deciding the process that a company will use to create its product Low-cost leadership  Large scale  Efficiency Differentiation / Focus  Skills  Flexibility 15 - 7

Competitive Strategy Standardized or Adapted Low-cost leadership Standardized Automated Large batches

Differentiation / Focus Adapted Small scale Higher cost 15 - 8

Competitive Strategy Facilities Layout Planning Deciding the spatial arrangement of production processes within facilities

 Reflects

business strategy

 Geography may be a factor 

15 - 9

 Acquisition of Resources Supply Chain Management Make of Buy Decisions

Supply Chain Management A set of processes and steps a firm uses to acquire the various resources it needs to create its products

Make or Buy Decisions

Basic Make or Buy Options

Make or Buy Decisions Influence Factors for Make-or-Buy Decision Raw materials / Intermediate components Size Scope of operations Technological expertise Nature of product Facility availability

Make or Buy Decisions Competitive Advantage versus Strategic  Vulnerability in the Make-or-Buy Decisions   e   g   a    t   n   a   v    d    A   e   v    i    t    i    t   e   p   m   o    C   r   o    f    l   a    i    t   n   e    t   o    P

   h   g    i    H

Strategic Control Moderate Control Low Control

  w   o    L

High

Degree of Strategic Vulnerability

Low

Make or Buy Decisions Necessary Trade-offs in Make-or-Buy Decision Cost Control considerations Risk Investment Flexibility

Make or Buy Decisions Decision to Make

Vertical integration Extent to which a firm either provides its own resources or obtains them from other sources Extend control over inputs (backward integration) or outputs (forward integration)

Reasons to make Lower cost Greater control

Make or Buy Decisions Decision to Buy

Outsourcing

Reasons to buy

Buying from another  company a good or  service that is not central to a company’s competitive advantage

Lower risk Greater flexibility Market power 

Location Decisions

Facilities Location Planning Selecting a location for production facilities Resources, conditions

Labor costs, productivity

Service customer needs

Factory to market distance

Factors affecting Location Decisions Country-Related Issues Product-Related Issues Government Policies Organizational Issues

Factors affecting Location Decisions Country-Related Issues Resource availability Cost Infrastructure Country-of-origin effects

Factors affecting Location Decisions

Country-related issues play key roles in location decisions for manufacturers

Factors affecting Location Decisions Product-Related Issues Value-to-weight ratio Technology Importance of customer feedback

Factors affecting Location Decisions Government Policies Stability of political process National trade policies Economic development incentives Existence of foreign trade zones (FTZ)

Factors affecting Location Decisions Organizational Issues Business strategy

- Cost leadership - Differentiation Organizational structure Inventory management policies

- Just-in-time (JIT) inventory management system

Capacity Planning Assessing a company’s ability to produce enough output to satisfy market demand 

Work shifts



Labor laws



Facility capacity



Subcontracting

Location Economies Economic benefits derived from locating production activities in optimal locations Key Fact: Each production activity generates more value in a particular location than could be generated elsewhere

Centralized vs. Decentralized Centralized production 

Low-cost leadership



Global strategy



Transportation costs

Decentralized production 

Differentiation / Focus



Multinational strategy



Buyer preferences

International Logisitic &  Materials Management Materials & Assets Transportation options Inventory levels Packaging

International Logistics and Materials Management International logistics: management of

- flow of materials, parts, supplies, and other -

-

resource from suppliers to the firm flow of materials, parts, supplies, and other resources within and between units of the firm itself flow of finished products, services, goods from the firm to customers

Differences in Domestic and International Materials Management Distance involved in shipping Number of transport modes Complexity of regulatory context

International Service Operations International Service Business: firm that transforms resources into an intangible output that creates utility for its customers Characteristics:

-

Intangible Not storable Require customer participation Tied to the purchase of other products

International Service Operations This BP Connect store allows customers to buy BP petroleum products, coffees from South America, and to access the Internet from the pump

Materials and Assets Raw materials  

Quality Quantity

Fixed assets  

Existing Facility Greenfield

Other Production Issues Importance of cost containment

Shipping costs

Inventory costs

Just-in-time manufacturing

Decision to Reinvest or Divest REINVEST



Promising outlook



Growing market



Highest return

DIVEST



Unprofitable outlook



Social unrest