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  1. 1. Learning Objectives Welcome to class of International Operations Management Dr. Satyendra Singh University of Winnipeg
  2. 2. Learning Objectives <ul><li>Understand the concept of supply chain management </li></ul><ul><li>Recognize the relationship between design and supply chain management </li></ul><ul><li>Describe the five global sourcing arrangements </li></ul><ul><li>Appreciate the importance of added costs of global sourcing </li></ul><ul><li>Understand the increasing role of electronic purchasing for global sourcing </li></ul><ul><li>Understand the just-in-time (JIT) production system and potential problems with its implementation </li></ul>Objectives…
  3. 3. Objectives <ul><li>Understand synchronous manufacturing and customization </li></ul><ul><li>Comprehend the concept of Six Sigma systems and their application </li></ul><ul><li>Explain the potential of global standardization of production processes and procedures, and identify impediments to standardization efforts </li></ul><ul><li>Know the two general classes of activities in manufacturing systems, productive and supportive, that must be performed in all manufacturing systems </li></ul>
  4. 4. Supply Chain Management <ul><li>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 </li></ul>
  5. 5. Lower Costs/Improved Products <ul><li>Desired results may be obtained through </li></ul><ul><ul><li>Improvement within existing operations </li></ul></ul><ul><ul><li>Opening new operations </li></ul></ul><ul><ul><li>finding outside sources for inputs </li></ul></ul><ul><ul><ul><li>Outsourcing </li></ul></ul></ul><ul><ul><ul><ul><li>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 </li></ul></ul></ul></ul><ul><ul><li>Combination of above </li></ul></ul>
  6. 6. Global Supply Chain Management <ul><li>Involves total systems approach to managing flow of </li></ul><ul><ul><li>Materials </li></ul></ul><ul><ul><li>Information </li></ul></ul><ul><ul><li>Finances </li></ul></ul><ul><ul><li>Services </li></ul></ul>
  7. 7. Supply Chain Network: A Hypothetical Example of an American Laptop Computer Company
  8. 8. Design of Products and Services <ul><li>Design has fundamental relationship with type of inputs required </li></ul><ul><li>Important consideration is extent to which products and services will be standardized or adapted </li></ul><ul><li>Over-the-Wall approach is traditional approach </li></ul><ul><ul><li>Sequential steps </li></ul></ul><ul><li>Alternative approach is cross-functional participation </li></ul><ul><ul><li>May involve customers </li></ul></ul>
  9. 9. Outsourcing <ul><li>Increasingly common option </li></ul><ul><ul><li>Relocating some or all of a business’s activities or processes outside of the company </li></ul></ul><ul><ul><ul><li>Focus on core competencies </li></ul></ul></ul><ul><ul><ul><li>Leverage skills of other companies </li></ul></ul></ul><ul><ul><ul><li>Reduce costs </li></ul></ul></ul><ul><ul><ul><li>Improve flexibility and speed of response </li></ul></ul></ul><ul><ul><ul><li>Enhance quality </li></ul></ul></ul><ul><ul><li>Can outsource in same country or another country </li></ul></ul><ul><ul><ul><li>Offshoring: a foreign location </li></ul></ul></ul><ul><ul><li>Choices increased by </li></ul></ul><ul><ul><ul><li>Global access to vendors </li></ul></ul></ul><ul><ul><ul><li>Falling costs of interactions </li></ul></ul></ul><ul><ul><ul><li>Improved information technology and communication </li></ul></ul></ul>
  10. 10. Global Sourcing… <ul><li>Considerations </li></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Expertise </li></ul></ul><ul><ul><li>Distance </li></ul></ul><ul><ul><li>Languages </li></ul></ul><ul><ul><li>Laws and regulations </li></ul></ul><ul><li>Begin simple </li></ul><ul><ul><li>Then move to complex </li></ul></ul>
  11. 11. Global Sourcing <ul><li>The Lure of Global Sourcing </li></ul><ul><ul><li>Suppliers with improved competitiveness </li></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><ul><li>Timeliness </li></ul></ul></ul><ul><ul><li>Suppliers in less developed countries with low-cost labor </li></ul></ul><ul><ul><ul><li>Attractive for labor-intensive products with low skill requirements </li></ul></ul></ul>
  12. 12. Global Sourcing Arrangements <ul><li>Arrangement that provide a firm with foreign products </li></ul><ul><ul><li>Wholly owned subsidiary </li></ul></ul><ul><ul><li>Overseas joint venture </li></ul></ul><ul><ul><li>In-bond plant contractor </li></ul></ul><ul><ul><li>Overseas independent contractor </li></ul></ul><ul><ul><li>Independent overseas manufacturer </li></ul></ul>
  13. 13. Use of Electronic Purchasing for Global Sourcing <ul><li>Growth of electronic procurement exchanges </li></ul><ul><ul><li>Identify potential suppliers or customers </li></ul></ul><ul><ul><li>Facilitate efficient and dynamic interactions among prospective buyers and suppliers </li></ul></ul><ul><ul><li>Recognize strategic function of purchasing </li></ul></ul>
  14. 14. Global Electronic Procurement <ul><li>Electronic Exchange Options </li></ul><ul><ul><li>Catalog purchases </li></ul></ul><ul><ul><li>Permits buyers and suppliers to interact through a standard bid/quote system </li></ul></ul><ul><ul><li>Facilitates obtaining letters of credit, contracting for logistics and distribution, and monitoring daily </li></ul></ul><ul><li>Benefits </li></ul><ul><ul><li>Cut costs and invoice and ordering errors </li></ul></ul><ul><ul><li>Improve productivity and internal purchasing processes </li></ul></ul><ul><ul><li>Reduce trading cycle time, paper </li></ul></ul><ul><ul><li>Compare bids </li></ul></ul>
  15. 15. Global Sourcing <ul><li>Problems </li></ul><ul><ul><li>Unanticipated added costs </li></ul></ul><ul><ul><ul><li>Currency fluctuations </li></ul></ul></ul><ul><ul><ul><li>Transportation cost increases </li></ul></ul></ul><ul><ul><li>E-procurement exposes business systems to wide range of potential security issues </li></ul></ul>
  16. 16. Added Costs <ul><li>International freight, insurance and packing </li></ul><ul><li>Import duties </li></ul><ul><li>Customhouse broker’s fees </li></ul><ul><li>Transit or pipeline inventory </li></ul><ul><li>Cost of letter of credit </li></ul><ul><li>International travel and communication costs </li></ul><ul><li>Company import specialists </li></ul><ul><li>Reworking of products out of specification </li></ul>
  17. 17. Advanced Production Techniques <ul><li>Systems to improve competitiveness </li></ul><ul><ul><li>Just-in-time supply chains (JIT) </li></ul></ul><ul><ul><li>Highly synchronized manufacturing systems </li></ul></ul><ul><ul><li>Mass customization </li></ul></ul><ul><ul><li>Six Sigma </li></ul></ul>
  18. 18. Japan’s Use of JIT <ul><li>Requirements to operate without inventory </li></ul><ul><ul><li>Components defect-free </li></ul></ul><ul><ul><li>Components delivered to each point at specified time </li></ul></ul><ul><ul><li>Sellers maintain inventory of finished products </li></ul></ul><ul><ul><li>Process time reduced </li></ul></ul><ul><ul><li>Manufacturers simplified product lines </li></ul></ul><ul><ul><li>Suppliers cooperate </li></ul></ul><ul><ul><li>Designers, managers, purchasing people and marketers work as a team </li></ul></ul>
  19. 19. Total Quality Management <ul><li>System in which organization is managed so that it excels on all dimensions of product and service that are important to the customer </li></ul><ul><li>TQM uses Quality Circles </li></ul><ul><ul><li>Small work groups meet to discuss ways to improve functional areas and product quality </li></ul></ul>
  20. 20. Problems with JIT in U.S./Canada <ul><li>Failure to realize JIT is a total system, includes TQM </li></ul><ul><li>Cultural differences in U.S./Canada workers </li></ul><ul><ul><li>Highly specialized work </li></ul></ul><ul><ul><li>No company loyalty </li></ul></ul><ul><li>Failure to train and integrate suppliers </li></ul><ul><li>JIT restricted to operations that produce same parts repeatedly </li></ul><ul><li>If one operation stops, entire production line stops </li></ul><ul><li>Achieving a balanced system difficult: production capacities differ among machines </li></ul><ul><li>No allowances for contingencies </li></ul><ul><li>Much trial and error are required to put system into effect </li></ul>
  21. 21. Advanced Production Techniques <ul><li>Synchronous Manufacturing </li></ul><ul><ul><li>Manufacturing system with unbalanced operations that emphasizes total system performance </li></ul></ul><ul><li>Mass Customization </li></ul><ul><ul><li>Flexible manufacturing system to produce customized products and services </li></ul></ul><ul><li>Six Sigma </li></ul><ul><ul><li>Business management process for reducing defects and eliminating variation </li></ul></ul>
  22. 22. Logistics <ul><li>Movement of materials </li></ul><ul><ul><li>Must interface with sourcing , manufacturing, design, engineering and marketing </li></ul></ul><ul><ul><li>Packaging and transportation requirements can greatly increase logistics costs </li></ul></ul><ul><ul><li>Many companies outsource logistics </li></ul></ul>
  23. 23. Standards for Global Operations <ul><li>Standards </li></ul><ul><ul><li>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 </li></ul></ul><ul><li>ISO 9000 (International Organization for Standards) most used in Europe, for quality </li></ul><ul><li>ISO 9001 most comprehensive standard </li></ul>
  24. 24. Impediments to Standardization <ul><li>Economic Forces </li></ul><ul><ul><li>Wide range of market sizes </li></ul></ul><ul><ul><li>Cost of production </li></ul></ul><ul><ul><li>Backward vertical Integration </li></ul></ul><ul><ul><ul><li>Arrangement in which facilities are established to manufacture inputs used in the production of firm’s final products </li></ul></ul></ul>
  25. 25. Impediments to Standardization <ul><li>Cultural Forces </li></ul><ul><ul><li>Developing countries may lack skilled workers </li></ul></ul><ul><ul><li>Resources directed to professional vs. technical education </li></ul></ul><ul><ul><li>Use of specialized machines favored </li></ul></ul><ul><ul><li>Absenteeism </li></ul></ul>
  26. 26. Impediments to Standardization <ul><li>Political Forces </li></ul><ul><ul><li>Country needs new jobs </li></ul></ul><ul><ul><li>Government insists on most modern equipment </li></ul></ul>
  27. 27. Some Design Solutions <ul><li>Hybrid Design </li></ul><ul><ul><li>Hybrid capital-intensive mixed with labor intensive processes when abundant unskilled labor </li></ul></ul><ul><li>Intermediate Technology </li></ul><ul><ul><li>Production methods between capital- and labor-intensive methods </li></ul></ul>
  28. 28. Local Manufacturing System <ul><li>Commonly scaled-down version of that found in the parent company </li></ul><ul><li>Horizontal/Vertical integration </li></ul><ul><ul><li>Vertical more traditional </li></ul></ul><ul><ul><li>Horizontal less prevalent in foreign subsidiaries </li></ul></ul>
  29. 29. Design of the Manufacturing System… <ul><li>Manufacturing system </li></ul><ul><ul><li>Functionally related group of activities for creating value </li></ul></ul><ul><ul><li>Factors involved in efficient operation </li></ul></ul><ul><ul><ul><li>Plant location </li></ul></ul></ul><ul><ul><ul><li>Plant layout </li></ul></ul></ul><ul><ul><ul><li>Materials handling </li></ul></ul></ul><ul><ul><ul><li>Human element </li></ul></ul></ul>
  30. 30. Design of the Manufacturing System <ul><li>Plant location </li></ul><ul><ul><li>Affects both production and distribution costs </li></ul></ul><ul><ul><li>Needs labor, raw materials, water and power </li></ul></ul><ul><ul><li>Must locate in export processing zones </li></ul></ul><ul><li>Plant layout </li></ul><ul><ul><li>Arrangement of machinery, personnel and service facilities </li></ul></ul><ul><li>Materials Handling </li></ul><ul><ul><li>Careful planning can save production costs </li></ul></ul><ul><ul><li>Poor handling leads to excessive inventory, idle machinery, late deliveries and damaged goods </li></ul></ul><ul><li>Human element </li></ul><ul><ul><li>Effectiveness depends on people </li></ul></ul><ul><ul><li>People are affected by the system </li></ul></ul>
  31. 31. Operation of the Manufacturing System… <ul><li>Manufacturing system has two classes of activities </li></ul><ul><ul><li>Productive activities </li></ul></ul><ul><ul><li>Supportive activities </li></ul></ul>
  32. 32. Operation of the Manufacturing System <ul><li>Obstacles to Meeting Manufacturing Standards </li></ul><ul><ul><li>Low output </li></ul></ul><ul><ul><li>Inferior quality </li></ul></ul><ul><ul><li>Excessive manufacturing costs </li></ul></ul>
  33. 33. Obstacles to Meeting Manufacturing Standards <ul><li>Low Output </li></ul><ul><ul><li>Supplier problems, absenteeism </li></ul></ul><ul><ul><li>Poor coordination of production scheduling </li></ul></ul><ul><ul><li>Culture differences,attitudes, educational levels, planning </li></ul></ul><ul><li>Inferior Product Quality </li></ul><ul><ul><li>Good quality is relative </li></ul></ul><ul><ul><li>Lack of maintenance and operating skills </li></ul></ul><ul><li>Excessive Manufacturing Costs </li></ul><ul><ul><li>Low output </li></ul></ul><ul><ul><li>Budget problems </li></ul></ul><ul><ul><li>Overoptimistic sales forecast </li></ul></ul><ul><ul><li>Supply problems, supplier, water/power </li></ul></ul><ul><ul><li>Overstocked inventory </li></ul></ul><ul><ul><li>Resistance to lay off workers </li></ul></ul>
  34. 34. Supportive Activities… <ul><li>Quality control </li></ul><ul><li>Inventory control </li></ul><ul><li>Purchasing </li></ul><ul><ul><li>Must consider costs </li></ul></ul><ul><ul><li>Develop suppliers </li></ul></ul><ul><ul><li>Know import procedures and key government officials </li></ul></ul><ul><ul><li>Monitor foreign exchange </li></ul></ul>
  35. 35. Supportive Activities <ul><li>Maintenance </li></ul><ul><ul><li>Goal to ensure acceptable level of production </li></ul></ul><ul><ul><li>Two alternatives </li></ul></ul><ul><ul><ul><li>Preventive </li></ul></ul></ul><ul><ul><ul><li>Breakdown </li></ul></ul></ul><ul><li>Technical Function </li></ul><ul><ul><li>Provides operations with manufacturing specifications </li></ul></ul><ul><ul><li>Checks quality of inputs and finished products </li></ul></ul><ul><ul><li>Influential in selecting sources of supply </li></ul></ul>

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