MGCR 382 Chapter Notes - Chapter 17: Statistical Process Control, Iso 14000, World Trade Organization

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MGCR382 Chapter 17 Notes: International Operations Management
The Nature of International Operations Management
Operations management the set of activities an organization uses to transform different kinds of inputs (materials,
labour, etc) into final goods and services
International operations management refers to the transformation-related activities of an international firm
A firm’s strategic context provides a necessary backdrop against which it develops and then manages its operations
functions.
Flowing directly from the strategic context is the question of standardized vs. customized production
The positioning of a firm along this continuum in turn helps dictate the appropriate strategies and tactics for other parts of
the OM process
The next part of international OMG is the activities and processes connected with the acquisition of resources the firm
needs to produce the goods or services it intends to sell.
Location decisions are also important.
In addition, international operations managers are concerned within logistics and materials management.
OM is also closely linked with quality, productivity, and information technology. A firm’s OM system largely determines
how inputs are transformed into goods and services. Properly designed and managed operating systems and procedures
play a major role in determining product quality and productivity. Conversely, poorly designed operating systems are a
major cause of poor quality and lower productivity. They promote inefficiency and can contribute in various ways to
higher costs and suboptimal profit performance.
The Strategic Context of International Operations Management
Central role of OM is to create the potential for achieving superior value for the firm. That is, OM is a value-
adding activity intended to create or add new value to the organization’s inputs in ways that directly impact
outputs
Indeed, the business strategy set by top managers at the firm’s corporate and regional levels will affect all facets
of the planning and implementing of operations management activities, such as supply chain management
strategies, location decisions, facilities design, and logistics management
For a company pursuing a differentiation strategy, the OM function must be able to create goods or services that
are clearly different from those of the company’s competitors
For a firm following a cost leadership strategy, the OM function must be able to reduce the costs of creating
goods or services to the absolute minimum so the firm can lower its prices while still earning an acceptable level
of profits. In this case cost and price issues are central, whereas quality may be less critical. As a result, locating
production facilities where labour costs are especially low may be highly appropriate
Another factor affecting the firm’s choices is the extent to which it uses standardizes or customized production
processes and technologies. On the one hand, if the firm uses standardized production processes and technologies
in every market where it does business, then its operations systems can be globally integrated. Such firms may
choose to adopt global product designs to capture more easily global efficiencies generated by their operations.
On the other hand, if a firm uses a unique operations system in each market where it does business, such global
integration is not only unnecessary but also likely to be impossible. Often such firms adopt a global area design to
promote responsiveness of their operations managers to local conditions
Complexities of International Operations Management
Resources: managers must decide where and how to obtain the resources the firm needs to produce its products. Key
decisions relate to supply chain management and vertical integration
Location: managers must decide where to build administrative facilities, sales offices, and plants; how to design them; and
so on
Logistics: managers must decide on modes of transportation and methods of inventory control
A domestic manufacturer may deal with only local suppliers, be subject to one set of government regulations,
compete in a relatively homogenous market, have access to an integrated transportation network, and ship its
goods relatively short distances
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An international manufacturer is likely to deal with suppliers from different countries and confront different
government regulations where it does business, as well as very heterogeneous markets, disparate transportation
facilities and networks, and relatively long shipping distances
International operations managers must choose the countries in which to locate production facilities, taking into
account factors such as costs, tax laws, resource availability, and marketing considerations; they must also
consider potential exchange rate movements and noneconomic factors such as government regulations, political
risk, and predictability of a country’s legal system
They must consider the impact of facilities’ locations on the firm’s ability to respond to changes in customer
tastes and preferences. Finally, they must factor in logistical problems
Production Management
Production management OM decisions, processes, and issues that involve the creation of tangible goods
Service operations management involving the creation of intangible services
Manufacturing is the creation of goods by transforming raw materials and component parts in combination with capital,
labour, and technology. Most successful manufacturers use many sophisticated techniques to produce high-quality goods
efficiently
Supply Chain Management and Vertical Integration
Supply chain management the set of processes and steps a firm uses to acquire the various resources it needs to create its
products (sourcing/procuring) clearly affects product costs, product quality, and internal demands for capital. Because
of these impacts, most international firms approach SCM as a strategic issue to be carefully planned and implemented
First step: vertical integration the extent to which a firm either provides its own resources or obtains them from other
sources. At one extreme, firms that practice relatively high levels of vertical integration are engaged in every step of the
OM process as goods are developed, transformed, packaged, and sold to customers. Various units within the firm can be
seen as suppliers to other units within the firm, which can be viewed as the customers of the supplying units. At the other
extreme, firms that have little vertical integration are involved in only one step or just a few steps in the production chain.
They may buy their inputs and component parts from other suppliers, perform one operation or transformation, and then
sell their outputs to other firms or consumers
The extent of a firm’s vertical integration is the result of a series of SCM decisions made by production managers
Make-or-buy decision firms can make the inputs itself, or it can buy them from outside suppliers
A decision to buy rather than make dictates the need to choose between long-term and short-term supplier
relationships
A decision to make rather than buy leaves open the option of making by self or making in partnership with others.
If partnership is the choice, yet another decision relates to the degree of control the firm wants to have
The make-or-buy decision can be influenced by a firm’s size, scope of operations, and technological expertise and by the
nature of its product. At other time the make-or-buy decision will depend on existing investments in technology and
manufacturing facilities.
All else being equal, a firm will choose to make or buy simply on the basis of whether it can obtain the resource cheaper
by making it internally or by buying it from an external supplier. If a high potential for competitive advantage exists along
with a high degree of strategic vulnerability, the firm is likely to maintain strategic control by producing internally.
However, if the potential for competitive advantage and the degree of strategic vulnerability are both low, the firm will
need less control and therefore will be more likely to buy “off the shelf:. Finally, when intermediate potential for
competitive advantage and moderate degree of strategic vulnerability call for moderate control, special ventures or
contract arrangements may be most appropriate.
Control making a component has the advantage of increasing the firm’s control over product quality, delivery schedules,
design changes, and costs. A firm that buys from external suppliers may become overly dependent on those suppliers. If a
given supplier goes out of business, raises it prices, or produces poor-quality material, the firm will lose its sources of
inputs, see its costs increase, or experience its own quality-related problems
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