Chapter 2 FARE 3310.docx

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Food Agricultural and Resource Economics
FARE 3310
Getu Hailu

Chapter 2 Operations Management Operations Strategy in a Global Environment A Global View of Operations  Todays operations manager must have global view of operations strategy  Globalization is the result of developing countries overcoming cultural, religious, ethnic, and political barriers that constrain productivity and also advances made in technologies, reliable shipping & cheap communication  Globalization means that domestic production and exporting may no longer be a viable business model  New standards of global competitiveness that impact quality, customization, timeliness, cost etc.  The globalization of strategy contributes efficiency and adds value to products & services but also complicates an operation managers job 6 reasons why domestic business operations decide to some form of international operation… 1. Reduce costs (labour, taxes, tariffs etc.) 2. Improve supply chain 3. Provide better goods & services 4. Understand markets 5. Learn to improve operations 6. Attract & retain global talent 1. Reduce Costs  Foreign locations with lower wages can help lower both direct & indirect costs  Less stringent government regulations on a wide variety of operation practices (health & safety, environmental etc.) reduce costs  Opportunities to cut the costs lf taxes & tariffs encourage foreign operations Maquiladoras (Free trade zones): Mexican factories located along the U.S-Mexico border that receive preferential tariff treatment  Allows manufacturers to pay only on the value added by Mexican workers Shifting low-skilled jobs to another country has a few potential advantages… a. Reduce costs b. Frees higher costs workers for more valuable tasks c. Reducing wage costs allows savings to be invested in improved products & facilities  Trade agreement shave also helped to reduce tariffs which reduces the cost of operating facilities in foreign countries  The WTO & NAFTA & the EU have helped to reduce trade barriers and tariffs. 2. Improve the Supply Chain  Supply chain can often be improved by locating facilities in countries where unique resources are avail  Could be enterprise, labour, raw material etc. 3. Provide Better Goods & Services  Improved understanding of differences in culture and of the way business is handled as the result of a local presence permits firms to customize products & services to meet unique cultural needs in foreign markets  Reduce response time to meet customers changing product & service requirements 4. Understanding Markets  International operations require interaction w/ foreign customers, suppliers & competitors so international firms will learn about new opportunities for products & services  Knowledge of markets help firms understand where market is going & helps them to diversify their customer base & production flexibility and smooth the business cycle 5. Learn to Improve Operations  Firms serve themselves & their customers well when they remain open to the free flow of ideas 6. Attract & Retain Global Talent  By offering more employment opportunities global organizations can attract & retain better talent  They need people in all functional areas and areas of expertise worldwide  During economic downturns in 1 country or continent, a global firm has the means to relocate unneeded personnel to more prosperous locations Cultural & Ethical Issues  One challenge is reconciling differences in social & cultural behaviour  Issues ranging from bribery, child labour, environment etc. managers sometimes don't know how to respond when operating in different culture  In last decade, changes in international laws, agreements & codes of conduct have been applied to define ethical behaviour among managers around the world. Developing Missions & Strategies An effective operations management effort must have a mission so it knows where its going & a strategy so it knows how to get there Mission Mission: The purpose or rationale for an organizations existence  Mission statements provide boundaries and focus for organizations & the context around which the firm can rally  Each functional area within the firm determines its supporting mission (marketing, finance, operations etc.) Strategy Strategy: How an organization expects to achieve its missions and goals  Each functional area has a strategy fr achieving its mission and for helping organization reach its overall mission  Strategies exploit SWOT Firma achieve missions by… 1. Differentiation 2. Cost leadership 3. Response Achieving Competitive Advantage Through Operations  Each of the 3 strategies provides an opportunity for operations managers to achieve competitive advantage  Idea is to create customer value in an efficient & sustainable way Competing on Differentiation  Differentiation is corned w/ uniqueness  In the service sector one option for extending product differentiation is through an experience Experience Differentiation: Engaging a customer w/ a product through imaginative use of the 5 senses so the customer “experiences” the product Competing on Cost  One driver of low-cost strategy is a facility that is effectivel
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