IONA College

Operations
Management
MBA-540
Jerry Fjermestad

3-1
 Operations
Management
Operations in a
Global Environment
Chapter 3
3-2
 Outline
♦ Global Company Profile: Boeing
♦ Why Global Operations are Important
♦ Achieving Global Operations
♦ Global Product Design
♦ Global Process Design and Technology
♦ Global Facility Location
♦ Impact of Culture and Ethics

♦ Global Issues in Service Operations

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 Outline - continued
♦ Global Issues in Service
Operations
♦ Managing Global Service Operations
♦ Global Operations Strategies
♦ International Strategy
♦ Multi-domestic Strategy
♦ Global Strategy
♦ Transnational Strategy

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 Learning Objectives
When you complete this chapter,
you should be able to :
♦ Identify or Define:
♦ International business
♦ Multinational corporation
♦ Transnational Strategy
♦ Maquiladora
♦ Critical success factors in location
analysis

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 Learning Objectives -
continued
When you complete this chapter, you
should be able to :
♦Describe or Explain:
♦ Global facility location analysis
♦ Cultural and ethical issues in operations
♦ Why global issues are important
♦ Four global operations strategies

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Boeing Suppliers (777)
Firm Country Parts
Alenia Italy Wing flaps
AeroSpace Australia Rudder
Technologies
CASA Spain Ailerons
Fuji Japan Landing gear
doors, wing section
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
MenascoAerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
Singapore Singapore Landing gear doors
Aerospace
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 Examples
♦ Boeing - flourishes because both its sales
and production are world-wide

♦ Benetton - moves inventory to stores

around the world faster than its competitors

♦ Sony - purchases components from

suppliers in Thailand, Malaysia, etc.

♦ General Motors - simultaneously building

four similar plants in Argentine, Poland,
China, and Thailand so that they can learn
from each other and drive down cost while
increasing quality

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Management Issues in
Global Operations
Global Strategic
Context
♦ Differentiation
♦ Cost leadership
♦ Response

Supply Chain Location Logistics

Manageme Decisions Managem
nt ent

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 Supply-Chain
Management

♦ Sourcing
♦ Vertical integration
♦ Make-or-buy decisions
♦ Partnering

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 Location Decisions

♦ Country-related issues
♦ Product-related issues
♦ Government policy/political
risk
♦ Organizational issues

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Materials Management

♦ Flow of materials
♦ Transportation options and
speed
♦ Inventory levels
♦ Packaging
♦ Storage

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 Defining Global
Operations
♦ International business - engages in cross-border
transactions

♦ Multinational Corporation - has extensive

involvement in international business, owning or
controlling facilities in more than one country

♦ Global company - integrates operations from

different countries, and views world as a single
marketplace

♦ Transnational company - seeks to combine the

benefits of global-scale efficiencies with the
benefits of local responsiveness

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 Some Multinational
Corporations
Company Home % Sales% Assets% Foreign
Country Outside Outside Workforce
Home Home
Country Country
Citicorp USA 34 46 NA
Colgate- USA 65 47 NA
Palmolive
Dow USA 54 45 NA
Chemical
Gillette USA 68 66 NA
Honda Japan 63 36 NA

IBM USA 59 55 51

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 Some Multinational
Corporations
Company Home % Sales% Assets% Foreign
Country Outside Outside Workforce
Home Home
CountryCountry
ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands94 85 82
Electronics
Siemens Germany 51 NA 38

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 Global Operations
Strategies
Company Home %Sales %Assets %Foreign
Country Outside outside Workforce
Home Home
Country Country
Citicorp USA 34 46 NA
Honda J apan 63 36 NA
ICI Britain 78 50 NA
Nestlé Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38

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 Pontiac - the LeMans
Included the Following
♦ About $6,000 heads to South Korea for auto’s assembly
♦ $3,500 goes to Japan for engines, axles, and electronics
♦ $1,500 goes to Germany for design
♦ $800 goes to Taiwan, Singapore, and Japan for smaller
parts
♦ $500 heads to England for marketing
♦ $100 goes to Ireland for information technology
♦ the rest ≅ $7,600, goes to GM and its US bankers,
insurance agents, and attorneys.

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 Reasons to Globalize
Operations
Tangible
♦ Reduce costs (labor, taxes, tariffs, etc.)
♦ Improve the supply chain
♦ Provide better goods and services
♦ Attract new markets
♦ Learn to improve operations
♦ Attract and retain global talent

Intangible

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 Trade and Tariff
♦ Maquiladoras - Mexican factories located along
the U.S.-Mexico border that receive preferential
tariff treatment
♦ GATT - an international treaty that helps promote
world trade by lowering barriers to the free flow
of goods across borders
♦ NAFTA - a free trade agreement between Canada,
Mexico, and the United States

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 Free trade may
take us into the era of the
floating factory - a six person
crew will take a factory from
port to port in order to obtain
the best market, material,
labor and tax advantages

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 Achieving Global
Operations
-Four Considerations-
♦ Global product design
♦ Global process design and
technology
♦ Global factory location
analysis
♦ Impact of Culture and Ethics

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Global Competitiveness
of Countries
Country 1999 Ranking
♦ Singapore …………………...
United States ……………….
♦ 1
♦
♦ Hong Kong …………………. ♦ 2
Taiwan ……………………….
♦
♦ Canada ………………………. ♦ 3
♦ Switzerland ………………….
Luxembourg ………………..
♦ 4
♦
♦ United Kingdom …………... ♦ 5
Netherlands ………………...
♦
♦ Ireland ………………………. ♦ 6
♦ Australia …………………….
Finland ………………………
♦ 7
♦
♦ New Zealand ……………….
Japan ………………………..
♦ 8
♦
♦ ……... ♦ 9
Russia ……………………….
♦
♦ 10
♦ 11
♦ 12
♦ 13
♦ 14
…..
♦ 59

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 Global
Product Design

♦ Remember social and cultural

differences
♦ packaging and marketing can help
make product seem “domestic”
but -
♦ “liter”
versus “quart”
♦ “sweetness” and “taste”

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 Global
Process Design and
Technology
♦ Information technology enables
management of integrated, globally
dispersed operation
♦ Texas Instruments: 50 plants in 19
countries
♦ Hewlett-Packard - product
development teams in U.S., Japan,
Great Britain, and Germany
♦ Reduces time-to-market

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 Global
Facility Location
Analysis
Using CSFs for Country
Selection
♦Select CSFs based on parent
organization;’s strategic or
operations objectives
♦Obtain country-specific information
on the CSFs
♦Evaluate each country’s CSFs using
a 1 (bad) to 5 (good) rating scale
♦Sum the ratings
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 You May Wish To
Consider
♦ national literacy rate ♦ work ethic
♦ rate of innovation
♦ rate of technology change ♦ tax rates
♦ number of skilled workers
♦ inflation
♦ stability of government
♦ product liability laws ♦ availability of raw
♦ export restrictions
♦ similarity in language
materials
♦ interest rates
♦ population
♦ number of miles of
highway

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 CSF in Location
Analysis
Critical Success Factors Country Country Country Country
1 2 3 4

Technology
Rateof technologychange 3 5 2 1
Innovations inprocess design 5 3 1 5
Level of education
Number of skilledworkers 5 4 3 4
National educationrate 4 1 1 2
Political and Legal Aspects
Stability of government 5 5 2 5
Productliabilitylaws 4 3 3 5
Exportrestrictions 4 3 3 1

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 CSF in Location
Analysis - continued
Critical Success Factors Country Country Country Country
1 2 3 4

Social and Cultural Aspects

Similarity inlanguage 5 1 5 4
Workethic 4 2 3 1
Economic factors
Tax rates 3 3 2 5
Inflation 3 5 5 5
Availabilityof raw materials 2 4 3 5
Interestrates 3 4 2 5

Total Rating Points 50 43 35 48

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 Global
Impact of Culture and
Ethics
♦ Cultures differ! Some
accept/expect:
♦ variations in punctuality
♦ long lunch hours
♦ expectation of thievery
♦ bribery
♦ little protection of intellectual
property

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 Ranking Corruption
1. Denmark 10.0
2. Finland 9.6
3. Sweden 9.5
4. New Zealand 9.4
5. Iceland 9.3

17. United States 7.5

76. Russia 2.4

77. Ecuador 2.3
79. Columbia 2.2
80. Indonesia 2.0
85. Cameroon 1.4

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 To Establish Global
Services
♦ Determine if sufficient people or facilities
exist to support the service
♦ Identify foreign markets that are open -
not controlled by governments
♦ Determine what services are of most
interest to foreign customers
♦ Determine how to reach global customers

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 Managing Global
Service Operations

Must take a different

perspective on
♦ Capacity planning
♦ Location Planning
♦ Facilities design and layout
♦ Scheduling

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 Some Definitions

♦ International business
♦ A firm that engages in cross-
border transactions.
♦ Multinational Corporation
(MNC)
♦ A firm that has extensive
involvement in international
business, owning or controlling
facilities in more than one
country
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Some Global Strategies
♦ International Strategy: uses exports and licenses to
penetrate the global area
♦ Multidomestic Strategy: uses decentralized authority
with substantial autonomy at each business
♦ Global Strategy: Uses a high degree of centralization,
with headquarters coordinating to seek
standardization and learning between plants
♦ Transnational Strategy: Exploits economies of scale
and learning, as well as pressure for responsiveness,
by recognizing that core competencies reside
everywhere in the organization

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 Four International
Operations Strategies
High
Global Strategy Transnational
Strategy
Standardized product
Move material,
Economies of scale people, ideas,
Cost Reductions

Cross-cultural learning across national

boundaries
Caterpillar Coca-Cola
Cross-cultural
Otis Elevator Nestlés
learning
International Multi-domestic
Strategy strategy
Import.export Use existing
or license domestic model
existing globally
U.S. Steel
product
Harley Davidson Franchise,
Heinz joint
ventures,
Low McDonalds
subsidiaries
Low Local Responsiveness High
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 Match Product &
Parent
♦ Arrow shirts ♦ a. Volkswagen
♦ Braun Household Appliances ♦ b. Bidermann International
♦ Burger King
♦ c. Bridgestone
♦ Firestone Tires
♦ d. Campbell Soup
♦ Godiva Chocolate
♦ Haagen_dazs Ice Cream ♦ e. Credit Lyonnais
♦ Jaguar Autos ♦ f. Ford Motor Company
♦ MGM Movies ♦ g. Gillette
♦ Lamborghini Autos ♦ h. Grand Metropolitan
♦ Goodrich Tires
♦ i. Michelin
♦ Alpo Petfoods
♦ j. Nestlé

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 Match Product &
Country
♦ Arrow shirts ♦ 1. France
♦ Braun Household Appliances ♦ 2. Great Britain
♦ Burger King
♦ 3. Germany
♦ Firestone Tires
♦ 4. Japan
♦ Godiva Chocolate
♦ Haagen_Dazs Ice Cream ♦ 5. United States
♦ Jaguar Autos ♦ 6. Switzerland
♦ MGM Movies
♦ Lamborghini Autos
♦ Goodrich Tires
♦ Alpo Petfoods

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