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Week 8 (Semester 2) – Operations Strategy: Global Trade & Supply

Network Applications I
Chapter 13

Outline of the Lecture


This chapter covers two weeks. First we deal with global trade by:
1. Discussing the driving forces for global and international trade.
2. Analyzing the types of international strategy.
3. Appreciating the importance of sourcing and procurement as an operations
strategy.
4. Considering the advantages and disadvantages of offshore and domestic sourcing.

Topics involved
1. Global operations strategies
2.1 Choice of strategy (using figure 13.1)
2.2 Sourcing and procurement operations strategies (using table 13.1, 13.2, 13.3,
13.4, 13.5, 13.6, 13.7)

Suggested Visual Aids & Handouts


Figure 13.1 – Cost and flexibility considerations in choosing a global operations
strategy
Table 13.1 – sourcing locations
Table 13.2 – Sourcing objectives and advantages
Table 13.3 – Lead time by geographic region
Table 13.4 – Suppliers latitude for volume and mix change
Tables 13.5 – Suppliers latitude to deal with surpluses
Table 13.6 – the hidden costs of importing
Table 13.7 – Retail sourcing performance measurements

Discussion Questions
1. Describe the four classifications of a global strategy. What the key differences
between them?
We can classify global operations strategies as:
· International – this is basically an exporting system whereby production is
domestic and then sale is through local agents who are licensed to sell the
goods. Operational cost may be high and flexibility and responsiveness low.
· Multi-domestic – a decentralized firm with business units, subsidiaries or
partners abroad. Production is then also decentralized to ensure service of
local markets with flexible flows and responsiveness. Cost and co-ordination
can be higher for this type of operation, but so is flexibility and response.
· Global, Low cost – Bulk production that is switched offshore to low wage
economies. Automotives, clothing and electronic goods are recent industry
examples. Economies of scale and task specialization give low cost. Co-
ordination and control however can be difficult and flexibility responsiveness
is also a problem.
· Transnational – seeks best of both worlds in terms cost and flexibility. An
independent network of world-wide operations.
Each of these approaches will have a trade-off between cost of operation and
flexibility and responsiveness (see figure 13.1)

2. As we can see in table 13.2, the advantages of offshore sourcing are usually
associated with lower unit cost per item. However, there are trade-offs in terms of
flexibility and responsiveness that can be achieved with domestic vendors.

3. Give examples of the hidden and inflexibility costs involved with foreign sources
of supply.
The offshore sourcing costs can be categorized as: (a) hidden costs and, (b)
inflexibility costs. The hidden costs will include: delays at the port of entry,
irrevocable letters of credit charges, last minute use of air freight, expensive
administrative travel and quality problems.
Inflexibility costs include: the requirement of an early commitment to manufacturing
before sales trends are clear, limited ability to change mix or volume of orders shortly
before or during the sales season, large stocks or insufficient stocks due to having to
make ordering commitments before demand is known, inflexible suppliers who will
not make arrangements for return of goods not sold.