TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

KHOA NGOẠI NGỮ KINH TẾ

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CHUYÊN ĐỀ KINH DOANH QUỐC TẾ

Chapter 8: Global operations and
supply chain management

- Group 8 –

Thành viên: Cao Thu Trang - 11195189

Nguyễn Thị Ái Thỏa – 11194926
Phùng Đoàn Ngọc Sương - 11194581

Hà Nội, 2022

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 Chapter 8: Global operations and
supply chain management

Tables of Contents
1. MANAGING GLOBAL SUPPLY CHAINS..............................................................................3
2. DESIGN OF PRODUCTS AND SERVICE...............................................................................3
3. SOURCING GLOBALLY..........................................................................................................5
3.1. Reasons for sourcing globally 5
3.2. Global sourcing arrangement 5
3.3. The increasing use of electronic purchasing for global sourcing 6
3.4. Global electronic procurement 6
3.5. Problems with global sourcing 7
4. MANUFACTURING SYSTEMS...............................................................................................8
4.1. Advanced production techniques to enhance quality and lower costs 8
4.2. Going to the source 11
4.2.1. Synchronous manufacturing.........................................................................................11
4.2.2. Mass customization......................................................................................................12
4.2.3. Six Sigma.....................................................................................................................12
5. STANDARDIZATION AND IMPEDIMENTS OF GLOBAL OPERATIONS......................14
6. OPERATION OF MANUFACTURING SYSTEM..................................................................15

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1. MANAGING GLOBAL SUPPLY CHAINS
Supply chain plays an indispensable role in international business in recent
years, especially in the rapid increase of online shopping. Supply chain refers to
the activities that are involved in producing a company’s products and services and
how these activities are linked together. The concept of supply chain management
involves the application of a total systems approach to managing the overall flow
of materials, information, finances and services within and among companies in
the value chain - from raw materials and components supplier through
manufacturing facilities and warehouses and on to the ultimate customer.
It is considered that there are three ultimate goals of effective supply chain
management systems. Firstly, it helps to reduce inventory, consistent with the
prerequisites that the company’s product be available when needed and at the
desired level of quality and quantity. For that reason, it is critical that the
operations at each stage in the supply chain are synchronized in order to minimize
the size of these buffer inventories. Secondly, product life cycles are made shorter
and less predictable as well as the impact of unplanned economic, political, and
social events. Finally, effective supply chain management can also enhance a
company's ability to manage regulatory, social and other environmental pressure,
both nationally and globally.

2. DESIGN OF PRODUCTS AND SERVICE

There are some important factors in the structure and management of a
company’s global supply chain and the issue of design is included. The design of a
company’s products and services has a fundamental relationship with the type of
inputs the company will require, including labors, materials, information and
financing. An important consideration in the design is the extent to which the

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international company’s products and services will be standardized across nations
or regions or adapted to meet different needs of various markets.
When it comes to design of products and services, there are three approaches
that learners should pay attention to: traditional approach, alternative approach,
concurrent engineering approach.
A traditional approach has been termed the “over-the-wall” approach which
involves a sequential approach to design: an initial step in which the designers
prepare the product’s design, followed by sending the newly created design to the
company’s manufacturing engineering who must then address the production-
related problems that often result from their exclusion from initial design activity.
An alternative approach to design is to promote cross-functional participation
in the design stage, thereby helping to identify and avoid many of the potential
sourcing, manufacturing, and other difficulties that can be associated with a
particular design. Many companies also involve the key customers in the design
activities, to ensure that designs are consistent with the customers’ needs.
Using the type of concurrent engineering approach allows the proposed design
to be subjected to earlier assessments on cost, quality and manufacturability
dimensions, thereby enhancing the efficiency and effectiveness of subsequent
manufacturing and supply chain management activities. Indeed, design decisions
must be integrated with assessment of various supply chain consideration, such as
whether and where the company can obtain the inputs needed for the company’s
operations, whether the firms will source locally or from foreign locations, and
whether the company has the capacity to produce and deliver the product or service
in a competitively viable manner.

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3. SOURCING GLOBALLY

3.1. Reasons for sourcing globally

- Lower price

- Products the company requires are not available locally and must be imported

- Another possibility is that the firm’s foreign competitors are using

components of better quality or design than those available in the home
country.

3.2. Global sourcing arrangements

- Wholly owned subsidiary: May be established in a country with lower cost
labor to supply components to the home country plant, or the subsidiary may
produce the product that either is not made in the home country or is of
higher quality
- Overseas joint venture: Established where labor costs are lower, or quality
higher than in the home country to supply components to the home country
- In-bond plant contractor: Home-country plant sends components to be
machined and assembled or only assembled by an independent contractor in
an in-bond plant
- Overseas independent contractor: common in the clothing contractor, in
which firms with no production facilities such as Nike, DKNY, contract with
foreign manufacturers to make clothing to their specifications with their
labels
- Independent overseas manufacturer: The firm may buy from an independent
overseas manufacturer

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 It is essential to research about the increasing use of electronic purchasing for
global sourcing and global electronic procurement to understand the increasing
role of electronic purchasing for global sourcing.

3.3. The increasing use of electronic purchasing for global sourcing

Growth of electronic procurement exchanges

In recent years, many firms have set up electronic procurement exchanges,

individually or in conjunction with other firms to identify potential suppliers or
customers and facilitate efficient and dynamic interactions among these
prospective buyers and suppliers. In many companies, the purchasing function has
been neglected for many years and is often viewed as a prime candidate for
outsourcing to other firms. However, purchasing is increasingly being considered a
strategic function, a trend encouraged by rapid developments in e-procurement.

3.4. Global electronic procurement

Options for global electronic procurement

Among the most basic transactions that can occur over electronic purchasing
exchanges are catalog purchases. Electronic exchanges can also permit buyers and
suppliers to interact through a standard bid/quote system. Industry- sponsored
exchanges can also facilitate obtaining letters of credit, contracting for logistics
and distribution, and monitoring daily prices and other flows, among other
services.

Benefits of global e-procurement systems

The establishment of electronic purchasing systems on a company or industry

basis can influence the number and type of suppliers available internationally to

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firms. Although there are a number of challenges to their use, the electronic
purchasing system has some benefits. It helps cut cost, invoice and ordering errors.
Moreover, it also improves productivity and internal purchasing processes, reduces
trading cycle time, paper, and compares bids.

3.5. Problems with global sourcing

Although global sourcing is a standard procedure for half the U.S. firms with
sales greater than $10 million, it does have some disadvantages

Added cost

Even on components, firms are increasingly including full costing, including

the use of activity-based costing systems, to ensure that all the costs associated
with foreign sourcing (e.g., transportation, insurance, increased inventory levels to
insulate against delays in delivery) are fully recognized when they make
purchasing decisions.

The following is a list of the costs of importing, with an estimate of the

percentage of the quoted price that each cost adds:

1. International freight, insurance, and packing (10-12%).

2. Import duties (0-50%).

3.Customhouse broker's fees (3-5%).

4.Transit or pipeline inventory (5-15%).

5.Cost of letter of credit (1%)

6.Interational travel and communication costs (2-8%)

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 7.Company import specialists (5%).

8.Reworking of products out of specification (0-15%).

Other disadvantages

- One disadvantage an importer should not have to face is an increase in price

because the home currency has lost value as a result of exchange rate fluctuation.

- Security is often a significant concern for e-procurement. Although extensive

research and development efforts have been undertaken in encryption technology
and other technology and processes to ensure integrity much progress still remains
to be achieved before these systems can be considered fully secure.

4. MANUFACTURING SYSTEMS
The manufacturing systems of a company’s international operations can
significantly impact the management of the global supply chain. Since the cost and
quality of production factors vary through development levels of different
countries, the manufacturing systems also alter within the same company. A
company may possess production technology that ranges from the most advanced
to the far less advanced.

4.1. Advanced production techniques to enhance quality and lower costs

International operations all over the world have made efforts to improve
their competitiveness, which requires them to achieve efficiency and effectiveness.
Therefore, advanced production systems have been implemented although these
innovations can be challenging to succeed. In order to attain international

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competitiveness, organizations normally find ways to enhance quality and lower
costs.
a, The technique to enhance quality: TQM
Total quality management (TQM) is a management approach by which all
members of an organization participate in improving all dimensions of product to
ensure the quality that is important to the customers. The successful operation of
TQM needs teams, and one useful type of team is the quality circle which means
that a small work group meets periodically to discuss ways to improve its
functional areas and the quality of the product.

b, The technique to lower costs: JIT

JIT is a balanced system invented by the Japanese in which there is little or no
delay time and idle in-process and finished goods inventory. It covers the
management of people, materials, and relations with suppliers. Moreover, JIT
includes TQM, of which continuous improvement is an integral part.
The goal of JIT:
- Eliminating inventories: In the components of costs, inventory costs are
a major matter. Removing the inventory can reduce labor cost by 40 percent.
Through JIT, inventories of finished goods are removed but the company
can still respond quickly to customers’ orders.
- Reducing process and setup times: First, components are delivered to
each point in the production process at the right time they are needed.
Second, the time needed to transport work from one operation to the next is
lowered. Machines are grouped according to the working process of a single
product, which means a production line is separate for each product.
Consequently, transport cost is virtually eliminated. In addition, thanks to
the immediate arrival of parts from one operation to the next, when the

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 output of the former operation has an error, that operation can be stopped
until it is repaired. As a result, production costs can be decreased since fewer
faulty parts are made.
- Using participative management to ensure worker input and loyalty to
the company.

c, Problem with implementing the JIT system

● Problems with manufacturers outside Japan
- Many managers studied the JIT system but only copied one part of it,
which is called “little JIT”. They did not realize that a total system called
“big JIT” is more important.
- There is a difference in attitudes between Japanese and Western
managers who highly evaluated the specialization of worker function that
contradicts the principles of quality circles. The Western preferred quick
results, while quality circles did not show immediate improvement.
- These manufactures do not guarantee long-term employment, which is
difficult to attain company loyalty for JIT
- They failed to train and integrate suppliers into the JIT system
● Problems with JIT itself
- JIT is restricted to repetitive operations. All operations are designed
to produce the same quantity of parts, while repetitive operations may
appear only in parts of the producing system. Therefore, JIT is less useful
for job shops (a small business that designs a single product or a small
number of a product for one customer at a time)
- If one operation stops, the entire production line can also stop.
Because there is no inventory to make succeeding operations work

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 - The JIT system is difficult to achieve because different machines
have different capacity of production.
- JIT makes no allowance for accidental events, thus everything must
have no defect and delivery must be kept exactly. Consequently,
preventive planned maintenance is essential because when a machine
suddenly breaks down, the entire production process will stop.
- Much trial and error are required to put JIT into operation

4.2. Going to the source

4.2.1. Synchronous manufacturing

Because of problems with JIT, especially the long time needed to be
installed, some firms turned to Synchronous manufacturing which assists them to
gain market share. Synchronous manufacturing is a scheduling and manufacturing
system that seeks to locate and then eliminate or minimize any constraints to
greater production output, such as machines, people, tools, facilities. It is an entire
manufacturing system with unbalanced operations that emphasizes total system
performance. The system’s output is controlled by the output of the bottleneck that
is working at full capacity. Bottleneck is operation in manufacturing system whose
output sets the limit for the entire system’s output
The characteristics of Synchronous manufacturing:
- It is much faster because production schedules and stimulation can be
done on a computer, instead of trial and error like JIT. When a bottleneck is
discovered, the manager can focus on enhancing the production rate of that
process. After resolving that, the manager can repeat the process on the next
bottleneck

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 - Unlike JIT that attempts to achieve a balanced system, Synchronous
manufacturing aims to balance the product flow through the system, which
makes output levels of the various operations unbalanced.
- The attention of Synchronous manufacturing is the bottleneck. A
production increase at the bottleneck means an increase for the entire
production system. An increase in a nonbottleneck operation only adds to
that machine’s idle time
- When a part or component has defect, the entire production system is
not stopped, because any defective part is produced before the bottleneck
can be remade

4.2.2. Mass customization

Mass customization involves the use of flexible, usually computer-aided,
manufacturing systems to produce and deliver customized products and services
for different customers worldwide. It combines the low unit costs and rapid
production speeds.
Approaches to mass customization:
- Collaborative: the company helps customers choose the required
product features
- Adaptive: the company offers standard product that users can modify
themselves
- Cosmetic: only the product’s presentation is customized, such as
packaging or color
- Transparent: customers are provided with individualized product or
service offerings without their knowing it such as websites interfaces

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4.2.3. Six Sigma

Six Sigma is a business management process for reducing defects and

eliminating variation. It combines severe analytical tools with a well-defined
infrastructure and leadership from the top in order to solve problems and optimize
processes. When defects go down, so do costs and cycle time, while customer
satisfaction goes up.

The Six Sigma approach includes five steps:

- Define: Defining who the customers are, what their problems and what key
characteristics important to the customer are, along with the processes that support
these characteristics.

- Measure: categorizing key characteristics, verifying measurement systems,

and collecting data.

- Analyze: converting raw data into information that provides insight into the
process and identifies the fundamental and most important causes of defects or
problems.

- Improve: developing solutions to the problem, implementing the changes,

and assessing whether additional changes are required.

- Control: monitoring and maintaining performance over time.

The biggest advantages of Six Sigma among organizations using the

methodology (according to a Quality Online survey)

- Increasing cost savings

- Increasing customer satisfaction

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- Reducing defects

- Increasing company growth

- Increasing quality

The Six Sigma methodology involves reevaluation of the value-adding

status of many elements of an organization. As a result, companies are required to
rethink the way they do things and adapt their culture, sometimes dramatically.

Successful culture change requires a concerted, long-term effort, particularly

if the organization is multinational, with subsidiaries and offices around the world.
The way organizations change is influenced by organizational and national culture,
which affect such things as how companies ascribe status, recognize performance,
structure reporting lines, and communicate internally. At the same time, the Six
Sigma methodology has been criticized as simply being limited to old ideas and
holding back creativity.

5. STANDARDIZATION AND IMPEDIMENTS OF GLOBAL

OPERATIONS

5.1 Standardization and the management of global operations

Standard can be understood in various ways; however, in international

business, it is defined as documented agreements containing technical
specifications or other criteria that will be used consistently as guidelines, rules or
definitions of the characteristics of a product, process, or service. Standards help
ensure that materials, products, processes, and services are appropriate for their
purpose.

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In most countries, standards have been developed across product lines and for
various functions. In the United States, for example, the standards developed by
the American Society for Testing and Materials (ASTM) and other organizations
are used in lieu of specific detailed requirements to ensure an expected level of use
and quality. In Europe, the most used standard for quality is ISO 9000. The
attention is that ISO 9000 standards will be applicable worldwide, avoiding
technical barriers to trade attributable to the existence of non harmonized standards
between countries. The most comprehensive of the standards is ISO 9001. It
applies to industries involved in the design, manufacturing, installation, and
serving of products and services.

5.2 Impediments to standardization of global operations

Units of an international multi plant operation differ in size, machinery, and
procedures, because of their intervention of the foreign environmental force,
especially the economic, cultural, and political forces.

Economic Forces
There are two important elements of the economic forces that impede
production standardization: the wide range of market sizes and cost of production.
In terms of the wide range of market sizes, a great variety of production
requirements can be coped by the option of selecting either a capital-intensive
process incorporating automated, high-semi manual output machinery or a labor
intensive process employing more people and general-purpose equipment with
lower productive capacity. The automated machinery is severely limited in
flexibility (variety of production and range of sizes). This problem may be resolved
by installing one machine of type used by the hundreds in the larger home plant.
However, sometimes this option is not available; some processes use only one or

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two large machines, even in manufacturing facilities with large output. An
alternative is available: computer - integrated manufacturing (CIM). However, its
cost and high technology content generally limit its application to the
industrialization nations and the more advanced developing countries.
Another economic factor that influences the designer’s selection of process is
cost of production. Automation tends to increase the productivity per worker
because it requires less labor and results in higher output machines. But if the
desired output requires that the machine be operated only a fraction of the time, the
high capital costs of automated equipment may result in excessive production cost
even though labor costs are low. In situations where production costs favor semi
manual equipment, the designer may be compelled to install high capacity
machines instead because of a lack of floor space. However, materials have to be
obtained either from local sources or through importation. Occasionally,
management will bypass this obstacle by means of backward vertical integration.

Cultural Forces
Capital-intensive processes may be employed in developing countries where
they commonly lack skilled workers. Although they can be trained to perform the
tasks after a short training period, low prestige of employment of technical schools
in that area can affect both the demand for and the supply of vocational education.

Political Forces
Although developing countries desperately need new job creation, government
officials often insist on the most modern equipment. Local pride can be the cause,
or it may be that these officials, wishing to see new firm export, believe that only a
factory with advanced technology can compete in the world markets.

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 These are three major impediments to standardization of global operations.
However, solutions can be found corresponding to the problem that arises in that
situation.

6. OPERATION OF MANUFACTURING SYSTEM

Once the manufacturing system has been put into consideration, two general
classes of activities, productive and supportive must be performed.
Productive activities are all those functions that are part of the
manufacturing process. After the initial trial period, during which workers become
familiar with the manufacturing processes, management will expect the system to
produce at a rate sufficient to satisfy market demand. It is the function of line
organization - from the operations manager to first level supervisor - to work with
labor, raw materials, and machinery to produce on time the required amount of
product with the desired quality at the budget cost. Management must be prepared
to deal with any obstacle to meeting the manufacturing standards including low
output, inferior quality, and excessive manufacturing costs.
- Low output:
- Inferior product quality
- Excessive manufacturing costs
The other general class of activity is supportive one that are purchasing,
maintenance, and the technical function.
● Purchasing
Manufacturing depends on the purchasing department to procedure the raw
materials, component parts, supplies, and machinery it requires to produce the
finished product.
● Maintenance

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 A second function supporting manufacturing is the maintenance of building
equipment. The goal of maintenance management is to ensure an acceptable level
of production, and the costs of achieving this can be substantial.
There are two primary alternatives for dealing with maintenance problems. The
first option is planned maintenance or preventive maintenance. The objective here
is to prevent failure before it occurs, because failure is more expensive to repair
and is disruptive to production schedules. The second alternative is breakdown
maintenance. That is, when a machine or another element in the production process
fails, it will be repaired.
● Technological function
The function of the technical department is to provide operations management
with manufacturing specifications. Usually, technical personnel are also
responsible for checking the quality of inputs and the finished product. The
affiliate’s technical manager is a key figure in the maintenance of product quality
and thus extremely influential in selecting sources of supply.

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