Management of

International
Operations

Introduction to Operations
Management
Newtons Law of Manufacturing
For every expert with a perfect solution there is an
equal and opposite expert with a perfect
solution
So it is impossible to come up with one perfect
way to run an international facility
This course will be a starting point in discovering
what production and operations management is
all about in the international setting

Introduction to Operations
Management
First step is to get the basics right
For example, MRP ( Materials

requirement planning) cannot work

without an accurate inventory system
and an inventory system cannot work
without an accurate data collection
system

Introduction to Operations
Management
Understanding international operations setting

is critical to competitive success

Every business is affected by sourcing,
production or marketing issues
The better a business understands these issues
the more competitive it can be
The key is in identifying what changes are
necessary to become better than competition
and implementing the changes faster than
competition

Introduction to Operations
Management
The business universe is being

transformed by web based eCommerce

technologies
We are quickly moving away from inward
looking, self focused enterprise, to a new
world of outward focused enterprise

Introduction to Operations
Management
Three eCommerce generated events are
shaping this change:
1.
Enterprises are becoming smaller, focusing
on their core competencies
2.
Enterprises are forming partnerships to
manage their non-competencies
3.
The emergence of eBusiness empowered
information exchange
The result of this is that enterprises will no longer
compete against enterprises

Introduction to Operations
Management
We now have the emergence of network of

enterprises competing with other networks

This has created a new world of enterprise
management, referred to as Next generation
Enterprise( NGE)
NGE is where an integrated supply chain value
network of enterprises competes against other
networks
The supply chain with the most efficient
integration and information network will win

Introduction to Operations
Management
Supply chain management integrates

networks of international companies into

a structure that allows them to optimise
performance as a collective unit
The integration starts with the vendors
vendor and ends with the customers
customer

Introduction to Operations
Management

1.
2.
3.

There are three key measures which

identify the successful performance on
the international supply chain:
Cycle time performance
Operating cost minimisation
On-time performance and customer
satisfaction

Basic operations management

terminology and concepts

1.
2.
3.

There are three levels of management:

Strategic Management
Tactical Management
Operational Management

Basic operations management

terminology and concepts
Strategic Management focuses on

planning and developing the business as

a whole. Typical job titles include the
board of directors and the CEO
Tactical management is the middle
management of an organisation and
focuses on the month to month company
performance. Typical job titles include
vice prsident general managers etc.

Basic operations management

terminology and concepts
Operations management is organisationally at

the bottom end of the management heap.

But this is the most important/ critical
management function since it is the
performance of the operations management
function that will make the organisation a
success
However, a lot that happens at the strategic and
tactical level will affect what happens at the
operations level

Basic operations management

terminology and concepts

1.
2.
3.

There are three primary functions of a

business
Financial
Marketing
Operational

Basic operations management

terminology and concepts
The financial function analyses the

financial viability of the business

The marketing function attempts to
identify markets for the goods ad
services produced by the business

Basic operations management

terminology and concepts
The operational function:
Identifies material sources
Identifies internal and external sources

evaluates capacities
Manages an organisations resources in
order to produce products that will satisfy
the demands generated by the
marketing function

Basic operations management

terminology and concepts
Juggles the accessibility of resources

within the limits of the financial constraints

Produces, packages, or adopts products
using these resources
Evaluates the quality of the product and
how well it satisfies the customer
Manages the storage and distribution of
the products produced

Basic operations management

terminology and concepts
Traditional management thinking suggests that

these functions are in conflict with each other

and that this conflict creates a synergistic effect
within the organisation through the use of tradeoffs.
World class management wisdom suggests that
there is more synergy to be gained by focusing
on a common goal
Therefore the critical part of the process is to
identify what the goal should be

Basic operations management

terminology and concepts
International operations function takes a look at

operations when globalisation occurs

Globalisation can refer to:
International sourcing of products/ resources
International production of goods and/ or
services
International transportation of the products
International markets for the products produced

Basic operations management

terminology and concepts
Within operations management

framework there are several types of

industries
Each of these industries have different
requirements for successful performance

Basic operations management

terminology and concepts

1.

2.

3.

Some of these industries include:

Wholesaling: This includes an extensive
purchasing and inventory management
function. Packaging and shipping may also
form a large part of this operation
Logistics: This process involves routing
management and location tracking of products
and equipment
Retailing; This requires a purchasing and
inventory management function, but may also
include production management process

Basic operations management

terminology and concepts
4. Service: The management of projects like
implementation of computer systems or
consulting projects requires project
management expertise
5. Process manufacturing: Process
manufacturing is where the units produced are
not discrete
6. Departmentelised discrete production: The
factory builds a discrete product. The layout of
the factory is by departments, focusing on the
specialisation of labour in each department

Basic operations management

terminology and concepts
7. Job shop: This is a discrete
manufacturing facility that produces
customised products where the flow of
the product may vary dramatically from
one product to the other
8. Flow discrete manufacturing: Here the
factory focuses on the continuous
movement of materials through the
facility

Basic operations management

terminology and concepts
Each of these different operations environments

requires its own specific set of tools, as well as

some common tools
The manufacturing/ operations cycle is a flow
system and like all systems, it contains the
basic components of input, process, output and
feedback
In evaluating the operations cycle, as in all
systems, the key point of evaluation is the
output, making sure that we satisfy the
information needs of the operational process

Basic operations management

terminology and concepts
This evaluation is followed by a close

look at the input which assures us that it

is sufficient to create the desired output
Last of all, we look at the process itself
The key to selecting and developing a
successful operations management
system is in making sure the results
(output) satisfies the goal

A little history
Operations management goes back to the

beginning of man
But the most dramatic changes have taken
place over the last few years of history
The first seems to be world war II
Prior to WW II the operations
methodologies were primarily manual
Tools like EOQ, LP and 2 bin system were
considered state of the art

A little history
Shortly after WW II the computer

became available
Which created computationally overburdened systems like MRP and PERT/
CPM feasible
MRP: Materials requirement planning
PERT: Project evaluation and review
technology
CPM: Critical path methodology

A little history
Also, after this war, the Japanese were going

through a reconstruction of their industry in a

country that had no natural resources, minimal
cash flows and lots of people
In order to grow their industry, they had to bring
materials into the country, convert them to end
products as quickly as possible and ship them
They did not care how many people it took
because there was a plentiful work force
This material efficiency focused strategy
became the roots of what is known through out
the world as JIT

A little history
Israel at the same time decided to develop their

own production methodology

They developed Optimised production
technology (OPT)/ Theory of constraints (TOC)
TOC Philosophy promotes the idea of
production efficiency through the successful
management of bottlenecks within the
organisation

A little history-Pre WW2

EOQ- Economic order quantity focuses on inventory

levels. It is the most commonly used as it is simple and

has minimal data requirements
LP-Linear programming is an optimisation process that
facilitates optimal routings, loadings and minimises costs.
Extensions to this are Integer programming (IP) and
geometric programming (GP)
2-Bin- This system is a simplistic volume based
replenishment which requires no sophistication or
automation but generally creates a lot of inventory
These systems are still very much in use

A little history- post WW2

After WW2, we had several events that

would initiate the reinvention of POM

methodologies, these were:
MRP (US and Europe)
PERT/ CPM (US and Europe)
JIT (Japan)
OPT/ TOC (Israel)
These were initially localised to the country
where they were developed

A little history- post WW2

MRP labour focused environments generally had high

inventories and so had high carrying costs which could

make these organisations non-competitive
MRP (Material requirements planning) is a production
scheduling tool for an environment that has intermittent
and/ or irregular schedules.
The efficiency focus for MRP is to have a perfectly
balanced factory, which most often means that all
departments are equally balanced in their work-load
This system is the most data intensive and has the
toughest data accuracy requirements
The distribution counter part of MRP is DRP (distribution
requirements planning)

A little history-post WW2

PERT/ CPM Project evaluation and

review technique and Critical path

methodology are project planning tools
used in industries like construction
JIT Just in time focuses on the efficient
utilisation of the materials resource
through the elimination of all inventory
waste.
JIT is generally used in highly repetitive
manufacturing processes like cars,
electronics etc.

A little history-post WW2

OPT/ TOC Optimised production technology/

Theory of constraints focus on the efficient

utilisation and maximisation of the bottleneck
which is generally a specific piece of machinery
within the facility
Both high inventories in MRP and inefficient use
of bottlenecks resulted in high costs
Which led the western world to look at JIT in
detail
Unfortunately JIT was not suitable for nonrepetitive manufacturing

A little history-post WW2

The production process in a customised job-shop

required the sophistication of an MRP and the materials

efficiency of JIT
This triggered the introduction of new, leading edge
systems like Schedule based manufacturing (SBM) or
Bottleneck allocation methodology (BAM) which integrate
MRP and JIT philosophies
Other systems like Finite capacity scheduling (FCS)
attempted to deal with the inadequacies of MRP by
integrating the optimisation of TOC
Advanced integrated systems of this type are called
Advance planning and scheduling (APS) systems

A little history-post WW2

Business management systems were also

looking for methods to integrate operations

management with other information
management tools like the accounting system,
the costing system, and the sales and
marketing systems.
The first attempt at this was Manufacturing
Resource Planning (MRP II).
Later this integration was increased to shop
floor integration and engineering integration and
was labeled Enterprise Resource Planning
(ERP)

Operations Managementfuture
The future of operations management will find

the blending of more and more different

operations techniques and processes
These will offer the flexibility to select a
production planning processed focused on any
resource preference
These will also offer optimisation of any
resource, rather than limiting us to only one
critical resource
The future will also focus more and more on
integration, particularly on international
integration and supply chain integration

Measurement in Operations
Management
Critical to any processing cycle is the creation
of a feedback mechanism that reviews and
reports on the performance of all resources in
the system
The key areas of performance measurement
in operations management are:
1. Quality
2. Productivity
3. Efficiency
4. Financial Measures
5. Bench Marking

Measurement in Operations
Management

1.
2.
3.
4.
5.
6.

Other Operational Measures

Inventory level
Inventory turns
Throughput
Operating expense
Integration
Cycle Time

Measurement in Operations
Management- quality
Quality Is a very confusing term and does not have a

single definition
In the US and Europe quality is defined as meeting
engineering standards
It means that if a product is built to specifications, exactly
the way it is designed, it is considered to be a quality
product
Unfortunately this does not focus on the customer
This definition of quality is formalised by quality systems
like ISO ( the European developed quality standard that
has found international acceptance) or QS ( the American
automotive quality standard)

Measurement in Operations
Management-quality
In Japan the definition of quality is, that a

quality product is one that thrills the customer

This definition is not about durability or flexibility
but only on market appeal give the customer
whatever they get excited about
However quality is used as a measure of
performance by evaluating defect rates,
delivery performance, return rates etc.
The variations in quality standards has a special
significance in the international context due to
variance in organisational expectations

Measurement in Operations
Management-productivity
Productivity is another measure that permits an

unlimited number of variations and is therefore

difficult to define
Productivity is output divided by input, where
output is generally accepted as net sales
Output can also be the value of production or
transfer cost rate if we want factory productivity
where product is transferred between factories
of the same organisation
The problem stems from the fact that input can
be any number of things

Measurement in Operations
Management-productivity
Input can be varied so much so that any

company or country can claim excellent

productivity, depending on how it is measured
This inconsistency has made it absolutely
impossible to compare productivity across
companies or countries
It has got to a point that only effective
comparisons can be done only with itself over
time, be it a company or country

Measurement in Operations
Management-productivity
In western countries productivity almost always

means labour productivity. So the input in the

productivity formula is either direct labour hours
or direct labour costs
The primary disadvantage of this measure
using labour costs is that labour is less than
10% of the value added content of most
manufactured products
Therefore better labour productivity does not
necessarily mean better profitability

Measurement in Operations
Management-productivity
In Japan we find several productivity measures,

one of which is value-added productivity

Which is measured as net sales divided by net
sales minus cost of goods sold
Another popular measure is the Total factor
productivity which includes all costs that went
into the process like material cost, machine
costs, labour costs, and also overhead costs
Most recently, a measure of productivity known
as Critical Resource productivity has become
popular because it is easy to measure and
focuses on an organisations most critical area of
improvement

Measurement in Operations
Management-efficiency
Efficiency is a minor measure and is

generally used for determining bonus,

and measure internal effectiveness
Efficiency is measured by comparing
actual against a standard
Example standard time divided by actual
time expressed as a percentage
Any value greater than 100 is good

Measurement in Operations
Management-financial measures
Financial measures of performance include P&L

statements as well as performance and liquidity

ratios from the balance sheet
The applicability and use of these numbers is
questioned internationally as they can be very
misleading
Example the current ratio which is current
assets divided by current debts. The larger the
value of this number the better
However, inventory reduction is also considered
good, but lower inventory means a lower
current ratio

Measurement in Operations
Management-benchmarking
Benchmarking is a modern buzzword

which refers to comparative measures of

performance
There are two types of benchmarking,
internal and external
One of the most popular tables of
industrial ratios is the industry Norms and
Key business Ratios put out by Dun and
Bradstreet Information services

Measurement in Operations Managementother operational ratios

Inventory level has become a measure of

performance in many organisations, primarily

because it is important in Japanese JIT Not
always a good measure unless it looks at a
critical resource
Inventory turns measures how often inventory is
used up and replenished in a year. A high level
is good since it suggests that you dont have a
lot of inventory

Measurement in Operations
Management-other operational ratios
Throughput is a measure of quality units shipped to the

customer. It focuses on quality and delivered sales. It

leaves out a measure of production as unshipped goods
are ignored
Operating expense measures the cost of running the
factory floor in aggregate,this measure is more
meaningful when analysed along side of throughput
If operating expense goes up without an increase in
throughput then it is costing us more to do the same
amount of business
A ratio of the two called inventory asset ratio gives us a
measure of comparative performance. This ratio is
basically total inventory divided by total current assets

Measurement in Operations
Management-other operational ratios
Integration is a measure of internal
performance. It is a measure of how
effective the communication channels
work within an organisation
The measures used can be:
1. Number of cross-functional teams
2. Level of integration within teams
3. Number of team implemented
innovations

Measurement in Operations
Management-other operational ratios
Cycle time is a measure of the amount of time it

takes to process an order, from start to finish

Reduced cycle time means increased
responsiveness to customer requirements and
reduced in-process inventory levels
This is very important in JIT
Toyota has a cycle time of 3 hours as a
comparison cycle time for US and European car
makers is measured in weeks.