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Global Operations
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OBJECTIVES

Forces of globalization
Global supply network design
Factor rating system
Added complexities/uncertainties in global
operations
Global supply chain strategies
Offshoring, postponement
Considerations in global service operations
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Forces of Globalization

Global market
forces

Global cost Globalization Technological

forces of operations forces

Political and
macroeconomic
forces
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Global Market Forces

Growth in foreign demand

Increased foreign competition in domestic
market
Local presence needed for customization
and fast response
Production or R&D facilities in state-of-art
markets serve as market sensor or learning
laboratories
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Global Cost Forces

Reducing costs by global operations

Lower labor costs
Lower production costs (materials, land, )
Reducing logistics costs
Lower taxes and tariffs
Government subsidies
Less strict regulations
New cost priorities
Costs of quality, fast response, access to
markets, access to skilled workers
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Technological Forces

Technological advancements in transportation

and communication have lowered the costs of
global operations
Diffusion of technological knowledge
Advanced technological knowledge is developed and
owned by many different countries
Global location of R&D facilities to have access
to high-quality, low-cost engineering talent
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Political and Macroeconomic Forces

Development of regional free trade zones

E.g.) European Union (EU), North American Free Trade
Agreement (NAFTA)
International organizations such as WTO have
helped reduce tariffs
The imposing of non-tariff barriers favors
globalization of operations
E.g.) Local content requirement
Significant exchange rate fluctuations force
development of production facilities in local
markets
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Global Supply Network Design:

Key Decisions

Where to locate facilities?

How to allocate production activities to the
various facilities?
How to manage the distribution of products?

How to develop suppliers for the

manufacturing facilities?
How to organize the interfaces along the
supply chain?
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Global Supply Network Design:

Considerations

The companys particular set of markets

Characteristics of products
Demand characteristics, physical attributes
Demand projections for the different
markets
Transportation costs

Production economics
Costs of labor and materials in different places,
economies of scale, economies of scope
Political and macroeconomic conditions
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Key Issues in Facility Location

Proximity to customers
Time-based competition, shipping costs, and
trade agreements
Total costs
Inbound and outbound logistics costs, regional
costs such as labor, land, construction, taxes
and energy
Infrastructure
Transportation, energy, communication
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Factor Rating System

Factor rating system is a method for facility

location decision
The method involves the following steps:
1) List all the key factors in the location decision
2) Assign weights to the key factors based on their
relative importance
3) Assign scores to each alternative location for the
key factors
4) Calculate total score for each location from the
weights of the key factors and the values
assigned to the location
5) Select a location based on the total scores
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Example of Factor Rating System

Factor (weight) Site A Site B
Energy and water supply (.40) 80 70
Transportation (.25) 75 85
Labor climate (.15) 70 80
Living conditions (.10) 40 60
Tax policies (.10) 80 90
Total score 73.25 76.25
** The scores are on a 0-100 point scale.

80.40 + 75.25 + 70.15 + 40.10 + 80.10

Site B is the best based on the total scores.
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Added Complexities/Uncertainties
in Global Operations

Substantial geographic distance

Longer and more variable lead times
Increased buffer inventories, more frequent
stockouts, less responsiveness to customers

Added forecasting difficulties and

inaccuracies
Different cultures and operating practices
different views on the future demand
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Added Complexities/Uncertainties
in Global Operations (Contd)

Exchange rate uncertainty

Input costs and sales prices affected
Global supply chains with multiple sources can
be used to cope with exchange rate fluctuations
Infrastructural inadequacies
Transportation and telecommunications
Quality of workers and suppliers
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Added Complexities/Uncertainties
in Global Operations (Contd)

Explosive dimensions of product variety in

global markets
e.g.) Computer products: country-specific power
supplies, keyboards, and manuals
Forecasting and production processes become
more difficult
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Global Supply Chain Strategies

Offshoring
Postponement in global supply chain
management
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Offshoring

Offshoring is a supply chain strategy that

involves outsourcing processes to another
country
Drivers of offshoring
Cost benefits
Lower labor costs and logistical costs
Avoiding tariffs
Superior quality
Access to more advanced technology
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Postponement in Global Supply

Chain Management

Postponement is a supply chain strategy

that some of the final activities in the
production process are delayed until the
customer orders are received.
Postponement can be used to deal with
country-specific requirements
Country-specific customization (e.g., power
supplies, keyboards, and manuals) is delayed
until local demand is observed.
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Considerations for Multinational

Service Operations
Cultural transferability: Conveying culture in
services
e.g.) Selling stronger coffee in Europe
Network development: Expanding into global
operations by the desires of the customers for the
service on a global network
e.g.) VISA card and MasterCard
Host government policy: Governments restricting
the growth of multinational services
e.g.) Banning the sale of insurance by foreign firms