International Business Management

International Operations Management

Operations ManagementOperations management is the set of activities an organization uses to transform different kinds of inputs (materials, labor, and so on) into final goods and services.

International operations management refers to the transformation-related activities of an international firm.

Explanation:

“Regardless of a firm’s product, the goal of its international operations managers is to design, create, and distribute goods or services that meet the needs and wants of customers worldwide and to do so profitably”

The International Operations Management Process

Strategic context

Production

Acquisitionof resources

Location decisions

Logistics

Complexities of International Operations Management

Resources

LogisticsLocation

The basic complexities inherent in operations management stem from the production problem itself—where and how to produce various goods and services. Operations managers typically must decide important and complex issues in three areas:Resources: Managers must decide where and how to obtain the resources the firm needs to produce its products. Key decisions relate to supply chain management and vertical integration. Location: Managers must decide where to build administrative facilities, sales offices, and plants, how to design them, and so on. Logistics: Managers must decide on modes of transportation and methods of inventory control.

Forms of Operations Management

Productionmanagement

Service operations

management

Explanation:Although some similarities exist between creating goods and creating services for international markets, there also are major fundamental differences. Operations management decisions, processes, and issues that involve the creation of tangible goods are called production management, and those involving the creation of intangible services are called service operations management. The following slides focus on production management; service operations management will be addressed later in the presentation.

Supply Chain ManagementSupply chain management is the set of processes and steps a firm uses to acquire the various resources it needs to create its products.

Expalnation:

Because the production of most manufactured goods requires a variety of raw materials, parts, and other resources, the first issue an international production manager faces is deciding how to acquire those inputs. Other common terms for this activity include sourcing and procuring. Supply chain management clearly affects product cost, product quality, and internal demands for capital. Because of these impacts, most international firms approach supply chain management as a strategic issue to be carefully planned and implemented by top management.

Basic Make-or-Buy Options

Influence Factors for the Make-or-Buy Decision

Size Scope of operations

Technologicalexpertise Nature of product

Explanation:The make-or-buy decision can be influenced by a firm’s size, scope of operations, and technological expertise and by the nature of its product. For example, because larger firms are better able to benefit from economies of scale in the production of inputs, larger automakers such as GM and Fiat are more likely to make their parts themselves, whereas smaller automakers such as Saab or BMW are more likely to buy parts from outside suppliers. At other times the make-or-buy decision will depend on existing investments in technology and manufacturing facilities

Necessary Trade-Offs in the Make-or-Buy Decision

Trade-offsControl

Risk

Investment Cost

Flexibility

Making a component has the advantage of increasing the firm’s control over product quality, delivery schedules, design changes, and costs. Buying a component from an external supplier has the advantage of reducing the firm’s financial and operating risks. Buying from others lowers the firm’s level of investment. By not having to build a new factory or learn a new technology, a firm can free up capital for other productive uses. Buying from others also reduces a firm’s training costs and expertise requirements. A firm that buys rather than makes retains the flexibility to change suppliers as circumstances dictate. This is particularly helpful in cases in which technology is evolving rapidly or delivered costs can change as a result of inflation or exchange rate fluctuations.

Factors Affecting Location Decisions

Country-related issues

Product-related issues

Government policies

Organizational issues

An international firm that chooses to make rather than buy inputs faces another decision: Where should it locate its production facilities? In reaching a location decision, the firm must consider country-related issues, product-related issues, government policies, and organizational issues. These issues will be discussed on the following slides.

Country-Related Issues

Resource availability

InfrastructureCountry-of-origin effects

Cost

Resource availability and cost constitute a primary determinant of whether an individual country is a suitable location for a facility. As suggested by the classical trade theories and the Heckscher-Ohlin theory, countries that enjoy large, low-cost endowments of a factor of production will attract firms needing that factor of production. Infrastructure also affects the location of production facilities. Most facilities require at least some minimal level of infrastructural support. To build a facility requires construction materials and equipment as well as materials suppliers and construction contractors. More important, electrical, water, transportation, telephone, and other services are necessary to utilize the facility productively. In addition, access to medical care, education, adequate housing, entertainment, and other related services are almost certain to be important for the employees and managers who will work at the facility as well as for their families. Country-of-origin effects also may play a role in locating a facility. Certain countries have “brand images” that affect product marketing.

Country-Related Issues

Such issues play key roles in location decisions for manufacturers.

Product-Related Issues

Value-to-weightratio

Required productiontechnology

The product’s value-to-weight ratio affects the importance of transportation costs in the product’s delivered price. Goods with low value-to-weight ratios, such as iron ore, cement, coal, bulk chemicals, and raw sugar and other agricultural goods, tend to be produced in multiple locations to minimize transportation costs. Conversely, goods with high value-to-weight ratios, such as microprocessors or diamonds, can be produced in a single location or handful of locations without loss of competitiveness. The production technology used to manufacture the good also may affect facility location. A firm must compare its expected product sales with the efficient size of a facility in the industry. If a firm’s sales are large relative to an efficient-sized facility, the firm is likely to operate many facilities in various locations. If its sales are small relative to an efficient-sized facility, the firm probably will utilize only one plant.

Government Policies• Stability of political process

• National trade policies

• Economic development incentives

• Existence of foreign trade zones (FTZ)

Government policies also may play a role in the location decision. The stability of the political process within a country can clearly affect the desirability of locating a factory there. A government that alters fiscal, monetary, and regulatory policies seemingly on whim and without consulting the business community raises the risk and uncertainty of operating in that country. Unforeseen changes in taxation policy, exchange rates, inflation, and labor laws are particularly troublesome to international firms. National trade policies also may affect the location decision. To serve its customers, a firm may be forced to locate a facility within a country that has high tariff walls and other trade barriers. Economic development incentives may influence the location decision. An international firm also may choose a site based on the existence of a foreign trade zone (FTZ). An FTZ is a specially designated and controlled geographical area in which imported or exported goods receive preferential tariff treatment. A country may establish FTZs near its major ports of entry and/or major production centers. It then allows international firms to import products into those zones duty free for specified purposes.

Organizational Issues

Business strategy

Inventory managementpolicies

Organizationalstructure

International Logistics

International logistics is the management of the flow of materials, parts, supplies,

and other resources from suppliers to the firm; the flow of materials, parts,

supplies, and other resources within and between units of the firm itself; and the flow of finished products, services, and goods from the firm to customers.

Factors Distinguishing International and Domestic Logistics

Transportdistance

Complexity ofregulatory content

Number of transport modes

Characteristics of International Services

• Services are intangible

• Services are not storable

• Services may require customer participation

• Services may be tied to the purchase of other products

Managing Service Operations

Capacity planning

Location planning

Facilities design and layout

Operations scheduling

Productivity

Productivity is an economic measure

of efficiency that summarizes the value of outputs relative to the value

of the inputs used to create the outputs.

Strategies for Enhancing Productivity

• Spend more on R&D

• Improve operations

• Increase employee involvement

Essential Components of Total Quality Management

Strategic Commitment to Quality

EmployeeInvolvement

High-QualityMaterials

Up-to-DateTechnology

Effective Methods

Key Components of Total Quality Management

Statisticalprocesscontrol

Benchmarking

Firms using TQM have a variety of tools and techniques from which they can draw, including statistical process control and benchmarking. Statistical process control is a family of mathematically based tools for monitoring and controlling quality. Its basic purposes are to define the target level of quality, specify an acceptable range of deviation, and then ensure that product quality is hitting the target. Benchmarking is the process of legally and ethically studying how other firms do something in a high-quality way and then either imitating or improving on their methods.