CHAPTER 6

OPERATIONS
IN GLOBAL SUPPLY CHAINS
 Global supply chain management
2

LOGISTICS
Global logistics is responsible for transportation, inventory
management, packaging, and materials handling

Global
Global Suppliers

MARKET
PURCHASING
CHANNELS
Global purchasing is

Customers
responsible for the boundary Global market channels is
spanning role with suppliers responsible for the boundary
spanning role with customers

OPERATIONS
Global operations is responsible for the managing of production,
competitive priorities, vertical integration, and quality
 Operations function
3

OM is responsible for planning, organizing, and managing all the resources needed
to produce a company’s goods and services. This includes people, equipment,
technology, materials, and information.

Source: Nada R. Sanders (2012), Supply chain management – a global perspective, John Wiley & Sons Publisher, printed in USA.
 Transformation role of OM
4

Source: Nada R. Sanders (2012), Supply chain management – a global perspective, John Wiley & Sons Publisher, printed in USA.

OM serves a transformation role in the organization by

converting a company’s inputs into finished goods and
services
 OM decisions
5

Source: Nada R. Sanders (2012), Supply chain management – a global perspective, John Wiley & Sons Publisher, printed in USA.
 Global operations management
6

Global operations management refers to the systematic design,

direction, and control of domestic and global processes that
transform various inputs into services and products for internal and
external global customers

A global operations strategy is the

means by which operations implements
the MNC’s corporate strategy and
facilitates the firm’s being market driven
7
 Global operations strategy
8
 A framework for operations and supply chain
strategy
9

Jacobs & Chase (2011). Operations and supply chain management. McGraw-Hill Irwin, USA.
10 Operations processes

Product design
Product manufacturing
 Production process
11
12 Product design
 Product Design
13

• Product development process

1

• Economic analysis of product development

2 projects

• Designing products for manufacture and

3 assembly

• Measuring product development performance

4
 (1) Product development process
14

Phase 5:
Production
Phase 4: Ramp-up
Testing and • Evaluate early
Phase 3: Detail Refinement production
design • Reliability output
Phase 2: • Define part testing
System-level geometry • Life testing
Phase 1: design • Choose • Performance
Concept • Generate materials testing
Phase 0: development alternative • Assign • Obtain
Planning • Investigate product tolerances regularly
• Consider feasibility of architectures • Complete approval
product product • Define major industrial • Implement
platform and concept subsystems design control design
architecture • Develop and interfaces documentatio changes
• Assess new industrial • Refine n
technologies design industrial
concepts design
• Build and test
experimental
prototypes
Process type Description Distinct features Examples

Generic Begin with a market opportunity Process generally includes distinct planning, Sporting goods,
(market-pull and selects appropriate concept development, system-level design, detail furniture, tools
products) technologies to meet customer design, testing and refinement, and production
needs ramp-up phases
Technology-push Begin with a new technology, then Planning phase involves matching technology and Gore-tex rainwear,
products finds an appropriate market market; concept development assumes a given Tyvek envelopes
technology
Platform products Assume that the new product will Concept development assumes a proven Consumer
be built around an estimated technology platform electronics,
technological subsystem computers, printers
Proces-intensive Characteristics of the product are Either an existing production process must be Snack foods,
products highly constrained by the specified from the start or both product and chemicals,
production process process must be developed together from the start semiconductors

Customized New products are slight variations Similarity of projects allows for a streamlined and Motors, switches,
products of existing configurations highly structured development process batteries, containers

High-risk Technical or market uncertainties Risks are identified early and tracked throughout Pharmaceuticals,
products create high risks of failure the process space systems
Analysis and testing activities take place as early
as possible
Quick-build Rapid modeling and prototyping Detail design and testing phases are repeated a Software, cellular
products enables many design-build-test number of times until the product is completed phones
cycles ore time/budget runs out

Complex systems System must be decomposed into Subsystems and components are developed by Airplanes, jet
several subsystems and many many teams working in parallel, followed by engines, automobiles
components system integration and validation
 (2) Economic analysis of product development projects

Build a base-case financial model

Sensitivity analysis
 Building Base-case model consists of:
1. Estimate the timing and magnitude of future  Use the finalcial model to
cash flows answer “what if” questions by
calculating the change in
2. Then, computing NPV of those cash flows NPV corresponding to a
3. By, merging the project schedule with: change in the factors included
 Project budget in the model
 Sales volume forecasts
 Other scenarios:
 Estimate production costs
1. Project development time
 Basics categories of cash flow for a new 2. Sale volume
product development project are: 3. Product cost
1. Development cost (design, test, refinement) 4. Sale price
5. Development cost
2. Ramp-up cost
3. Marketing and support cost
4. Production cost
5. Sales revenue
 (2) Economic analysis: Case
17

Vidmark, a manufacture of cell phones, is currently developing a new model (VidPhone

X70) that will be released on the market when development is complete. This phone
will be revolutionary in that it will allow the user to place video phone calls. Vidmark is
concerned about the development cost and time. They are also worried about market
estimates of the sales of the new phone VidPhone X70. The cost estimates and forecast
are given in the table below.
Development cost $ 2,000,000
Development time 2 years
Ramp-up cost $750,000
Marketing and support cost $500,000/year
Unit production cost $75
Unit price $135
Sales and production volume
Year 3 40,000
Year 4 50,000
Year 5 40,000
 (2) Economic analysis: Case (cont)
18

Project schedule VidPhone X70 Year 1 Year 2 Year 3 Year 4 Year 5

Development
Ramp-up
Marketing and support
Production and sales

Project schedule VidPhone X70 Year 1 Year 2 Year 3 Year 4 Year 5

Development $ $
1,000,000 1,000,000
Ramp-up $ 750,000
Marketing and support $ 500,000 $ 500,000 $ 500,000 $ 500,000
Production cost $75*40,000 $75*50,000 $75*40,000
Sales revenue $135*40,000 $135*50,000 $135*40,000
 (3) Designing products for manufacture and assembly
19

 Establish the basic of a system

 Detailing of the materials, shapes, and tolerance of
the individual parts of a product

 This activity starts with sketches of parts and

assemblies and then progresses to the computer-
aided design (CAD) workstation.
 (3) Designing products for manufacture and assembly
20
 (4) Measuring product development performance
21

Performance
dimension Measures Impact on competitiveness

Time to market Frequency of new product introductions Responsiveness to

Time from initial concept to market customers/competitors
introduction Quality of design – close to
Number started and number completed market
Actual versus plan Frequency of projects – model
Percentage of sales coming from new life
products
Productivity Engineering hours per projects Number of projects – freshness
Cost of materials and tooling per project and breadth of line
Actual vesus plan Frequency of projects –
economics of development

Quality Conformance – reliability in use Reputation – customer loyalty

Design – performance and customer Relative attractiveness to
satisfaction customers – market share
Yield – factory and field Profitability – cost of ongoing
service
 Productivity measurement
22

 Operations and supplychain management focuses

on making the best use of the resources available to
a firm
 Productivity measurement is fundamental to
understanding operations-ralated performance

Outputs
Pr oductivity 
Inputs
 Examples of Productivity measurement
23

 Partial measure
Output Output Output Output
Labor Capital Materials Energy

 Multifactor measure
Output Output
Labor  Capital  Energy Labor  Capital  Materials

 Total measure
Outputs Goods & Services _ produced
Inputs All _ resouces _ used
 Examples of Productivity measurement
Input
24 & Output production data ($) Productivity measure examples
 Total measure
 Output
1. Finished unit $10,000 Total _ output 13,500
  0.89
2. Work in process $2,500 Total _ input 15,193
3. Dividends $1,000
 Multifactor measure
4. Bonds
Other income Total _ output 13,500
5.
  4.28
Total output $13,500 Human  Material 3,153

 Input Finished _ units


10, 000
 3.17
1. Human $3,000 Human  Material 3,153
2. Materials $153  Partial measure
3. Capital $10,000
Total _ output 13,500
4. Energy $540   25
Energy 540
5. Other expenses $1,500
Finished _ units 10,000
Total inout $15,193   18.52
Energy 540
 Total cost in Global supply chain
25

 Total supply chain costs include all costs across all

companies in the global supply chain
 All first-tier suppliers
 All second-tier suppliers
 All third-tier suppliers
 The producer
 The agents and/or facilitators in the chain
 The wholesaler
 The retailer
 And many other actors in the supply chain

 Total cost analysis is one of the most important aspects

of the global supply chain
 Total cost in GSC
26

Process Flow including Entities and Activities

Raw Assemble Assemble Market Primary

Build parts
materials modules products channels customer

Cost Cost Cost Cost Cost Total cost

Adding cost centers to be analyzed

 Efficiency measures used by Wall Street
27

A Comparison of Automotive Companies

Management
Efficiency General
Measure Toyota Ford Motors Chrysler Industry

Income per
employee $40,000 $8,000 $10,000 $8,000 $15,000

Revenue per
employee $663,000 $535,000 $597,000 $510,000 $568,000

Receivables
turnover 4.0 1.5 1.0 2.2 2.1

Inventory
turnover 12.0 11.5 11.7 5.9 `11.0

Asset
turnover 0.8 0.6 0.4 0.8 0.8
28 Product manufacturing
 Product Manufacturing
29

1
2
Capacity
planning 3
Job
management 4
Production
Process 5
Facility
layout
Quality
management
 (1) Capacity planning
30

Demand
 Considerations in forecast
Capacity level
changing capacity (Infrequent expansion)

Capacity level
 Determning (Frequent expansion)
capacity Volume

requirements
Small Large chunk
chunk
 Evaluate capacity
alternatives

Years
 (2) Job management
31

Who
Mental and physical
characteristics of the
workforce
How What
Method of Task(s) to be
performance and performed
motivation

Why
Where
Organizational
rationale for the job; Geographic locale of
objectives and organization; location
motivation of the of work areas
worker When
Time of day; time of
occurrence in the work
flow
 (3) Production Process
32

Low

Project

Work center

Product
standardization Manufacturing
cell
Assembly
line
Continuous
process
High

Low Product volume High

 (4) Facility layout
33

1. Project layout
2. Workcenter
3. Manufacturing cell
4. Assembly line
 Types of facility layout
34

Used when a product cannot be moved during production,

Fixed Position usually due to size. They are typically used for producing
Layout large products such as homes, buildings, bridges, large ships,
airplanes, and space craft.

Process
Layout Best suited when producing many different types of products
in low volume
Most suited for producing a high volume of one, or a few
Product similar, products. An automotive assembly line, an automatic
Layout car wash, or a buffet table are perfect examples. Every
product going through the line is almost exactly the same.

Cellular Group items based on similar processing characteristics and

Layouts arrange workstations to form a number of small assembly
lines called work cells.
 Fixed Position Layout
35

Used when a product cannot be moved during production, usually due to

size. They are typically used for producing large products such as homes,
buildings, bridges, large ships, airplanes, and space craft.
 Fixed Position Layout
36
 Process layout
37

Best suited when producing many different types of products in low volume
 Product layout
38

 Most suited for producing a high

volume of one, or a few similar,
products. An automotive
assembly line, an automatic car
wash, or a buffet table are perfect
examples. Every product going
through the line is almost exactly
the same.
 Cellular Layouts
39

Group items based on similar processing characteristics and arrange

workstations to form a number of small assembly lines called work cells.
 Cellular Layouts
40
 (5) Quality management
41

TQM- total quality management

“managing the entire organization so that it excels
on all dimensions of products and sevives that are
important to the customer”

1. Six-sigma Quality
2. ISO
42
 Process-based quality standards
43

IS0 – International Organization

Six-Sigma
for Standardization
 If a process, such as a global supply  ISO 9001:2008
chain, has six standard deviations  ISO 9000:2005
between the process mean and the
nearest specification limit, then  ISO 9004:2009
practically no items will fail to meet  ISO 19011:2011
specifications  ISO 9000 system: 8 principles
 Includes: five defined steps:  Customer focus
 Define  Leadership
 Involvement of people
 Measure
 A process approach
 Analyze  A system approach to management
 Improve  Continual improvement
 And control
 A factual approach to decision making
 Mutrually beneficial supplier
relationships
 Lean Six-Sigma
44
 IS0 – International Organization
for Standardization
45

ISO promotes global standardization for

specifications and requirements for materials,
products, procedures, formats, information and
quality management.

Certification under ISO standards is an assurance

that the ISO-required management of processes
and documentation is in place.
 ISO series
46

ISO 9000:2000, 2008, and 2015

• Explain fundamental quality concepts and provides guidelines for selection and application of each standard

ISO 9001
• Model for quality assurance in design, development, production, installation and servicing

ISO 9002
• Model for quality assurance in the production and installation of manufacturing systems

ISO 9003
• Quality assurance in final inspection and testing

ISO 9004
• Guidelines for the application of standards in quality management and quality systems
47
48

 How Toyota manage the manufacturing process?

 How to cut down the mistake/or solve the mistake
in the manufacturing process?
 By which way Toyota manage the quality of Toyota
cars?
 Competitive priorities in GSC
49

 Competitve priorities:
Trade-offs in operations strategy were an
important element of the firm’s overall strategy,
and, more important, a way for operations to
contribute to the competitive edge of the global
firm

 Firms should seldom, try to

compete in multiple competitive
priorities
 Guidelines for operations in GSC
50

1. Select one competitive priority – mix of the appropriate

speed, quality, cost and flexibility

2. To run an effective and efficient global supply chain,

outcome of a total cost analysis is measured by resulting in
the lowest total cost when all operations in the global supply
chain are included.

3. All global supply chains need structure: Six Sigma, ISO

9000, and the SCOR model