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Chapter 17:InternationalOperations Management

International Business, 4th Edition

Griffin & Pustay

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Chapter Objectives_1

Describe the nature of international operations management

Analyze the supply chain management and vertical integration decisions facing international production managers

Analyze the meaning of productivity and discuss how international firms work to improve it

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Chapter Objectives_2

Explain how firms control quality and discuss total quality management in international business

Analyze how international firms control the information their managers need to make effective decisions

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International Operations Management

Operations Management: the set of activities an organization uses to transform different kinds of inputs into final goods and services

International Operations Management: the transformation-related activities of an international firm

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Figure 17.1 The International Operations Management Process

Strategic Context•Differentiation•Cost leadership•Focus

Standardized vs. CustomizedProduction

Acquisition of Resources•Supply Chain •Management•Vertical Integration•Make-or-buy decision

Location Decisions•Country-related issues•Product-related issues•Government policies•Organizational issues

Logistics and Materials Management•Flow of materials•Transportation options•Inventory levels•Packaging

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Complexities of International Operations Management

Resources Location Logistics

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Production Management

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

Vertical integration: extent to which a firm either provides its own resources or obtains them from other sources

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Figure 17.2 Basic Make-or-Buy Options

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Influence Factors for the Make-or-Buy Decision

Size Scope of operations Technological expertise Nature of product

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Figure 17.3 Competitive Advantage versus Strategic Vulnerability in the Make-or-Buy Decisions

StrategicControl

ModerateControl

LowControl

High LowDegree of Strategic Vulnerability

Low

Hig

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Com

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A

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Necessary Trade-offs in Make-or-Buy Decision

Cost Control Risk Investment Flexibility

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Factors affecting Location Decisions

Country-Related Issues Product-Related Issues Government Policies Organizational Issues

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Country-Related Issues

Resource availability Cost Infrastructure Country-of-origin effects

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Country-related issues play key roles in location decisions for manufacturers

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Product-Related Issues

Value-to-weight ratio Technology Importance of customer feedback

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Government Policies

Stability of political process National trade policies Economic development incentives Existence of foreign trade zones (FTZ)

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Organizational Issues

Business strategy– Cost leadership– Differentiation

Organizational structure Inventory management policies

– Just-in-time (JIT) inventory management system

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International Logistics and Materials Management

International logistics: management of the – flow of materials, parts, supplies, and other

resource from suppliers to the firm– flow of materials, parts, supplies, and other

resources within and between units of the firm itself

– flow of finished products, services, goods from the firm to customers

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Differences in Domestic and International Materials Management

Distance involved in shipping Number of transport modes Complexity of regulatory context

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International Service Operations

International Service Business: firm that transforms resources into an intangible output that creates utility for its customers

Characteristics:– Intangible– Not storable– Require customer participation– Tied to the purchase of other products

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This BP Connect store allows customers to buy BP petroleum products, coffees from South America,

and to access the Internet from the pump

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Productivity

Economic measure of efficiency that summarizes the value of outputs relative to the value of inputs used to create the outputs– Helps to determine firm’s overall success

– Contributes to long-term survival

– Contributes to overall standard of living

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Strategies for Enhancing Productivity

Spend more on research and development

Improve operations Increase employee involvement

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Managing Quality in International Business

Quality: totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs– American Society for Quality Control

ISO 9000: 2000 – International set of quality guidelines– Basis for quality certification– International Organization for Standardization

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Figure 17.4 The Essential Components of Total Quality Management

Strategic Commitment To Quality

EmployeeInvolvement

High QualityMaterials

Up-to-DateTechnology

Effective Methods

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Total Quality Management

TQM: Integrated effort to systematically and continuously improve the quality of an organization’s products and/or services

Statistical process control: family of mathematically based tools for monitoring and controlling quality

Benchmarking: 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