GLOBAL ENVIRONMENT AND OPERATIONS
MANAGEMENT  Export restrictions
Reasons to Globalize
Tangible Reasons -> Intangible Reasons
 Reduce Costs (Labor, taxes, tariffs, etc)
 Foreign locations with lower wage can
lower direct and indirect cost. (labor cost)
 Trade agreement can lower tariffs
 Improve Supply Chain
 Locating facilities closer to unique
resources
 Provide better goods and services
 Objective and subjective characteristics of
goods and services
 On-time Deliveries
 Cultural variable
 Improved customer service
 Understand markets
 Interacting with foreign customers and
suppliers can lead to new opportunities
 Can extend product life cycle
 Learn to improved operations
 Remain open to free flow of ideas
 Ergonomic- design for efficiency
and comfort in working environment
 Attract and retain global talent
 Offer better employment opportunities
 Better growth employment and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different towards:
 Punctuality
 Lunch Breaks
 Environment
 Intellectual Property
 Thievery
 Bribery
 Child Labor
Companies Want to Consider
 National Literacy rate
 Rate of Innovation
 Rate of technology change
 Number of skilled workers
 Political stability
 Product liability laws
 Variations in language
 Work ethics
 Tax rates
 Inflation
 Availability of raw materials
 Interest rates
 Population
 Number of miles of highway
 Phone system
Developing Missions and Strategies
 Mission statement tells an organization where
it is going
 Strategy tells an organization how to get there
Mission
 Where is the organization going?
 What do we provide society?
 organization’s purpose of being
 provide boundaries and focus
Factors Affecting Mission
 Philosophy and Values
 Profitability and Growth
 Public Image
 Benefit to Society
 Customers
 Environment
Strategic Process
 Organization’s Mission
 Functional Area Mission
1. Marketing
2. Operations
3. Finance / Accounting
Strategy
 action plan to achieve mission
 Functional areas have strategies
 exploit opportunities and strengths, neutralize
threats and avoid weaknesses
Strategies for Competitive Advantage
1. Differentiation – better or at least different
2. Cost leadership – cheaper
3. Response – more responsive, faster
1.Competing on Differentiation
 Uniqueness can go beyond physical
characteristics and service attributes to
 encompass everything that impact customer’s
perception of value
2.Competing on Cost
 Provide maximum value as perceived/ seen by
customer but does not imply low quality.
3.Competing on Response
 Flexibility is matching market changes in
design innovation and volumes.
 Reliability meeting schedules
 Timeliness is quickness in design, production
and delivery
Issues in Operations Strategy
Strategy Development and Implementation
 Identify key success factors
 Integrate OM with other activities
 Build and staff the organization
*The Operations Manager’s job is to implement an OM
strategy, provide competitive advantage, and increase
productivity.
Key Success Factors
Support a Core Competence and Implement Strategy
by Identifying and Executing the Key Success Factors
in the Functional Areas

 Resources view Marketing

 Value-chain analysis
 Success
 Porter’s Five Factor Model
 Distribution
1. Bargaining power of buyers
 Promotion
2. Bargaining power of suppliers
 Channels of distribution
3. Threat of new entrants
 Product positioning (image,functions)
4. Threat of substitute products or
services Finance/Accounting
5. Rivalry among existing competitors
 Operating in a system with many external  Leverage
factors  Cost of capital
 Constant change  Working capital
 Receivables
SWOT Analysis  Payables
 Financial control
Analysis
 Lines of credit
 Mission
Operations
 Strategy
 Internal strengths 10 OM Decisions Sample options
 Internal weaknesses
 External opportunities
Product customized or standardized;
 External threats
sustainability
Strategy Development Process Quality define customer expectations
and how to achieve them
 Analyze the environment Process facility size, technology,
 identify the strengths, weaknesses, capacity, automation
opportunities and threats. Understand Location near supplier or near customer
the environment, customers, industry Layout work cells or assembly line
and competitors. Human resource specialized or enriched jobs
 Determine the corporate mission Supply chain single or multiple suppliers
 state the reason for the firm’s Inventory when to reorder, how much to
existence and identify the value it keep on hand
wishes to create. Schedule stable or fluctuating production
 Form a strategy rate
 build a competitive advantage, such as Maintenance repair as required or
low price, design, or volume flexibility, preventive maintenance
quality, delivery, dependability, after-
sale service, broad product lines
 Strategic Planning, Core Competencies, and
Outsourcing

 Outsourcing – transferring activities that

traditionally been internal to external suppliers
 Outsourced activities
 Legal services
 Travel services
 Payroll
 Production
 Surgery
 Accelerating due to:
 increased technological expertise
 more reliable and cheaper
transportation
 rapid development and deployment of
advancements in telecommunications
and computers
 Subcontracting – contract manufacturing

Theory of Comparative Advantage

 If an external provider can perform activities

more productively than the purchasing firm, the
external provider should do the work
 Purchasing firm focuses in core competencies
 Drives outsourcing

Potential Advantages and Disadvantages of

Outsourcing

Advantages

 Cost savings
 Gaining outside expertise
 Improving operations and service
 Maintaining a focus on core competencies
 Accessing outside technology

Disadvantages

 Increased logistics and inventory costs

 Loss of control (quality,delivery,etc.)
 Potential creation of future competition
 Negative impact on employees
 Risks may not manifest themselves for years

Rating Outsourcing Providers

 Insufficient analysis most common reason to

failure
 Factor rating method
 Points and weights assigned for each factor to
each