Global Operations & Supply Chains

A Global View of Operations and Supply Chains

• World trade as a percentage of world GDP has grown significantly between 1970 and 2030.
• Key events impacting world trade growth include the implementation of NAFTA, container shipping introduction, the fall of the Berlin Wall, the introduction of the Euro, the beginning of recessions, COVID-19, and the implementation of USMCA.
• Volvo is considered Swedish but was purchased by Geely, a Chinese company, and assembles cars in Sweden, Belgium, Malaysia, and China.
• Haier, a Chinese company, produces compact refrigerators (one-third of the U.S. market) and wine cabinets (half of the U.S. market) in South Carolina and appliances in Kentucky.
• Boeing has worldwide sales and supply chain operations.
• Benetton builds flexibility into design, production, and distribution to move inventory to stores faster than competitors.
• Sony purchases components from suppliers in Thailand, Malaysia, and around the world.
• Companies globalize to improve supply chains, reduce costs and exchange rate risks, improve operations, understand markets, improve products, and attract/retain global talent.

Improving the Supply Chain

• Expanding globally gives access to high-quality, cost-effective raw materials, suppliers, and logistics networks.
• Global expansion is used to optimize supply chains by sourcing better materials, reducing lead times, and ensuring efficiency.
• A well-structured global supply chain enhances flexibility and resilience.
• Apple Inc. sources components from different countries, such as chips from Taiwan, screens from South Korea, and assembles in China.
• Apple balances cost, quality, and efficiency while maintaining a reliable supply chain.
• Toyota uses global supplier networks to support their Just-in-Time (JIT) production strategy.
• Toyota reduces reliance on a single country by setting up plants worldwide, minimizing disruption risks like natural disasters.
• Toyota's strategy ensures a steady flow of high-quality components while keeping inventory costs low.
• Just-in-time (JIT) production is a lean manufacturing method aimed at reducing inventory costs and waste while increasing efficiency, producing goods only when demanded.

Reducing Costs and Exchange Rate Risks

• Operating in multiple countries can reduce labor, material, and operational costs by taking advantage of lower-cost economies.
• Lower wages, favorable taxation, and exchange rate hedging benefits companies that expand globally.
• Earning in multiple currencies reduces exposure to currency fluctuations.
• Managing revenues and expenses in different currencies helps mitigate risks from exchange rate fluctuations, which can impact profitability.
• Nike outsources production to countries like Vietnam, China, and Indonesia to benefit from lower labor costs.
• Outsourcing enables Nike to maintain high-profit margins while offering competitive pricing.
• Honda manufactures cars in the U.S. to mitigate the risk of a strong yen making Japanese exports more expensive.
• Honda minimizes exchange rate exposure by earning and spending in U.S. dollars for its U.S. factories and workers.

Improve Operations

• Learning from global best practices can enhance operational efficiency.
• Businesses can enhance their efficiency, production techniques, and service models by learning from different markets and adopting best practices.
• Exposure to international competition forces companies to innovate and optimize their processes.
• McDonald’s developed a highly efficient operational model by adopting local strategies for service speed and consistency worldwide.
• McDonald’s modifies store layouts, customer service models, and supply chain logistics based on regional market conditions.
• GE expanded into India and learned cost-effective engineering techniques to apply globally.
• By integrating Lean Six Sigma across its global operations, GE improved efficiency, reduced waste, and optimized processes.

Understand Markets

• Companies that operate internationally gain insights into customer preferences, cultural differences, and emerging trends.
• Companies that enter foreign markets gain insights into local consumer behaviors, economic trends, and regulatory environments to tailor products and marketing strategies.
• Understanding new markets can lead to product diversification and innovation.
• McDonald's customizes its menu in different countries, such as offering McSpaghetti in the Philippines and paneer burgers in India.
• Interacting with foreign customers, suppliers, and competition can lead to new opportunities.
• Unilever adapts product formulas and branding for each market and sells smaller, low-cost shampoo sachets in India to accommodate lower-income customers.
• An understanding of local purchasing power provides a competitive edge for Unilever.
• Starbucks initially struggled in China due to low coffee consumption habits.
• Starbucks adapted by introducing tea-based drinks, providing premium seating areas for socializing, and adjusting store aesthetics to suit Chinese tastes.
• These adjustments led to massive success, making China one of Starbucks' largest markets.

Improve Products

• Access to diverse talent, research, and consumer feedback from multiple markets drives product improvements and innovation.
• Automotive companies test vehicles in various climates and terrains worldwide to enhance durability and performance.
• Access to global R&D, diverse consumer feedback, and regional expertise helps companies enhance their product offerings and remain open to the free flow of ideas.
• Toyota and BMW manage joint research, which reduces risk, state-of-the-art design, and lower costs.
• Samsung operates multiple R&D centers in the U.S., South Korea, India, and Europe to leverage diverse technological expertise.
• Samsung’s ability to integrate insights from multiple regions allows it to stay ahead in consumer electronics innovation.

Attract and Retain Global Talent

• Businesses can tap into a broader talent pool by expanding globally, attracting the best employees regardless of location.
• Expanding internationally provides access to skilled workers, diverse perspectives, and industry expertise.
• A strong global presence also makes it easier to recruit top-tier talent.
• Diverse teams bring different perspectives, fostering innovation and creativity.
• Google hires employees from around the world, setting up regional offices in tech hubs like Silicon Valley, London, and Bangalore.
• Access to diverse talent ensures continuous innovation in AI, search engines, and cloud computing.
• Siemens attracts top talent by offering international job rotations, exposing employees to global business challenges.
• This has helped Siemens develop strong leadership teams while maintaining a competitive edge.

Cultural and Ethical Issues

• Social and cultural behavior differs, cultural norms, values influence business and consumer expectations
• It is important to Understand cultural differences to adapt marketing, and negotiations, and HR policies
• Hofstede’s Cultural Dimensions Theory categorizes culture based on power distance, individualism vs. collectivism, uncertainty avoidance, etc.
• Walmart's failure in Germany comes from cultural misalignment, employees rejected cheerleading and smiling at customers
• Companies that operate globally must comply with international trade laws, environmental regulations, labor laws, and anti-corruption policies (e.g., FCPA in the U.S.).
• Ethical business practices ensure brand reputation, legal compliance, and sustainability.
• The United Nations Global Compact encourages businesses to uphold human rights, fair labor, and environmental responsibility.
• Nike’s Sweatshop Scandal (1990s): Nike faced backlash over poor working conditions in Asian factories which led to Nike improving labor standards and transparency.
• It is important to consider should companies be held responsible for ethical violations in their supply chain, even if they outsource production to third parties?
• It is important to consider how businesses can ensure ethical responsibility while taking advantage of globalization and free-market dynamics?
• Technology and globalization enable rapid movement of resources, impacting trade, outsourcing, and talent acquisition.
• Ethical concerns arise around fair wages, job displacement, and environmental impact.
• Gig Economy & Remote Work – Companies hire talent globally, benefiting from lower costs but raising concerns about fair wages and job security.
• Apple sources materials worldwide, assembles in China, ethically concerns about labor and environments.

Companies Want to Consider

• National literacy rate
• Rate of innovation
• Rate of technology change
• Number of skilled workers
• Political stability
• Product liability laws
• Export restrictions
• Variations in language
• Work ethic
• Tax rates
• Inflation
• Availability of raw materials
• Interest rates
• Population
• Transportation infrastructure
• Communication system

Strategy

• Strategies require managers to develop an action plan to achieve the mission.
• Strategies ensure functional areas have supporting strategies.
• Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses.

Issues in Operations Strategy

• Resources view
• Value-chain analysis
• Porter’s Five Forces model
• Operating in a system with many external factors
• Constant change
• The Resource-Based View (RBV) suggests that a firm’s competitive advantage comes from unique resources and capabilities rather than just external market conditions.
• Companies must manage tangible (factories, machinery, supply chains) and intangible (brand reputation, patents, employee expertise) resources effectively.
• Apple’s Strength in Intellectual Property – Apple’s proprietary designs, strong brand loyalty, and supply chain expertise give it a competitive advantage beyond just product sales.
• A Value Chain consists of all activities that create value, from raw materials to final product delivery.
• Primary activities include inbound logistics, operations, outbound logistics, marketing, and service.
• Support activities include HR, technology development, and procurement.
• Amazon’s focus on automation, robotics in warehouses, and optimized logistics enhances customer satisfaction and cost efficiency.
• Michael Porter’s framework helps firms analyze industry competition based on five forces: threat of new entrants, bargaining power of suppliers/buyers, threat of substitutes, and industry rivalry.
• Netflix disrupted the entertainment industry by providing on-demand streaming, reducing the power of traditional cable companies.
• Businesses operate in complex environments influenced by economic conditions, regulatory changes, technological disruptions, and social/cultural shifts.
• McDonald's operates in over 100 countries, and is highly dependent on external factors.
• McDonald's economics, regulatory changes, supply chain disruptions, and trend towards plant-based prompt McDonald’s to introduce the McPlant burger.
• Constant Change which depends on rapid technological advancements, global competition, and evolving consumer behavior require increased continuous improvement (Kaizen)
• Blockbuster vs. Netflix – Blockbuster failed to adapt to digital streaming, while Netflix continuously evolved from DVD rentals to online streaming and content creation.

Strategy Development and Implementation

• Core competencies must have key success factors
• Operating Management is integrated with other activities
• Operation management can be built by staffing and organizing.

SWOT Analysis

• SWOT breaks down to: Strengths, Weaknesses, Opportunities, and Threats.

Nike SWOT Analysis

• Strengths come from brand recognition and customer loyalty.
• Nike sponsors top athletes.
• Innovative product development (e.g., Flyknit, Air technology) helps build strengths
• Efficient global supply chain and distribution networks give Nike a competitive edge
• Threats from competition from Adidas, Under Armour, and Puma.
• Economic downturns affect consumer spending.
• Supply chain disruptions raise product cost.
• Nike weakeness comes from dependence on outsourcing manufacturing
• Nike also suffers controversies over labor practices.
• Nike's pricing limits affordability in some markets.
• Opportunities for sustainably are in eco-friendly products
• Expansion markets are in Africa, and Southeast Asia.
• Direct-to-consumer (DTC) digital sales

Strategy Development Process

• The best Strategy relies on Analyzing the Environment, Determining the Corporate Mission, and Forming a Strategy.

Strategic Planning, Core Competencies, and Outsourcing

• Outsourcing means transferring activities that are traditionally internal to external suppliers
• Outsourcing increases with expertise and development in Tech
• Outsourcing provides reliable and cheaper access through transportation.
• Outsourcing depends on advancements from telecommunications and computers.

Strategic Planning, Core Competencies, and Outsourcing Includes

• Subcontracting - contract manifacturing
• Outsourced activities like, Legal services, IT, Travel, Payroll, Production, and Surgery.

Theory of Comparative Advantage

• Using external providers is better if they increase the productivity than the company itself.
• When the company focuses on core competencies, it drives outsourcing.
• Outsourcing has different results based on countries because there is special exporting goods and services that the country has an advantage for.

Risks of Outsourcing

• Some Advantages include: Cost savings
• Advantages include: Gaining outside expertise that comes with the outsourcing specialization
• Advantages include: Maintaining a focus on the core competencies
• Some disadvantages include: Increased logistics and inventory costs and less controld of quality
• Disadvantages include: Potential creation of future competition
• Negative impacts on internal employees and organization

Rating Outsourcing Providers

• The biggest cause for providers failing is because of not proper and insufficient analysis.
• By having a factor, will allow organization to consider key outsourcing decisions by pointing out facts and important evulations to make an inform and intelligent outsourced decision.

What are the steps?

• 1. Identifying what the critical actors and how important are these attributes.
• 2. Assign weight, measure and define all the key attributes.
• 3. Evaluate each potential outsourcing provider and assigning a score for each factor.
• 4. Compute a weighted score by multiplying each provider’s score by the respective factor weight and sum the results.
• 5. Provider with the highest weighted score is usually the best to choose from.

Explore world trade growth from 1970-2030 and key events impacting it. Examine global operations using Volvo, Haier, Boeing, Benetton, and Sony as examples. Understand strategies for flexibility, sales, and worldwide supply chains.