• Since the early 1990s, it is favourable to take a global view of supply chain strategy

• In response, organizations are hastily extending their distribution channels and supply
chains globally
• The new standard of global competitiveness impact quality, variety, customization,
convenience, timeliness, and cost
• Globalization strategies contribute efficiency, adding value to products and services,
but they also complicate the operations manager’s job.
• We have identified six reasons domestic business operations decide to change to some
form of international operation. They are:
1. Improve the supply chain.
▪ The supply chain can often be improved by locating facilities in
countries where unique resources are available. These resources may
be human resource expertise, low-cost labor, or raw material.
2. Reduce costs and exchange rate risk
▪ Many international operations seek to reduce risks associated with
changing currency values (exchange rates) as well as take advantage of
the tangible opportunities to reduce their direct costs.
▪ Less stringent government regulations on a wide variety of operations
practices (e.g., environmental control, health and safety) can also
reduce indirect costs.
▪ It also frees higher cost workers for more important tasks
▪ Having facilities in countries with different currencies can allow firms
to finesse currency risk (and related costs) as economic conditions
dictate.
▪ The World Trade Organization (WTO) has helped reduce tariffs from
40% in 1940 to less than 3% today.
3. Improve operations.
▪ Operations learn from better understanding of management
innovations in different countries.
▪ Another reason to have international operations is to reduce response
time to meet customers’ changing product and service requirements.
(When customers are located in different countries )
4. Understand markets.
▪ International firms inevitably learn about opportunities for new
products and services
▪ Globalized supply chain also help firms diversify their customer base
▪ It also gives an opportunity to expand the life cycle of an existing
product
5. Improve products.
▪ Firms serve themselves and their customers well when they remain
open to the free flow of ideas.
6. Attract and retain global talent
▪ Global organizations can attract and retain better employees by
offering more employment opportunities.
▪ The reason being they provide both greater growth opportunities and
insulation against unemployment
• One of the major challenges of Globalization is reconciling differences in social and
cultural behavior. With issues ranging from bribery, to child labor, to the
 environment, managers sometimes do not know how to respond when operating in a
different culture.
• In the last decade, changes in international laws, agreements, and codes of conduct
have been applied to define ethical behavior among managers around the world.
• Globalization, with all its opportunities and risks, is here. It must be embraced as
managers develop their missions and strategies.

Learning Objective 2.1 - Define Mission and Strategy

• An effective operations management effort must have a mission so it knows where it
is going and a strategy so it knows how to get there
• Mission - The purpose or rationale for an organization’s existence.
• We define the organization’s mission as its purpose—what it will contribute to
society.
• Developing a good strategy is difficult, but it is much easier if the mission has been
well defined
• By functional area we mean the major disciplines required by the firm, such as
marketing, finance/accounting, and production/operations. Missions for each function
are developed to support the firm’s overall mission
• Strategy is an organization’s action plan to achieve the mission.
• These strategies exploit opportunities and strengths, neutralize threats, and avoid
weaknesses. ( SWOT )

Learning Objective 2.2 - Identify and explain three

strategic approaches to competitive advantage
• Competitive advantage implies the creation of a system that has a unique advantage
over competitors.
• Firms achieve missions in three conceptual ways:
1. Differentiation ( Better or atleast different) - Distinguishing the offerings of
an organization in a way that the customer perceives as adding value.
▪ Differentiation is concerned with providing uniqueness (not just in
products but in processes too)
▪ differentiation should be thought of as going beyond both physical
characteristics and service attributes to encompass everything about the
product or service that influences the value that the customers derive
from it
▪ This may be the convenience of a broad product line, product features,
or a service related to the product.
 ▪ In the service sector, one option for extending product differentiation is
through an Experience differentiation. i.e. Engaging a customer with
a product through imaginative use of the five senses, so the customer
“experiences” the product.
2. Cost leadership ( Cheaper ) - This advantage is availed by providing services
at lower cost than your competitors.
▪ Streamline operations activities, reducing lead times and decluttering
cexpenses strategically is one way to reduce costs.
▪ Efficiently matching capacity with demand also reduces costs to much
extent.
▪ One driver of a low-cost strategy is a facility that is effectively utilized
(increasing throughput, watching inventory turnover, repurposing
current assets rather than procuring new ones
▪ Low-cost leadership entails achieving maximum value as defined by
your customer. Also, it doesn't imply low value or low quality.
3. Response (Quick) - We define response as including the entire range of values
related to timely product development and delivery, as well as reliable
scheduling and flexible performance.
▪ Response is often thought of as flexible response, but it also refers to
reliable and quick response
▪ First aspect - Flexible response may be thought of as the ability to
match changes in a marketplace where design innovations and volumes
fluctuate substantially.
▪ The second aspect of response is the reliability of scheduling
▪ The third aspect of response is quickness. (Speed in product
development, speed in production, and speed in delivery.)
Issues in operation strategy -
• Prior to establishing and attempting to implement a strategy, some alternate
perspectives may be helpful.
• One perspective is to take a resources view . This means thinking in terms of the
financial, physical, human, and technological resources available and ensuring that
the potential strategy is compatible with those resources.
• Another perspective is Porter’s value-chain analysis. Value-chain analysis is used to
identify activities that represent strengths, or potential strengths, and may be
opportunities for developing competitive advantage.
• Porter also suggests analysis of competitors via what he calls his five forces model
.These potential competing forces are immediate rivals, potential entrants, customers,
suppliers, and substitute products.
• There are various external factors which also affect the strategy. These factors range
from economic, to legal, to cultural.
• Strategy must change as technology and environment changes.
Learning Objective 2.3 - Understand the significance of
key success factors and core competencies
• A SWOT analysis is a formal review of internal strengths and weaknesses and
external opportunities and threats. It provides an excellent model for evaluating a
strategy.
• The idea is to maximize opportunities and minimize threats in the environment while
maximizing the advantages of the organization’s strengths and minimizing the
weaknesses.
• Any preconceived ideas about mission are then reevaluated to ensure they are
consistent with the SWOT analysis. Subsequently a strategy is developed to achieve
mission.
• Key success factors (KSFs) are those activities that are necessary for a firm to
achieve its goals. Its a prerequisite for devising strategy. Some might say it is even
crucial to get them right for company's survival.
• Core competencies are the set of unique skills, talents, and capabilities that a firm
does at a world-class standard. Focussing on them makes achieving competitive
advantage easier.
• The idea is to build KSFs and core competencies that provide a competitive advantage
and support a successful strategy and mission.
• Important pointers to think about while devising a strategy are jotted below-
• One approach to identifying the activities is an activity map , which links competitive
advantage, KSFs, and supporting activities. ( example below )
• For example, effective scheduling in the trucking industry is reflected in the amount
of time trucks travel loaded. But maximizing the time trucks travel loaded requires the
integration of information from deliveries completed, pickups pending, driver
 availability, truck maintenance, and customer priority. Success requires integration of
all of these activities.
• Better integration gives long lasting and sustainable advantages.

• Once a strategy, KSFs, and the necessary integration have been identified, the second
step is to group the necessary activities into an organizational structure. It includes
staffing the organisation with right personnel.
• Non-core activities , which can be a sizable portion of an organization’s total
business, are good candidates for outsourcing. Outsourcing is transferring activities
that have traditionally been internal to external suppliers.
• Outsourcing is not a new concept, but it does add complexity and risk to the supply
chain.
• Reasons for expansion of outsourcing -
1. increased technological expertise
2. more reliable and cheaper transportation
3. the rapid development and deployment of advancements in
telecommunications and computers
• The classic make-or-buy decision, concerning which products to make and which to
buy, is the basis of outsourcing.
• Outsourcing manufacturing is an extension of the long-standing practice of
subcontracting production activities, which when done on a continuing basis is known
as contract manufacturing . It is becoming a standard activity with time.
• Theory of comparative advantage - A theory which states that countries benefit
from specializing in (and exporting) goods and services in which they have relative
advantage, and they benefit from importing goods and services in which they have a
relative disadvantage.
• This theory focuses on the economic concept of relative advantage.
• Risks of outsourcing -
o outsourcing is risky, with roughly half of all outsourcing agreements failing
because of inadequate planning and analysis. The substantial risk of
outsourcing requires managers to invest in the effort to make sure they do it
right.
o Timely delivery and quality standards can be major problems, as can
underestimating increases in inventory and logistics costs.
o when outsourcing is overseas, additional issues must be considered-
1. financial attractiveness
2. people skills and availability
3. the general business environment.
o Another risk of outsourcing overseas is the political backlash that results from
moving jobs
o Outsourcing also brings other issues like-
▪ reduced employment levels
▪ changes in facility requirements
▪ potential adjustments to quality control systems and manufacturing
processes
▪ expanded logistics issues, including insurance, tariffs, customs, and
timing.
Learning Objective 2.4 - Use factor rating to evaluate both
country and outsource providers

• The factor-rating method provides an objective way to evaluate outsource providers.

We assign points for each factor to each provider and then importance weights to each
of the factors.
Learning Objective 2.5 - Identify and explain four global
operations strategy options

• An international business is any firm that engages in international trade or

investment. A multinational corporation (MNC) is a firm with extensive
international business involvement.
• Operations managers of international and multinational firms approach global
opportunities with one of four strategies: international , multidomestic , global , or
transnational
1. An international strategy uses exports and licenses to penetrate the global
arena. This strategy is the least advantageous, with little local responsiveness
and little cost advantage.
 ▪ But an international strategy is often the easiest, as exports can require
little change in existing operations, and licensing agreements often
leave much of the risk to the licensee.
2. The multidomestic strategy has decentralized authority with substantial
autonomy at each business (Subsidiaries , franchisees ).
▪ The advantage of this strategy is maximizing a competitive response
for the local market; however, the strategy has little or no cost
advantage.
▪ The concept is one of “we were successful in the home market; let’s
export the management talent and processes, not necessarily the
product, to accommodate another market.”
3. A global strategy has a high degree of centralization, with headquarters
coordinating the organization to seek out standardization and learning between
plants, thus generating economies of scale.
▪ This strategy is appropriate when the strategic focus is cost reduction
but has little to recommend it when the demand for local
responsiveness is high.
▪ If end products are very similar in all the countries then this is a useful
strategy.
4. A transnational strategy exploits the economies of scale and learning, as
well as pressure for responsiveness, by recognizing that core competence does
not reside in just the “home” country but can exist anywhere in the
organization.
▪ Such firms can be thought of as “world companies” whose country
identity is not as important as their interdependent network of
worldwide operations.