Operations Management / Supply Chain Management

Module 01.03 Key Concept: Operational Strategy in a Global Environment

Global Operations Management involves a geographically dispersed complex network of organizations with conflicting objectives of different facilities and companies.  The global systems are dynamic and vast variations occur on both the demand and supply side.  This makes matching demand and supply difficult and results in different levels of inventory and backorders.  In addition, recent developments (lean production / off-shoring / outsourcing, etc.) have increased risks.

World trade has changed dramatically over the years and is expected to continue in a upward trend for the future.

In order to meet all their sales objectives, global businesses must develop and effectively market new products to meet localized demand.  To meet their financial objectives, companies must develop effective, demand driven, cost effective infrastructure / supply networks.  At the same time, they must develop appropriate sustainability and risk management strategies to sustain their long-range growth and survival.

In addition, most companies now rely more on partners from every region of the world to bring new products to market and fulfill demand. Better use and management of the global value chain distinguishes winners from losers in product innovation, achieving perfect orders as suppliers and meeting consumer demand.

All business functions should be brought to focus on providing value to the end customer.   Truly effective supply chain leaders will be those individuals who can drive their companies to do this across the complex global value chain.   This frames the purpose for corporate Strategic Planning efforts.

As was noted earlier, companies compete on different dimensions.  Therefore it is critical that operational strategies agree with and support strategic initiatives.   You can probably look at many different firms that you deal with to consider their overall strategy and how they achieve competitive advantage.

Outsourcing is becoming a prominent strategy for a high percentage of companies.  In general, outsourcing refers to the transferring of activities from internal to external suppliers.  This approach is accelerating due to such things as:

  • Increase technological expertise
  • More reliable and cheaper transportation
  • Rapid development and deployment of advancements in telecommunications and computers.

If an external provider can preform activities more productively that the purchasing firm, then the external provider should do the work.  This allows the purchasing firm to focus on its core competencies.  Of course the decision to outsource also brings many risks such as:

  • Increased logistics and inventory costs
  • Loss of control (quality, delivery, etc.)
  • Negative impact on employees

These risks may not actually manifest themselves for years in the future.

Supplier selection is a critical process for firms entering into outsourcing strategies.  The weakest link in any supply chain governs the total performance of the entire chain.  The authors present a Factor Rating approach that is quite simple and effective to use.   In this process, company leaders establish and rate their requirements and then rate the potential effectiveness of each supplier vs. each requirement.  In the end the supplier with the highest total weighted score is selected.

In the end, there are many different approaches to Global Operations Strategy.  The text highlight four different ones: Global Strategy, Transnational Strategy, International Strategy and Multi-domestic Strategy.  These vary based on central vs. decentralized control and responsiveness to local customer requirements.  Of course the selected approach has significant impact on total costs.

Which strategy is best?  Well, as with everything in Operations Management the answer must be “It depends.”