Global considerations in operations management Flashcards
including global sourcing of inputs, overseas manufacture, and global outsourcing
Global considerations in operations management:
Goods - Imported and exported around the world.
Globalisation affects operations management because it allows a business to spread their operations internationally, locate each stage of production in the country where it can be done at the lowest cost, have access to new consumer markets, and find new ways of making products around the globe.
Global sourcing of inputs:
The practice of seeking the most efficient materials and other inputs, including from overseas. Particularly relevant to manufacturing.
When sourcing inputs from around the world, a business must consider growing conditions (drought/ flood, etc), sustainable production, the political stability of the region, and the labour market conditions (child labour, payment of wages).
In addition, a business needs to consider duration of delivery (ie shipping time), market conditions and price changes/ global exchange rates.
Examples of Global sourcing of inputs:
> Cadbury purchases its cocoa beans from Ghana.
SunRice adds to its locally produced inventory of rice by purchasing rice from Bhutan (red rice) and Thailand (jasmine rice).
ANZ, Telstra and Energy Australia make use of call centres staffed by English speaking workers in India and the Philippines.
Advantages of Global sourcing of inputs:
> Access to cheaper materials
Access to inputs not available in the domestic country
Reduces production costs which leads to improved profitability
Disadvantages of global sourcing of inputs:
> Delivery and supply time can be longer
Language barriers with suppliers
Ethical and environmental standards can be different
Overseas manufacture:
Refers to the production of a good in a country that is different to the location of the businesses headquarters. Particularly relevant to manufacturing
Description of Overseas Manufacture:
Sourcing from overseas is not enough to improve efficiency for many businesses, as the cost of manufacturing in Australia is relatively high due to cost of labour and government
regulations.
Due to these cheaper labour costs, many manufacturing companies have moved their production overseas which enables a business to get its product to market faster, reduce costs of production and reduce delivery costs.
Over the years, the use of ‘sweatshop labour’ has been a big issue – a workplace that has poor, socially unacceptable working conditions where employees work long hours with low pay.
Examples of overseas manufacture:
Businesses that now manufacture overseas:
Apple, Body Shop, Ford, K-Mart, Mattel, Nescafe, Toys R Us,
Ralph Lauren.
In 2016, Rip Curl were found to be manufacturing in a Korean
factory, paying staff very low wages, and attaching ‘made in China’ labels to the clothing.
Advantages of Overseas Manufacture:
> Access to cheaper labour rates and cheaper costs of production
Larger pool of employees with better manufacturing skills
Access to new export markets and the ability to offer lower prices
Disadvantages of Overseas Manufacture:
> Loss of jobs in domestic manufacturing
Heightened concerns for ethical and environmental issues
Risk of damage when shipping overseas
Global outsourcing:
Where a business uses organisations from around the globe to undertake some of their functions/departments. Relevant to manufacturing and services.
Description of Global Outsourcing:
Global outsourcing allows business operations to be contracted out to countries all around the World.
Other organisations can often perform specialised tasks more efficiently and effectively compared to doing these tasks in-house, so a business can take advantage of their expertise. Outsourced tasks are usually (but not always) non-core activities such as call centres, packaging, data entry, finance.
Examples of Global Outsourcing:
Qantas – outsources its maintenance to Hong Kong, Philippines and Singapore. A consultancy company in India looks after their IT application management.
Apple outsource the management of their Intellectual property to Ireland.
Advantages of Global Outsourcing:
> Works well with IT based services where internet and phone development allows a base anywhere in the world
Access to cheaper labour rates
The business is not directly responsible for non-core services so can concentrate on their core business.
Disadvantages of Global Outsourcing:
> Language barriers in dealing with overseas businesses can mean customer frustration
Social responsibility and legal standards can be different around the world.
Can be difficult to maintain control over quality
