Professional Documents
Culture Documents
Network Applications I
Chapter 13
Topics involved
1. Global operations strategies
2.1 Choice of strategy (using figure 13.1)
2.2 Sourcing and procurement operations strategies (using table 13.1, 13.2, 13.3,
13.4, 13.5, 13.6, 13.7)
Discussion Questions
1. Describe the four classifications of a global strategy. What the key differences
between them?
We can classify global operations strategies as:
· International – this is basically an exporting system whereby production is
domestic and then sale is through local agents who are licensed to sell the
goods. Operational cost may be high and flexibility and responsiveness low.
· Multi-domestic – a decentralized firm with business units, subsidiaries or
partners abroad. Production is then also decentralized to ensure service of
local markets with flexible flows and responsiveness. Cost and co-ordination
can be higher for this type of operation, but so is flexibility and response.
· Global, Low cost – Bulk production that is switched offshore to low wage
economies. Automotives, clothing and electronic goods are recent industry
examples. Economies of scale and task specialization give low cost. Co-
ordination and control however can be difficult and flexibility responsiveness
is also a problem.
· Transnational – seeks best of both worlds in terms cost and flexibility. An
independent network of world-wide operations.
Each of these approaches will have a trade-off between cost of operation and
flexibility and responsiveness (see figure 13.1)
2. As we can see in table 13.2, the advantages of offshore sourcing are usually
associated with lower unit cost per item. However, there are trade-offs in terms of
flexibility and responsiveness that can be achieved with domestic vendors.
3. Give examples of the hidden and inflexibility costs involved with foreign sources
of supply.
The offshore sourcing costs can be categorized as: (a) hidden costs and, (b)
inflexibility costs. The hidden costs will include: delays at the port of entry,
irrevocable letters of credit charges, last minute use of air freight, expensive
administrative travel and quality problems.
Inflexibility costs include: the requirement of an early commitment to manufacturing
before sales trends are clear, limited ability to change mix or volume of orders shortly
before or during the sales season, large stocks or insufficient stocks due to having to
make ordering commitments before demand is known, inflexible suppliers who will
not make arrangements for return of goods not sold.