Your organization will have taken the time to understand what is important and how to protect it, should a crisis happen. This will ultimately make your organization stronger and ready to take advantage of situations that cause others to flounder. Note: Only a member of this blog may post a comment.
Newer Post Older Post Home. Subscribe to: Post Comments Atom. All these realizations placed access to skilled workers and quality suppliers high on the priority list for firms competing on quality. Similarly, Just-in-time JIT manufacturing methods, which companies widely adopted for the management of mass production systems, emphasized the importance of frequent deliveries by nearby suppliers.
A number of high-technology industries have experienced dramatic growth in the capital intensity of production facilities. A state-of-the-art semiconductor factory, for instance, costs close to half a billion dollars.
Similarly, huge numbers apply for the development and production of new drugs in the pharmaceutical industry. Such high costs drive firms to adopt an economies-of-scale strategy that concentrates production in a single location, typically in a country that has the required labour and supplier infrastructures. They then achieve high-capacity utilization of the capital-intensive facility by aggressively pursuing the global market.
Besides this the host government subsidies also become an important consideration. Getting hit with unexpected or unreasonable currency devaluations in the foreign countries in which they operate is a nightmare for global operations managers. Managing exposure to changes in nominal and real exchange rates is a task which the global operations manager must master. If the economics are favourable, the firm may even go so far as to establish a supplier in a foreign country where one does not yet exist.
In any case, the firm may still want to source a limited amount of its inputs from less favourable suppliers in other countries if it feels that maintaining an ongoing relationship may help in the future when strategies need to be reversed. Becton Dickinson has built a global manufacturing network for its disposable syringe business, with production facilities in the United States, Ireland, Mexico and Brazil. These trends are clearly apparent in many industries. Today, 3M manufacturing plants produce goods for all of Europe and, in the process, realize significant cost savings.
Similarly, Philips, Thomson, Electrolux and Ford are in the process of creating pan-European networks of factories producing both components and finished goods. The trade protection mechanisms which exist in the form of tariff and non-tariff barriers effect the global operation strategy; but these are readily losing importance in the new borderless trade regime. Operations and logistics are forced to adapt to environment.
The logistic framework is forced to integrate its activities to meet the challenges of an integrated economy. Geographical boundaries are losing their importance. Companies view their network of worldwide facilities as a single entity. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link s to ManagementStudyGuide. What is Globalization?
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These are very real and difficult tradeoffs. Multiple, redundant vendors and manufacturing sites would be optimal from the perspective of slack and resiliency but would be expensive, perhaps cost prohibitive. How do we balance these tradeoffs? What are the sunk costs and switching costs that constrain our ability to adjust, either proactively or reactively? How can we use automation to build more scalable and perhaps geographically fungible operations?
The butterfly effect, explored in mathematics and chaos theory, also applies to companies and industries because of these complex interconnections. When supply chains are global, as opposed to local or national, disruptive events in faraway places can have an outsized and cascading impact in other geographies and industries. What is happening in China and elsewhere in may or may not prove have an enduring systemic effect. We could see some large companies shed significant market capitalization as a result of decisions made decades ago.
Or we could see markets and executives sigh a huge sigh of relief as these challenges shift from international panic to localized tragedy. We simply do not know if this will be the catastrophic event that breaks organizations with fragile supply chain systems. However, we can predict with high confidence that, given enough time, there will be such a catastrophic event.
It does cost more in the short term to develop supply chains that use redundancies and other techniques to increase resiliency. Ensuring resiliency may be worth the margin degradation for most organizations with long-term stakeholders, but all companies do not have the benefit of long-term stakeholders. This creates a difficult calculus for executives with more short-term focus, such as those who operate in public markets that concentrate on quarterly performance.
Incentives that prioritize short-term wins over long-term health may be misaligned, but they are a reality that we need to acknowledge. This is a fascinating time to lead a global organization, rife with both risk and opportunity—and certainly not for the faint-hearted. Username or Email Address. Remember Me. Recent Insights. Is it Better to be a Specialist or Generalist?
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