HSC Operations Influences: Globalisation and Case Study

Overview of Operations Management Influences

  • The syllabus identifies seven primary influences that shape operations management strategies and decisions. These can be remembered using the acronym TEGGL QC:
    • T: Technology
    • E: Environmental sustainability
    • G: Globalisation
    • G: Government policies
    • L: Legal regulations
    • Q: Quality expectations
    • C: Cost-based competition
  • In addition to these seven, businesses must consider Corporate Social Responsibility (CSR), which involves:
    • Distinguishing between legal compliance and ethical responsibility.
    • Managing environmental sustainability and social responsibility as core operational priorities.

Influence – Globalisation

  • Definition: Globalisation refers to the removal of trade barriers between countries and the greater transfer of capital, labour, and resources.
  • Significance: Globalisation profoundly influences how businesses manage operations by expanding the scope of where they can source, produce, and sell. Students must be specific on the "HOW" when discussing globalisation in academic responses (relevant for short answers and extended responses/SIII and SIV).
  • Primary Mechanisms of Influence:
    • Global sourcing of inputs.
    • Global supply chain opportunities (the "global web of suppliers").
    • Relocation of manufacturing.
    • Global outsourcing.
    • Access to global consumers.

Global Sourcing of Inputs

Global sourcing involves acquiring the necessary raw materials and components from international markets rather than relying solely on domestic providers.

  • Advantages:
    • Access to Unique Inputs: Enables the business to secure specialized materials that may not be available within their home country.
    • Higher Quality: Potential to source superior quality inputs from regions that specialize in specific technologies or materials.
    • Volume: Ability to access a greater volume of inputs than domestic markets can provide, aiding in large-scale production.
    • Lower Cost: Sourcing from low-cost regions can significantly reduce input expenses.
  • Disadvantages:
    • Exchange Rate Fluctuations: Unfavourable movements in exchange rates can erode expected cost savings.
    • Quality Variability: Cheaper overseas inputs may be of inferior quality compared to domestic equivalents, leading to operational defects.
    • Logistical Delays: Increased exposure to transport and shipping delays across international borders.

Global Web of Suppliers

This refers to a strategic network of suppliers located in different geographic locations around the world.

  • Advantages:
    • Cost and Uniqueness: The ability to choose suppliers from multiple locations ensures the business can find the most cost-effective or unique inputs available.
    • Risk Mitigation: Assists in managing shipping delays or shortages; if one supplier in a specific region encounters a crisis, the business can shift its needs to another supplier in the network.
  • Disadvantages:
    • Logistical Complexity: Managing multiple suppliers across diverse time zones, cultures, and legal jurisdictions is highly complex.
    • Inconsistent Reliability: Overseas suppliers may vary significantly in their level of reliability and responsiveness compared to long-standing domestic partners.
    • Transport Exposure: Physical distance increases the surface area for potential shipping and transportation disruptions.

Relocation of Manufacturing

Businesses often move their physical production facilities to different countries to take advantage of various local factors.

  • Advantages:
    • Labour Costs: Drastic reduction in wages and salaries by moving to countries with lower labour costs.
    • Compliance Costs: Operating in regions with fewer or less expensive regulatory requirements can reduce overhead.
    • Skilled Workforce: Access to a more specifically skilled workforce in specialized industrial hubs.
    • Proximity: Lowering transportation costs by locating factories closer to either the raw materials or the end-market consumers.
  • Disadvantages:
    • Communication Barriers: Differences in language and cultural nuances can lead to miscommunication and operational errors.
    • Brand Image Hazards: Relocating production can lead to negative publicity and damage the brand image if domestic jobs are lost in the process.

Global Outsourcing

Global outsourcing occurs when a business hires an independent overseas contractor to manufacture their product or manage a specific operational process.

  • Advantages:
    • Cost Savings: Benefits from cheaper labour and reduced compliance costs managed by the contractor.
    • Efficiency and Technical Expertise: Overseas contractors may possess superior technology or skills that the business does not have in-house, leading to faster production cycles.
  • Disadvantages:
    • Lack of Oversight: Reduced control over quality control processes can lead to quality concerns.
    • Ethical Risks: Negative brand image can arise from the social or ethical actions of the global contractor (e.g., poor working conditions).
    • Employment Concerns: Similar to relocation, outsourcing can lead to a loss of domestic jobs, affecting public perception.

Access to Global Consumers

  • Globalisation allows businesses the potential to sell their products to a vastly larger audience.
  • This increase in demand allows businesses to reach higher output levels, leading to economies of scale, which reduces the average cost per unit produced.

Connection to Performance Objectives (CDF CSQ)

When discussing influences like globalisation, it is imperative to link the effects back to the operational performance objectives, represented by the acronym CDF CSQ:

  • C: Cost
  • D: Dependability
  • F: Flexibility
  • C: Customisation
  • S: Speed
  • Q: Quality

Apple Case Study: Globalisation in Operations

Apple provides a definitive example of using globalisation to optimize operations through outsourcing and strategic geographic placement.

  • Manufacturing and Labour Access:
    • Apple utilizes third-party outsourced suppliers (Foxconn, Wistron, and Pegatron) to manufacture the iPhone and iPad.
    • 80%80\% of Apple products are currently manufactured by these three partners.
    • There has been a significant shift toward production in India, where 76%76\% of manufacturing now occurs.
    • Foxconn (operating in China and India) is responsible for assembling flagship models like the iPhone 1616 and 1515, as well as the iPhone 16e16e budget variant.
  • Cost Advantages:
    • In 20242024, Apple successfully reduced its expenses, achieving an Expense Ratio of 15%15\%.
    • This ratio is more than 10%10\% lower than the industry average.
  • Speed and Labour Skill (Tim Cook’s Perspective):
    • CEO Tim Cook stated that the primary driver for using Foxconn and Wistron was labour availability rather than just cost.
    • He noted that while it would take approximately 99 months to find a sufficient number of engineers to manufacture the iPhone in the United States, China and India can mobilize the required workforce within weeks.
  • Logistics and Distribution:
    • Manufacturing in China and India instead of the US has improved Apple's speed and cost in reaching the Asia-Pacific region (including Australia).
    • Apple can deliver orders less expensively and more rapidly, typically within 33 to 44 days.