全球經營管理globaloperationmanagement

Lesson6GlobalOperationManagementReadings: Chap.9&10,Book1 CasematerialsintheClassE-MailBoxLesson6GlobalOperationManagementIssues:

ProductionManagementMethods

SixSigmaPrograms

TotalQualityManagement

SynchronousManufacturing GlobalSourcing

InternationalTransferPricing

GlobalSupplyChainManagementCases&Examples:

GE’sProductionStrategy

GE’s6SigmaProgram

HDC’sTransferPricingStrategy Li&Fung,aLeaderinGSCM6.1ProductionManagementMethodsCase:GE’sProductionStrategyIntroduction:GEisanAmericancorp.withmultibillionsales(2008’srevenues:$181billion),multi-productlines(from$1lightbulbstobilliondollarpowerplants),multinationaloperations(subsidiariesinover60countriesforservingcustomersinover100countries).Itsthreeproductionmanagementmethods

Work-out

Processmapping

BestpracticeCase:GE’sProductionStrategyQuestions:(1)WhatmanagementphilosophyisreflectedbyGE’sproduction-relatedmethodssuchaswork-out,processmappingandbestpractice?(2)WhichofGE’sproductionmanagementmethodsismostusefultoacompanyyouknow?Why?Answer:

(1)Philosophy: Learning,flexibility,creativity,andteameffortsarecriticalforcontinuousimprovementandcompetitivenessofthecompany.(2)Usefulnessdependsonsuitability,feasibility,andacceptability. Suitability:buildstrength&overcomeweakness Feasibility:resources&capabilityareavailable Acceptability:Itmeetstheexpectationoftheowners employees,andthecommunity.6.2QualityManagementPrograms6.2.1SixSigmaProgramCase:GE’s6SigmaProgramQuestion:SixSigmaProgramistoutedasthebestmanagementstrategyofthe21stcentury,andthemagictoolforqualitymanagement.Doyouconsidersixsigmaprogramapplicabletotheoperationsofacompanyyouarefamiliarwith?Whyorwhynot?What’s6sigmaprogram?

It’saqualitymanagementsystem.Itusesstatisticaltoolsanddata-drivenapproachesforqualitymanagement.Twobasicmethods:

Forexistingoperations,itadoptsDMAICApproach(Define,Measure,Analyze,Improve&Control).Foranewprocess,itadoptsDMADVApproach(Define,Measure,Analyze,Design&Verify).Fact:During1995-1998,GEspent$1billionon6sigmaprogram,&increasedtheprofitby$2.5billion.Q.WasGEthefirstcompanytoadopt6sigmaprogram?Q.Howdoes“6sigma”differfrom“1sigma”?

:standarddeviationDPMO:Defectspermillionopportunities Yield DPMO1 30.85% 691,5002 69.15% 308,5003 93.32% 66,8004 99.38% 6,2005 99.977% 2306 99.99966% 3.4Q.Whatarechampion,masterblackbelt,blackbelt,&greenbeltfor6sigmaprogram?DifferentlevelsofOrganizationStructurefor6SigmaProgram

a.Champion:CEOorotherseniorofficertoleadthe wholeprogramb.MasterBlackBelt:Seniormanagerforcoordinating, selecting,&trainingc.Black

Belt:

managersforimplementationd.GreenBelt:thosewhodobasictasksof6sigma projectsonpart-timebasisQuestion:

SixSigmaProgramistoutedasthebestmanagementstrategyofthe21stcentury,andthemagictoolforqualitymanagement.Doyouconsidersixsigmaprogramapplicabletotheoperationsofacompanyyouarefamiliarwith?Whyorwhynot?

EstimatedCostsintheU.S 4 6Eachhour 20,000mistakes 7ofmaildeliveryEachweek5,000incorrect 1.7 surgeriesEachyear 20,000wrong 68 prescriptionsWhat’sthesignificanceof6sigmaprogram?

It’smorethanaqualitymanagementsystem.It’salsoanefficiencycampaign. Withanaimtoachievenear-perfectperformance,thefirmcanreducedefects,boostproductivity,eliminatewasteandcutcosts.

Itsphilosophyisapplicabletoeverycompany,butnotitsstatisticalmethods.

Whynot?TraditionalAnalysis:OptimalConformanceRateUnitCost

Internal&external failurecosts

Costsofprevention100% Optimal100%defects Levelgood6.2.2TotalQualityManagement(TQM)Philosophy:Defectsarenottolerable,&firmsshouldbuildorganizationalcommitmenttoproducts’reliability.Five-StepChainReaction:

BetterqualityHigherProductivityLowercostsHigherMarketShareMorePricingPowerHigherProfitabilityStayinBusinessMoreJobsHowardW.E.Deming’sIdeaaboutQuality:

(“Themanwhodiscoveredquality:HowardW.EdwardsDeming”byGabor,Andrea1990)

Createconstancyofpurposetowardimprovementofproductandservice,withtheaimtobecomecompetitiveandtostayinbusiness,andtoprovidejobs. Improveconstantlyandforeverthesystemofproductionandservice,toimprovequalityandproductivity,andthusconstantlydecreasecosts. Instituteleadership.Theaimofleadershipshouldbetohelppeopleandmachinesandgadgetsdoabetterjob.Instituteavigorousprogramofeducationandself-improvement.6.3SynchronousManufacturing

AnewapproachadoptedbyAmericancompanies. Bottlenecksshouldbethefocusforimprovingoveralloperationperformance.Basis:Theoryofconstraints Themaximumoutputofamanufacturingsystemdoesnotdependonitsfastersectionsoftheoperation,butontheslowestsectionofoperationthatisrunninginfullcapacity.Comparisons: (1)Speedofaconvoyofrunningcars (2)Waterheldbyacask(木桶）6.4GlobalSourcingQ1.Whatarethebenefitsofglobalsourcing?Benefitsofglobalsourcing Lowercosts Superiorquality Availablematerialsandparts Greaterflexibility Riskdiversification Accesstoforeignmarket(Seep149,Book1)Q2.Howisglobalsourcingrelatedtointernationallogistics?Globalsourcingisthefirststepintheprocessofinternationallogistics,whichincludessourcing,inventorymanagement,&transportation.6.5InternationalTransferPricingWhat’stransferprice？

It’sthepriceongoodsorservicestransferredbetweensubsidiariesordivisionsofthesamecompany.Whysettransferprice? Toreducetaxand/ortariffpayments. Toevaluatedivisionalperformance, Tobolsterthecreditstatusofasubsidiary, Toavoidexchangecontrol; Tomakeproductsmorecompetitive; Todisguiseasubsidiary’strueprofitability; Togetalargershareofjointventure’sprofitsHow?

LowMarkupMethod (低加成方法)Highmarkupmethod(高加成方法） Example:BKH’sTransferPricingStrategy(p151)Aproduces100,000circuitboardsfor$8perpiece,and“sells”themtoB,anothersubsidiaryofBKH.Table9.1Taxeffectofhighvs.lowtransferprice A B A+BLowMark-upMethod Revenue 130 200 200Costofgoodssold 80 130 80Grossprofit 50 70 120Otherexpenses 10 10 20Incomebeforetaxes 40 60 100Taxes(30%/50%） 12 30 42Netincome 28 30 58Table9.1TaxEffectofhighv.slowtransferprice

(p152)

A B A+BHighmark-upmethod Revenue 160 200 200Costofgoodssold 80 160 80Grossprofit 80 40 120Otherexpenses 10 10 20Incomebeforetaxes 70 30 100Taxes(30%/50%） 21 15 36Netincome 49 15 64Table9.2TaxEffectofhighv.slowtransferpriceInthepresenceofimportduty A B A+BLowmark-upmethod Revenue 130 200 200Costofgoodssold 80 130 80Importduty 13 13Grossprofit 50 57 107Otherexpenses 10 10 20Incomebeforetaxes 40 47 87Taxes(30%/50%） 12 23.5 35.5Netincome 28 23.5 51.5Table9.2TaxEffectofhighv.slowtransferprice

A B A+BHighmark-upmethod Revenue 160 200 200Costofgoodssold 80 160 80Importduty 16 16Grossprofit 80 24 104Otherexpenses 10 10 20Incomebeforetaxes 70 14 84Taxes(30%/50%） 21 7 28Netincome 49 7 56Clearly,hightransferpricewillenableHDCtoearnmoreglobalnetprofit:56>51.5Exercise:p155

AandBarethetwosubsidiariesofHDCCorp.SubsidiaryAproduces100,000circuitboardsfor$10perpiece,whichitthensellstosubsidiaryB…(1)

IfBmustpayadvaloremimporttariffsatarateof10%,whichisleviedontheinvoice(transfer)price,calculatetheprofitsforthemultinationalenterprise(MNE)underbothhighandlowtransferprices.WilltheMNEmakemoreprofitbyusinghighmark-upmethod?(2)Inthepresenceofbothimporttariffsandincometaxes,whatarethethreesituationsunderwhichlowtransferpriceisthepreferredstrategy（Ifyouliketotakechallenges,usethemathematicmodelstatedintheappendixfortheanalysis）?

Casestudy:p155TaxEffectofTransferPrices(000omitted)LowMarkupMethod A B HDCRevenue 1500 2200 2200CostofGoodsSold 1000 1500 1000ImportTariff（10%） 150 150GrossProfit 500 550 1050OtherExpenses 100 100 200Incomebeforetaxes 400 450 850Taxes(30%/50%） 120 225 345NetIncome 280 225 505HighMarkupMethod A B HDCRevenue 1800 2200 2200CostofGoodsSold 1000 1800 1000ImportTariffs（10%） 180 180GrossProfit 800 220 1020OtherExpenses 100 100 200IncomebeforeTaxes 700 120 820Taxes(30%/50%） 210 60 270NetIncome 490 60 550Since550>505,choosehightransferP.

Bysettingahightransferprice,profitishigher,Butthefirmpaysmoretariff.Theconditionsforlowtransferprice：（1）Iftheincometaxratesarethesameforthetwocountries,LTPwillreducethepaymentoftariffs.（2）IftheincometaxrateishigherincountryA,LTPwillreducebothtaxesandtariffs.(3)LTPispreferredIfthetariffrateisgreaterthanthedifferentialsoftheincometaxratesbetweenthetwocountries.TransferPricingModelIfyouliketotakechallenges,youcanusethemathematicalmodeltoderivetheconditionsforsettingtheoptimaltransferprices.3BonusPoints:Usethemodeltoderivetheconditionsforsettingthelowtransferprices.BriefIntroduction:ThedeterminantsoftransferpricesCorporateprofittaxrateincountryA（t1），

CorporateprofittaxrateincountryB（t2），

Tariffrate（〒），

Levelofownershipinthesubsidiary（k），

Dividendpay-outratio（r）TransferPricingModelLetЛi,Ri,yi,Ci,p,mandτrepresentgrossprofits,totalrevenue,localproduced-sales,totalcost,transferprice,transfergoodsandtariffsincountryi(i=1,2).Then, Л1=R1(y1)–C1(y1+m)+pm Л2=R2(y2+m)–C2(y2)–(1+τ)pm ItisassumedthatRi’>0,Ri”<0,Ci’>0,Ci”>0. Lettidenotecorporateprofittaxincountryi,kdenotetheleveloftheMNF’sownershipintheforeignsubsidiary,andr,thedividendpay-outratiooftheforeignsubsidiary.Supposedly,1/10≤k≤1,and0≤r≤1.

Givenbasicassumptions,Л =[Л1+rkЛ2+(1-r)kЛ2]–[t1Л1+t1rkЛ2] Thefunctioncanbewrittenas Л=(1–t1)Л1+[1-t1r–t2(1–r)]kЛ2

Takingthepartialderivativewithrespecttotransferprice,p,givesЛp =(1-t1)m{1-k(1+τ)[1-t1r-t2(1–r)]/(1-t1) Dividendpay-outratio,r,alongwithk,τandti,determinesthesignofЛp.Giventheexogeneityofτandti,optimaltransferpricingstrategydependsmainlyonthevaluesofrandk.6.6GlobalSupplyChainManagementQ1.Whatissupplychainmanagement?

InternalSupply ChainorLogistics MaterialFlow InformationFlow Thesupplychainisasetoflinksinafirm’svalueaddedprocessfromrawmaterialsupplierstofinalcustomers.SuppliersProcurementOperationsDistributionCustomersQ2.Howisinternationallogisticsrelatedtoglobalsupplychainmanagement?

AccordingtotheU.S.basedCouncilofLogisticsManagement,“l(fā)ogisticsisthatpartofsupplychainprocessthatplans,implements,andcontrolstheefficient,effectiveflowandstorageofgoods,services,andrelatedinformationfromthepointoforigintothepointofconsumptioninordertomeetcustomers’requirements.”Logisticsfocusmoreonthetransportation,&storageofmaterials&finalgoods.Supplychainmanagementextendsbeyondthattoincludethemanagementofsuppliers&customerrelations.Q3.Canyougiveanexampleofglobalsupplychainmanagement?p159,2ndparagraph,Book1

VictorFung,CEOofLi&Fung,describesvividlyitsbusinessoperations,“saywegetanorderfromaEuropeanretailertoproduce10,000garments.…”O(jiān)ptimizeglobalvaluechaintomeetmarketdemand:

BuyyarnfromaKoreanproducer

ShipyarntoTaiwan,&haveitwoven&dyedthere

OrderzippersfromaJapanesemanufacturerwhich producesinChina

Shipyarn,zipper&otherthingstoThailand

Havethegarmentmadeby5factoriesinThailand

UsethebestroutetoshipthegarmenttoEuropeCase:

Li&Fung,ALeaderinGSCMP158,Book1DiscussionQuestions: (1)Whatarekeyfactorsforsuccessinmanagingglobalsupplychains? (2)WhataretheadvantagesandweaknessesofLi&Fung’sbusinessmodel?(1)Whatarekeyfactorsforsuccessinmanagingglobalsupplychains?Successfulsupplychainmanagementdependsonasetofeffectivenetworks:

Informationnetwork,likeintranet,extranet,EDI(ElectronicDataInterchange),ERP(EnterpriseResourcePlanning),ensuresefficientinformationflow

Suppliernetworkprovidesaninternationalpooloflow-costrawmaterials,partsandcomponents

Customernetworkbuildsastreamofstableorders

Transportationnetworkcoordinatestheflowofmaterialsandgoodsworldwide(2)WhataretheadvantagesandweaknessesofLi&Fung’sbusinessmodel?Advantages

High