International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Module C: Global Operations and Supply Chain
Management
YOUR CONTENT
Summary
Learning Objectives
Key Terms and Definitions
Content Outline
ENGAGEMENT & APPLICATION
End of Module Exercises
Critical Thinking Questions
globalEDGE Research Task
MiniCase
Bonus Activities
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
YOUR CONTENT
SUMMARY
Global markets and global competition have pushed ICs to search for methods to lower costs
and improve product quality. These same pressures have resulted in a new focus on supply
chain management, the process of coordinating and integrating the flow of materials,
information, finances, and services within and among companies in the value chain from
suppliers to the ultimate consumer.
LEARNING OBJECTIVES
LO C-1 Explain the concept of supply chain management.
LO C-2 Discuss the relationship between design and supply chain management.
LO C-4 Explain why manufacturing systems and logistical elements may vary, even
within the same company.
KEY TERMS AND DEFINITIONS
backward vertical integration
(p. 510)
An arrangement in which facilities are established to
manufacture inputs used in the production of a firm’s final
products
bottleneck (p. 502)
Operation in a manufacturing system whose output sets the
limit for the entire system’s output
indirect procurement (p. 497)
The purchasing of goods and services that are not part of
finished goods
intermediate technology (p.
514)
Production methods between capital- and labor-intensive
methods
intrafirm trade (p. 496)
Trade that occurs between a parent company and its foreign
affiliates
just-in-time (JIT) (p. 499)
A balanced system in which there is little or no delay time
and idle in-process and finished goods inventory
logistics (p. 504)
Managerial functions associated with the movement of
materials such as raw materials, work in progress, or finished
goods
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
manufacturing rationalization
(p. 507)
Division of production among a number of production units,
thus enabling each to produce only a limited number of
components for all of a firm’s assembly plants
mass customization (p. 502)
The use of flexible, usually computer-aided, manufacturing
systems to produce and deliver customized products and
services for different customers worldwide
offshoring (p. 495)
Relocation of some or all of a business’s activities or
processes to a foreign location
outsourcing (p. 492)
Hiring others to perform some of the noncore activities and
decision making in a company’s value chain, rather than
having the company and its employees continue to perform
those activities
quality circle (p. 501)
Small work group that meets periodically to discuss ways to
improve its functional areas and the quality of the product
Six Sigma (p. 503)
Business management process for reducing defects and
eliminating variation
standards (p. 506)
Documented agreements containing technical specifications
or other precise criteria that will be used consistently as
guidelines, rules, or definitions of the characteristics of a
product, process, or service
supply chain management (p.
492)
The process of coordinating and integrating the flow of
materials, information, finances, and services within and
among companies in the value chain from suppliers to the
ultimate consumer
synchronous manufacturing
(p. 502)
An entire manufacturing system with unbalanced operations
that emphasizes total system performance
total quality management
(TQM) (p. 501)
A companywide management approach in which the entire
organization is managed so that it excels on all dimensions of
product and services that are important to the customer
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
CONTENT OUTLINE
The following section provides the flow of information using the LEARNING OBJECTIVES as a
guide, KEY TERMS learners will need to take away from the course, and LECTURE NOTES to
drive home teaching points.
LO C-1
Explain the concept of supply chain management.
• Introduction
• Managing Global Supply Chains
Key Terms:
• outsourcing
• supply chain
management
I. Introduction
To improve competitiveness, international and domestic companies seek ways to lower
costs while improving their products. A common solution is outsourcing. Any activity in the
value chain can be outsourced.
II. Managing Global Supply Chains (Figure C.1)
Supply chain refers to activities involved in producing products and services and how they
are linked together.
Supply chains are integral to global quality and cost management.
Shorter, less predictable product life cycles, plus impact of unplanned economic, political,
and social events, place further emphasis on achievement of effective supply chain
performance.
Operations in each step of the supply chain must be synchronized.
Measurement of supply chain performance varies by industry and company, because the
way success is defined also tends to vary and performance assessment should be aligned
with a company’s strategic objectives and the key factors for success.
LO C-2
Discuss the relationship between design and supply chain
management.
• Design of Products and Services
Key Terms:
Design of a company’s products and services has a fundamental relationship with the types
of inputs a company will require.
Operations can be standardized or adapted to meet different needs of various markets.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
2. Can improve products, generate new product ideas, and engage customer.
LO C-3
Describe the reasons for sourcing globally, the five global
sourcing arrangements, and the benefits and challenges of
global sourcing.
• Sourcing Globally
• Reasons for Sourcing Globally
• Global Sourcing Arrangements
• Importance of Global Sourcing
• The Increasing Use of Electronic Purchasing for
Global Sourcing
o Options for Global Electronic
Procurement
o Benefits of Global Electronic
Procurement Systems
o Problems with Global Sourcing
Key Terms:
• offshoring
• intrafirm trade
• indirect procurement
I. Sourcing Globally
Reasons for Sourcing Globally
1. The primary reason is to obtain lower prices. In addition, certain products may not be
available locally. Firms’ competitors may be using components of better quality or
better design.
2. When deciding to source internationally, companies either set up their own facilities or
outsource the production to other companies.
a. A company’s decision to relocate some or all of its activities or processes to a
b. Outsourcing has become an increasingly common option for companies as they
focus scarce resources on their core competencies and leverage the skills of other
companies to reduce costs and capital investments, improve flexibility and speed
of response, enhance quality, or provide other strategic benefits.
c. Any part of the value chain can be outsourced.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
part, this may be due to an emerging nation’s ability to transfer technology and
processes previously invented and commercialized in the more developed nations, thus
avoiding the cost and time of inventing these technologies on its own.
5. The ability to effectively and efficiently use global sources has been enhanced by the
drop in cost of communications, widespread use of standardized interfaces such as
World Wide Web browsers, and the increasing pace at which companies are automating
and digitizing data.
Global Sourcing Arrangements
1. Wholly owned subsidiary—established in a country with low cost labor or producing a
product not made in the home country.
3. In-bond plant contractor—home country plant sends components to be machined and
assembled or just assembled by an independent contractor in an in-bond plant.
no production facilities such as DKNY, Liz Claiborne, and Nike, contract with foreign
manufacturers to make clothing to their specifications with their label.
5. Independent overseas manufacturer.
1. Intrafirm trade (trade between U.S. parent companies and their foreign affiliates).
b. Accounts for 35% to 50% of U.S. imports.
2. Cost of goods sold is rising, because of:
a. Greater product complexity.
b. Increasing focus on firm’s core business.
d. Pressure to reduce concept-to-market cycle times.
The Increasing Use of Electronic Purchasing for Global Sourcing
1. Entering exporter and the product name in a search engine will bring up websites of
being viewed as a strategic function, a trend encouraged by rapid development of e–
procurement.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
3. Indirect procurement is used to purchase items not included in finished goods but
necessary for business.
4. Options for Global Electronic Procurement
5. E-purchasing: catalog purchases. Suppliers provide catalog of available products, and
the offerings and prices can be adjusted in real time according to availability and the
need to move particular products.
6. Electronic exchanges permit buyers and sellers to interact through a standard bid/quote
system in which buyers can post their purchasing needs online for all prospective
suppliers to view, and suppliers can then submit private quotes to the buyer.
7. Benefits of Global Electronic Procurement Systems
a. Substantial benefits, in savings and breadth of offerings because suppliers can be
global.
management and customer response.
b. Smaller companies benefit from lower barriers, using Internet to purchase raw
materials and to sell products to customers, often on worldwide basis.
c. Industry-based business–to–business (B2B) exchanges can help optimize the
supply chain across an entire network of organizations.
avoid supply problems.
b. Following are the many common costs of importing:
i. International freight, insurance, and packing.
ii. Import duties.
iii. Customhouse broker fees.
iv. Inventory in the pipeline.
v. Cost of letter of credit.
vi. International travel and communications.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
a. Importers can face an increase in price because the home currency has lost
value as a result of exchange rate fluctuation. To address this risk, hedging may
be used.
b. Some efforts at developing e-procurement systems have been done in isolation
from the company’s overall business systems and have subsequently failed to
achieve their potential benefits, especially when using suppliers with which the
company is not familiar.
c. Traditional functions of purchasing still must be accomplished before
purchasing via e-procurement.
d. Security can also be a significant concern for e-procurement, including allowing
competitors or customers to see proprietary details of their business.
e. Different country standards are also a concern when attempting to implement
international e-procurement systems.
LO C-4
Explain why manufacturing systems and logistical elements
may vary, even within the same company.
• Manufacturing Systems and Logistics
• Advanced Production Techniques Can Enhance
Quality and Lower Costs
• Reducing Costs through Just-in-Time
Manufacturing Systems
• Improving Quality through Total
Quality Management
• Enhancing Total System Performance
through Synchronous Manufacturing
• Managing Costs and Customer Needs
through Mass Customization
• Improving Quality and Costs through
Six Sigma
• Logistics and Supply Chains
Key Terms:
• just-in-time (JIT)
• total quality
management (TQM)
• quality circle
• synchronous
manufacturing
• bottleneck
• mass customization
• Six Sigma
• logistics
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Inventory costs are a major factor; eliminating inventory can lower labor cost by
40% or more.
Just-in-time (JIT) production systems were developed to enable firms to manage
inventory cost and enhance quality; they are balanced systems in which there is
little or no delay time and idle in-process and finished goods inventory.
What is important is “big JIT”—a total system covering management of people,
materials, and relationships with suppliers.
2. Enhancing Total System Performance through Synchronous Manufacturing
a. Synchronous manufacturing, also called the theory of constraints (TOC), is an
c. Instead of attempting to achieve a balanced system like JIT, synchronous
manufacturing aims to balance the product flow through the system, which leaves
output levels of the various operations unbalanced.
d. A defective part or component at any point in the production process can shut
down a JIT system. But because a synchronous manufacturing system has excess
i. Collaborative—company helps customers choose the required product
features.
ii. Adaptive—company offers a standard product that users can modify
themselves.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
iii. Cosmetic—only product’s presentation is customized, such as packaging or
color.
iv. Transparent—customers are provided with individualized product or service
offerings withouttheir knowing it, such as on website interfaces.
c. Mass customization is usually appropriate where it is feasible to delay
differentiating the product for a particular customer until the last possible point in
the supply network. In practice, this means reconceptualizing and often
reconfiguring the company’s entire supply chain.
d. Benefits of such a comprehensive approach to operations are that the company
will be able to function at maximum efficiency and to rapidly respond to
customers’ needs, while maintaining a minimum level of inventory.
4. Improving Quality and Costs through Six Sigma
a. A business management process for reducing defects and eliminating variation.
b. Literally means a maximum of 3.4 defects per million occurrences.
c. Six Sigma approach includes five steps: define, measure, analyze, improve, and
control.
d. The biggest advantage is increased cost savings, as well as increased customer
satisfaction, reduced defects, increased company growth, and increased quality.
Logistics and Supply Chains
Logistics are managerial functions associated with the movement of materials such as
Many companies have chosen to outsource their logistics needs to outside specialists.
LO C-5
Explain the potential in, and challenges to, global
standardization of production processes and procedures.
• Organization and Staffing
• Purchasing
• Control
Key Terms:
integration
• intermediate
technology
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Bonus C-11
• Economic Forces
• Cultural Forces
• Political Forces
o Some Design Solutions
• Scaled-Down Design for Local
Manufacturing System
• Hybrid Design
• Intermediate Technology
II. Standardization and the Management of Global Operations
a. Standards—documented agreements or precise criteria used as guidelines, rules,
definitions of a product, service or process.
Benefits of Standardization of Global Operations
a. Ensures that materials, products, processes, and services are appropriate for
intended purpose.
b. In most countries, standards are developed across product lines and for various
functions.
c. International Organization for Standardization (ISO)—ISO 9000 & ISO 9001.
1. Organization and Staffing
product specs current.
d. One integrated supply chain increases profits.
e. Standardization guarantees interchangeable parts manufactured in different
plants.
b. Production and maintenance control.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Bonus C-12
4. Planning
a. Design engineers need only copy drawings and lists of materials in their files.
b. Vendors requested to furnish previously supplied equipment.
c. Technical department sends current manufacturing specs without alteration.
d. Experienced labor trainers sent to new location not needing special training on
new equipment.
e. Reasonably accurate forecasts on plant erection time and output are based on
experience with existing facilities.
i. Capital-intensive processes incorporating automated, high-output machinery.
ii. Labor-intensive processes which employ more people operating semi-manual,
general-purpose machinery.
nations.
c. Automated machines are high output but inflexible as to range of work they do.
d. Cost of production—Automation increases productivity per worker, but output
e. Lack of floor space may require a few high capacity machines.
f. This specialized machinery does require process materials to be supplied that are
within narrow limits as to size and quality.
i. Local suppliers may be unable to furnish them within such tight specifications.
ii. Firm may overcome this problem by backward vertical integration even when
it would be preferable economically to purchase the materials from local
skilled labor may favor use of specialized machines.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
3. Political Forces
a. Developing countries needing job creation may insist on use of most modern
equipment, even if it means fewer jobs.
Some Design Solutions
1. Scaled-Down Design for Local Manufacturing System
a. Except for plants in large industrialized nations, local manufacturing organizations
are commonly a scaled down version of that found in parent company.
b. Local manufacturing operation is rarely integrated, vertically or horizontally, to
extent parent is.
c. Horizontal integration is much less prevalent in foreign subsidiaries.
2. Hybrid Design
a. When designing plants for developing nations, engineers commonly use a hybrid
of capital-intensive processes (to ensure product quality) and labor-intensive
processes (to exploit abundant unskilled labor).
3. Intermediate Technology
a. The press of growing population and rise in capital costs have forced governments
of developing nations to search for technology midway between capital- and
labor-intensive processes that will create more jobs, require less capital, but still
produce the desired product quality: intermediate technology, or production
b. Means ICs cannot transfer technology they are familiar with but must develop
new and different manufacturing methods.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Bonus C-14
ENGAGEMENT & APPLICATION
BOXED TEXT DISCUSSION QUESTIONS WITH SUGGESTED ANSWERS
IB IN PRACTICE: Zara: Using Innovative Supply Chain Management to Transform the
International Fashion Industry
The focus of this box feature explores Zara’s revolutionary approach to supply chain
management in the fashion industry, and how it has allowed the company to dictate industry
1. How does Zara’s approach yield advantage over companies using more traditional
approaches to logistics and supply chain management? What might make it difficult for
competitors to imitate Zara’s approach?
Answers here might vary, but Zara’s “fast fashion” model allows the company to offer up–to–
the-minute fashions, low prices, and limited excess inventory of items that are not well
2. What factors might limit over time the international success of Zara’s approach?
Again, answers may vary on this question. Zara’s advantage has been achieved through an
integrated set of operations activities centered around their Spain-centered supply chain. The
GLOBAL DEBATE: Is Cognizant Technology Solutions Leveraging Low-Cost Talent or Exploiting
It?
The focus of this box feature explores the ethnical nature of Cognizant Technology Solutions‘
employee hiring practices. The company is employing low cost technical personnel, particularly
within India, in combination with local service teams to create an innovative “offshore–
onshore” business model that enables the company to compete on price, speed, and
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Bonus C-15
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
adaptability. In conjunction with this business model, the company has invested in an advanced
international communications infrastructure to facilitate effective coordination of its
internationally dispersed teams. This internationalized model in business services is interesting
to students and can provide the basis for insightful class discussion. Asking questions such as,
“What benefits might result from the use of a multi-nation client management team
approach?” and “What challenges might result from such a set-up, and how could they be
managed?,” will serve as a starting point for class discussion on some of the key strategic,
operational, organizational, and external environmental issues that face companies that
attempt to develop and implement innovative international business models.
Online and Hybrid: A classroom discussion option is to assign individuals, groups, or the class as
a whole to examine the evolving issue of using labor from low-cost nations to gain advantage in
serving customers from higher-cost developed countries. The students’ findings can provide a
strong basis for discussion or debate on these emerging issues. Virtual teams can be assigned
questions and submit their work as a group. Alternatively, virtual teams can be assigned to take
different roles or perspectives to argue for (or against) and these assignments can be submitted
as a group and then opened up to discussion and debate on an online class discussion site or
blog, or presented and debated in a face-to-face setting.
Face-to-Face: Students develop responses to the questions in class in teams/groups, or else
assign perspectives and conduct an in-class debate and discussion.
1. Does the use of a multi-nation client management team approach create value for
companies and workers in both a developing country like India and a developed country such
as the United States? Why or why not?
The answers to this question will vary, and it is intended to help people think through the issues
from various perspectives. From a perspective of companies and workers in a developing
country, this model allows them to gain access to customers while exploiting their labor cost
advantages. From the perspective of companies in a developed country, this model allows them
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module C
Bonus C-16
2. Although many U.S. companies have argued that the H-1B temporary visa program is vital
to their continued success because it allows them to import skilled workers that are difficult
to find in the United States, critics charge that such programs are susceptible to abuse,
harming both imported and domestic employees. What are the merits and limitations of each
argument?
This question raises an issue that almost always generates strong opinions and a variety of
perspectives. Clearly, the intent of the H-1B program is to enable companies to avoid problems
3. Is it better to allow foreign workers to come to the United States under a program such as
the H-1B temporary visas, or to merely locate activities in a foreign site? Why? How might a
program be designed to enable U.S. companies to bring in immigrant talent from abroad
without harming the interests of employees in the United States?
Answers to this question are likely to vary and to produce quite a bit of discussion and debate.
Bringing skilled foreign labor to the U.S. may enable other jobs to be preserved and may serve
to stimulate additional innovation and increased competitiveness. Locating activities in a
GET THAT JOB! FROM BACKPACK TO BRIEFCASE: Danielle Demaria: International Experience
Can Bring Impactful Work and Lifelong Relationships
The focus of this box discusses Danielle Demaria’s love for travel and how she decided to major