Production and Operation management Lecture notes

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DBA 1651 PRODUCTION MANAGEMENT NOTES UNIT - I INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT 1.1 Introduction 1.2 Learning objectives 1.3 System 1.3.1 Business System 1.3.2 Production System 1.3.3 Production and Operations Managements 1.4 History of operations Management 1.5 Types of operation system 1.5.1 Flow Shop 1.5.1.1Continuous Production 1.5.1.2Mass Production 1.5.1.3Batch Production 1.5.2 Job Shop 1.5.3 Project Production 1.6 Production activities and communication link 1.7 Computer Integrated Manufacture ring (CIM) 1.7.1 CIM sub systems 1.7.2 Functional Areas of CIM 1.7.2.1 Computer aided production planning 1.7.2.2 Computer aided process planning 1.7.3 Conceptual frame work of CIM 1.7.4 Group Technology 1.7.4.1 Definition 1.7.4.2 History of GT 1.7.4.3 Advantages of GT 1.7.4.4 Organizational Suitability for GT 1.7.4.5 Group technology in CIM 1.8 Global Supply Chain 1.8.1 Global Complexities 1.8.2 How to transform into Global Supply Chain 1 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT NOTES UNIT - I INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT 1.1 INTRODUCTION This unit starts with a definition of a system. In this unit production system and its objectives are explained along with the components of a system. The history of operations management is portrayed. The various functions of production system and their interlinking are explained through a flow chart. The components of computer, integrated manufacturing and their purpose are dealt. Finally, the recent trend in the operations, namely, Global Supply Chain is introduced in this unit. 1.2 LEARNING OBJECTIVES • To know the importance of the production system in an organization. • To understand the link between various activities of the production system. • To comprehend the history of operations management. • To understand the components of computer integrated manufacturing 1.3 SYSTEM It consists of elements or components. The elements or components are interlinked together to achieve the objective for which it exists. Eg: human body, educational institutions, business organizations. Components of a system: The input, processing, output and control of a system are called the components of a system. Anna University Chennai 2DBA 1651 PRODUCTION MANAGEMENT Figure 1.1 - Components of a system NOTES Input Output Processing Feedback Control Control: There are two types of control, namely Proactive Control and Reactive Control. Proactive Control: When an operation is carried out on a product in a workstation, the quality inspector goes to the workstation and inspects the product. When the samples that he has taken for the inspection are not confirming to the quality, he stops the machine and identifies the reason for the deviation and corrects the problem, so that the produced product thereafter conform to the specifications. This type of control prevents any major quality setback after the production. This is an example for proactive control. Reactive Control: In a planning period, usually the quality target is fixed. Suppose, an organization feels to fix 5% defective is safe in the targeted production quantity and assumes that at the end of the planning period it finds that the defective output exceeds the targeted defective products. Then, it has to find out the reason for the deviations, namely, whether the problem is due to the method of doing the work or the resources used in the process. Then the planner uses this knowledge to prevent any problem in the future. Thus a Reactive Control is a post morterm case. 1.3.1 Business System: The business organization is classified into different subsystems based on the functions like marketing, production/operation, finance and human resource etc. 3 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Figure 1.2 – Business System NOTES Marketing Finance Human Resource Production/Operation Each subsystem will have more sub subsystems. 1.3.2 Production / Operation System Figure 1.3 – Production / Operation System Input Transformation Output Objectives Process 1. To produce the required quantity. Capital Man Power Goods 2. To achieve the required quantity. Material 3. To meet the delivery time. Information Services 4. Economical way of doing Operations Management Operation system is either manufacturing sector or service sector. The input requirements are shown in figure1.3 The transformation process, in which part of the value addition takes place to get the required quantity of the product or services with the targeted quality within the specified time period, is carried out in a most economical way. Operation Management Plan coordinates and controls all the activities in the operation system to achieve the stated objectives. Thus (the activities listed in the diagram) the Operations Management activities, ensure the objective of quantity, quality, delivery time and economical way of doing work. The communication link between the various activities are shown in the figure1.3. Each activity is dealt in detail in different sections of this material. This figure (figure1.3) will be very much appreciated after getting a clear understanding of all the activities. Anna University Chennai 4DBA 1651 PRODUCTION MANAGEMENT 1.3.3 What is operation management (OM)? NOTES Operation Management is a way or means through which the listed objectives of an operating system is achieved. There is always a confusion between the word OM & PM (Production Management). It is accepted norm that OM includes techniques which are enabling the achievement of operational objectives in an operation system. The operation system includes both manufacturing sector as well as service sector, but when you use the word PM, you should be careful to note that it refers to the manufacturing sector but not the service sector. Suppose, you are designing a layout for the hospital you should say that you are applying Operations Management Technique not the Production Management Technique. When you design a layout for a manufacturing sector you can say that you are applying Production Technique or Operation Technique or vice versa. From, the above discussion we can come to a conclusion that production management is a subset of Operations Management. Review questions – 1. What are the components of a system? 2. What are the differences between the Production Management and the Operations Management? 3. List the objectives to be fulfilled by an Operation System. 1.4 HISTORY OF OM Table 1.1 – History of OM Year / Period of Concept/Tools and System Used Developers/ Concept Originators (14-16) Evolution of Production system Century th 18 New Technology for Production Process Adam Smith and Century Management harles Babbage 1895 Scientific Management Principles (Work Study) F.W.T. Taylor Motion Study for Psychological Factors Frank & Lillian Activity Scheduling Chart Gilbreth Henry Gantt 1935 Hawthrone Studies of Worker Motivation Elton Mayo 1950’s Operation Research for Decision Making Long Many Researcher term Medium term, Short term decision by 5 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Critical Path Method (CPM), Program Evaluation NOTES and…… Technique (PERT), Waiting-Line Theory 1970’s Computers for Inventory Control Material IBM, Joseph Resource Planning (MRP) Orlicky, Oliver Wieght 1980’s Just In Time (JIT), Total Quality Control (TQC) Toyota Kanban System, CAD/CAM, Computer Integrated Manufacturing (CIM) Flexible Manufacturing System (FMS) 1990’s 1.Total Quality Asqc(U.S.). IOS Management (TQM), Concurrent (CIM), (England), Engineering, Value Engineering Michael Hammer 2. Business Process Engineering Oracle, SAP 3. Supply Chain Management (Germany) 2000’s Logistics, Enterprise Resource Planning (ERP), E-Commerce, E-Business Review questions - 1. What is the contribution of GANTT? 2. Who is the father of Scientific Management? 1.5 TYPES OF OPERATION SYSTEM The type of Operation System to be adopted should be known to the people, and then only you may choose the system based on the nature of the product that you are going to manufacture. The types of operation system are classified based on the following criteria. Product flow pattern in conversion system Output of the product Specification of the output Figure 1.5 - Types of Operation System Production Flow Pattern Output of the product Specification of the output Customized Standard Flow shop Job shop Flow shop Continuous Batch Mass Goods Services Production Production Production Anna University Chennai 6DBA 1651 PRODUCTION MANAGEMENT The characteristics of the Operation System based on the product flow pattern: NOTES 1.5.1 Flow Shop In this kind of production, the productive resources are arranged according to the sequence of operation required by the product design. Assume that you are engaged in the ready to wear clothing, if you want to adopt the flow shop production, then the productive resources are kept according to the sequence of operations required by the product like Cutting Joining by sewing Adding, buttons, zippers etc Quality checking Packaging Mostly Flow shop production are adopted when there is untapped market for the product, customers are price sensitive and more competition in the market. Flow shop production as shown in the figure is further divided into Continuous Production, Mass Production and Batch production. 1.5.1.1 Continuous Production The industries involved in the following activities are classified as Continuous Production • Oil refining. • Fertilizer production. • Chemical processing etc. • In this type of production the product flows continuously without much interruption. • This type of production lacks in flexibility. 1.5.1.2 Mass Production The industries involved in the following activities are classified as the Mass Production Industries: Auto Manufacturing TV Manufacturing Cigarettes This kind of flow shop produces the same type of output, it has little flexibility compared to Continuous Production. 1.5.1.3 Batch Production The industries involved in the following activities are classified as the Intermittent Production. • Shoe manufacturing • Bottling plant • Cloth manufacturing 7 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Here the basic design of the product is the same but the specification of the product NOTES differs. The production gets interrupted when the system switches over to other type of the product specification. The products are similar in nature but not identical. The Characteristics of Flow Shop Production: Refer Table1.2 Table 1.2 - The Characteristics of Flow shop Production Product The products are standardized. Conversion Special purpose equipments, designed for the specific Resources process of the product. Work force Specialized people, doing the repetitive jobs. Workforce Job satisfaction among the employee is low because of Job satisfaction the repetitive nature of job, results in boredom, more turnover and absentees. Work-in-progress Productive resources are balanced that result in less work inventory in progress inventory. Cycle time Cycle time per unit is relatively low Cost of production Cost of production per unit is relatively low. Quantity of production Comparatively quantity of production is more Varieties Products to be produced of less variety. Flexibility This kind of production lacks in flexibility. Small change in the product design needs the change in production system abnormally. Production planning and Since less varieties of product are produced for longer control period, the production planning and control activities are inbuilt in the system itself, so the production planning and control activities are not a complex one. 1.5.2 Job Shop In the case of Job Shop Production, the products are mostly customized products. Based on the customer requirements, the products are produced. The productive resources are kept according to the function. Anna University Chennai 8DBA 1651 PRODUCTION MANAGEMENT The industries involved in the following activities are classified as the Job Shop production: NOTES • Auto repairing • Hospital • Machine shop The Characteristics Of Job Shop Production. Table 1.3 Product The products are of order based mostly non standardized. Conversion of Resources General purpose equipment, grouped according to their functions. Work Force Skilled people, doing multi skilled work. Work force satisfaction Job satisfaction among the employee is high because the operator role is multifaceted. Work in Progress There is lot of waiting time for the product to be manufactured in the system that results in more in process Inventory inventory. Cycle time Because of more waiting time for the product in the production line that results more manufacturing cycle time comparatively. Cost of Production Cost of production per unit is relatively high. Quantity of production Since it is order based production, quantity produced per unit type is relatively less. Varieties The production system capable of producing more type of products. Flexibility This system has more flexibility any change in the design of the product could be incorporated without much problem. Production Planning The arrival, the operations demanded and the operations and Control time required by the order mostly uncertain. This makes the jobs of production planning and control difficult. 1.5.3 Project Production This refers to the industries involved in the production of one type of complex products like, ship construction, dam construction, bridge construction, research and development etc. 9 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Project production consists of many activities where the activities are interlinked, NOTES time phased and resources committed. In this kind of production, scheduling the activities is important so that you can complete the project within the time and budget constraint. The resources, namely, manpower, machines, material are brought to the workplace where the product is manufactured. There is no movement of the product. Review Questions 1. Which type of the production system in the process inventory is less? 2. In which type of production system flexibility is more? 3. Tell the important characteristic of Batch Production about the product? 4. In which type of production system there is no product movement? 1.6 COMMUNICATION IN POM As it is mentioned in the above section, operation management is meant to achieve the objectives for which the operation system is intended for. Based on the objective set by the top management, the system design is established. The system design involves designing the product and process, designing the methods, measuring the work, identifying the location, and designing the layout. By keeping the system design as a framework in the aggregate planning various production alternatives are analyzed and the best feasible production alternatives are chosen. Then keeping the aggregate planning as a input, resource allocation and sequencing of day to day activities are done. The inventory also kept at minimum to satisfy the organization’s inventory objectives. The maintenance activity ensures the availability workstations. Quality control ensures the quality in the input, processing and output stages of production system. (See figure 1.4- Communication in POM). Review Questions- 1. List the activities in system design? 2. What are the phases of scheduling? Anna University Chennai 10DBA 1651 PRODUCTION MANAGEMENT Figure 1.4- Communication in POM NOTES Figure1.4 External: Socio, Political, Economic environment Top Management Strategy Marketers Financial Policy Policy Human Production Resource Policy Policy Forecasting Long term forecast System Design Medium term forecast Product Design Capacity Planning Short term Aggregate Planning Forecasting Process Design Plant location & layout Inventory Control Work Design and measurement Scheduling Maintenance Quality Control Material Product Capital Information Service Manpower 1.7 COMPUTER INTEGRATED MANUF ACTURING AND SERVICE SYSTEM Computer Integrated Manufacturing (CIM), a strategic thrust, is an operating philosophy. Its objective is to achieve greater efficiencies within the business, across whole cycle of product design, manufacturing and marketing. International competition has intensified the requirement for high quality products that can compete in the global market place. As a result of this increased competition, the pace of development has been quickened and thus forcing manufacturers to enter into an era where the continuous 11 Anna University Chennai P r o d u c t io n S y s t e m T o p M a n a g e m e n t O p e r a t io n M a n a g e m e n tDBA 1651 PRODUCTION MANAGEMENT quality improvement is maintained as a matter of survival, not simply being competitive NOTES As the time scale of product life cycle has decreased and the demand for the quality increased, attention has focused on improving the product quality and promoting the competitive ability of industries through better design, manufacturing, management and marketing. Global manufacturing industry is now undergoing a rapid structural change. As this process is continuous, manufacturing industry is encountering difficulties as it confronts with a more changed and more competitive environment and also the market place. In order to share the international market, manufacturers need to implement two strategies. The first is, to improve the Enterprise Management. The second one is, to develop and apply a Systematic and Scientific Technology, i.e.., CIM. With the rapid growth of the complexity of manufacturing process and the demand for high efficiency, greater flexibility, better product quality and lower cost, industrial practice has approached the more advanced level of automation. Nowadays, much attention has been given by both industry and academia to CIM. Currently, most of the industries have highly automated facilities. To stimulate industrial companies for utilizing the newest manufacturing technology, this has compelled to develop a system architecture that does not only replace the existing manufacturing facilities, operational environments, but effectively utilizes the knowledge and facilities that are available in the industry. To overcome the difficulties and solve the problems mentioned above automatic techniques and methodologies should be Introduced into real industrial manufacturing. 1.7.1 CIM Subsystems Significant progress has been made in the manufacturing technology in recent years. Numerically control machine tools, automated material handling systems and controlled systems have been widely used in industrial companies. The Flexible Manufacturing System (FMS), Computer Integrated Manufacturing (CIM) or Systems or Automated Manufacturing Systems (AMS) can be attributed to and increasing number of companies. The advancing manufacturing and computer technology has brought new challenges to the designers of products, processes and system as well as to the managers. The traditional design and management tools can not effectively cope with problems arising in the modern manufacturing systems. Anna University Chennai 12DBA 1651 PRODUCTION MANAGEMENT 1.7.2 Functional areas of CIM NOTES CIM system has emerged as a result of the development in manufacturing and computer technology. The computer plays an important role integrating the following areas of CIM system. • Part (component) and product design • Tool and fixture design • Process planning • Programming of numerically controlled (NC) machines, material handling system (MHS), etc. • Production planning • Machining • Assembly • Maintenance • Quality control • Inspection • Storage and retrieval To emphasis the computer aspects, the terms Computer Aided Design (CAD), Computer Aided Process Planning (CAPP), Computer Aided Manufacturing (CAM), Computer Aided Quality Control (CAQC), Automatic Storage Retrieval (ASR), have used. Each term refers to one or more of the listed functional areas. CAD refers to the part and product design and tool and fixture design, CAPP refers to Process Planning, CAM refers to the programming of manufacturing hardware, production planning machining, assembly and maintenance, CAQC refers to the quality control and inspection and ASR involves the storage and retrieval of raw materials, finished products work in process inventory. The computer plays a leading role in the automation and integration of hardware component i.e. machines, material handling carriers and the software components of manufacturing systems. In order to understand the CIM subsystems and the importance of integrating them, it is first necessary to explore the functional areas by these subsystems. 1.7.2.1 Computer Aided Production Planning Production planning involves establishing production levels for a known length of time. This forms the basis for the following two functions: 1. Material requirement planning 2. Loading and scheduling Based on the information regarding the type and quantity of parts or products to be manufactured, the materials required to produce the parts or products must be ordered with an appropriate lead time to ensure their availability for production. This function constitutes material requirement planning. Based on the material required, capacity- for example, machine hours and labor hours can be calculated. 13 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Machine loading involves assignment of parts and products to machines and NOTES machine cell in order to distribute the production loads. Scheduling determines the sequence in machines perform the operations. 1.7.2.2 Computer Aided Process Planning Process planning for a part involves the preparation of a plan that outlines the routes, operations, machines and tools required to produce the component. Since the process is a tedious task, there has been a trend to automate it. As a result, a number systems have been developed. There are three basic approaches to the automated process planning. They are - a. Variant Approach b. Generative Approach c. All based Approach CIM Subsystems Intelligent Manufacturing Development in artificial intelligence has had an impact on the manufacturing systems. All most all the areas of the computer integrated manufacturing have been effected by the artificial intelligence. Researchers and engineers are developing the intelligent systems ranging from application in machining and assembly to long term planning. 1.7.3 Conceptual framework of CIM The conceptual framework of CIM is shown in Figure.1.6 are six major being integrated by computing technology. Note that one of these is Group Technology (GT). Figure 1.6 – Conceptual framework of CIM GROUP TECHNOLOGY GT MANUFACT. COMPUTER PLANNING & AIDED CONTOL DESIGN COMPUTER MPC CAD TECHNOLOGY AUTOMATED ROBOTICS MATERIALS HANDLING AMH COMPUTER AIDED MANUFACT. CAM Anna University Chennai 14DBA 1651 PRODUCTION MANAGEMENT According to Arthur D.Little and Co., GT is the important technology among NOTES the others and it will play a major role in the factory of the future. The GT concept is considered a center road towards a higher level of CIM. 1.7.4 Group Technology Group technology (GT) is a concept that is currently attracting a lot of attention from the manufacturing community. GT offers a number of ways to improve productivity in the batch manufacturing. The essence of GT is to capitalize on similarities on recurring tasks. GT is, very simply, a philosophy to exploit similarities and achieve efficiencies grouping like problems. 1.7.4.1 Definition of GT “Group technology is the realization that many problems are similar and that, by grouping similar problems, single solution can be found to a set of problems, thus saving time and effort” 1.7.4.2 History of GT Prior to 1913, the era of Henry Ford and his model T, all machining models were similar to our present job shop techniques with machines laid out usually in lines or blocks of similar machines. The work was loaded onto the machines usually by the manual progress control system. Ford introduced the assembly line and that, in turn, led to automated transfer machines. However, the majority of engineering do not produce items in quantity that justify such methods and so the jobbing shop philosophy continued. GT is mainly a coordination of normal good engineering practices. It is impossible to say who first practiced GT. There are reports of it having been used in Germany in the 1930s. In an international Conference held in Stockholm in 1947, the basic groups were explained by C.B.Nanthorst. In Italy M. Patrignany was an early exponent of this technology. However, little of this appears to have been in English. First published work was from the USSR by S.P.Mitrofanov in 1959 and there after subsequent books were published by F.S.Denyanyuk and E.K. Ivanov.The first reported work on GT outside Russia was done by a French Forges et Ateliers de Construction Electriques de Jeurmont - and this was about in Machinery in 1962. Subsequently, several British companies conducted considerable work in this field. There have also been considerable studies done by various consultants in the Universities. The significant contribution by J.L.Burbidge in the 1 960s led to GT as A total Manufacturing Philosophy. 15 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT 1.7.4.3 Advantages of GT NOTES According to Burbidge, following are the advantages after introducing GT in manufacturing. a. Short throughput times because machines are closed together. b. Better quality because groups complete parts and the machines are closed together under one foreman. c. Lower material handling costs because machines are closed together under one foreman. d. Better accountability because machines complete parts. The foreman can be made responsible for costs, quality, and completion by due date. e. Training for promotion for promotion since GT provides a line of succession, because a group is a mini-department. f. Automation GT is a first evolutionary step in automation. g. Reduced set up time since similar parts brought together on the same h. Morale and job satisfaction since most workers prefer to work in groups. Studies undertaken by N.L.Hyer indicate the following significant savings after implementing GT Snead prepared a summary matrix, listing the benefits listing benefits achieved for the various GT. Table1.4 - Advantages of GT Applications implemented set up time 20-60% Planned labor 15-25% T ooling 20-30% Rework & scrap 15-75% Machine tool expenditures 15-75% WIP carrying costs 20-50% 1.7.4.4 Organizational suitability for GT The suitability of a firm for the introduction of GT depends on several factors. The survey of Willey and Dale give a tentative description of a company profile likely to achieve the greatest benefits from GT, some of these are: Anna University Chennai 16DBA 1651 PRODUCTION MANAGEMENT a. The company must be a relatively small organization with a reasonably small machine NOTES tools, and manufacturing equipment. b. The company should not be typified by either large or small component variety. c. The batch sizes and the batch size range of products of the companies it is relatively small. Athersmith and Crookall Rajagopal and Smith Gupta Andand Grayson have suggested another way of finding out the suitability of GT for a batch production industry. Computer simulation has been used by the effect of introduction of GT in the batch production industries based on the parameters such as throughput time, WIP inventory and plant utilization Further GT is considered a desirable stepping stone for establishing Just-In-Time production. 1.7.4.5 Group Technology in CIM One may question whether a cellular concept is applicable to CIM systems. Some studies have shown that grouping machines to machine cells may limit the manufacturing system flexibility. However, industrial applications have proven that it is virtually impossible to implement a large scale CIM subsystem using a cellular concept. Here after, the automated manufacturing systems that cellular approach can be called as, Cellular Automated Manufacturing (CAMS). Four crucial factors of CAMS as identified by Kusiak are: 1. Volume of information Volume of information a large-scale CIM subsystem is typically large, and it is too expensive to effectively process information without the system’s decomposition. 2. Material handling system In a typical CIM subsystem, automated material handling carriers are used (AGVs and Robots). Each of the two carriers can tend a limited number of machines. 3. Technology Requirement Some machines have to be grouped together due to technological requirements. For example, a forging machine and a heat treatment section. 4. Management Although in most of the currently CIM subsystems, the degree of automation is higher than in classical manufacturing systems, humans will be, for a long time, an integral 17 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT part of these new manufacturing systems. Due to limited size of each machine cell, a NOTES CAMS is easier to manage than the entire system. Review Question: Following stands for : 1. CRM 2. FMS 3. AMS 4. AS/RS 5. CAD 6. GT 1.8 GLOBAL SUPPLY CHAIN Even though the countries fought for border issues, but there is no trade barrier for the trade is concerned. GATT agreements and WTO paves the way for the Global Supply Chain in trading. (See Figure1.7). Overall Objective of Global Supply The objective of global supply chain configuration is in meeting or exceeding worldwide customer (internal and/or external) expectations at the lowest cost. Specific Objectives and Expectations of Global Supply Achievement of the transformation of supply chains into value chains will normally include some combination of the following objectives and expectations: • Leverage spend (across business units and geographic boundaries). • Align Incentives for integration of activities (buyers, suppliers, end-users) to support organizational goals and strategies. • Optimize supply chain operation (no. of members, capabilities, costs). • Reduce inventories across the chain. • Reduce all costs (item costs and supply chain operational costs). • Assurance of supply of right quality items to support operations. Anna University Chennai 18DBA 1651 PRODUCTION MANAGEMENT Figure 1.7- Global Supply Chain in trading NOTES Country A Country B Supplie Manufacturer Custom Supplie Manufacturer Custom r er r er Manufacturer Manufacturer Supplie Manufacturer Custom Supplie Manufacturer Custom r er r er Manufacturer Manufacturer Supplie Manufacturer Custom Supplie Manufacturer Custom r er r er Manufacturer Manufacturer Supplie Manufacturer Custom r er Manufacturer Supplie Manufacturer Custom r er Manufacturer Supplie Manufacturer Custom r er Manufacturer Country C For simplicity only one supplier, manufacturer and customer of each country is taken in the above diagram, same can be possible for others. 1.8.1 Global Complexities If the supply/value chain involves sourcing in multiple countries, additional considerations need to be addressed. Some of these include: 19 Anna University ChennaiDBA 1651 PRODUCTION MANAGEMENT Currency exchange and risk. NOTES Counter trade opportunities and requirements. Varying laws and jurisdictional questions. Cultural differences. Language differences. Labor and training availability, practices, laws, regulations. Transportation, packing, shipping, storing, import, export, customs. Security: materials, products, personnel, intellectual property. Challenges and Barriers to Transforming Global Supply Chains into Value Chains In the varying environments encountered internationally, there are a number of challenges and barriers involved in building global supply chains. Many of these are rarely concerned with the domestic supply chains. Some of these include: Uncertain political stability, self-serving governments. Lack of infrastructure in some countries (roads, port facilities, trained labor, utilities, communications). Lack of critical market mass in particular countries. High transaction costs. Requirements to use in-country agents or partners and local content requirements. Lack of potential for repeat purchases. Slower adoption of e-business than in the domestic market. No or limited free trade zone availability. Partner/contract limitations requiring bidding for all procurement activities and alliance-building. High logistics and transportation costs. Different time zones (communication difficulties). Financial risks are higher, e.g. potential for war, terrorism, government changes. The nature of global activity (may be fragmented and/or scattered). Long/unpredictable supplier lead times. Protectionism (tariffs, duties, quotas, inspections). Limited number of qualified global suppliers. Difficult to link global project work to “run and maintain” global activities. Limited availability of trained personnel for purchasing or supply management positions inhibiting. Anna University Chennai 20

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