Deck 11: Managing Operations

Question 1

Why did Zara concentrate its production in Spain?

Answer 1

In order to lower production costs, many apparel companies in developed countries have offshored their manufacturing functions. Zara is one of the few exceptions that has kept production at home. The primary reason for offshoring is to lower costs as foreign locations provide low-cost labor, raw materials, or product components. However, offshoring may hurt market responsiveness and require considerable cross-border coordination. As a fast fashion company, Zara values speed to market. Unlike the traditional designer-led model of the industry, in which star designers create designs long before the season and subcontractors manufacture products months earlier, Zara tries to understand what consumers like first and then design and produce accordingly. Since Zara offers products that are currently trending, it needs to speed up its process to catch up with the latest trends. Therefore, Zara keeps most functions in house and at home. It has vertically integrated design, production, distribution, and retail sales. Most design, production, and distribution operations are closely located in Spain. Such arrangements allow Zara to effectively control its process and quickly react to market trends. To remedy labor cost disadvantage, Zara has adopted state-of-the-art equipment and supply chain technology. It has also outsourced minor labor-intensive processes and the production of standard merchandise. Thus, the labor cost disadvantage is largely offset by greater flexibility and faster turnover.

Question 2

How did Zara integrate its various operations around the world?

Answer 2

Zara has vertically integrated design, production, distribution, and retail sales. It has a large, anonymous design team in its headquarters in Spain. Zara believes in democratized fashion, which is largely driven by customers. Zara's store staff and managers identify popular styles and send information to the design team frequently. Zara's manufacturing facilities are mostly located in Spain. Owning plants and equipment allows Zara to directly control the manufacturing process. It only buys fabric from nearby suppliers to ensure on-demand supply. Zara's own facilities mainly perform high-cost and high-skill tasks, and minor labor-intensive processes in nearby workshops. Thus, Zara is able to produce the trendiest clothes within two to three weeks. Zara also has a state-of-the-art distribution system. Its main distribution center is connected to nearby factories with tunnels and ceiling rails. Advanced devices and systems are used to make its global distribution fast and flexible. In terms of sales, Zara's main approach to attract shoppers by opening up stores in prominent locations, constantly updating store designs, and supplying stores with differentiated new designs. To link these functions, Zara has developed sophisticated information systems, such as microprocessor-based tagging and real-time store information. The company also has a horizontal and flexible organizational structure that encourages employees to participate in identifying fashion trends and customer needs. Conversation and collaboration are stressed to facilitate bottom-up and crossfunction communications.

Question 3

Given the trend of globalization, should Zara move more production to low-cost countries?

Answer 3

This is a debatable question. Most students would argue that, given Zara's successful and fast fashion model, the company does not need to offshore or outsource to low-cost countries. Nonetheless, Zara's basic T-shirts and sweaters are ordered about six months in advance from suppliers in low-labor-cost countries like China, Bangladesh, and Vietnam. This suggests that Zara's in-house production is driven by its strategic focus on speed and flexibility. If the company adjusts the strategy, it may change its attitude toward outsourcing. Some students may point out H&M and Uniqlo, two other fast fashion companies who outsource production from hundreds of contractors in low-cost countries. Uniqlo stress quality and value rather than quick responses to changing styles. It aims to identify styles that last a long time and create differentiation within these styles. H&M somewhat combines the Uniqlo and Zara models. It carries styles with longevity while staying responsive to fashion trends. Generally, the items with very short lead times are manufactured by contractors in Europe, and those with longer lead times are manufactured by suppliers in Asia.

Question 4

What factors drive the R&D outsourcing of pharmaceutical companies?

Question 5

What locations are more likely to attract outsourced R&D services?

Question 6

How can pharmaceutical companies effectively manage their outsourcing relationships?

Question 7

What are the reasons why New Balance has kept manufacturing in the U.S.?

Question 8

Given the development of the global footwear industry, can New Balance sustain its current production model? And why?

Question 9

How would you define "Made in USA"? Do you agree with the FTC standard?

Question 10

What are the benefits and drawbacks of global sourcing?

Question 11

Is it appropriate for a company like Boeing to use global sourcing?

Question 12

How can the company improve the management of its global supply chain?

Question 13

What factors are driving the trend of reshoring?

Question 14

What kind of companies are more likely to bring production back home?

Question 15

Will the trend of reshoring become stronger in the future? Why?

Question 16

What factors drive a company to allocate its business operations in foreign countries? Are there any potential drawbacks?

Question 17

Under what conditions should international companies outsource their business operations, have in-house operations, or form strategic alliances?

Question 18

What is the impact of global R&D on international firms? What factors drive the location of R&D activities?

Question 19

What key factors should international firms consider when deciding on the location and management of global production?

Question 20

Why has the global supply chain become increasingly important for international firms?

Question 21

Which of the following is typically considered a primary activity in the chain of operations?

A) Human resource management
B) Financing and accounting
C) Production
D) Corporate management

Question 22

Which of the following activities can be outsourced?

A) R&D
B) Production
C) Supply chain management
D) All of the above

Question 23

The practice of a company relocating an operation to a foreign location is called______.

A) Offshoring
B) Onshoring
C) Outsourcing
D) Insourcing

Question 24

What is the primary reason for offshoring?

A) To enter international markets
B) To lower operational costs
C) To gain international experience
D) To switch suppliers

Question 25

Which of the following is not a typical feature of outsourcing?

A) It enables a firm to seek the most cost-efficient supplier
B) It provides a firm with the flexibility to switch suppliers
C) It helps a firm improve coordination with suppliers
D) It offers the firm limited control over supply quality

Question 26

Which of the following is a typical benefit of in-house operation?

A) Lower costs
B) Greater control
C) Higher flexibility
D) Greater growth potential

Question 27

Which of the following statements about strategic alliances is not true?

A) They offer more flexibility than in-house operations
B) They offer greater control than market transactions
C) They form short-term inter-firm partnerships
D) They depend on explicit contractual relationships

Question 28

Which of the following statements about strategic alliances is incorrect?

A) R&D is a key function that should not be outsourced to others
B) An increasing number of MNCs have set up overseas R&D centers
C) Local R&D helps transfer and adapt technology to local markets
D) A global network of R&D facilities helps integrate knowledge across borders

Question 29

According to the textbook, which of the following is the main function of Google's research center in China?

A) Transfer and adapt technology to the Chinese markets
B) Develop new technologies for the global marketplace
C) Outsource R&D work to low-cost suppliers
D) Offer new products to the Chinese market

Question 30

Which of the following is not a benefit of global R&D?

A) Gain access to overseas R&D resources
B) Gain ability to customize products for foreign markets
C) Leverage and integrate knowledge across borders
D) Disperse R&D resources in multiple locations

Question 31

Which of the following is considered a challenge to global R&D?

A) R&D function concentrated in headquarters
B) Difficulty to amass talent at individual units
C) Intense market competition in foreign locations
D) Strong control over R&D facilities abroad

Question 32

When assessing potential R&D locations, MNCs mainly consider the following factors except ______.

A) Science and education infrastructure
B) Market demand and competition
C) Government policies for R&D
D) Trade-related expenses

Question 33

Which of the following is a reason for global production?

A) Strengthen control over production processes
B) Respond to host-country market demand
C) Optimize supply chain management
D) All of the above

Question 34

Which of the following is not a reason for global production?

A) Gain access to low-cost inputs
B) Gain access to qualified workforce
C) Enhance coordination among global operations
D) Have customized production of foreign markets

Question 35

Which of the following factors tends to drive MNCs to set up overseas production?

A) Significant national differences
B) Availability of flexible manufacturing
C) Strong need for product customization
D) All of the above

Question 36

Which of the following factors makes exporting from home-country production more viable than local production in overseas markets?

A) Abundant supply of labor in overseas locations
B) High fixed costs of production
C) High trade barriers
D) All of the above

Question 37

Which of the following statements is correct?

A) Flexible manufacturing encourages firms to set up new plants for foreign markets
B) Trade-related expenses hinder firms' capability to distribute from a few concentrated production sites to the global markets
C) A strong need for customization in a foreign market reduces the need to build new production facilities in the market
D) Significant national differences push firms to have dispersed production in multiple countries

Question 38

Which of the following statements is correct?

A) Some traditional low-cost countries like China have seen significant cost increases
B) The trend of reshoring implies that the cost disadvantages of the U.S. has increased
C) The trend of offshoring has been offset by reshoring in the U.S.
D) All of the above

Question 39

The following approach helps improve the management of global production except ___.

A) Defining the roles of foreign plants
B) Incorporating standardization to ensure consistency
C) Ensuring coordination of worldwide production activities
D) Outsourcing the management of global production

Question 40

The benefits of standardization in global production include the following except _____.

A) Ensuring consistent quality
B) Reducing setup costs and complexity
C) Transferring production know-how
D) Catering for national differences

Question 41

Which of the following is an objective of supply chain management?

A) Increase the cost of value creation
B) Reduce inventory turnover
C) Increase the efficiency of logistics
D) Reduce market responsiveness

Question 42

_____ refers to a system designed to deliver supplies to production as they are needed.

A) Electronic procurement system
B) Just-in-time inventory system
C) Electronic data interchange system
D) Enterprise data interchange system

Question 43

Which of the following statements is incorrect?

A) Technology advancements have significantly improved the efficiency and effectiveness of supply chain management
B) Supply chain management should not be outsourced because it creates competitive advantage
C) Adaptation of the supply chain may be necessary due to differences in customer preferences and infrastructure development
D) The purpose of supply chain management is not only to reduce costs but also to serve customer needs better

Question 44

What are the key features of offshoring and outsourcing?

Question 45

When should an MNC outsource a business operation or conduct it in house?

Question 46

What are the pros and cons of global R&D?

Question 47

What factors should be considered when choosing an overseas R&D location?

Question 48

What key factors should MNCs consider when deciding on the location of global production?

Question 49

How can an MNC effectively manage global production?