Chapter

1. 16 Chapter Global Manufacturing and Materials Management

2. Dells business model based on direct selling of customized product at low prices Location advantages (Brazil, Ireland, Malaysia, China & US) Close to markets Low shipping costs Speed of delivery Supply base global Dell manages global supply chain to minimize inventory and customize PCs in three days Case: Competitive advantage at Dell

3. Activity that controls the transmission of physical materials through the value chain Includes procurement, production and into distribution Logistics : Procurement and physical transmission of materials through the supply chain, from suppliers to customers Materials management

4. Manufacturing and materials management Strategic objectives • Lower costs • Disperse manufacturing activities to efficient global locations • Increase productivity • Using Total Quality Management (W. Edward Demming)

5. Manufacturing and materials management Strategic objectives • Accommodate demands for local responsiveness • decentralize production • Respond quickly to shifts on customer demand • time-based competition extremely important

6. The relationship between quality and cost Fig 16.1

7. Country Factors Technological Factors Product Factors Locating Manufacturing Facilities Where to manufacture?

8. Optimum economic, political, and cultural conditions Externalities Skilled labor pools Supporting industries Formal and informal trade barriers Exchange rate Country factors

9. Fixed costs Minimum efficient scale Flexible manufacturing reduce setup times for complex equipment increase machine utilization improve quality control flexible machine cells to perform a variety of operations Technological factors Mass customization Low cost Product customization

10. Fixed costs are substantial Minimum efficient scale is high Flexible manufacturing technologies available Fixed costs are low Minimum efficient scale is low Flexible manufacturing technologies unavailable Trade barriers and transportation costs remain major impediments Manufacturing location Single or few locations. Major market locations if it better meets local demands.

11. A typical unit cost curve Fig 16.2

12. Two product features affect location decisions: Value to weight ratio. Product serves universal needs Two basic strategies Concentrating in a centralized location and serving the world market Decentralizing them in various regional or national locations close to major markets when opposite conditions exist Product factors and location strategies

13. Factor costs have substantial impact Low trade barriers Externalities favor certain location Stable exchange rates High fixed costs, high minimum efficient scale relative to global demand or flexible manufacturing technology Product’s value-to-weight ratio is high Product serves universal needs Centralized location

14. Factor costs do not have substantial impact High trade barriers Location externalities not important Exchange rates volatile Low fixed costs, low minimum efficient scale Flexible manufacturing technology unavailable Product’s value-to-weight ratio is low Significant differences in consumer tastes and preferences exist between nations. Decentralized location

15. Location strategy and manufacturing

16. Initially, established where labor costs low Later, important centers for design and final assembly Upward migration caused by pressures to: Improve cost structure Customize product to meet customer demand. and An increasing abundance of advanced factors of production Strategic role of foreign factories Dispersed centers of excellence are consistent with a Transnational Strategy

17. Should a firm make or buy the component parts that go into their final product? Advantages of making own components: Lower costs if most efficient producer Facilitating specialized investments Proprietary product technology protection Improved scheduling Make or buy decisions

18. Strategic flexibility in sourcing components Lower firm’s cost structure Offsets Strategic alliances with suppliers give benefits of vertical integration without the associated organizational problems Advantages of buy versus make

19. Objective of materials management in managing a firm’s global supply chain Maintain lowest possible cost In a way that best serves the customer’s needs Role of just-in time inventory Economize on inventory holding costs Speeds inventory turnover Drawback: no buffer stock Managing a global supply chain

20. Organizational linkages more numerous and complex More difficult to control costs Require separate materials management as a function Equal weight with other departments Decide between centralized and decentralized organizational structure Role of organization

21. Potential materials management linkages Fig 16.3

22. Traditional organizational structure 16.4A

23. Strategic manager/CEO Manufacturing Marketing Finance Purchasing Production planning and control Distribution Organization structure with materials management as separate function Fig 16.4B Materials management

24. Role of information technology and the internet • Track component parts across the globe to an assembly plant • Optimize and adjust production scheduling • Electronic data interchange (EDI) • Used to coordinate flow of materials between suppliers ,firm, shippers and customers • Communicate without time delay • Increases flexibility and responsiveness of the whole global system • Paperwork decreased • Significant competitive advantage