Global Manufacturing and Materials Management Chapter 16

1. Global Manufacturing and Materials ManagementChapter 16

2. Materials Management • Materials Management:the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. • Logistics:the procurement and and physical transmission of material through the supply chain, from suppliers to customers. 16-1

3. Manufacturing and Materials Management - Strategic Objectives - • Lower costs and, • Simultaneously, increase product quality. • Accommodate demands for local responsiveness. • Respond quickly to shifts in customer demand. 16-2

4. The Relationship Between Quality and Costs Increases Productivity Lowers Manufacturing Costs Increases Profits Improves Performance Reliability Lowers Rework and Scrap Costs Lowers Service Costs Lowers Warranty and Rework Costs Figure 16.1 16-3

5. Total Quality Management(TQM) • The leaders: W. Edwards Deming, Joseph Juran, and A.V. Feigenbaum “We have learned to live in a world of mistakes and defective products as if they were necessary to life. It is time to adopt a new philosophy in America.” W. Edwards Deming 16-4

6. Where to Manufacture • Country factors. • Technological factors: • Fixed costs. • Minimum efficient scale. • Flexible manufacturing (Lean Production). • Reduce setup times. • Increase machine utilization. • Improve quality control • Flexible machine cells. Mass customization 16-5

7. A Typical Unit Cost Curve Unit Costs Minimum Efficient Scale Figure 16.2 Volume 16-6

8. Manufacturing Location Single or few locations. • 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 Major market locations if it better meets local demands. [ Trade barriers and transportation costs remain major impediments] 16-7

9. Product Factors and Location Strategies • Two product features affect location decisions: • Value to weight ratio. • Product serves universal needs. • Two strategies for locating manufacturing facilities: • Concentration. • Decentralization. 16-8

10. Location Strategy and Manufacturing Favored Manufactured Strategy Concentrated Decentralized Country Factors Differences in political economy Substantial Few Differences in culture Substantial Few Differences in factor costs Substantial Few Trade barriers Few Many Technological Factors Fixed costs High Low Minimum efficient scale High Low Flexible manufacturing technology Available Not Available Product Factors Value-to-weight ration High Low Serves universal needs Yes No Table 16.1 16-9

11. Enfield Instruments, fuel and water gauges, plugs Basildon Radiators, water pump assembly, engine components Belfast Carburetors and distributors Treforest Spark plug insulators Genk Body panels, road wheels Leamington Foundry production of engine components Wülfrath Transmission parts, engine components Cologne Die-cast transaxle casings, gear and engine components Dagenham Final assembly Bordeaux Transmissions Valencia Final assembly Saarlouis Final assembly Map 16.1 in Text 16-10

12. Strategic Role of Foreign Factories • Initially, established where labor costs low. • Later, important centers for design and final assembly. • Upward migration caused by: • Pressure to improve cost structure. • Pressure to customize product to meet customer demand. • Increasing abundance of advanced factors of production. Dispersed Centers of Excellence are consistent with a Transnational Strategy 16-11

13. Make or Buy • Advantages of Make: • Lower costs. • Facilitating specialized investments. • Proprietary product production technology protection. • Improved scheduling. • Advantages of Buy: • Strategic flexibility. • Lower costs. • Offsets. 16-12

14. Coordinating a Global Manufacturing System • Materials management (includes logistics): • Achieve lowest possible cost that meets customer’s needs. • Power of ‘Just-in-Time’: • Economize on inventory holding costs. • Drawback: no buffer inventory. 16-13

15. The Role of the Organization • Organizational linkages are more numerous and complex. • More difficult to control costs. • Functionally separate materials management: • Equal weight with other departments. • Purchasing, production and distribution are one basic task: • controlling material flow from purchase to customer. 16-14

16. Potential Materials Management Linkages North America Europe Far East Market A Market B Market C Markets Figure 16.3 Plant 1 Plant 2 Plant 3 Manufacturing Locations Source A Source B Source C Source Locations 16-15

17. Traditional Organizational Structure CEO Purchasing Manufacturing Marketing Finance Production Planning and Control Distribution Figure 16.4A 16-16

18. Organization Structure with Materials Management as Separate Function Strategic manager/CEO Materials management Manufacturing Marketing Finance Purchasing Production planning and control Distribution Figure 16.4B 16-17

19. Role of Information Technology • Track component parts to assembly plant: • Optimize production scheduling. • Accelerate production, when necessary. • Creating linkages between a firm and its suppliers and shippers. • Communicate without time delay. • Minimizes paperwork. 16-18

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