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Geography of Production Linkages in the Irish and Scottish Microcomputer Hardware Industry: The Role of Logistics. Dr. Chris van Egeraat Dublin City University Business School CISC Seminar, July 2003. Structure of Presentation. New High Volume Production Approaches
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Geography of Production Linkages in the Irish and Scottish Microcomputer Hardware Industry: The Role of Logistics. Dr. Chris van Egeraat Dublin City University Business School CISC Seminar, July 2003
Structure of Presentation • New High Volume Production Approaches • NHVP in the microcomputer industry • NHVP argument for proximity - logistics • Findings • Geography of production linkages • Logistical arrangements (hubbing) • key-logistics data • Conclusions and policy recommendations
NHVP Approaches • Lean Production/Supply (Womack et al./ Lamming) • Mass Customisation (Pine) • Time-based Competition (Stalk and Hout) • Answer changing market needs - fast response, greater variety and customised products. All achieved with little cost penalty • Customer relations and distribution system - fast response and reduction of inventories • Assembly plant - JIT production and build-to-order • Supply chain - JIT supply
NHVP in the Microcomp. Hardware Industry • Great variety, customised, short order lead times • Minimise inventories of finished systems • BTO production strategies • JIT manufacturing • Market for microcomputers characterised by strongly fluctuating and unpredictable demand. - The inventories in the supply chains could not be minimised without the risk of inefficient use of machinery and labour at the suppliers.
NHVP Argument for Buyer-Supplier Proximity • NHVP approaches involve a greater appreciation of the costs of holding inventory. • TLC = ordering/set-up costs cost + inventory holding costs + cost of transporting the goods Traditional CLMPs - JIT
Outcomes of the CLMPs • Elimination of buffer inventories; kan-ban deliveries on a daily basis; near synchronous production; co-location - ‘True JIT’, ‘Full JIT’ • At the other end of the spectrum the pipelines of components might involve less frequent shipments, substantially higher buffer inventory levels and suppliers located at great distances • Labour cost differences among regions • Value, bulkiness and weight of components • Minimum efficient scale of component production • Variety of options per component category
Inbound Pipeline Structure • Hubbing • Turnkey supply-chain-managers • Local manufacturers holding buffers • Most pipelines involved locally stored buffers of finished components on the books of the suppliers • Interpreted as a pseudo or apparent JIT system that holds little benefit for the supply chain as a whole. However, the use of hubs, in itself, does not necessarily mean that the supply system is sub-optimal.
Control over Pipelines • I give [the suppliers] my MRP every week for that product and I expect them to manage the chain between them and the hub, I expect them to turn it up, down, slow it fasten it and manage it so that I always have 10 days [worth of inventory] in the hub. … We run queries here every day by part number which sends out an exception report which shows me what suppliers have less than 10 days. And the buyers call them. And it also shows us what we have too much of. And we than proactively take actions twice a week. … All the vendors are on-line to Irish Express Cargo [the 3pl hub]. All the vendors have the same kind of contact. That is a criterion that Gateway gives (Interview Flynn, Gateway, 1999)
Conclusions • Vast majority of components from the Far East and pipelines involved inventories in hubs • However, logistics systems are not sub-optimal
Policy implications • One should not expect a drive in the direction of ‘true-JIT’ and an increase in local sourcing. • The strategy of building integrated vertical production clusters around subsidiaries of MNEs is unlikely to meet with success. - ‘Local sourcing route to cluster development’ • Alternative is ‘technological innovation route’ (Young et al. 1994).
