CHAPTER 16

1. CHAPTER 16 Global Manufacturing and Materials Management

2. Learning Objectives • What are the factors that affect the decision to choose global manufacturing site? • What is the role of cost pressures and pressures for local responsiveness in the choice of manufacturing location?

3. Learning Objectives • What is meant by flexible manufacturing? How does it achieve low cost and product customization? • Make or Buy? What are the tradeoffs? • Role of outsourcing

4. Chapter Focus • Examine: • Where in the world should productive activities be located? • What should be the long term strategic role of foreign production sites? • Should the firm own foreign production sites or outsource those activities to independent vendors? • How should a globally diverse supply chain be managed and what is the role of the Internet in managing global logistics? • Should the firm manage global logistics itself or outsource the management to enterprises that specialize in this activity?

5. Production Focus Logistics Performed internationally To lower costs of value creation Add value by better serving customer needs Strategy, Manufacturing, and Logistics

6. 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.

7. Manufacturing and Materials Management - Strategic Objectives - • Lower costs. • Increase product quality. • Total Quality Management. • Increases productivity. • Lowers rework and scrap costs. • Lowers warranty costs. • Accommodate demands for local responsiveness. • Respond quickly to shifts in customerdemand.

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

9. Country Factors Technological Factors Product Factors Locating Manufacturing Facilities Where to Manufacture

10. Country Factors • Political economy. • Culture. • Relative factor costs. • Global concentrations of activity. • Skilled labor pools. • Supporting industries. • Formal and informal trade barriers. • Transportation costs. • Rules regarding FDI. • Exchange rate movements.

11. Mass Customization Product customization Low cost Technological Factors • Fixed costs. • Minimum efficient scale. • Flexible manufacturing (Lean Production). • Reduce setup times. • Increase machine utilization. • Improve quality control. • Flexible machine cells.

12. Unit Costs Minimum Efficient Scale Volume A Typical Unit Cost Curve Figure 16.2

13. 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.

14. Product Factors • Value-to-weight ratio. • Influences transportation costs. • High value-to-weight. • Electronic components. • Low value-to-weight. • Bulk chemicals. • Does the product serve universal needs? • Industrial products. • Modern consumer products. • Handheld calculators. • Personal computers.

15. Concentration. Manufacturing Location • Factor costs have substantial impact. • Low trade barriers. • Externalities favor certain locations. • Stable exchange rates. • Minimum efficient scale is high and flexible manufacturing technologies available. • Product’s value-to-weight ration is high. • Product serves universal needs.

16. Decentralization Manufacturing Location • Factor costs do not have substantial impact. • High trade barriers. • Location externalities unimportant. • Exchange rate volatility. • Production technology has low fixed costs, low minimum efficient scale, flexible manufacturing technology unavailable. • Product has low value-to-weight ratio. • Product does not serve universalneeds.

17. 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 Location Strategy and Manufacturing Table 16.1

18. 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

19. Buy Make Proprietary Product Technology Protection Strategic flexibility Lower costs Offsets Facilitating specialized investments Lower costs Improved scheduling Make or Buy Trade-offs

20. Coordinating a Global Manufacturing System • Materials management (includes logistics): • Activities necessary to get materials from suppliers to manufacturer, to distribution system, to end user. • Achieve lowest possible cost that meets customer’s needs. • Power of ‘Just-in-Time’: • Economize on inventory holding costs. • Drawback: no buffer inventory.

21. Role of Information Technology and the Internet • Track component parts to assembly plant. • Optimize production scheduling. • Ability to accelerate (or slow) production. • Electronic data interchange coordinates flow through into/through manufacturing to customers. • Suppliers, shippers, and purchasing firms can communicate with each other without delay. • Flexibility and responsiveness. • Paperwork is decreased.