Chapter Seven

1. Chapter Seven Global Manufacturing and Supply Chain Management

2. Chapter Objectives • To understand the conditions that shape how companies set up foreign manufacturing facilities • To appreciate the relationship between a company’s strategy and the design of its global manufacturing system • To grasp the trade-offs that companies face in designing a competitive manufacturing system • To understand the idea of global supply chain management • To realize how global supply chain management helps companies meet international objectives • To appreciate the decisions that companies face in making and moving products around the world

3. Introduction • Managers must now resolve: • Where in the world to put a factory • How in the world to move goods and services from suppliers to factories to customers • What in the world to do themselves versus outsourcing to someone else • Complications arise from many multinational enterprises’ (MNEs’) reaction to tough global competition by rushing overseas to lower manufacturing costs or reach new markets

4. Introduction

5. Global Manufacturing Strategy • We use the generic term manufacturing to describe the efforts of industrial and service companies to make products that are sold to foreign markets • The idea of global manufacturing strategy brings into play a mix of economic, competitive, legal, political, and environmental conditions • Common patterns of decision making among well-run MNEs suggest that the success of global manufacturing strategy depends on how well managers deal with the 4 Cs: • Compatibility: the degree of consistency between where and how managers set up their foreign manufacturing system and the company’s competitive strategy • There are many ways that managers can improve compatibility • In well-run companies, managers safeguard compatibility by giving greater weight to their forecast of future conditions than they do to current events

6. Global Manufacturing Strategy • Configuration: refers to the issue of where the company wants to physically build its factories • Independent plants • Network of plants • Centralized manufacturing site • Legacy manufacturing • Coordination: once an overseas plant is up and running, managers need to oversee the flow of material, information, and finance among its various customers, suppliers, and distributors • Managers must coordinate the different activities that go into making and moving a good or service around the world

7. Global Manufacturing Strategy • Control: a well-designed control system helps everyone in the company carry out their jobs by outlining their roles and stipulating responsibilities in the company’s manufacturing strategy • Formal manufacturing controls: • Virtually every company relies on controls that are precisely stated in an operating manual • Standard operating procedures (SOPs) • International Standards Organization (ISO) • Six sigma • Informal manufacturing controls: • Managers foster a company-wide philosophy that encourages workers to voluntarily watch and continuously improve the production process • Total quality management (TQM)

8. Global Manufacturing Strategy

9. Global Manufacturing Strategy • The 4 Cs of the global manufacturing strategy give managers a quick guide to keep sight of fundamental questions • Managers need to look at the possible effects of product and country factors on the 4 Cs • Product factors: • Value-to-weight ratio: can make a huge difference in plant configuration • Purpose of the product • Complexity of the product • Product life cycles • Degree of digitalization • Country factors: • Challenges come from a range of seemingly innocent circumstances • Language barriers • Time zone differences • Different attitudes and approaches to manufacturing across nations

10. Global Supply Chain Management • Global supply chain management: describes managers’ effort to oversee the flows of raw materials, components, information, and finance through their network of suppliers, assemblers, distributors, and customers located around the world • Innovative supply chain management creates enormous potential to lower costs and boost earnings • Recent trends in technology give managers powerful tools to improve the strategic performance of their global supply chains • Typically, when we visualize a supply chain, a step-by-step view of the classic buy-make-move-store-sell cycle comes to mind

11. Global Supply Chain Management

12. Global Supply Chain Management • Making and moving a product depends on the shipment and transfer of a range of inputs among several factors that are usually spread across several countries • An important dimension of supply chain management is logistics, sometimes called materials management • Logistics: part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption

13. Global Supply Chain Management • Generally, a firm’s global supply chain strategy includes the following elements: • Customer service requirements • Plant and distribution center network design • Inventory management • Outsourcing and third party logistics relationships • Key customer and supplier relationships • Business processes • Information systems • Organizational design and training requirements • Performance metrics • Performance goals

14. Global Supply Chain Management • Information technologies, particularly recent trends in the Internet, have given managers many tools to amplify the idea of global supply chain management • Ultimately, information technology is a tool that gives managers the chance to see the company’s supply chain in terms of the inner workings of several tiers of suppliers, distributors, and other partners • Extranet: a linkage to the main information system via the Internet

15. Global Supply Chain Management • Trying to link all the players in the global supply chain is particularly vulnerable to two types of threats: • Operational problems: • Communication challenges • Strategic issues: • National cultures • Technology • Tax policies

16. The Strategy of Making and Moving Products: Important Moderators • Issues, such as the following, shape managers’ decision making: • Inventory management • Supplier relations • Purchasing functions • Foreign trade zones • Transportation infrastructure • Throughout the manufacturing and supply chain, managers continually struggle with deciding which activities to perform inside the company and which activities to subcontract to independent companies • Outsourcing

17. The Strategy of Making and Moving Products: Important Moderators • Many companies cannot find domestic sources that can compete with foreign sources and generally one of three sourcing strategies is utilized • Vertical integration • Arm’s-length purchase from outside suppliers • Network sourcing • Good supplier relations are imperative • The purchasing agent is the link between the company’s outsourcing decision and its supplier relationships • Typically purchasing goes through four phases • Domestic purchasing only • Foreign buying based on need • Foreign buying as part of an international procurement strategy • Integration to global procurement strategy