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Global Production

Global Production. Strategy, Production, Logistics. Value chain activities Production, marketing, logistics, R&D, HR, IS Production: physical goods, as well as services Logistics: controls physical transmission of materials through the value chain Production and logistics decisions

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Global Production

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  1. Global Production

  2. Strategy, Production, Logistics • Value chain activities • Production, marketing, logistics, R&D, HR, IS • Production: • physical goods, as well as services • Logistics: • controls physical transmission of materials through the value chain • Production and logistics decisions • Lower costs of value creation • Add value through better attention to customer needs

  3. Production and Materials Management / Logistics • Production activities • Service and manufacturing • Conversion of inputs to a product • Materials management activities • Physical transmission of materials through value chain: procurement –> production –> distribution • Logistics activities encompass • Procurement and physical transmission of material through the supply chainsuppliers –> customers

  4. Relationship Between Quality and Costs Quality … Increases Productivity Lowers Manufacturing Costs Lowers Rework and Scrap Costs Improves Performance Reliability Increases Profits Lowers Service Costs Lowers Warranty Costs

  5. Quality and Cost Management • TQM: technique to improve products and services quality • Six Sigma: Statistically based cost cutting system • Reduces defects, boosts productivity, eliminates waste • ISO 9000 • European Unions standards for quality • Set by code • Firm must be certified “ISO 9000” before it may access the EU marketplace

  6. Which Manufacturing Location? • Country Factors • Favorable economic, political, cultural conditions • Technological Factors • Fixed costs relatively low • Minimum efficient scale • Magnitude of plant output to realize scale-economies • Market demand level adequacy • Flexible manufacturing; lean production • Mass customization • Flexible machine cells • Product features: value-to-weight ratio, universal needs

  7. Where to Locate? Concentrate Manufacturing if: • Costs of manufacturing are responsive to country environment (one location best) • Trade barriers are low • Product serves universal needs • Minor difference in customer needs • Minimal consumer preferences

  8. Where to Locate? Concentrate Manufacturing if: • Trade barriers are low • Exchange rates among currencies with impact on your business are stable • Production technology • Has high fixed costs • Has high minimum efficient scale • Exists in flexible manufacturing format

  9. When to Decentralize Manufacturing? • Country environment does not affect costs • Trade barriers are high • Production technology • Has low fixed costs • Has low minimum efficient scale • Does not exists in flexible manufacturing format • Product value-to-weight ratio is low • Product does not serve universal needs • Customer needs different • Consumer preferences different

  10. Make-or-Buy? • “Make” advantage • Lower costs in-house? • Are specialized assets needed? • Is proprietary technology needed? • Know-how protection issue (Dunning) • “Buy” advantage • Strategic flexibility needed? • Lower costs by buying? • In either case “improved scheduling” is important

  11. Other Issues • Strategic alliances with suppliers • Just-in-time inventory system management • The role of information technology • The role of the internet

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