Supply Chain Ch. 11 Global Location Decisions

IMD's World Competitiveness Yearbook's Four Competitiveness Factors

1. Economic performance 2. Government Efficiency 3. Business Efficiency 4. Infrastructure

Critical Location Factors

1. Government taxes and incentives 2. Currency stability 3. Environmental issues 4. Access and proximity to markets 5. Labor issues 6. Access to Suppliers 7. Utility Availability and Cost 8. Quality of Life issues 9. Right to Work Laws 10. Land Availability and Cost

The World Economic Forum's 12 Pillars of Competitiveness

1. Institutions 2. Infrastructure 3. Macroeconomic environment 4. Health and primary education 5. Higher education and training 6. Goods market efficiency 7. Labor market efficiency 8. Financial market development 9. Technological readiness 10. Market size 11. Business sophistication 12. Innovation

Six Strategic Roles for Foreign Facilities

1. Offshore Factory: Manufactures products at low cost with minimum investment in technical and managerial resources. -Products tend to be exported -Imports or locally acquires parts and then exports all of the finished products -Primary objective is simply to take advantage of low labor costs 2. Source Factory: Plant management is heavily involved in supplier selection and production planning -Location is dictated by low production cost, fairly developed infrastructure, and availability of skilled workers 3. Server Factory: Set up primarily to take advantage of government incentives, minimize exchange risk, avoid tariff barriers, and reduce taxes and logistics costs to supply the regional market where the factory is located 4. Contributor Factory: Involved in product development and engineering, production planning, making critical procurement decisions, and developing suppliers. 5. Outpost Factory: Set up in a location with an abundance of suppliers, competitors, research facilities, and knowledge centers to get access to the most current information on materials, components, technologies, and products. 6. Lead Factories: A source of product and process innovation and competitive advantage for the entire organization -Translates its knowledge of the market, competitors, and customers into new products

Three Levels of Location Decision

1. The global market or country selection 2. The subregion or state selection 3. The community and site selection

Facility Location Techniques

1. Weighted-Factor Rating Model 2. Break-Even Model

Weighted Factor Rating Model

A method commonly used to compare the attractiveness of several locations along a number of quantitative and qualitative dimensions Steps: 1. Identify the factors that are deemed to be important to the location decision 2. Assign weights to each factor in terms of their relative importance. Typically the weights sum to 1 3. Determine a relative performance score for each factor considered. The scores typically vary from 1-100 4. Multiply the factor score by the weight associated with each factor, and sum the weighted scores across all factor 5. The location with the highest total weighted score is the recommended location

Additive Manufacturing

Benefits: -shorter lead times -mass customization -reduced parts count -more complex shapes -parts on demand -efficient material use -lower energy consumption

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Business Clusters

Geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition

Green Development

Prioritizes what its proponents consider to be environmental sustainability over economic and cultural considerations

World Trade Organization

The only international organization dealing with the rules of trade between nations. Its functions include administering the WTO agreements, providing a forum for trade negotiations, handling trade disputes, monitoring national trade policies, providing technical assistance and training programs for developing countries and cooperating with other international organizations Regional Trade Agreements under the WTO: 1. European Union (EU): Established a single market and introduced euro notes and coins 2. North American Free Trade Agreement (NAFTA): World's largest free trade area 3. Southern Common Market (MERCOSUR) 4. Association of Southeat Asian Nations (ASEAN) 5. Common Market for Eastern and Southern Africa (COMESA)

Break-Even Model

Useful when fixed and variable costs can be determined for each potential location Steps: 1. Identify the locations to be considered 2. Determine the fixed costs for each facility. Ex: Land, property taxes, insurance, equipment, and buildings 3. Determine the unit variable cost for each facility. Ex: Costs of labor, materials, utilities, and transportation 4. Construct the total cost lines for each location on a graph 5. Determine the break-even points on the graph--can also be solved algebraically 6. Identify the range over which each location has the lowest cost