Chapter 15 - Global Production and Supply Chain Management

Hidden costs of foreign locations

1. high employee turnover 2. shoddy workmanship 3. poor product quality 4. low productivity 5. significant issues in some outsourcing locations. example: Microsoft factory in India for good reasons, however experienced the high employee turnover rate making it difficult to stay on track with development projects

Other objectives that have particular importance in international business

1. Production and supply chain functions must be able to accommodate demands for local responsiveness 2. Production and supply chain management must be able to respond quickly to shifts in customer demand. ****Both production and supply chain management play an important role in the above.

Effects of flexible manufacturing on a company's cost structure

1. improve efficiency 2. lower cost 3. enable companies to customize products to the demands of small consumer groups

Locating production facilities

two basic strategies: 1. concentrating them in a centralized location and serving the world market from there 2. decentralizing them in a various regional or national locations that are close to major markets.

Interorganizational relationships

two keys : 1. trust 2. commitment

Country Factors (regarding where to produce)

-political and economic systems, culture, and relative factor costs that differ from country to country, due to differences, some countries have competitive advantage for producing certain products - externalizes that influence foreign direct investment decisions - creation of a global web of value creation activities - Differences in relative factor costs, political economy, culture, - expected future movements in the exchange rate - formal and informal trade barriers

3 factors to consider when considering WHERE to produce

1. Country Factors 2. Technological Factors 3. Production Factors

Strategic objectives of supply chain management

1. Ensure that the total cost of moving from raw materials to finished goods is as low as possible for the value provided to the end-customer 2. Increase product quality by establishing process-based quality standards, eliminating defective raw material, component parts, and products

Improved quality control reduces costs by: (3 things)

1. Increasing productivity because time is not wasted producing poor quality goods that will not be sold 2. Lowering rework and scrap costs associated with defective products 3. Reducing the warranty costs and time associated with fixing defective productions

When does concentrating production make sense

1. the product serves universal needs 2. the products value-to-weight ratio is high 3. trade barriers are low 4. important exchange rates are expected to remain relatively stable

When is decentralization of production appropriate

1. trade barriers are high 2. value-to-weight ratio low 3. product does not serve universal needs

5 Issues central to global production and supply chain management

1. where to produce 2. strategic role of foreign production sites 3. what to make & what to buy 4. global supply chain functions 5. managing a global supply chain

Managing a global supply chain

4 main areas 1. role of just in time inventory 2. role of IT 3. coordination in global supply chains 4. inter-organizational relationships in global supply chains

Global Purchasing

5 Strategic levels 1. companies engaging in domestic purchasing activities only 2. & 3. both considered "international purchasing" 2 only does as needed 3 its a part of their overall business strategy 4 & 5 both "global purchasing"

Contributor factory

A factory that can be viewed as an intelligence-gathering unit

ISO 9000

Certification process that requires certain quality standards must be met. Done in Europe, something that the EU requires that the quality of a firms manufacturing processes and products be certified.

Technological Factors (regarding where to produce)

Fixed Costs - low level of fixed costs can make it economical to perform a particular activity in several locations at once Minimum Efficient Scale - the scale of output that a plant must operate to realize all major plant-level scale economies Flexible Manufacturing and Mass Customization - mass production of a standardized output is the central to the concept of

Flexible Machine Cells

Flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and a centralized cell controller produce a family of products

Just in Time (JIT)

Inventory logistics system designed to deliver parts to a production process as they are needed, NOT BEFORE. Major cost savings, reduces inventory holding costs, company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses. Drawback: leaves a firm without a buffer stock of inventory which can help a firm respond quickly to increases in demand Example: 9/11 attacks which shutdown international air travel and shipping left many firms without a buffer stock

Global Supply Chain Functions

Logistics, Purchasing, and Distribution strategy

Transportation

Logistics: The movement of inventory through the supply chain

Reverse logistics

Logistics: The process of moving inventory from the point of consumption to the point of origin in supply chains for the purpose of recapturing value or proper disposal

Global Distribution center

Logistics: a facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers, or directly to consumers anywhere in the world; also called a global distribution warehouse

Packaging

Logistics: the container that holds the product itself. It can be divided into primary, secondary, and transit packaging

Global inventory management

Logistics: the decision making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation

Total Quality Management (TQM)

Management philosophy that takes as its central focus the need to improve the quality of a company's products and services Widely adopted first by Japanese companies and then American companies. Management should embrace the philosophy that mistakes, defects, and poor-quality materials are not accepted and should be eliminated

Flexible manufacturing technology (lean production)

Manufacturing technology designed to improve job scheduling, reduce setup time, and improve quality control

Production Factors

Product features - (1) value-to-weight ratio because of its influence on transportation costs. high examples are electronics because they are light and expensive. and (2) whether the product serves universal needs examples include modern consumer products (Apple iPhone) Locating production facilities

Six Sigma

Statistically based methodology for improving product quality The modern successor the TQM Aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a country. Example companies: Motorola, GE, Honeywell.

Global Learning

The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary

Minimum efficient scale

The level of output at which most plant-level scale economies are exhausted The larger the minimum efficient scale of a plant relative to the total global demand, the greater the argument for centralizing production in a single location or a limited number of locations.

Offshore factory

a factory that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market

Lead Factory

a factory that is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world

Source Factory

a factory whose primary purpose is also to drive down costs in the global supply chain

Production

activities involved in creating a product

Server Factory

factory linked to the global supply chain for a global firm to supply specific country or regional markets around the globe

Strategic Roles for Production Facilities

offshore factory, source factory, server factory, contributor factory, outpost factory, and lead factory

Purchasing

part of supply chain that includes the worldwide buying of raw material, component parts, and products used in manufacturing of the company's products and services

Logistics

part of supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing

Make-or-buy decision

the strategic decision concerning whether to produce an item in house ("make") or purchase from an outside supplier ("buy") decision based on cost and production capacity (opportunity cost) (NEED TO ADD MORE BUT SOOOOOO BORING)

Role of information technology

plays a major role in materials management. EDI facilities the tracking of inputs, allowing the firm to optimize production schedule, lets the firm and is suppliers communicate in real time, and eliminates the flow of paperwork between a firm and its suppliers. Web and cloud based information systems Electronic data interchange Enterprise resource planning Collaborative planning, forecasting, and replenishment

Supply chain management

the integration and coordination of logistics, purchasing, operations, and market channels activities from raw material to the end-customer

Downstream supply chain

the portion of supply chain from the production facility to the end-customer

Upstream supply chain

the portion of the supply chain from raw materials to the production facility

Mass customization

the production of a variety of end products at a unit cost that could one be achieved only through mass production of a standardized output

Global supply chain coordination

the shared decision-making opportunities and operational collaboration of key global supply chain activities Integration and coordination are critically important