2 Global Production, Outsourcing, and Logistics Chapter 17Global Production, Outsourcing, and Logistics
3 What Are The Main Production Issues For Firms? International firms must answer five interrelated questionsWhere should production activities be located?What should be the long-term strategic role of foreign production sites?Should the firm own foreign production activities or outsource those activities to independent vendors?How should a globally dispersed supply chain be managed, and what is the role of Internet-based information technology in the management of global logistics?Should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?
4 How Are Strategy, Production, And Logistics Related? Production - activities involved in creating a productLogistics - procurement and physical transmission of material through the supply chain, from suppliers to customersQuestions: How can production and logisticsLower the costs of value creation?Add value by better serving customer needs?LO1: Explain why production and logistics decisions are of central importance to many multinational businesses.
5 How Can Quality Be Improved? Most firms use the Six Sigma program - a direct descendant of total quality management (TQM)aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the companyin the EU, firms must meet ISO 9000 standards before gaining access to the EU marketplaceImproved quality reduces costs
6 How Can Quality Be Improved? The Relationship Between Quality and Costs
7 Where Should Production Be Located? Firms should locate production so thatproduction and logistics can be locally responsive and production and logistics can respond quickly to shifts in customer demandFirms should considerCountry factorsTechnological factorsProduct factorsLO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
8 Why Are Country Factors Important? Manufacturing should be located where economic, political, and cultural conditions are most conducive to the performance of that activitycreate a global web of activitiesglobal concentrations of activities at certain locationsLO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
9 Why Are Technological Factors Important? Firms should considerThe level of fixed costsThe minimum efficient scaleThe flexibility of the technologyflexible manufacturing technology or lean productionmass customizationflexible machine cellsLO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
10 What Should a Firm Do?Production should be concentrated in a few locations whenfixed costs are substantialthe minimum efficient scale of production is highflexible manufacturing technologies are availableProduction in multiple locations makes sense whenboth fixed costs and the minimum efficient scale of production are relatively lowappropriate flexible manufacturing technologies are not availableLO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
11 Why Are Product Factors Important To Location Decisions? Two product factors impact location decisionsThe product's value-to-weight ratioif the value-to-weight ratio is high, produce the product in a single location and export to other parts of the worldif the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the worldWhether the product serves universal needswhen products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes senseLO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
12 How Are Location, Strategy, And Production Related? LO2: Explain how country differences, production technology, and product features all affect the choice of where to locate production facilities.
13 What Is The Strategic Role Of Foreign Factories? The strategic role of foreign factories and the strategic advantage of a particular location can change over timefactories established to take advantage of low cost labor can evolve into facilities with advanced design capabilitiesMany companies now see foreign factories as globally dispersed centers of excellencesupports the development of a transnational strategyglobal learningLO3: Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.
14 Should A Firm Outsource Production? Question: Should a firm make or buy the component parts to go into its final product?Make-or-buy decisions are important to firms' manufacturing strategiesservice firms also face make-or-buy decisionsdecisions involving international markets are more complex than those involving domestic marketsLO4: Identify the factors that influence a firm’s decision of whether to source supplies from within the company, or from foreign suppliers.
15 Should A Firm Outsource Production? Vertical integration - making component parts in-houseLowers costsFacilitates investments in highly specialized assetsProtects proprietary technologyFacilitates the scheduling of adjacent processesBuying component parts from independent suppliersGives the firm greater flexibilityHelps drive down the firm's cost structureHelps the firm capture orders from international customers
16 Do Strategic Alliances With Suppliers Make Sense? Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliershowever, these commitments may actually limit strategic flexibilityrisk giving away key technological know-how to a supplier
17 How Do Firms Manage The Global Supply Chain? Logistics encompasses the activities necessary to get materials to a manufacturing facility, through the manufacturing process, and out through a distribution system to the end userthe goal is to manage a global supply chain at the lowest possible cost and in a way that best serves customer needsJust-in-time (JIT) systemsWeb-based information systemsElectronic Data Interchange (EDI)LO5: Describe what is required to efficiently coordinate a globally dispersed production system.