© 2001 Prentice Hall18-1 International Business by Daniels and Radebaugh Chapter 18 Global Manufacturing and Supply Chain Management

© 2001 Prentice Hall18-2 Objectives To describe different dimensions of global manufacturing strategy To examine the elements of global supply chain management To show how quality affects the global supply chain To illustrate how supplier networks function To explain how inventory management is a key dimension of the global supply chain To present different alternatives for transporting products along the supply chain from suppliers to customers

© 2001 Prentice Hall18-3 OPERATIONS OBJECTIVES STRATEGY EXTERNAL INFLUENCES COMPETITIVE ENVIRONMENT PHYSICAL AND SOCIETAL FACTORS Functions Marketing Exporting and importing GLOBAL MANUFACTURING SUPPLY CHAIN MANAGEMENT Accounting Finance Human resources Modes MEANS Overlaying Alternatives Global Manufacturing and Supply Chain Management

© 2001 Prentice Hall18-4 Introduction Supply chain—encompasses the coordination of materials, information, and funds from the initial raw material supplier to the ultimate customer Management of the value-added process Network is quite broad –coordination of the network takes place through interactions between firms in the networks Logistics (materials management)—that part of the supply chain that focuses on the transportation and storage of materials and final goods

© 2001 Prentice Hall18-5 Supplier network Customer network Manufacturing configuration The Global Supply Chain

© 2001 Prentice Hall18-6 Global Manufacturing Strategies Manufacturing compatibility—degree of consistency between FDI decisions and competitive strategy Strategies that managers must consider include: –cost-minimization strategies—establish economies of scale in manufacturing, often by producing in areas with low-cost labor »offshore manufacturing—e.g., Mexico’s maquiladora operations –dependability –quality –flexibility –innovation

© 2001 Prentice Hall18-7 Global Manufacturing Strategies (cont.) Manufacturing configuration—three basic forms –centralized manufacturing in one country –regional manufacturing facilities –multidomestic—country-specific manufacturing facilities MNEs choose a combination of these forms Rationalization—countries specialize in the production of parts or final goods Coordination and control Coordinating—linking or integration of activities into a unified system –must be considered when manufacturing configuration is established Controlling—ensures that company strategies are carried out –includes organizational structure and reporting systems

© 2001 Prentice Hall18-8 Global Manufacturing Strategies (cont.) Plant location strategies—determine which countries to invest in and where in the specific countries Depends on a variety of factors Layout planning strategies—decisions about the physical arrangement of economic activity centers within a manufacturing facility Economic activity centers—where the different production tasks are performed Cost of land is a factor Global Supply Chain Management Electronic data interchange (EDI)—links suppliers, customers, and third- party intermediaries to expedite documents and financial flows Links exporters with customs Drawbacks—limited, expensive, and inflexible –based on proprietary standards

© 2001 Prentice Hall18-9 Customer Service Requirements Organizational Design and Training Requirements Performance Goals Global Supply Chain Management Business Processes Plant and Distribution Center Network Design Information Systems Key Customer and Supplier Relationships Performance Metrics Inventory Management Outsourcing and Third-Party Logistics Relationships Elements of a Global Supply Chain Management

© 2001 Prentice Hall18-10 Global Supply Chain Management (cont.) Enterprise resource planning (ERP)—software that can link information flows from different parts of a business and from different geographic areas Brings information together within the firm Unable to tie in the customer and take advantage of e- commerce E-commerce—use of Internet to join together suppliers with companies, companies with customers Helps to automate and speed up internal processes in a company and spreads efficiency gains to the business systems of its customers and suppliers Extranet—use of Internet to link a company with outsiders Intranet—use of Internet to link parts of the firm Use varies by location and industry

© 2001 Prentice Hall18-11 Quality Meeting or exceeding the expectations of the customer Conformance to specifications, value, fitness for use, support, and psychological impressions Zero defects—Japanese refuse to tolerate defects of any kind Acceptable quality level—unacceptable products dealt with through repair facilities and service warranties Total Quality Management (TQM)—proactive strategy whose goal is to eliminate all defects Three principles of TQM –customer satisfaction –employee involvement –continuous improvement (kaizen)—identifying problems and enlisting employees throughout the organization to help eliminate the problems

© 2001 Prentice Hall18-12 Quality (cont.) Quality standards—exist at three levels General standard –award for quality—Baldridge and Deming awards –certification standard—accepted worldwide »ISO 9000—European set of five universal standards for quality assurance »non-European companies operating in Europe must become ISO certified to have access to that market »ISO 9001—most detailed and comprehensive standard in the series »ISO —pertains to software Industry-specific standards—typically pertain to quality of suppliers Individual companies—set standards for their suppliers

© 2001 Prentice Hall18-13 Supplier Networks Sourcing—problem of acquiring inputs for the production process Sourcing involves both domestic and foreign suppliers –sourcing in the home country avoids numerous problems –domestic sources may be unavailable or expensive Companies can manufacture parts internally or purchase them from other manufacturers Companies can assemble their own products internally or subcontract to other firms Outsourcing configurations Vertical integration—company owns entire supplier network Arm’s-length purchases—outsourcing Japanese keiretsu relationships with suppliers

© 2001 Prentice Hall18-14 Preengagement Companies selling goods and services solely in the domestic market Those companies considering but not currently exporting Phase 1 Initial Exporting Companies that do sporadic, marginal exporting Companies that see lots of potential in export markets Companies unable to cope with exporting demands Phase 2 Advanced Companies become regular exporters Companies gain extensive overseas experience Companies may use other strategies for entering markets Phase 3 Phases of Export Development

© 2001 Prentice Hall18-15 Improve Delivery of Supplies Establish a Presence in a Foreign Market Reduce Costs Reasons for Global Sourcing Strategies React to Competitor’s Offshore Sourcing Practices Increase Exposure to Worldwide Technology Strengthen Reliability of Supply Improve Quality Gain Access to Materials Satisfy Offset Requirements Supplier Networks

© 2001 Prentice Hall18-16 Supplier Networks (cont.) Make or buy decision—outsource or supply parts from internal production MNEs could focus on critical parts and parts that they make distinctively well Outsourcing—purchasing inputs from outside suppliers not related to the company –suppliers have distinct competitive advantages Supplier relations—firms must determine how to work with their suppliers Japanese companies develop close relationships U.S. companies tend to have arm’s-length relationships Purchasing function—select best supplier, establish a solid relationship, evaluate supplier’s performance Alliances—buyer and seller provide information about orders, upcoming design changes, and long-range plans

© 2001 Prentice Hall18-17 Sourcing of raw materials, parts, and components Manufacture and assembly of components and final products Sale of products Stage of production and sales Home country Abroad Both Home country Abroad Both Home country Abroad Both Location of sourcing, production, and sales Global Sourcing and Production Strategy

© 2001 Prentice Hall18-18 Inventory Management Companies must manage the flow and storage of inventory Distance, time, and uncertainty in foreign environments cause foreign sourcing to complicate inventory management Just-in-time (JIT) systems—sourcing raw materials and parts just as they are needed in the manufacturing process Spares the cost of storing large inventories Must develop solid supplier relationships –may have to make concessions to foreign suppliers Typically implies sole sourcing –problematic if sole supplier is foreign

© 2001 Prentice Hall18-19 Evaluate operating and competitive environments Define scope of international purchasing effort Identify and evaluate potential suppliers worldwide Determine appropriate nature of buyer-supplier relationship Request/evaluate proposals from suppliers Continual reevaluation of implementation status, requirements, and capabilities Select “best” supplier, establish contract terms and conditions, and build desired relationship Steps in the Global Sourcing Process

© 2001 Prentice Hall18-20 Inventory Management (cont.) Foreign Trade Zones (FTZs)—special locations for storing domestic and imported inventory and avoiding paying duties until the inventory is used in production or sold Intended to encourage foreign investment Can be general-purpose zones or subzones –major growth in subzones Use in export business has been expanding Transportation Networks Transportation of goods is very complicated Transportation is key element of logistics system –gather, track, and process large quantities of information Decisions about warehousing system also necessary Third-party intermediaries—an important dimension