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 – Lower costs of value creation – Add value through better attention to customer needs

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 chain suppliers –> customers

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

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

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

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

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

 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 When to Decentralize Manufacturing?

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

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