McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. CHAPTER Global Manufacturing and Materials Management

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Key Issues How can operations management influence the competitive position of a firm internationally? How does the choice of production location vary based on country differences, manufacturing technology and product features? What factors influence a decision to outsource component parts to an overseas supplier? What is required to efficiently coordinate a globally dispersed manufacturing system? Slide 14-1

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Manufacturing and Materials Management Production: activities that involve –Service and manufacturing –converting inputs to a product Materials management: activities that –Control the transmission of physical materials through the value chain: procurement –> production –> distribution Logistics –Procurement and physical transmission of material through the supply chain suppliers –> customers Slide 14-2

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Quality and Costs Improves Performance Reliability Increases Productivity Lowers Rework and Scrap Costs Lowers Warranty Costs Lowers Manufacturing Costs Increases Profits Lowers Service Costs Fig Quality … Slide 14-3

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. ISO 9000 European Unions standards for quality Set by code Firm must be certified “ISO 9000” before it is allowed access to the EU marketplace Slide 14-4

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Manufacturing Location Decision Country Factors –Favorable economic, political, cultural conditions Technological Factors –Fixed costs relatively low –Minimum efficient scale Scale of output a plant needs to realize scale-economies Market demand must be sufficient to reach this scale –Flexible manufacturing-lean production-mass customization Product features –Value-to-weight ratio –Universal needs Slide 14-5

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Where to Locate? Concentrate manufacturing if: –Costs of manufacturing are responsive to country environment (one location best) –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 –Product value-to-weight ratio is high –Product serves universal needs – minor difference in customer needs, consumer preferences Slide 14-6

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Decentralize manufacturing if: –Country environment does not affect costs much –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 – significant difference in customer needs, consumer preferences Where to Locate? Slide 14-7

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Make-or-Buy? “Make” advantage –Lower costs in-house? –Are specialized assets needed? Investment issue –Is proprietary technology needed? Know-how protection issue (Dunning) “Buy” advantage –Strategic flexibility needed? –Lower costs by buying? –Offsets a possibility by? In either case “improved scheduling” just as important Slide 14-8

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Other Issues Strategic alliances with suppliers –Reap benefits of vertical integration and avoid organization integration problems –Build trust between firm and suppliers –Integrate suppliers in design process –Facilitate Just-in-Time process management Just-in-time inventory system management –Minimize inventory holding costs –Challenge: minimal inventory buffer may lead to disruption if there is a cross-border supply problem The role of information technology and the internet –lower transaction costs internationally Slide 14-9