1. Global Manufacturing and Materials Management
CHAPTER 16
Global Manufacturing and Materials Management

2. Learning Objectives
What are the factors that affect the decision to choose global manufacturing site?
What is the role of cost pressures and pressures for local responsiveness in the choice of manufacturing location?

3. Learning Objectives
What is meant by flexible manufacturing? How does it achieve low cost and product customization?
Make or Buy? What are the tradeoffs?
Role of outsourcing

4. Chapter Focus Examine:
Where in the world should productive activities be located?
What should be the long term strategic role of foreign production sites?
Should the firm own foreign production sites or outsource those activities to independent vendors?
How should a globally diverse supply chain be managed and what is the role of the Internet in managing global logistics?
Should the firm manage global logistics itself or outsource the management to enterprises that specialize in this activity?

5. Strategy, Manufacturing, and Logistics
Focus
Production
Logistics
Performed
internationally
To lower costs of value creation
Add value by better serving customer needs

6. Materials Management
Materials Management: the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution.
Logistics: the procurement and and physical transmission of material through the supply chain, from suppliers to customers.

7. Manufacturing and Materials Management - Strategic Objectives -
Lower costs.
Increase product quality.
Total Quality Management.
Increases productivity.
Lowers rework and scrap costs.
Lowers warranty costs.
Accommodate demands for local responsiveness.
Respond quickly to shifts in customer demand.

8. The Relationship Between Quality and Costs
Lowers
Rework and
Scrap Costs
Increases
Productivity
Warranty and
Rework Costs
Improves
Performance
Reliability
Service Costs
Manufacturing
Costs
Profits
Figure 16.1

9. Where to Manufacture Country Factors Technological Product Locating
Manufacturing
Facilities

10. Country Factors Political economy. Culture. Relative factor costs.
Global concentrations of activity.
Skilled labor pools.
Supporting industries.
Formal and informal trade barriers.
Transportation costs.
Rules regarding FDI.
Exchange rate movements.

11. Technological Factors
Fixed costs.
Minimum efficient scale.
Flexible manufacturing (Lean Production).
Reduce setup times.
Increase machine utilization.
Improve quality control.
Flexible machine cells.
Product
customization
Mass Customization
Low cost

12. A Typical Unit Cost Curve
Unit Costs
Volume
Minimum Efficient Scale
Figure 16.2

13. Product Factors and Location Strategies
Two product features affect location decisions:
Value to weight ratio.
Product serves universal needs.
Two strategies for locating manufacturing facilities:
Concentration.
Decentralization.

14. Product Factors Value-to-weight ratio.
Influences transportation costs.
High value-to-weight.
Electronic components.
Low value-to-weight.
Bulk chemicals.
Does the product serve universal needs?
Industrial products.
Modern consumer products.
Handheld calculators.
Personal computers.

15. Manufacturing Location
Factor costs have substantial impact.
Low trade barriers.
Externalities favor certain locations.
Stable exchange rates.
Minimum efficient scale is high and flexible manufacturing technologies available.
Product’s value-to-weight ration is high.
Product serves universal needs.
Concentration.

16. Manufacturing Location
Factor costs do not have substantial impact.
High trade barriers.
Location externalities unimportant.
Exchange rate volatility.
Production technology has low fixed costs, low minimum efficient scale, flexible manufacturing technology unavailable.
Product has low value-to-weight ratio.
Product does not serve universal needs.
Decentralization

17. Location Strategy and Manufacturing
Technological Factors
Flexible manufacturing technology Available Not Available
Minimum efficient scale High Low
Fixed costs High Low
Product Factors
Serves universal needs Yes No
Value-to-weight ration High Low
Country Factors
Differences in factor costs Substantial Few
Substantial Few
Trade barriers Few Many
Differences in political economy
Differences in culture Substantial Few
Concentrated Decentralized
Favored Manufactured Strategy
Table 16.1

18. Strategic Role of Foreign Factories
Initially, established where labor costs low.
Later, important centers for design and final assembly.
Upward migration caused by:
Pressure to improve cost structure.
Pressure to customize product to meet customer demand.
Increasing abundance of advanced factors of production.
Dispersed Centers of Excellence are consistent with a Transnational Strategy

19. Make or Buy Make Buy Proprietary Product Technology Protection
Lower costs
Proprietary
Product
Technology
Protection
Facilitating
specialized
investments
Improved
scheduling
Buy
Strategic
flexibility
Lower
costs
Offsets
Trade-offs

20. Coordinating a Global Manufacturing System
Materials management (includes logistics):
Activities necessary to get materials from suppliers to manufacturer, to distribution system, to end user.
Achieve lowest possible cost that meets customer’s needs.
Power of ‘Just-in-Time’:
Economize on inventory holding costs.
Drawback: no buffer inventory.

21. Role of Information Technology and the Internet
Track component parts to assembly plant.
Optimize production scheduling.
Ability to accelerate (or slow) production.
Electronic data interchange coordinates flow through into/through manufacturing to customers.
Suppliers, shippers, and purchasing firms can communicate with each other without delay.
Flexibility and responsiveness.
Paperwork is decreased.