1. International Business
Chapter Seventeen
Global Manufacturing and Supply Chain Management

2. Chapter Objectives
To describe different dimensions of global manufacturing strategy
To examine the elements of global supply chain manage-ment
To show how quality affects the global supply chain
To illustrate how supplier networks function
To explain how inventory management is a key dimen-sion of the global supply chain
To present different alternatives for transporting prod-ucts along the supply chain from suppliers to customers

3. Introduction
Supply chain management: the coordination of materials, information, and funds from the initial raw material supplier to the ultimate customer
Logistics (aka materials management): that part of the supply chain process responsible for planning, implementing, and controlling the efficient and effective flow and storage of inputs, goods, and related information from the point of origin to the point of consumption in order to meet customers’ requirements
The supply chain is quite broad; the greater the geographic spread of the firm, the more difficult it is to manage the supply chain effectively.

4. Fig. 17.4: Global Manufacturing and Supply Chain Management in International Business

5. Global Manufacturing Strategies
Global supply chain: links the suppliers’ suppliers with the customers’ customers, accounting for every step of the process between the raw material and the final consumer of the good or service
The success of a global manufacturing strategy depends upon:
compatibility
configuration
coordination
control
Suppliers can be part of a vertically integrated firm’s own organizational structure, or suppliers can be independent, external organizations.

6. Fig. 17.5: The Global Supply Chain

7. Manufacturing Compatibility
Compatibility: in the context of manufacturing strat-egy, the degree of consistency between a firm’s foreign direct investment decisions and its compe-titive strategy
Offshore manufacturing: manufacturing activities that occur within facilities of a firm that lie beyond the borders of its home country, i.e., foreign direct investment made specifically for the purpose of serving a firm’s domestic market
Maquilaora: a type of operation originally developed between the United States and Mexico in which components are shipped duty-free to the lower-labor-cost country, assembled, and then re-exported to the originating country
[continued]

8. Key decision variables include:
Cost-minimization and the drive for globalization force MNEs to pursue economies of scale in manufacturing, often by producing at low labor-cost sites.
Key decision variables include:
efficiency/cost: manufacturing cost reductions
dependability: the degree of trust in a company’s products, delivery service, and price guarantees
quality: performance reliability, level of service, speed of delivery, maintenance provisions
flexibility: the ability to make different models and kinds of products and to adjust the volume of output
innovation: the ability to develop and maintain a techno-logical edge

9. Manufacturing Configuration
The three basic configurations that MNEs consider en route to developing their global manufacturing strategies are:
centralized manufacturing in a single country
[a global export approach]
regionalized manufacturing in specific regions served
[a regionalized marketing and manufacturing approach]
local manufacturing in each country market served
[a multidomestic marketing and manufacturing approach]
Rationalization represents the specialization of production by product or process in different parts of the world in order to take advantage of varying costs of labor, capital, and raw materials.

10. Manufacturing Coordination and Control
Coordination: the linking and integrating of participants and activities throughout the (global) supply chain into a unified system
Control: embraces systems such as organiza-tional structure and performance measurement that are designed to help ensure that strategies are implemented, monitored, and revised, as appropriate
• also, the metrics used to measure performance

11. Global Supply Chain Strategy
A comprehensive (global) supply chain strategy should include the following elements:
• customer service requirements • business processes
• plant and distribution center • information systems
network design • organizational design and
• inventory management training requirements
• outsourcing and third-party • performance goals
logistics relationships • performance metrics
• key customer and supplier
relationships
Global supply chain management includes and integrates participants and activities that lie both within and beyond the firm in the quest to improve customer satisfaction and enhance profitability.

12. Information Technology and Global Supply Chain Management
Electronic data interchange (EDI): the electronic movement of money and information via computers and telecommunications equipment in a way that effectively links suppliers, customers, and third-party intermediaries and ultimately enhances customer value
Enterprise resource planning (ERP): the use of software to link information flows from different parts of a business and from different parts of the world
E-commerce: the use of the Internet to link suppliers with firms and firms with customers

13. The extranet: the use of the Internet to link an organization with external constituencies
Private Technology Exchange (PTX): an online collaboration model that brings manufacturers, distributors, resellers, and customers together in order to execute trade transactions and to share information regarding demand, production, availability, etc.
While many networks can be managed via the Internet, others (especially those in developing countries) cannot because of the lack of available, leading-edge technology.

14. Quality
Quality: conformance to specifications, value en-hancement, fitness for use, after-sales support, and psychological impressions (image)
Acceptable quality level (AQL): a premise that allows for a tolerable (negotiable) level of defects that can be corrected through repair and service warranties
Zero defects: an idea perfected by Japanese manu-facturers who refuse to tolerate defects of any kind
Kaizen: the Japanese process of continuous improve-ment, which requires identifying problems and enlisting employees at all levels of the organization to help eliminate them
[continued]

15. Total Quality Management (TQM): a process whose goal is to eliminate all defects
Total quality management (TQM) stresses three basic principles as it focuses on eliminating all defects:
customer satisfaction
employee involvement
continuous improvements at every level in the organization
Six Sigma: a highly focused quality-control system designed to scrutinize a firm’s entire production system in order to eliminate defects, slash product cycle time, and cut costs across the board
Executives who have adopted the zero-defects philosophy claim that as defects decline, long-run production costs also decline.

16. Quality Standards The three levels of quality standards include:
the general level
the Deming Award [for demonstrated excellence in quality]
the Malcolm Baldrige National Quality Award [for demon-strated quality strategies and achievements]
ISO 9000 certification [for the documentation of worker performance of every function that affects quality and the installation of mechanisms to ensure that documented processes are followed]
the industry-specific level [industry-wide standards designed for suppliers to follow]
the company level [standards designed by individual firms for their suppliers to follow]

17. Quality Standards: ISO
International Organization for Standardization (ISO): founded in 1947 in Geneva, Switzerland, to facilitate the international coordination and unification of industrial standards
ISO 9000: a global set of quality standards intended to pro-mote quality at every level within an organization
ISO 9000:2000: a set of five universal standards designed to harmonize technical standards within the EU that is now accepted worldwide
ISO 14000: concerned with environmental management and what firms do to improve their environmental performance
From the beginning, the ISO has partnered with the Int’l Electrotechnical Commission, the originator of global technical standards, and also collaborates with the Int’l Telecommunications Union and the WTO.

18. Supplier Networks
Sourcing: the process of securing inputs (raw mate-rials, components, and supplies) either internally or externally for a firm’s productive processes
Outsourcing: the sourcing of inputs from external suppliers, i.e., the buy decision
The three major configurations that have emerged for the global sourcing function are:
vertical integration
outsourcing through industrial clusters, including the Japanese keiretsu
independent outsourcing
Global sourcing represents the first step in the global materials management process.

19. Fig. 17.7: Global Sourcing and Production Strategy

20. Global Sourcing Strategies
Firms pursue global sourcing strategies in order to:
reduce costs
improve quality
increase exposure to worldwide technology
improve the delivery-of-supplies (logistics) process
strengthen the reliability of supply by supplementing domestic supplies with foreign suppliers
gain access to materials that are only available abroad
establish a presence in a foreign market
satisfy offset (countertrade) requirements
react to competitors’ sourcing practices

21. Fig. 17.8: The Global Component Network for Ford’s European Manufacturing of the Escort

22. The Make or Buy Decision
Make or buy decision: determining which productive activities should be performed internally (make) and which ones should be subcontracted to independent companies (buy)
The relationships that a firm establishes with its external suppliers are largely based upon:
its competitive strategy
the nature of its products
the competitive environment
the level of experience of its suppliers
the capabilities of its suppliers
the degree of trust the firm places in its suppliers

23. The Purchasing Function
The global progression of the purchasing function includes the following four phases:
• domestic purchasing only
• foreign purchasing based on need
• foreign purchasing as a part of the procurement strategy
• *integration of the global procurement strategy
[*At this point, the firm may once again be concerned with the centralization vs. decentralization dilemma.]
[continued]

24. Global sourcing options include:
assigning international purchasing duties to domestic purchasing agents
using foreign subsidiaries or business agents
establishing international purchasing offices
assigning the responsibility for global sourcing to a specific business unit or units
integrating and coordinating sourcing on a worldwide basis
[E-sourcing, i.e., the use of the Internet in the purchasing process, is growing rapidly in popularity.]

25. Fig. 17.9: Assessing the Organization’s Global Sourcing Needs and Strategy

26. [typically implies sole sourcing for specific inputs]
Inventory Management
Inventory management: the planning and control of the levels, flows, and storage of inputs, unfinished, and finished goods
Just-in time manufacturing (JIT): a system that reduces inventory costs by having inputs delivered just as they are needed for the production process
[typically implies sole sourcing for specific inputs]
Foreign trade zones (FTZs): government-designated areas in which goods can be stored, inspected, and/or manufactured without being subject to formal customs procedures until they actually enter a country
The distance, time, and uncertainty associated with foreign environments will surely complicate the inventory management process.

27. Transportation and Logistics
The international transportation of goods is extremely complicated with respect to:
documentation
choice of carrier(s)
the decision to outsource or insource services
Logistics management requires the ability to gather, track, and process large quantities of information.
To be effective, logistics companies must implement key technologies, including communications systems, satellite tracking systems, bar-coding applications, and automated materials handling systems.
Third-party intermediaries may provide a host of logistics-related services.

28. Implications/Conclusions
Important objectives shared by the global manufacturing and supply chain functions are to simultaneously lower costs and increase quality by eliminating defects from both processes.
A firms should focus on making those products and performing those activities that are critical to its operations and in which it has a distinct advantage.
Cost-minimization strategies and the drive for global efficiencies often force MNEs to move offshore to lower-cost manufacturing areas, especially in Asia and East Europe.

29. Firms will go through a variety of purchasing ap-proaches and configurations as they become more committed to global sourcing.
When a firm sources inputs from suppliers around the world, distance, time, and the uncertainty of the international political and economic environments can make it difficult to manage inventory flows accurately.
Firms are turning to the capabilities of the Internet in large numbers in order to efficiently and effec-tively link suppliers with manufacturers and manu-facturers with end-use customers.