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1、Global Business Today 6e,by Charles W.L.Hill,McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies,Inc.All rights reserved.,Chapter 14,Global Production,Outsourcing,and Logistics,Introduction,In todays global economy,firms must decidewhere to locate productive activities what the long-term s
2、trategic role of foreign production sites should be whether to own foreign production activities or outsource those activities how to manage a globally dispersed supply chain and what the role of Internet-based information technology should be in the management of global logistics whether to manage
3、global logistics or outsource,Strategy,Production,and Logistics,Question:How can production and logistics be conducted internationally to lower the costs of value creation add value by better serving customer needs?Production refers to activities involved in creating a productLogistics refers to the
4、 procurement and physical transmission of material through the supply chain,from suppliers to customers,Strategy,Production,and Logistics,The strategic objectives of the production and logistics function areto lower coststo increase product quality by eliminating defective products from both the sup
5、ply chain and the manufacturing processThese two objectives are interrelated,Strategy,Production,and Logistics,Better quality control helps firms reduce costs because time is not wasted manufacturing poor quality products that cannot be soldre-work and scrap costs are lowerwarranty costs and the tim
6、e used too fix defective products are lower,Strategy,Production,and Logistics,Question:What management tool is used to increase the reliability of product offerings?The Six Sigma quality improvement program aims to reduce defects,boost productivity,eliminate waste,and cut costs throughout a company
7、Six Sigma is a direct descendant of total quality management(TQM)In addition,some countries have also promoted specific quality guidelines like the European Unions ISO 9000 standards,Strategy,Production,and Logistics,Two other objectives are important for international companies production and logis
8、tics functions must be able to accommodate demands for local responsivenessproduction and logistics must be able to respond quickly to shifts in customer demand,Where to Produce,Question:Where should production activities be located?When deciding where to locate production facilities,firms must cons
9、idercountry factorstechnological factorsproduct factors,Country Factors,Firms should locate manufacturing activities where economic,political,and cultural conditions,including relative factor costs,are most conducive to the performance of that activityRegulations affecting FDI and trade can signific
10、antly affect the appropriateness of specific countries,as can expectations about future exchange rate changes,Technological Factors,The type of technology a firm uses in its manufacturing can affect location decisionsFirms should consider 1.The level of fixed costs involvedIf the fixed costs of sett
11、ing up a manufacturing plant are very high,it could make sense for the firm to serve the world market from a single location or from a very few locations2.The minimum efficient scale of the technologyThe larger the minimum efficient scale(the level of output at which most plant-level scale economies
12、 are exhausted)of a plant,the more likely centralized production makes sense,Technological Factors,3.The flexibility of the technologyThe term flexible manufacturing technology or lean production covers a range of manufacturing technologies that are designed to:reduce set up times for complex equipm
13、entincrease the utilization of individual machines through better schedulingimprove quality control at all stages of the manufacturing process,Technological Factors,So,flexible manufacturing technologies enable firms to produce a wide variety of end products at a unit cost that traditionally would r
14、equire mass production of a standardized output Mass customization implies that a firm may be able to customize its product range to suit the needs of different customer groups without bearing a cost penalty,Technological Factors,Flexible machine cells(grouping of various types of machinery,a common
15、 materials handler,and a centralized cell controller)are another common flexible manufacturing technologyAdopting flexible manufacturing technologies can help improve the competitive position of firms by allowing the firm to customize products to meet the demands of small customer groups in differen
16、t national marketsSo,firms can act like a local firm without bearing the costs of establishing local manufacturing facilities,Technological Factors,Question:When does it make sense to concentrate production at a few choice locations?Concentrated production makes sense whenfixed costs are substantial
17、the minimum efficient scale of production is highflexible manufacturing technologies are available Concentrated production does not make sense whenboth fixed costs and the minimum efficient scale of production are relatively lowappropriate flexible manufacturing technologies are not available,Produc
18、t Factors,Two product factors impact location decisions1.The products value-to-weight ratio If the value-to-weight ratio is high,it is practical to produce the product in a single location and export it If the value-to-weight ratio is low,there is greater pressure to manufacture the product in multi
19、ple locations across the world2.Whether the product serves universal needsThe need for local responsiveness is reduced for products that do,which increases the attractiveness of concentrated manufacturing,Locating Production Facilities,There are two basic strategies for locating manufacturing facili
20、tiesConcentrating them in the optimal location and serving the world market from thereDecentralizing them in various regional or national locations that are close to major markets,Locating Production Facilities,Classroom Performance System,Decentralized production will be favored when There are subs
21、tantial differences in political economy Fixed costs are high The products value-to-weight ratio is high Exchange rates are volatile,Classroom Performance System,Firms will prefer concentrated production when Minimum efficient scale is high Location externalities are not important The product does n
22、ot serve universal needs There are few trade barriers,The Strategic Role of Foreign Factories,Question:Does the rationale for establishing a foreign production facility change?The strategic role of foreign factories and the strategic advantage of a particular location can change over timeA factory i
23、nitially established to make a standard product to serve a local market,or to take advantage of low cost inputs,can evolve into a facility with advanced design capabilities As governmental regulations change and/or countries upgrade their factors of production the strategic advantage of a particular
24、 location can change,The Strategic Role of Foreign Factories,As the strategic role of a factory is upgraded and a firm develops centers of excellence in different locations worldwide,it supports the development of a transnational strategyA focus of a transnational strategy is global learning(the ide
25、a that valuable knowledge does not reside just in a firms domestic operations,it may also be found in its foreign subsidiaries)So,managers should promote the idea that factories are potential centers of excellence with strategic importance to the firm,Outsourcing Production:Make-or-Buy Decisions,Que
26、stion:Should an international business make the component parts to go into their final product or outsource them?Make-or-buy decisions(decisions about whether to perform a certain value creation activity in-house or outsource it to another firm)are important to a firms manufacturing strategy,The Adv
27、antages of Make,Making component parts in-house(vertical integration)is attractive because itis associated with lower costsfacilitates investments in highly specialized assetsprotects proprietary technologyfacilitates the scheduling of adjacent processes,The Advantages of Make,1.Lowering CostsA firm
28、 should consider manufacturing a part in-house if the firm is more efficient at that a production activity than any other enterprise2.Facilitating Specialized InvestmentsIn-house production makes sense when substantial investments in specialized assets(assets whose value is contingent upon a particu
29、lar relationship persisting)are required to manufacture a component,The Advantages of Make,3.Protecting Proprietary TechnologyWhen proprietary technology is involved,in-house production can make sense to maintain control over the technology4.Improving Scheduling In some cases,in-house production can
30、 make planning,coordination,and scheduling of adjacent processes easier,Classroom Performance System,Which of the following is not one of the key factors that influence the decision of where to produce?Country factors Competitors factors Technological factors Product factors,The Advantages of Buy,Bu
31、ying component parts from independent suppliers(outsourcing)is attractive because itgives the firm greater flexibilityhelps drive down the firms cost structurehelps the firm to capture orders from international customers,The Advantages of Buy,1.Strategic FlexibilityOutsourcing provides the firm with
32、 the flexibility to switching orders between suppliers as circumstances dictateThis ability is particularly important when changes in exchange rates and trade barriers the attractiveness of supply sources,The Advantages of Buy,2.Lower Costs Firms that outsource can avoidthe challenges involved with
33、coordinating and controlling additional subunits the lack of incentive associated with internal suppliersthe difficulties with setting appropriate transfer prices 3.OffsetsOutsourcing can help firms capture more orders from suppliers countries,Trade-Offs,The benefits of manufacturing components in-h
34、ouse are greatest whenhighly specialized assets are involvedwhen vertical integration is necessary for protecting proprietary technologywhen the firm is more efficient than external suppliers at performing a particular activity,Strategic Alliances with Suppliers,Question:Can strategic alliances with
35、 suppliers give firms the benefits of vertical integration?Some firms have tried to use strategic alliances to capture some of the benefits of vertical integration,without having the associated organizational problemsHowever,in some cases,this backfires as firms find their strategic flexibility limi
36、ted by commitments to alliance partners,Classroom Performance System,Buying from independent suppliers offers all of the following advantages except It gives the firm greater flexibility It helps drive down the firms cost structure It protects proprietary property It helps the firm to capture orders
37、 from international customers,Managing a Global Supply Chain,Question:Why is logistics important to the international firm?Logistics encompasses the activities necessary to get materials to a manufacturing facility,through the manufacturing process,and out through a distribution system to the end us
38、er In international business,this is complicated by distance,time,exchange rates,and customs barriers,etc.Efficient logistics can have a major impact upon a firms bottom line,The Role of Just-in-Time Inventory,Question:How can a just-in-time inventory process help a firm?A just-in-time(JIT)economize
39、s on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process,and not beforeIt can result in major cost savings from reduced warehousing and inventory holding costs It can help firms spot defective parts,take them out of the manufacturi
40、ng process,and boost product quality,The Role of Information Technology and the Internet,Question:What is the role of information technology in materials management?Electronic data interchange(EDI)facilitates the tracking of inputsallows the firm to optimize its production scheduleallows the firm an
41、d its suppliers to communicate in real timeeliminates the flow of paperwork between a firm and its suppliers,Critical Discussion Question,1.An electronics firm is considering how best to supply the world market for microprocessors used in consumer and industrial electronic products.A manufacturing p
42、lant costs approximately$500 million to construct and requires a highly skilled work force.The total value of the world market for this product over the next 10 years is estimated to be between$10 and$15 billion.The tariffs prevailing in this industry are currently low.Should the firm adopt a concen
43、trated or decentralized manufacturing strategy?What kind of location(s)should the firm favor for its plant(s)?,Critical Discussion Question,2.A chemical firm is considering how best to supply the world market for sulfuric acid.A manufacturing plant costs approximately$20 million to construct and req
44、uires a moderately skilled work force.The total value of the world market for this product over the new 10 years is estimated to be between$20 and$30 billion.The tariffs prevailing in this industry are moderate.Should the firm favor concentrated manufacturing or decentralized manufacturing?What kind
45、 of location(s)should the firm seek for its plant(s)?,Critical Discussion Question,3.A firm must decide whether to make a component part in-house or to contract it out to an independent supplier.Manufacturing the part requires a non-recoverable investment in specialized assets.The most efficient sup
46、pliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade.What are the pros and cons of(a)manufacturing the component in-house and(b)outsourcing manufacture to an independent supplier?Which option would you recommend?W
47、hy?,Critical Discussion Question,4.Reread the Management Focus on Philips in China then answer the following questions:a)What are the benefits to Philips of shifting so much of its global production to China?b)What are the risks associated with a heavy concentration of manufacturing assets in China?c)What strategies might Philips adopt to maximize the benefits and mitigate the risks associated with moving so much product?,Critical Discussion Question,5.Explain how an efficient materials management function can help an international business compete more effectively in the global marketplace.,
