Summary about global business
Chapter 17
Global Production and Supply Chain Management
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
1
Learning Objectives 1 of 2
LO 18-1 Explain why global production and supply chain management decisions are of central importance to many global companies.
LO 18-2 Explain how country differences, production technology, and production factors all affect the choice of where to locate production activities.
LO 18-3 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.
©McGraw-Hill Education.
2
Learning Objectives 2 of 2
LO 18-4 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers.
LO 18-5 Understand the functions of logistics and purchasing (sourcing) within global supply chains.
LO 18-6 Describe what is required to efficiently manage a global supply chain.
©McGraw-Hill Education.
3
Introduction
Issues in International Business
Where should production facilities be located?
What should be the long-term strategic role of foreign production sites?
Should the firm own foreign production activities, or is it better to outsource those activities to independent vendors?
How should a globally dispersed supply chain be managed, and what is the role of information technology in the management of global logistics, purchasing (sourcing), and operations?
Should the company manage global supply chains itself, or should it outsource the management to enterprises that specialize in this activity?
©McGraw-Hill Education.
4
Strategy, Production, and Supply Chain Management 1 of 6
Learning Objective 18-1 Explain why global production and supply chain management decisions are of central importance to many global companies.
Value Creation Activities
Production
Supply chain management
Purchasing
Logistics
©McGraw-Hill Education.
Production includes activities involved in creating a product.
Supply chain management is the integration and coordination of logistics, purchasing, operations, and market channel activities from raw material to the end-customer.
Purchasing is the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services.
Logistics is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing.
5
Strategy, Production, and Supply Chain Management 2 of 6
Strategic Objectives
To ensure that the total cost of moving from raw materials to finished goods is as low as possible for the value provided to the end-customer
To increase product (or service) quality by establishing process-based quality standards and eliminating defective raw material, component parts, and products from the manufacturing process and the supply chain
Should be embedded in both the upstream and downstream portions of the supply chain
©McGraw-Hill Education.
Upstream supply chain is the portion of the supply chain from raw materials to the production facility; also called the inbound supply chain.
Downstream supply chain is the portion of the supply chain from the production facility to the end-customer; also called the outbound supply chain.
6
Strategy, Production, and Supply Chain Management 3 of 6
Improved quality control reduces costs
Increases productivity
Lowers rework and scrap costs
Reduces warranty costs and time
©McGraw-Hill Education.
7
Figure 18.1 The relationship between quality and costs
Jump to long description in appendix
Source: David A. Gandin, “What Does Product Quality Really Mean?” MIT Sloan Management Review, Fall 1984, pp. 25–43.
©McGraw-Hill Education.
8
Strategy, Production, and Supply Chain Management 4 of 6
Six Sigma
Descendent of total quality management (Deming)
Statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company
©McGraw-Hill Education.
Total quality management refers to the management philosophy that takes as its central focus the need to improve the quality of a company’s products and services.
Six Sigma is a statistically based methodology for improving product quality.
9
Strategy, Production, and Supply Chain Management 5 of 6
International Standards
ISO 9000
Focus management attention on the need to improve the quality of products and processes
©McGraw-Hill Education.
ISO 9000 is a certification process that requires certain quality standards that must be met.
10
Strategy, Production, and Supply Chain Management 6 of 6
Additional Objectives
Production and supply chain functions must be able to accommodate demands for local responsiveness.
Production and supply chain management must be able to respond quickly to shifts in customer demand.
©McGraw-Hill Education.
11
Where to Produce 1 of 6
Learning Objective 18-2 Explain how country differences, production technology, and production factors all affect the choice of where to locate production activities.
Country Factors
Political and economic systems, culture, and relative factor costs differ from country to country.
Location economies
Formal and informal trade barriers
Transportation costs
Exchange rates
©McGraw-Hill Education.
12
Where to Produce 2 of 6
Technological Factors
Fixed costs
Minimum efficient scale
Flexibility of the technology
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
©McGraw-Hill Education.
Minimum efficient scale refers to the level of output at which most plant-level scale economies are exhausted.
13
Figure 18.2 Typical unit cost curve
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
©McGraw-Hill Education.
14
Where to Produce 3 of 6
Technological Factors
Flexible manufacturing technology—or lean production
Reduces setup times for complex equipment
Increases utilization of individual machines through better scheduling
Improves quality control at all stages of manufacturing process
Enables companies to customize products to demands of small consumer groups
Mass customization
Flexible machine cells
©McGraw-Hill Education.
Flexible manufacturing technology or lean production refers to manufacturing technology designed to improve job scheduling, reduce setup time, and improve quality control.
Mass customization is the production of a variety of end products at a unit cost that could once be achieved only through mass production of a standardized output.
Flexible machine cells refers to flexible manufacturing technology in which a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer) produce a family of products.
15
Where to Produce 4 of 6
Learning Objective 18-3 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.
Production Factors
Product features
Value-to-weight ratio influences transportation costs
Universal needs
Locating production facilities
Centralized
Decentralized
©McGraw-Hill Education.
16
Figure 18.1 The relationship between quality and costs
Jump to long description in appendix
Source: David A. Garvin, “What Does Product Quality Really Mean?” MIT Sloan Management Review, Fall 1984, pp. 25–43.
©McGraw-Hill Education.
17
Where to Produce 5 of 6
Production Factors continued
Strategic roles for production facilities
Importance of global learning
Offshore factory
Source factory
Server factory
Contributor factory
Outpost factory
Lead factory
©McGraw-Hill Education.
Global learning refers to the flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary.
Offshore factory is a factory that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market.
Source factory is a factory whose primary purpose is to drive down costs in the global supply chain.
Server factory is a factory linked into the global supply chain for a global firm to supply specific country or regional markets around the globe.
Contributor factory serves a specific country or world region.
Outpost factory can be viewed as an intelligence-gathering unit.
Lead factory is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world.
18
Where to Produce 6 of 6
The Hidden Costs of Foreign Locations
High employee turnover
Shoddy workmanship
Poor product quality
Low productivity
©McGraw-Hill Education.
19
Make-or-Buy Decisions
Learning Objective 18-4 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers.
Make-or-buy decisions
Made at both the strategic and operational levels, with the strategic level being focused on the long term and the operational level being more focused on the short term
Make decisions consider issues of product success, specialized knowledge, strategic fit, cost, and production capacity
©McGraw-Hill Education.
20
Figure 18.3 Operationally favoring a make decision
Jump to long description in appendix
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018)
©McGraw-Hill Education.
21
Figure 18.4 Operationally favoring a buy decision
Jump to long description in appendix
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
©McGraw-Hill Education.
22
Global Supply Chain Functions 1 of 5
Learning Objective 18-5 Understand the functions of logistics and purchasing (sourcing) within global supply chains.
Global Logistics
Core activities
Global distribution center management
Inventory management
Packaging and materials handling
Transportation
Reverse logistics
©McGraw-Hill Education.
23
Global Supply Chain Functions 2 of 5
Global distribution center
Used by manufacturers, importers, exporters, wholesalers, retailers, transportation companies, and customs agencies to store products and provide a location where customization can be facilitated
The order-processing part of the order-fulfillment process
©McGraw-Hill Education.
Global distribution center is a facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers or directly to consumers anywhere in the world.
24
Global Supply Chain Functions 3 of 5
Global inventory management
How much inventory to hold, in what form to hold it, and where to locate it in the supply chain
Strategy must effectively trade off the service and economic benefits of making products in large quantities and positioning them near customers against the risk of having too much stock or the wrong items
©McGraw-Hill Education.
Global inventory management refers to the decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation.
25
Global Supply Chain Functions 4 of 5
Reverse Logistics
Goal is to optimize the after-market activity or make it more efficient
Important part of the global supply chain
©McGraw-Hill Education.
Reverse logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
26
Global Supply Chain Functions 5 of 5
Global Purchasing
Strategic levels
Level I: companies engage in domestic purchasing activities only
Level II: companies engage in international purchasing activities only as needed
Level III: companies engage in international purchasing activities as part of the firm’s overall supply chain management strategy
Level IV: refers to global purchasing activities that are integrated across worldwide locations
Level V: involves engaging in global purchasing activities that are integrated across worldwide locations and functional groups
©McGraw-Hill Education.
27
Managing a Global Supply Chain 1 of 2
Coordination in Global Supply Chains
Integration and coordination are critically important.
Shared decision making creates a more integrated, coherent, efficient, and effective global supply chain.
Operational objectives
Responsiveness
Variance reduction
Inventory reduction
Shipment consolidation
Quality
Life-cycle support
©McGraw-Hill Education.
Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.
28
Managing a Global Supply Chain 2 of 2
Interorganizational Relationships
Two keys are trust and commitment.
Value between nodes and actors in global supply chains is a function of the cost (money and nonmoney resources) given up in return for the quality (products, services, information, trust, and commitment) received.
©McGraw-Hill Education.
29
Figure 18.5 Upstream/inbound relationships
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
©McGraw-Hill Education.
30
Figure 18.6 Downstream/outbound relationships
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
©McGraw-Hill Education.
31