Question 3.2-international business

MGMK 4710

INTERNATIONAL BUSINESS

Chapter 18. Global Manufacturing and Supply Chain Management

https://www.youtube.com/watch?v=SRq-U1m2dwg Subway

www.youtube.com/watch?v=m2kJgpNWCrU Nike

I. INTRODUCTION

https://www.youtube.com/watch?v=yZC4neLax5o Walmart Supply Chain

The supply chain function encompasses the sourcing and coordination of materials, information and funds from the initial raw material supplier to the final customer. It concerns the management of the value-added process from the supplier to the customer. An important part of the supply chain function is logistics (aka materials management), which encompasses the planning, implementation and control of the efficient and effective flow and storage of products and information from the point of origin to the final customer.

II. MANUFACTURING CONFIGURATION

https://www.youtube.com/watch?v=ltOf4-1jq0I Location of manufacturing

Where to locate manufacturing facilities is crucial to MNEs’ success. The factors that play a

key role in manufacturing configuration strategies include location-specific advantage, firm

-specific assets, and internalization (in-house manufacturing as opposed to outsourcing). To

develop manufacturing strategies, MNEs need to consider three basic configurations:

a. Centralized Manufacturing Strategy. Centralized manufacturing in a single country (basically a manufacture and export strategy).

b. Regional Manufacturing Strategy. Regionalized manufacturing in the specific regions served (a regionalized marketing and manufacturing approach).

c. Multidomestic Manufacturing Strategy. Local manufacturing in each country market served (multidomestic marketing and manufacturing approach) using country-specific manufacturing facilities to meet local demand.

Once an MNE has adopted a specific manufacturing configuration, it needs to then

coordinate and control its manufacturing facilities. Coordination represents the linking or

integrating of all manufacturing facilities around the world into a unified system. Control

embraces systems, such as organizational structure and performance measurement, which are

designed to help ensure strategies are implemented, monitored, and revised, when appropriate.

III. INFORMATION TECHNOLOGY AND SUPPLY CHAIN MANAGEMENT

https://www.youtube.com/watch?v=s5FXLUHsKOE

Global supply chain management concerns the sourcing and coordination of materials, information and funds from the initial raw material supplier to the final customer. The key to making a global information system work effectively is a good information system. MNEs now rely more and more on information technology (IT) for an effective management of their supply chain. IT helps supply chain management in several ways:

1. Electronic Data Interchange (EDI). It refers to the electronic movement of money and information via computers and telecommunications equipment in a way that effectively links suppliers, customers & third-party intermediaries, & ultimately enhances customer value.

2. Enterprise Resource Planning/Materials Resource Planning: It refers to the use of software to link information flows from different parts of a business and from different parts of the world. An extension of ERP is material requirements planning (MRP), a computerized information system that addresses complex inventory situations and calculates the demand for parts from the production schedules of the companies that use the parts.

3. Radio Frequency ID (RFID): It is a system that labels products with an electronic tag that stores and transmits information regarding the product’s origin, destination, and quantity.

4. E-Commerce: It refers to the use of the Internet to link suppliers with firms and firms with customers. Linkages are done through intranets and extranets. An intranet can be used to help automate and speed up internal processes in a company. The term extranet refers to using the Internet to link a company with external constituencies. Private Technology Exchange (PTX) refers to an online collaboration model that brings manufacturers, distributors, resellers, and customers together to execute trade transactions and to share information regarding demand, production, availability, etc.

IV. QUALITY

Quality refers to product features that meet or exceed customers’ expectations. More

specifically, it incorporates conformance to specifications, value enhancement, fitness for use, after-sales support, and psychological impressions. There are several approaches to quality:

A. Zero Defects versus Acceptable Quality Level

Acceptable quality level (AQL) is a premise that allows for a tolerable (negotiable) level of defects that can be corrected through repair and service warranties (U.S.). Zero defects describe the refusal to tolerate defects of any kind (Japan).

B. Total Quality Management (TQM)

Total quality management (TQM) stresses three principles: (i) customer satisfaction, (ii) employee involvement, and (iii) continuous improvements at every level of the organization. The goal of TQM is to eliminate all defects. It focuses on benchmarking world-class standards, product and service design, process design, and purchasing practices. Kaizen represents the Japanese process of continuous improvement, which requires identifying problems and enlisting employees at all levels of the organization to help eliminate the problems.

C. Six Sigma

Six Sigma is a highly focused quality-control system designed to scrutinize a firm’s entire production system to eliminate defects, slash product cycle time, and cut costs across the board.

D. Levels of Quality Standards

Quality standards have three levels: general level, industry-specific level, and firm level.

1. General-Level Standards. The International Organization for Standardization (ISO) was created to facilitate the international coordination and unification of industrial standards. It represents a network of standard setters in 158 countries around the world.

2. Industry-Specific Standards. Industry-specific standards represent the quality-related requirements expected of suppliers.

3. Firm-Specific Standards. Individual companies also set their own standards for suppliers to meet if they are going to continue to supply them.

V. SOURCING

Sourcing is the path a firm pursues in obtaining materials, components and final products either in-house (vertical integration) or outside of the firm (outsourcing), and from either home country or foreign locations (offshoring). Global sourcing represents the first step in the process of global materials management.

A. Global Sourcing.

https://www.youtube.com/watch?v=ykYgVz75JGc&t=119s

Sourcing in the home country avoids such problems as lengthy supply chains and foreign currency risk. However, there are instances where domestic sources are too expensive.

1. Global Sourcing: Benefits of global sourcing include cost reduction, improved quality, increased exposure to worldwide technology, establishing a presence in a foreign market.

2. Problems with Global Sourcing. Quality, safety, and other concerns come with global sourcing. Countries with the cheapest products often lack adequate regulations, enforcement, and logistical infrastructure, leaving it up to the purchasing firms to ensure quality and safety.

B. Major Sourcing Configurations

1. Vertical Integration. The MNE owns the entire supplier network, or at least some part of it.

2. Industrial Clusters. Buyers and suppliers locate in close proximity to facilitate doing business. A good example is the Japanese Keiretsu. A Keiretsu is a group of independent firms that work together to manage the flow of goods & services along the value chain.

C. The Make or Buy Decision

https://www.youtube.com/watch?v=ofVM5XYCwV0

In determining whether to make (vertical integration) or buy (outsourcing), MNEs should focus on making those parts and performing those processes critical to a product and in which they have a distinctive advantage. Other activities should be potentially be outsourced.

D. The Purchasing Function

The global purchasing function normally progresses in four phases: (1) Domestic purchasing only, (2) Foreign buying based on need, (3) Foreign buying as a part of procurement strategy, and then (4) Integration of global procurement strategy. The last phase is reached when a firm realizes the benefits of purchasing on a global basis.

VI. INVENTORY MANAGEMENT

https://www.youtube.com/watch?v=sl5zEPRkp0U

Whether a firm decides to source from inside or outside the company or from domestic or foreign suppliers, it needs to manage the flow and storage of inventory. However, the distance, time, and uncertainty associated with foreign sourcing can complicate the inventory process.

A. Lean Manufacturing and Just-in-Time Systems

Lean manufacturing is a productive system that focuses on optimizing processes and reducing waste. One method of reducing costs is lowering inventory levels. A just-in-time (JIT) manufacturing system reduces inventory costs by having raw materials and components delivered just as they are needed in the production process. JIT typically implies sole sourcing for specific parts in order to get the supplier to commit to the stringent delivery and quality requirements inherent in the system. A company’s inventory management strategy determines the desired frequency and size of shipments and whether JIT will be used.

The risk of using JIT in foreign sourcing is supply interruptions that can cause major production problems (stoppage). This risk can be the result of the complications involved in international transportation. Complications include documentation, choice of carrier (air, land or ocean), and the decision of whether to outsource the foreign sourcing function to a third-party intermediary or to establish internal transportation capabilities.

B. Foreign Trade Zones

Foreign trade zones (FTZs) are government-designated areas in which goods can be stored, inspected, and/or manufactured without being subject to formal customs procedures until they actually leave the zones. FTZs often serve as a site to store inputs until they are needed at a particular production site.