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International Business
Environments & Operations

15e

Daniels ● Radebaugh ● Sullivan

International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan

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Chapter 18

Global Manufacturing and Supply-Chain Management

Chapter 18: Global Manufacturing and Supply-Chain Management

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Learning Objectives

Describe the different dimensions of a global manufacturing strategy
Examine the critical factors in successful global supply-chain management
Show how supplier networks function
Explain how quality affects global supply and effective inventory management
Discuss how to establish successful transportation networks as part of the global supply chain

The Learning Objectives for this chapter are:

To describe the different dimensions of a global manufacturing strategy
To examine the elements of global supply-chain management
To show how supplier networks function
To describe how information technology is critical to an effective global supply-chain strategy
To explain how quality affects global supply and effective inventory management
To discuss how to establish successful transportation networks as part of the global supply chain

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Introduction

Effective supply chain management
reduces costs
increases revenue

Effective supply chain management is one of the most important tools companies have to reduce costs and increase revenue.

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What is Supply-Chain Management?

The supply chain
the network that links together the different aspects of the value chain, coordinating materials, information, and funds from the initial raw material supplier to the ultimate customer
Supply chain management aka operations and supply-chain management (OSM)
the design, operation, and improvement of systems that create and deliver the firm’s primary products and services

Supply chain management refers to everything from creating supplier relationships to getting the product to the final consumer.

An integrated supply chain and operations model

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This illustration shows a generic industry supply chain of a firm

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What is Supply-Chain Management?

Supply-chain management – The activities in the value chain that occur outside the company.
Whereas
Operations management or logistics management often refers to internal activities

Logistics focuses on transporting and storing materials and final goods.

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Global Supply Chain Strategies

Factors in supply chain strategy
Compatibility
Manufacturing Configuration
Coordination
Control

Four key factors influence the success of a company’s global manufacturing strategy.

The first, compatibility, refers to the degree of consistency between the foreign investment decision and the company’s competitive strategy.

The second, manufacturing configuration, requires the company to consider whether to centralize manufacturing in one country, establish regional operations, or set up multidomestic production.

Third, coordination involves integrating activities into a unified system.

Finally, control involves measuring performance so the company can respond appropriately to changing conditions.

Supplier Networks

Learning Objective

Show how supplier networks function

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Learning Objective

To show how supplier networks function

Supplier Networks

Sourcing is the process of obtaining a supply of inputs (raw materials and parts) for production.
Global sourcing is the process of materials management (which includes sourcing), inventory management, and transportation between suppliers, manufacturers and customers.

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Sourcing is the process of obtaining a supply of inputs (raw materials and parts) for production.

Global sourcing is the process of materials management (which includes sourcing), inventory management, and transportation between suppliers, manufacturers and customers.

Global Sourcing

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This illustration shows how sourcing is important in different aspects of business

Global Sourcing

Outsourcing is when a company externalizes a function or process to another business.
Contract Manufacturing is when the entire manufacturing process is being handled by another firm.

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Outsourcing is when a company externalizes a function or process to another business.

is when the entire manufacturing process is being handled by another firm.

Contract Manufacturing

Why Global Sourcing?

To reduce costs through cheaper labor, laxer work rules, and low land and facilities costs
To improve quality
To increase exposure to worldwide technology
To improve the delivery-of-supplies process

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Companies engage in global sourcing for the following reasons:

To reduce costs through cheaper labor, laxer work rules, and low land and facilities costs

To improve quality

To increase exposure to worldwide technology

To improve the delivery-of-supplies process

Why Global Sourcing?

To strengthen reliability of supply – supplementing domestic suppliers with foreign ones
To gain access to materials that are only available abroad
To establish presence in a foreign market
To satisfy offset requirements
To react to competitors’ offshore sourcing practices

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Also…

To strengthen reliability of supply – supplementing domestic suppliers with foreign ones

To gain access to materials that are only available abroad

To establish presence in a foreign market

To satisfy offset requirements

To react to competitors’ offshore sourcing practices

Global Sourcing

Vertical Integration is when a company owns the entire supplier network, or at least a significant part of it.
Industrial Clusters occur when buyers and suppliers locate close to each other to facilitate doing business.
Dell Computer in Malaysia
Keiretsu – Japanese group of independent companies that work together to manage the flow of goods

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Vertical Integration is when a company owns the entire supplier network, or at least a significant part of it.

Industrial Clusters occur when buyers and suppliers locate close to each other to facilitate doing business, for example Dell Computer in Malaysia.

A Keiretsu is a Japanese group of independent companies that work together to manage the flow of goods

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The Make-or-Buy Decision

The make-or-buy decision
Which production activities should take place in-house and which should be subcontracted to independent companies?

The make-or-buy decision involves deciding which activities should take place in-house and which should be subcontracted to outside companies either domestic or foreign.

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Supplier Relations

Firms that outsource must decide
How to work with suppliers
Close arrangement

Trust

Arms-length

Companies that outsource must also develop a relationship with their suppliers. Some companies approach this relationship like a partnership, while others take more of an arms-length approach.

Note that closer relationships require a great deal of trust, but can offer strategic advantages.

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The Purchasing Function

Four phases of purchasing
Domestic purchasing only
Foreign buying based on need
Foreign buying as part of a procurement strategy
Integration of global procurement strategy

Purchasing typically goes through four phases before it becomes ‘global’: domestic purchasing only; foreign buying based on need; foreign buying as part of procurement strategy; and integration of global procurement strategy.

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Information Technology and Global Supply-Chain Management

Electronic Data Interchange
links suppliers, manufacturers, customers, and intermediaries
Enterprise Resource Planning/Material Requirements Planning
links information flows from different parts of a business and from different geographic areas
Radio Frequency ID (RFID)
labels products with an electronic tag, which stores and transmits information regarding the product’s origin, destination, and quantity
E-Commerce
joins together suppliers with companies and companies with customers

The key to making a global information system work is getting the relevant information in a timely manner. Information technology is essential to this process. There are several technologies that can facilitate information flows and business including electronic data interchange, enterprise resource planning/material requirements planning, radio frequency ID, and e-commerce.

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Quality

Learning Objective:

Explain how quality affects the global supply and effective inventory management

Learning Objective : To show how quality affects the global supply chain.

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Quality

Quality
meeting or exceeding customer expectations
involves careful design of a product or service and ensuring that the organization’s systems can consistently produce the design

Quality management is an important issues at all levels of the global supply chain.

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Zero Defects versus
Acceptable Quality Level

Zero defects
no flaws of any kind
Acceptable quality level (AQL)
a few unacceptable products would be dealt with through repair facilities and service warranties

Many companies today take a zero defects approach to quality. In fact, a zero defects approach, an idea perfected by Japanese manufacturers, may be necessary to beat the competition.

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The Deming Approach to Quality Management

According to W. Edwards Deming, managers are responsible for quality
Deming’s 14 Points
quality suggestions put forth by Deming

In the late 1970s, W. Edwards Deming promoted quality using his 14 Point plan to reduce variance in manufacturing.

Deming’s approach to quality was initially adopted by the Japanese but has since spread to other countries.

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Total Quality Management

Total quality management (TQM)
a process that stresses three principles
customer satisfaction
continuous improvement
employee involvement

The TQM process, perfected by the Japanese, is focused on customer satisfaction, continuous improvement, and employee involvement. The ultimate goal is to eliminate all defects.

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Six Sigma

Six sigma
aims to eliminate defects, slash product cycle times, and cut costs across the board

Motorola developed the Six Sigma approach to quality management in the 1980s. Since then, it has been adopted by many multinationals, notably General Electric.

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Quality Standards

Levels of quality standards
General
ISO 9000
Malcom Baldridge National Quality Award
Industry specific
Company specific

Companies that meet general levels of quality assurance focus on the International Organization for Standardization (ISO) standards including ISO 9000 which is a global set of quality standards designed to promote quality at every level of an organization.

The ISO 4000 standards focus on environmental management.

Meeting ISO standards can be essential to business. Non-European companies operating in Europe, for example, must be ISO certified.

In addition to these general standards, most companies also strive to meet industry level and company specific standards of quality.

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Inventory Management

Learning Objective:

Explain how quality affects global supply and effective inventory management

Learning Objective : To explain how inventory management is a key dimension of the global supply chain.

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Inventory Management

Lean manufacturing
a productive system whose focus is on optimizing processes through the philosophy of continual improvement
Just-in-time (JIT) inventory management
focuses on reducing inefficiency and unproductive time in the production process to improve continuously the process and the quality of the product or service

Companies that source internationally may find that inventory flows are complicated by time, distance, and uncertainty.

Lean manufacturing and JIT systems can be more difficult to implement when foreign suppliers are involved.

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Foreign Trade Zones

Foreign trade zones (FTZs)
areas in which domestic and imported merchandise can be stored, inspected, and manufactured free from formal customs procedures until the goods leave the zones
General purpose
Subzones

Foreign trade zones, of FTZs have become a common intermediate step in the process between import and final use. FTZs are attractive because they allow companies to defer duties, pay fewer duties, or avoid duties entirely.

General purpose zones are located near shipping ports, airports, or border crossings.

Subzones are often located at a manufacturing facility.

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Transportation Networks

Learning Objective:

Discuss how to establish successful transportation networks as part of the global supply chain

Learning Objective:

To discuss how to establish successful transportation networks as part of the global supply chain

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Transportation Networks

Transportation links
Suppliers
Companies
Customers

Transportation is a crucial part of logistics. It links together suppliers, companies, and customers.

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Uncertainty and the
Global Supply Chain

Globalization encourages companies to outsource to foreign suppliers to reduce costs
But, political events increase the risk of supply chain disruption

Globalization is pushing firms to establish operations in foreign locations as a means of lowering costs and being closer to markets. However, this means that the supply chain is longer, and consequently subject to more risk.

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