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Chapter 14
Global Production
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Strategy, Production, Logistics
• Value chain activities- Production, marketing, logistics, R&D, HR, IS
• Production: - physical goods, as well as services
• Logistics: - controls physical transmission of materials through the
value chain
• Production and logistics decisions- Lower costs of value creation- Add value through better attention to customer needs
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Production and Materials Management / Logistics
• Production activities- Service and manufacturing
- Conversion of inputs to a product
• Materials management activities- Physical transmission of materials through value chain:
procurement –> production –> distribution
• Logistics activities encompass- Procurement and physical transmission of material
through the supply chainsuppliers –> customers
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© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Relationship Between Quality and Costs
Improves Performance
Reliability
Increases Productivity
Lowers Rework and Scrap Costs
Lowers Warranty
Costs
Lowers Manufacturing
CostsIncreases
ProfitsLowers Service Costs
Quality …
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Quality and Cost Management
• TQM: technique to improve products and services quality
• Six Sigma: Statistically based cost cutting system- Reduces defects, boosts productivity,
eliminates waste• ISO 9000- European Unions standards for quality- Set by code- Firm must be certified “ISO 9000” before it
may access the EU marketplace
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Which Manufacturing Location?
• Country Factors- Favorable economic, political, cultural conditions
• Technological Factors- Fixed costs relatively low- Minimum efficient scale
• Magnitude of plant output to realize scale-economies• Market demand level adequacy
- Flexible manufacturing; lean production- Mass customization- Flexible machine cells
• Product features: value-to-weight ratio, universal needs
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Where to Locate? Concentrate Manufacturing if:
• Costs of manufacturing are responsive to
country environment (one location best)
• Trade barriers are low
• Product serves universal needs
- Minor difference in customer needs
- Minimal consumer preferences
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Where to Locate? Concentrate Manufacturing if:
• Trade barriers are low
• Exchange rates among currencies with impact on
your business are stable
• Production technology
- Has high fixed costs
- Has high minimum efficient scale
- Exists in flexible manufacturing format
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
• Country environment does not affect costs
• Trade barriers are high
• Production technology
- Has low fixed costs
- Has low minimum efficient scale
- Does not exists in flexible manufacturing format
• Product value-to-weight ratio is low
• Product does not serve universal needs
- Customer needs different
- Consumer preferences different
When to Decentralize Manufacturing?
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Make-or-Buy?
• “Make” advantage- Lower costs in-house?- Are specialized assets needed? - Is proprietary technology needed?• Know-how protection issue (Dunning)
• “Buy” advantage- Strategic flexibility needed?- Lower costs by buying?
• In either case “improved scheduling” is important
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McGraw-Hill/IrwinGlobal Business Today, 4/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Other Issues
• Strategic alliances with suppliers• Just-in-time inventory system management• The role of information technology• The role of the internet
