GLOBAL MANUFACTURING & MATERIALS MANAGEMENT

Issues rise when trade barriers fall and global market develop: Where in the world should manufacturing activities be located? What should be the long-term strategic role of longforeign production sites? Should own foreign manufacturing activities or better to outsource? How should a globally dispersed supply chain be managed and the role of IT in global logistics?

a) b) c) d)

Strategy, Production and Logistics
Production : the activities involved in creating a product. Logistics : the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Strategic objectives of production and logistics functions:
a) To lower cost - Need to disperse production activities to various locations around the globe where the activity can be performed most efficiently. - Can cut cost by managing global supply chain efficiently. b) To increase product quality - Can achieve by eliminating defective product from the both supply chain and manufacturing processes. - Firms that improve quality control will also reduce its costs of value creation. - Six Sigma quality improvement methodology ± to increased the reliability.

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Quality means reliability ± the products has no defects and performs well. - From TQM philosophy: i/ should eliminate mistakes, defects and poor materials ii/ should improve the quality of supervision iii/ should create an environment in which employees will not fear reporting problems or recommending improvements. iv/ management responsible to train employees in new skills to keep pace with changes in the workplace. c) Able to accommodate demands for local responsiveness - Demand for local responsiveness create pressures to decentralize production activities to the major markets. - Enable the firm to customize the product offerings. d) Able to respond quickly to shifts in customer demand - When customer demand is becoming large and unpredictable shifts, the firm should adapt most quickly to these changes. - The firm that can adapt fast, will gain an advantage.

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Where to Manufacture
Choosing a location for manufacturing activities ± to achieve the goals of minimizing costs and improving product quality. Factors to be considered: a) Country factors b) Technological factors c) Product factors Country Factors - Political economy, cultural and factor costs differ from country to country. - Should locate its various manufacturing activities where these factors are conducive.

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- Externalities include the presence of skilled labor and supporting industries. - It can play an important role in deciding where to locate manufacturing activities. - Formal and informal trade barriers influence location decisions, as do transportation costs and rules and regulations regarding FDI. - Another country factor is expected future movements in its exchange rate. rate. - Adverse changes in exchange rates can quickly alter a country¶s attractiveness as a manufacturing base.

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Technological Factors - Because of the technological constraints, it is necessary to perform certain manufacturing activities in only one location. In some cases, the technology make it feasible to perform an activity in multiple locations. - 3 characteristics of a manufacturing technology: a) Fixed Costs - Fixed costs of setting up a manufacturing plant from a single location is high. - It makes sense if serve the world market from a single plant at a single location. - If the fixed costs at low level, it is economical to perform activities in several locations at once. - Can accommodate local demand and not too dependent on one location.

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Minimum Efficient Scale - The concept of economies of scale tells us that as plant output expands, unit costs decrease. - However, few additional scale economies are available. - The level of output at which most plant-level scale planteconomies are exhausted is referred to as the minimum efficient scale of output. - This is the scale of output a plant must operate at to realize all major plant-level scale economies. plant- The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations.

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Flexible Manufacturing and Mass Customization - The best way to achieve high efficiency with a low unit costs, is through the mass production of a standardized output. - The view of production efficiency has been challenged by the rise of flexible manufacturing activities. - Flexible manufacturing technology or lean production covers a range of manufacturing technologies designed to: (1) Reduce setup times for complex equipment (2) Increase the utilization of individual machines through better scheduling (3) Improve quality control at all stages of the manufacturing process.

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Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost. Mass customization: the production of a wide variety of end products at a unit cost that could once be achieved only through mass production of a standardized output. Product Factors - 2 product features affect location decisions:

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a) Product¶s value-to-weight ratio value-to- Influence on transportation costs - High value-to-weight ratio: expensive and do not value-toweigh very much. (electronic components) - Low value-to-weight ratio: inexpensive products value-toand weigh a lot. (refined sugar, paint)

b)

Serve universal needs - Needs that are the same all over the world. - Many industrial products (industrial electronics, steel) and modern consumer products (calculators and personal computers) have universal needs. - The need for local responsiveness is reduced because there are few national differences in consumer taste and preference for those products. - This increases the attractiveness of concentrating manufacturing at an optimal location.

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Locating Manufacturing Facilities - 2 basic strategies for locating manufacturing facilities: a) Concentrating in a centralized location and serving the world market from there b) Decentralizing them in various regional or national locations that are close to major markets. - The appropriate strategic choice is determined by the various country-specific, technological and product countryfactors. - Concentration of manufacturing makes sense when: a) Differences between countries in factor costs, political economy and culture have an impact on the costs of manufacturing in various countries. b) Low trade barriers. c) Externalities arising from the concentration of enterprises favor certain locations.

d) e)

f) g) -

Important exchange rates are expected to remain relatively stable. The production technology has high fixed costs and high minimum efficient scale relative to global demand, or flexible manufacturing technology exists. The product¶s value-to-weight ratio is high. value-toThe product serves universal needs. Decentralization of manufacturing is appropriate when: a) Differences between countries in factor costs, political economy and culture do not have a substantial impact on the costs of manufacturing. b) Trade barriers are high. c) Location externalities are not important. d) Volatility in important exchange rates is expected.

e) The production technology has low fixed costs and low minimum efficient scale, and flexible manufacturing technology is not available. f) The product¶s value-to-weight ratio is low. value-tog) The product does not serve universal needs (differences in taste and preferences exist between nations).

Make-orMake-or-Buy Decisions
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Problems in sourcing decisions: decisions whether they should make or buy the component parts that go into their final product. Should they manufacture its own component parts or Should they outsource them, or buy them from independent suppliers?

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The Advantages of Make: a) Lower costs b) Facilitating Specialized Investments c) Proprietary Product Technology Protection d) Improved Scheduling The Advantages of Buy: Buying component parts from independent suppliers gives the firm: a) Strategic Flexibility b) Lower Costs c) Offsets

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Managing a Global Supply Chain
In International business, the materials management manages the global supply chain. The objectives of materials management: a) To manage a firm¶s global supply chain at the lowest possible cost. b) Lowering the costs of value creation and help the firm establish a competitive advantage through superior customer service. The Role of Just-in-Time Inventory (JIT) Just-in- To economize on inventory holding costs by having material arrive at a manufacturing plant just in time to enter the production process and not before. - Reduce inventory holding costs: warehousing and storage costs.

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JIT systems also can help firms improve product quality. Parts enter the manufacturing process immediately ± allow defective inputs to be spotted right away. The Role of Organization - The firm must figure out the best organization to achieve tight coordination. - Organization, purchasing, production planning and control and distribution should be integrated. - These functions integrated within the materials management. - Arrangement should be made to transform materials management into an important strength.

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The Role of Information Technology and the Internet - Use electronic data interchange (EDI) to coordinate the flow of materials into manufacturing, through manufacturing and out to customers. - EDI systems require computer links between a firm, its suppliers and its shippers. - Suppliers. Shippers and the purchasing firm can communicate with no time delay. - Much of the paperwork is eliminated.