Global production and logistics

production vs. logistics

production: activities involving in creating product

logistics: procurement and physical transmission of material through the supply chain from suppliers to customers

1. Where to produce

- country factors

- tech factors

- product factors

1. where to produce: tech factors

- If level of fixed cost high-> produce in single location

- If level of output at which most plant-level scale economies are exhausted, choose single location

- flexibility of technology -> reduces set up times for complex equipment

1. where to produce: product factors

- value to weight ratio is high -> produce in a single location

- product serve universal needs high -> concentrate manufacturing in central location

2. Strategic role of foreign subsidiaries

- pressure to lower costs

- increase in availability of advanced factors of production

- more TRANSNATIONAL STRATEGY

3. Outsourcing production: make or buy

make it-> protect IP, facilitates scheduling

buy it-> flexibility to change suppliers, access to markets

4. global supply chain management

- manage supply chain at lowest possible cost

- JIT system

- role of IT

Philips in China

- low wage costs

- expansion of strong industrial base and expertise

- exchange rate is stable

risks:

- risk: political, economic, social changes, no flexibility

- transnational strategy

GE in China (where)

- lower wages but start to increase

- shipping prices increase because of oil

- cheap natural gas in US

- US productivity increase

- moved back to Kentucky

- redesigned product and process "product simplification"

Amazon Kindle (outsourcing)

criteria:

- costs

- reliability

- know-how expertise

- importance of product component - ink

- US companies lack expertise in e-ink tech