Ch 15 notes

Chapter 15: Global Production, Outsourcing, and Logistics

Overview

Authors: Frank Cotae & Jacqueline MusabendePublication: McGraw Hill LLC, 2024

Learning Objectives (1)

• Understanding the importance of global production and supply chain management for multi-national corporations.

• Identifying factors influencing the location of production including:

  • Country Differences: Economic stability, labor costs, political climate, and infrastructure quality.

  • Production Technology: Advances in automation and flexible manufacturing which can affect productivity and costs.

  • Production Factors: Availability of materials, skilled labor, and logistical capabilities.

• Examining the role of foreign subsidiaries in scaling operations and accumulating local knowledge essential for efficient production.

Learning Objectives (2)

• Delving into the factors that influence decisions on sourcing supplies, evaluating whether to procure internally or externally.

• Understanding the requirements for efficient global supply chain management, emphasizing speed, reliability, and adaptability to market changes.

Introduction to Global Supply Chains

• Case Study - NIKE:

  • Sourcing materials from diverse regions (e.g., China for textiles, India for rubber, Türkiye for specialized components).

  • Manufacturing finished products primarily in Vietnam and Indonesia, leveraging skilled labor and lower production costs.

  • Acquired Celect to enhance real-time inventory tracking capabilities, improving responsiveness to market demand.

  • Transitioned to a direct-to-consumer (DTC) model amidst COVID-19 disruptions to mitigate reliance on third-party retailers and bolster profit margins.

Key Questions in Global Production Location

Decisions on:

• The optimal geographic location for production activities to minimize costs while maximizing output and quality.

• The strategic long-term role of foreign production facilities, taking into account geopolitical risks and market access.

• The balance between ownership versus outsourcing of production facilities, weighing control and cost efficiency.

• Strategic and tactical cost factors in global logistics and purchasing, including transportation cost and tariffs.

Supply Chain Management Fundamentals

• Supply Chain Management:

  • An integrated approach encompassing purchasing, logistics, and supply chain strategies to streamline processes globally.

• Logistics:

  • The strategic planning, implementation, and control of the efficient flow and storage of goods, services, and related information.

• Total Quality Management (TQM):

  • A holistic approach aimed at continuously improving product and service quality through active involvement of all organization members.

• Six Sigma:

  • A data-driven methodology aimed at improving quality by minimizing defects through rigorous statistical analysis.

• ISO 9000:

  • A set of international standards ensuring organizations develop a quality management system that consistently provides products that meet customer and regulatory requirements.

Cost Management in Supply Chains

• Cost Management Goal:

  • To lower the total cost associated with value creation, focusing on reducing production costs and after-sale service expenses.

• The importance of reliability in maintaining efficient global production and supply chains to prevent delays and financial losses.

Determining Where to Produce

• Key Factors Influencing Location:

  • Country Factors: Political stability, labor laws, economic conditions, and comparative advantages based on factor costs.

  • Technological Factors: Understanding minimum efficient scale, flexible manufacturing systems, and their implications on scale economies.

  • Production Factors: Assessing product features and strategic roles that influence whether to centralize or decentralize production.

• Hidden Costs of Foreign Locations:

  • Potential disadvantages include high employee turnover rates, challenges in maintaining product quality, and low employee productivity.

  • Assessing these hidden costs is essential for maintaining a competitive supply chain.

Strategic Role of Foreign Production Sites

• Relationship dynamics in global logistics and purchasing include:

  • Effective global distribution strategies that leverage inventory management techniques.

  • Integrated purchasing strategies across varied geographic locations to optimize costs and efficiencies.

Make-or-Buy Decisions (1)

• Definition: A strategic decision on whether to produce components internally (Make) or source them externally (Buy).

• Influential Factors:

  • Consideration of costs associated with production, management strength, and operational capacity.

Make-or-Buy Decisions (2)

• Make Factors:

  • Emphasizing quality control, maintaining proprietary technologies, operational efficiencies, and strategic alignment.

• Buy Factors:

  • Lack of in-house expertise, supplier capabilities, brand influence, and cost-effectiveness.

  • Emerging trends toward reshoring jobs to bring production back to domestic markets for quality control and brand integrity.

Operational Factors in Make-or-Buy Decisions

• An overview diagram illustrating operational determinants that favor make versus buy decisions, including capacity considerations and the risk of supply chain disruptions.

Managing a Global Supply Chain (1)

• The critical importance of Just-in-Time (JIT) inventory management for enhancing efficiency.

• Significant role of Information Technology (IT) in coordinating inventory and supply chain functions utilizing systems like Electronic Data Interchange (EDI) and Enterprise Resource Planning (ERP) systems.

• Building trusting inter-organizational relationships to facilitate collaboration and shared goals.

Managing a Global Supply Chain (2)

• Focusing on evolving relationships between vendors and buyers, moving from purely transactional engagements to collaborative partnerships.

• Recognizing high coordination levels versus low integration dynamics impacting supply chain performance.

Implications for Business

• Highlights the need for coordination across global production systems to maximize efficiency and responsiveness.

• Stresses the importance of JIT approaches and IT systems in effectively managing global supply chains to adapt to changing global market conditions.