Chapter 16: Global Marketing

Chapter 15: Operations and Supply-Chain

1.    Where to produce? (use strategy)

a.    Where do we locate value chain activities?

2.    Do we make it or outsource?

3.    What are the considerations for effectively managing a supply-chain?

Production and Supply Chain

o   Production: activities involved in making a product

o   Supply chain: managing operations, procurement (attainment), logistics, and marketing channels

§  from managing raw materials to delivery

o   Conducted internationally to lower cost of value creation and add to customer needs

§  Quality, service, speed, responsiveness

Considerations

1.     Ensuring quality

a.     Durability, reliability, performance and design, service quality

2.     Accommodate demands for local responsiveness

a.     Attend to cost

3.     Be able to respond quickly to shifts in customer demand and to external shocks (natural disasters, war, pandemics)

a.     They can be fickle and change quickly

Where to Produce?

o   Consider:

1.     Country factors:

a.     Political risk, location economies, regulations, future exchange rates

2.     Technological factors

a.     Consider level of fixed costs (planned equipment you buy regardless of how much output) because if they’re high, you have to centralize operations in a few locations

b.     Centralize production when plants are at high capacity

c.     Low costs will allow us to decentralize and produce closer to the markets which will help tailor the product in a way that’s consistent with a multi-domestic strategy

d.     More flexible manufacturing technology (lean production) that reduces set up times, increasing utilization, improving quality

3.     Product factors

a.     Making decisions on location that depend on value-to-weight ratio and whether the product serves universal needs

b.     Value-to-weight ratio: if high, centralize production and export from the lowest cost and if low, decentralize

                                                                 i.     Transportation costs; low-software, pharmaceuticals; high-paint, steel, automobiles

c.     Universal needs: are they commodities? can they be standardized?, if so, centralize into lowest cost locations and export

d.     For consumer products, you must customize the product to meet local needs and decentralize manufacturing to make those demands

Location factors

§  With global strategy, centralize for low cost

§  Multidomestic, decentralize to facilitate the local responsiveness

Make or Buy?

o   Either making the parts (using vertical integration) or outsourcing

o   Vertical integration can lower cost, facilitate investment in expensive assets that vendors may not be willing to commit to, maintain control and protect technology, and schedule adjacent processes and maintain control

§  Example: Kodak; camera business, got into complementary product of film, developed particular technology with silver halide that got them into the chemical business to control that chemical to make sure they had enough supply, also integrated into paper products, and got photo finishing with many companies.

§  After producing a lot of value for shareholders, digital cameras came in and undermined the vertical integration system

Advantages of Buying

o   Allows you to maintain greater flexibility (no assets tied up in what may become obsolete considerations), drives down cost (outsourcing from firms that specialize in those products and are efficient), gain international customers, facilitate innovation (if vendors have capabilities, that you don’t, you can work with them in a way that helps facilitating your innovation)

Disadvantages

o   Quality- with Boeing and Toyota

o   Dependability- want to make sure suppliers are dependable with timesetting

Supply Chain Considerations

o   Distribution center: warehousing needed for customization for wholesalers, retailers, and customers

§  Center of global supply chain (getting market information, help with customization, ordering)

o   Purchasing and inventory: everything from raw materials to work in process, finished goods

§  Inventory comprises about 14% of total costs of most manufacturing entities

§  Has to be handled mindfully

o   Packaging: primary, secondary, and transit

§  “how do you package the product itself?”, “how do you lump together several primaries together?” (many cereal boxes in one package being sent to the grocery store)

§  Pallets, cargo containers

§  Prevents damage, protect, preserve, provide safety

o   Transportation: cost of time and moving product in system through land, water, and air (vary according to infrastructure in different countries)

o   Reverse logistics: managing inventory from where the sale was back into the company

§  Ex: returns at Christmas time (get from customers back to company)

Disposability and recycling (sustainability and minimizing waste)