Global Production and Supply Chain Management

Chapter 17: Global Production and Supply Chain Management

Introduction

  • Importance of global production and supply chain management decisions   - Essential for global companies to maximize efficiency and value creation

Learning Objectives

  1. Explain the central importance of global production and supply chain management to companies.

  2. Explain how country differences, production technology, and production factors affect production location decisions.

  3. Recognize the enhanced role of foreign subsidiaries in production through knowledge accumulation.

  4. Identify factors influencing the decision to source supplies internally or externally.

  5. Understand the logistics and purchasing functions in global supply chains.

  6. Describe requirements for efficiently managing a global supply chain.

Issues in International Business

  1. Production Facility Location
       - Key considerations for placement of production facilities.

  2. Long-term Strategy for Foreign Production Sites
       - Assessment of foreign production site's roles over time.

  3. Ownership vs Outsourcing of Production Activities
       - Decision-making on whether to own or outsource production functions.

  4. Management of Global Supply Chains
       - How to manage globally dispersed supply chains and the role of IT.

  5. Management Strategy Choices
       - Should companies manage global supply chains internally or outsource them?

Strategy, Production, and Supply Chain Management

  • Value Creation Activities
      - Production involves activities to create a product.
      - Supply chain management integrates logistics, purchasing, operations, and market channel activities.
      - Efficiency in production relies on timely, high-quality inputs through purchasing and logistics.

Strategic Objectives

  1. Cost Minimization
       - Objective to lower total costs from raw materials to finished goods while providing value.

  2. Quality Improvement
       - Establish process-based quality standards to reduce defects.
       - Quality ensures reliability, embedded in both upstream and downstream supply chain sections.

  3. Quality Control Benefits
       - Improved quality control leading to cost reductions, increased productivity, and lower warranty costs.

Six Sigma

  • Definition
      - A methodology descended from Total Quality Management (TQM) aiming to reduce defects and enhance productivity.

  • Goals
      - Achieve high levels of quality although perfection is unattainable, especially for global corporations.

International Standards

  • ISO 9000
      - Certification process focusing on certain quality standards necessary for products and processes, particularly required by the European Union.

Additional International Objectives

  • Flexibility in Production and Supply Chain
      - Must fulfill local responsiveness and adapt swiftly to changes in consumer demand.

Where to Produce

Country Factors

  • Key Influencing Factors
      - Differences in political and economic systems.
      - Cultural variations and relative factor costs.
      - Location Economies
      - Impacts of trade barriers, transportation costs, regulations, and exchange rates.

Technological Factors

  1. Fixed Costs and Economies
       - Understanding the minimum efficient scale in production setups.

  2. Flexible Manufacturing and Mass Customization
       - Reduced setup times and improved utilization leads to customization capabilities for diverse markets.

Production Factors

  • Product Features and Ratios
      - Transportation costs influenced by value-to-weight ratio and the concept of universal needs.
      - Choices for centralized versus decentralized production locations.

Strategic Roles for Production Facilities

  • Importance of .global learning

  • Different types of factories: offshore, source, server, contributor, outpost, lead factories.

Hidden Costs of Foreign Locations

  • Potential issues such as employee turnover, workmanship quality, productivity challenges.

Make-or-Buy Decisions

  1. Definition
       - Decisions on whether to perform activities in-house or outsource.
       - Example: outsourcing customer service while manufacturing in-house.

  2. Advantages of Make Decisions
       - Lower costs, specialized knowledge, protecting proprietary technology, dynamic capability accumulation.

  3. Advantages of Buy Decisions
       - Strategic flexibility and often lower costs; consideration of trade-offs.

Global Supply Chain Functions

Global Logistics

  • Core Activities Include:
      - Management of distribution centers, inventory, packaging, transportation, and reverse logistics.

Global Inventory Management

  • Strategy development for inventory levels and types to balance service and economic advantages.

Global Logistics and Transportation

  • Largest expenditure in logistics, impacted by transport mode, load size, distance, and oil prices.

Reverse Logistics

  • Process aiming at efficient flow of goods for recapturing value or disposal, essential in optimizing after-market activities.

Global Purchasing Levels

  • Definitions of levels indicating integration of domestic and international purchasing activities across the firm’s strategy.

Outsourcing Terminology

  • Outsourcing, Insourcing, Offshoring, Offshore Outsourcing, Nearshoring, Co-sourcing
       - Detailed definitions clarifying each term and operational context in multinational corporations.

Managing a Global Supply Chain

Just-in-Time Inventory System

  • System designed to optimize delivery timing of parts, aiming to:
      - Speed up turnover, minimize holding costs, and improve profitability without inventory buffer.

Information Technology Roles

  • Importance of Electronic Data Interchange (EDI), Enterprise Resource Planning (ERP), Collaborative Planning, Forecasting, and Replenishment (CPFR), and Vendor Management Inventory (VMI).

Coordination in Global Supply Chains

  • Need for integration and shared decision-making to improve efficiency, including focus areas such as responsiveness and quality.

360° View: Macro Environment Impact

  • Changes affecting supply chains:
      - Trade regulations, the U.S./China trade dynamic, Brexit, and global health crises like COVID-19.