Chapter 16. Global Chapter 16. Global Production, Production,
Outsourcing, and Outsourcing, and LogisticsLogistics
Introduction Introduction trade barriers fall & global market develop trade barriers fall & global market develop ⇒⇒ ⇒⇒ Firms confront something : Firms confront something : 1. production activity location 1. production activity location 2. the long - term strategic of foreign 2. the long - term strategic of foreign
production site production site 3. own production ? or another production ? 3. own production ? or another production ? 4. globally dispersed supply chain be managed4. globally dispersed supply chain be managed5. manage global logistics itself 5. manage global logistics itself or outsource the management to enterprisesor outsource the management to enterprises
MicrosoftMicrosoft
Microsoft outsourced production of its XbMicrosoft outsourced production of its Xbox video game console to Flextronicsox video game console to Flextronics
Because it lacked the skills required to asseBecause it lacked the skills required to assemble a complex electronics product.mble a complex electronics product.
After ??After ??
Strategy, Production, and Strategy, Production, and Logistics Logistics
Production Production → production of physical goods production of physical goods
Logistics Logistics → the activity that controls the the activity that controls the
transmission of physical materials transmission of physical materials through the value chainthrough the value chain
Production & Logistics are linkedProduction & Logistics are linked
Strategy, Production, and Strategy, Production, and LogisticsLogistics
Strategic objectivesStrategic objectives
1. lower costs 1. lower costs
2. increasing quality 2. increasing quality The objectives of reducing costs and The objectives of reducing costs and
increasing quality are dependentincreasing quality are dependent
Strategy, Production, and Strategy, Production, and LogisticsLogistics
TQMTQM Six SigmaSix Sigma ISO 9000ISO 9000
Two Other Objective – Two Other Objective – Production & Logistics Production & Logistics
1. Accommodate demands for local 1. Accommodate demands for local responsiveness responsiveness
2. Shift in customer demand quickly 2. Shift in customer demand quickly
Where to produceWhere to produce Country specific factorsCountry specific factors Political economy, culture and relative Political economy, culture and relative
factor costsfactor costs Presence of concentrated global activitiesPresence of concentrated global activities Local manufacturing activitiesLocal manufacturing activities
Technology factorsTechnology factors Fixed costs Fixed costs Minimum Efficient Scale Minimum Efficient Scale Flexible ManufacturingFlexible Manufacturing Mass CustomisationMass Customisation
Product factorsProduct factors Value to Value to
weight rationweight ration HighHigh LowLow Universal Universal
needsneeds Consumer Consumer
tastes and tastes and preferencespreferences
Location of Production Location of Production facilitiesfacilities
Centralisation of locCentralisation of locationation
Decentralisation of lDecentralisation of locationocation
Location decisions cLocation decisions can be difficultan be difficult
Automobile IndustryAutomobile Industry Strategic role of foreStrategic role of fore
ign factoriesign factories
Outsourcing Production : Outsourcing Production : Make or Buy DecisionsMake or Buy Decisions
Decisions about whether they should Decisions about whether they should
perform a certain value activity perform a certain value activity
themselves or outsource it to themselves or outsource it to another another
entity.entity.
The Advantage of MakeThe Advantage of Make
Lowering CostsLowering Costs
Facilitating Specialized InvestmentsFacilitating Specialized Investments
Protecting Proprietary Product Protecting Proprietary Product TechnologyTechnology
Improving SchedulingImproving Scheduling
Lowering CostsLowering Costs
If the firm can perform the If the firm can perform the production activity most efficiently, production activity most efficiently, they can continue manufacturing a they can continue manufacturing a product or component part in-house.product or component part in-house.
Boeing decided to keep the design Boeing decided to keep the design and final integration of aircraft.and final integration of aircraft.
Facilitating Specialized Facilitating Specialized InvestmentsInvestments
When substantial investments in When substantial investments in specialized assets are required to specialized assets are required to manufacture a component, the firm manufacture a component, the firm will prefer to make the component will prefer to make the component internationally rather than contract it internationally rather than contract it out to a supplier.out to a supplier.
Protecting Proprietary Protecting Proprietary TechnologyTechnology
If the firm outsources the production containing pIf the firm outsources the production containing proprietary technology, it runs risks. roprietary technology, it runs risks.
To maintain control over its technology, the firm To maintain control over its technology, the firm might prefer to make such products or componenmight prefer to make such products or component parts in-house.t parts in-house.
Improving SchedulingImproving Scheduling
Production cost savings by making Production cost savings by making planning, coordination, and planning, coordination, and scheduling of adjoining processes scheduling of adjoining processes easier.easier.
Scheduling can be exacerbated by Scheduling can be exacerbated by the time and distance between the the time and distance between the firm and its suppliers.firm and its suppliers.
The Advantage of BuyThe Advantage of Buy
Strategic FlexibilityStrategic Flexibility
Lower CostsLower Costs
OffsetsOffsets
Strategic FlexibilityStrategic Flexibility
The firm can maintain its flexibility to The firm can maintain its flexibility to switch orders between suppliers as switch orders between suppliers as circumstances dictate.circumstances dictate.
The firm can avoid risks which come The firm can avoid risks which come from exchange rates, trade barriers from exchange rates, trade barriers and political unstableness by buying and political unstableness by buying from an independent suppliers in from an independent suppliers in that countrythat country
Lower CostsLower Costs
The more subunits in an The more subunits in an organization, the more problems organization, the more problems coordinating coordinating
The resulting increase in The resulting increase in organizational complexity can raise a organizational complexity can raise a firm’s cost structure.firm’s cost structure.
OffsetsOffsets
Outsourcing may help the firm Outsourcing may help the firm capture more orders from that capture more orders from that country.country.
Pioneered by Japanese firms during the Pioneered by Japanese firms during the 1950s and 60s, just in time inventory 1950s and 60s, just in time inventory systems now play a major role in most systems now play a major role in most manufacturing firms. The basic manufacturing firms. The basic philosophy behind just in time (JIT) philosophy behind just in time (JIT) systems is to economize on inventory systems is to economize on inventory holding costs by having materials arrive holding costs by having materials arrive at a manufacturing plant just in time to at a manufacturing plant just in time to enter the production and not before. enter the production and not before.
Information technology, particularly interneInformation technology, particularly internet based electronic data interchange, plays t based electronic data interchange, plays a major role in material management. EDI fa major role in material management. EDI facilities the tracking of inputs, allows the fiacilities the tracking of inputs, allows the firm to optimize it's production schedule, letrm to optimize it's production schedule, lets the firm and its supplier communicate in s the firm and its supplier communicate in real time and eliminates the flow of paperwreal time and eliminates the flow of paperwork between a firm for its supplier. ork between a firm for its supplier.
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