Global Production, Supply Chain, & R&D Flashcards
Be able to assess international supply chains Be able to examine factors influencing make or buy decision Be able to discuss global R&D
what is Supply Chain Management?
the integration and coordination of logistics, purchasing, operations, and market channel activities from raw material to the end-customer
How can production and supply chain management lower the costs of value creation?
disperse production to the most efficient locations
manage the global supply chain efficiently to better match supply and demand
How can production and supply chain management add value by better serving customer needs?
eliminate defective products from the supply chain and the manufacturing process
Where Should Production Be Located?
- Firms should locate production so that
- production and logistics can be locally responsive
- production and logistics can respond quickly to shifts in customer demand
- Create a global web of activities
- Global concentrations of activities at certain locations
Firms should consider the following aspects when choosing a location decision
Country factors
Technological factors
Product factors
Country Factors (5)
Manufacturing should be located where economic, political, and cultural conditions are most conducive to the performance of that activity:
- the availability of skilled labor and supporting industries
- formal and informal trade barriers
- expectations about future exchange rate changes
- transportation costs
- regulations affecting FDI
Technological Factors
-The level of fixed costs - high, produce in minimal locations, low produce in more
Technological Factors- The minimum efficient scale
- the level of output at which most plant-level scale economies are exhausted
- when minimum efficient scale is high, choose centralized production in a single location or a limited number of locations
- when minimum efficient scale is low, respond to local market demands and hedge against currency risk by operating in multiple locations
Technological Factors- The flexibility of the technology
- flexible manufacturing technology or lean production
reduces set-up times for complex equipment
increases the utilization of individual machines
improves quality control - allows firms to produce a wide variety of end products at a relatively low unit cost
mass customization
flexible machine cells
Production concentrated or multiple locations?
- the minimum efficient scale
beyond a certain level of output, few additional scale economies are available - this is called the minimum efficient scale of output - the level at which a plant must operate to to realise all scale economies
- the larger the MES relative to global demand, the greater the argument for centralising production in a single location
- when the MES is low relative to global demand, can be economical to manufacture at several locations
Product factors
Two product factors influence location decisions:
1) The product’s value-to-weight ratio
- if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
- if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
2) Whether the product serves universal needs
- when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
What Are the Hidden Costs of Foreign Production Locations?
Before making the decision to locate production in a foreign location, firms must consider the potential for high employee turnover poor workmanship poor product quality low productivity poor communication (cultural)
Make or buy decisions
decisions involving international markets are more complex than those involving domestic markets
Value chain analysis?
Reasons to make:
Vertical integration - making component parts in-house
Lowers costs
- if a firm is more efficient at that production activity than any other enterprise, manufacturing in-house makes sense
- Facilitates investments in highly specialized assets
internal production makes sense when substantial investments in specialized assets are required
- Protects proprietary technology
in-house production makes sense when component parts contain proprietary technology
- Facilitates the scheduling of adjacent processes
planning, coordination, and scheduling of adjacent processes can be easier with in-house production
Reasons to buy:
Buying component parts from independent suppliers
- Gives the firm greater flexibility
important when changes in exchange rates and trade barriers alter the attractiveness of various supply sources over time
- Helps drive down the firm’s cost structure
avoids challenges of coordination and control of additional subunits
avoids the lack of incentive associated with internal suppliers
avoids the difficulties with setting appropriate transfer prices
- Helps the firm capture orders from international customers
can help firms gain orders from suppliers’ countries
Product architectures (why how the product is made effects the decision)
Modular product Made by combining different components Components are independent of each other Components are interchangeable Standard interfaces are used Customer preference determines the product configuration.
Integral product
Made up from components whose functionalities are tightly related.
Not made from off-the-shelf components.
Designed as a system by taking a top-down design approach.
Evaluated on system performance, not on component performance
Components perform multiple functions.
Framework for make/buy decisions (Lowy and Hood, 2011)
knowledge + capacity ………… Capacity only
integral………..Worst OS……………………can live w/OS
Modular….Potential OS trap……………Best OS opportunity
China and India: rivals in global sourcing
BOTH:
- large pool of highly skilled workers
- large domestic market
- increasingly pro-business government
- site for global research and development
CHINA
- weak intellectual property rights
- gov bureaucracy
- rising labour costs
INDIA
- workforce with English skills
- superior intellectual property protection
Business Process Outsourcing (BPO)
The outsourcing of business functions to independent suppliers such as accounting, payroll, and human resource functions, IT services, customer service, and technical support.
BPO includes:
- Back-office activities, which includes internal, upstream business functions such as payroll and billing, and
- Front-office activities, which includes downstream, customer-related services such as marketing or technical support.
Challenges of Global Sourcing
- Vulnerability to exchange rate fluctuations
- Partner selection, qualification, and monitoring costs
- Limited influence over supplier’s manufacturing processes
- Vulnerability to opportunistic behaviour by suppliers
- Limited ability to safeguard intellectual assets
- Complexity of managing a worldwide network of partners and a global supply chain
erosion of morale and commitment among home-country employees
benefits of global sourcing
\+ cost efficiency \+ access to qualified staff abroad \+ improves productivity and service \+ increased speed to market \+ improved agility by shedding unnecessary overhead
strategies for minimising risks of global sourcing
- offshore wisely, cost reduction won’t last forever, sustainability?
- get employees onboard
- choose suppliers carefully and develop a string relationship with clear expectations
potential harm to home countries
1) job losses in home countries
2) reduced national competitiveness
3) declining standards of living
as more tasks are outsourced and performed at a low cost abroad will pull down real wage at home
Product factors
value to weight ratio - how heavy vs. how much is it worth?
