Lecture 9: Global Production Flashcards
What are 4 decisions firms are confronted with when considered global production?
- Where should production be located?
- Should production be concentrated or dispersed around the globe?
- What should be the long-term strategic role of foreign production sites?
- Should production and logistics activities be owned by the firm or outsourced?
What is production?
Refers to activities involved in creating a product including
- service and manufacturing activities
- converting inputs to a product
- quality control
What is logistics and materials management?
Refers to activities that control the transmission of physical materials through a value chain.
- procurement –> production –> distribution
- suppliers –> customers
What are the strategic objectives in global operations management?
- Lowering costs while raising efficiency (maximise productivity, increase quality, reduce waste)
- responding to customer demands and satisfying customer needs
- the aim is to control the costs of production while ensuring timely delivery
Additional international logistics challenges:
- the geographical distances
- involvement of many different transport modes
- different regulatory requirements: pricing, packaging, safety, documentation
When deciding the location of production there are 3 manufacturing location factors. What are they?
Country factors
Manufacturing Technological Factors
Product Features
What are the country factors (manufacturing location factors)?
- Favourable economic, political and cultural conditions
- Presence of appropriately skilled labour and supporting industries
- Expected movements in exchange rate
- Proximity to customers
What are the manufacturing technological factors (manufacturing location factors)?
- is there high/low fixed costs in setting up a product plant?
- how high/low is the ‘minimum efficient scale’?
- is mass customisation possible?
What are the product features factors (manufacturing location factors)?
Product has high/low value-to-weight ratio?
How do you know if a production should be concentrated in a centralised location (to serve the world’s market) or decentralised in various regional/national locations (there are closer to major markets)?
Concentrate (centralise) manufacturing if:
- Costs of manufacturing are responsive to country environment (one location best)
- Trade barriers are low
- Exchange rates among currencies that impact on your business are stable
- Production technology
- has high fixed costs
- has high minimum efficient scale
- exists in flexible manufacturing format
- Product value-to-weight ratio is high
- Product serves universal needs – minor difference in customer needs, consumer preferences
Decentralise if the opposite applies…
Sourcing and Acquiring Resources
What are the two options for the decision: does a firm provide its own resources or obtain them from other sources?
Vertical Integration (Make) The firm controls a number of the stages along the production chain
Outsourcing (Buy)
To purchased from another firm tasks related to production and service activities.
The make-or-buy decision:
- involves trade-offs of costs, control, vulnerability, flexibility
- complicated by international factors (e.g. exchange rate movements)
Logistics encompasses the management of activities across a supply chain: -
- sourcing (selecting best suppliers according to price, quality, service and delivery time)
- making (producing G/S in a cost-efficient way)
- delivering (fulfilling customers’ demands cost-effectively and reliably)
- returning (handling returns from customers and to suppliers in a way that minimises waste)
What is the Just-in-Time (JIT) Inventory System?
A logistics system where suppliers are expected to deliver the necessary inputs just as they are needed (not before)
- requires suppliers to be capable, reliable and physically close
- increases inventory turnover, thus reducing holding costs
- JIT requires efficient supply chain management
Information technology has enhanced JIT management
- to optimise production scheduling according to when components arrive - need to locate the component in the supply chain
e. g. EDI systems link suppliers, manufacturers and customers
Selecting the mode of transport has an impact on what?
The inventory expenses (order cycle time) and level of customer service (timely, shelf life)
International businesses usually require the use of intermodal/multimodal transportation (combining different transport modes to facilitate a seamless supply chain)
