Transcript Strategies for Global Manufacturing Networks
Facility and Supply Chain Strategy in a Global Environment
Donald B. Rosenfield Leaders for Manufacturing Program LGO and SDM Alumni Web-cast 4/27/01 1
Overview This talk will present a new model and paradigm for managing global supply chains and dealing with major changes and complexities of today's global networks.
Major Changes:
New technologies and business-level changes such as lean manufacturing, FMS , cellular flow and TQM
Macro level changes such as large global sophisticated markets, non tariff trade barriers and regionalized trading economies
Competitive factors that focus on customization, rapid product development, and quick response
The breakdown of intercompany barriers 2
Overview - 2 Major changes (continued)
The proliferation of higher value, lower-weight products
The effects of exchange rates on traditional supply chain strategies 3
Overview - 3 These trends point to some new types of strategies
Decentralized plants based on regional markets
Locations based on infrastructure issues such as work force capabilities
Smaller plants with customization capabilities
Extra plants and capacity to build flexibility for exchange rate risks
Globally coordinated systems with multiple movements
A global product life cycle We will present some arguments for all of these strategies 4
Agenda
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Traditional approaches to strategic planning for the supply chain
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Important trends in global competition
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A new approach for managing global supply chains and for strategic planning 5
Traditional concepts in strategic planning
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Top-level concepts - Roles by all functions - Consistency for functions and decisions - Levering capabilities
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Supply chain concepts - Modeling flows - Incorporating focus and scale These are often separate and do not address global trends 6
External Environment Top-level concepts Internal Strengths Strategy R&D Marketing Finance Operations Logistics Functions Facilities Technology etc.
Transportation Planning etc.
Decisions 7
Traditional approaches to supply chain strategy emphasize a number of issues
Scale
Logistics
Focus
Global flexibility and access
Access to R&D 8
Suppliers Geographic network
Focus on customer demand zones
Include production economics
Look at flows from raw materials to customers Plants Distri bution Centers Customers 9
COST Scale analysis Subcontract Technology 1 Technology 2 VOLUME 10
Some examples of strategies 1. Different process steps and scale, significant logistics
Central stage 1, decentralized stage 2 2. Significant central R&D
Central plant for at least early life cycle 3. Significant product flexibility
Decentralized satellite plants for some stages The examples underscore the need to develop a strategically consistent focus approach and then appropriately analyze scale and logistics 11
Case Study Worldwide consumer goods manufacturer
25 Product Groups
About 10 Production Locations
Variety of Product Values and Weights
Over Capacity
Lack of Focus
Significant Tax Issues 12
fixed costs variable costs fixed costs variable costs taxes Stage 1 Stage 2 Customer Why Separate?
Approach
Scale
Capacity
Tax Laws
Focus
Relative Technological Complexity Solution:
Cross sectional analysis
Tax analysis Model of variable costs Detailed analysis of actual fixed costs
Move "light" products to tax havens
Better focus facilities by product group 13
Traditional strategies are subject to question given a number of important trends
Increase in worldwide exports
Business level trends • Lower scale, higher-skill level manufacturing systems such as FMS • JIT systems that also underscore the need for sophisticated vendor infrastructure • TQM and organizational learning
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Faster product development
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Customization needs
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Products such as wafers and chips 14
Traditional strategies and trends (continued)
Macro level trends • Large, sophisticated overseas markets with local needs • Non-tariff barriers • Regionalized trading economies
Variable factor costs The internet 15
These same factors are leading away from integration
Information technology and e-commerce
Past advantages of tariff, pricing, scale and oligopolies
Current advantages of focus, risk management and economies of scale and scope
Internet networks and the virtual supply chain While this is not a strictly global trend, it will have implications for global supply chains 16
New strategies emphasize several key factors Global product volumes
Decentralized network based on regional presence
Infrastructure versus cost • Changing product cost structure • Skill requirements • Vendors
Flexibility in several ways
Multiple stages, players and movements
The new role of supply chain in design
Development in several countries 17
An exchange rate model explores a number of tradeoffs
Scale economies
Transportation costs, duties and other costs of servicing a market externally
Flexibility for servicing high-cost markets The most important result of the model is that it is advantageous to have extra capacity and plants and cut back production in each period at the most expensive plants 18
A simplified model showed the viability of flexibility
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With ten markets of ten units each, we explored strategies of up to ten plants with varying capacities With additional plants, the expected value of the most expensive plants are significantly higher than the mean With exchange rates showing an annual standard deviation of .12, the minimum was at four plants at forty units each--in each period we deploy two at forty and two at ten 19
Exchange rate model
460 450 440 430 420 410 400 0 100 200
Total capacity
300 400 one plant two plants three plants four plants five plants
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Don Lessard, in his Survey on Corporate Responses to Volatile Exchange Rates, has shown that companies may value this flexibility
Out of 37 foreign exchange managers, 7 cited "siting new plants with a view to flexibility in shifting production capacity" as a method of managing exposure.
Out of 19 responses in international siting, 12 cited locations to "increase flexibility by shifting plant loadings when exchange rates changed." 21
The validity of these facility strategies are confirmed by the cases at Polaroid and Motorola, but are subject to some caveats
Early life cycle products
Products of high unskilled labor content
Products with high minimum scale 22
Background: Polaroid’s Camera Manufacturing Network in 1995
Russia Norwood MA Vale of Leven Scotland Shanghai China India (planned) Manufacturing (Size Capacity) Design & Devel.
Materials Mfg. Eng.
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Strengths Global Market These concepts lead to a new approach to strategic planning for supply chains Business and Operations Strategy Competitive Environment Supply Chain Strategy Internal Constraints Industry Life Cycle Production Technologies Location Strategy Supply Chain Modeling Supplier Industries Political and Market Issues Logistics Costs Factor Costs Infrastructure Issues 24
What do these changes imply for supply chains?
Quick response strategies such as postponement
Channel coordination strategies that use information systems to link the multiple players using lean concepts on a global basis • Shorter lead times • Reduced uncertainty • Low lot sizes
More multiple stage and player moves and delayed value added
The role of the flexible supply chain in design 25
Summary
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While traditional strategic planning methods and supply chain analysis are still crucial, supply chain management and strategy need to incorporate two principles Integrating strategic planning and supply chain analysis Emphasis of the new global reality - Decentralized and more sophisticated markets - Lower-scale but more advanced technologies - Global product design and flow patterns - Flexibility 26