Transcript Chapter 16. Global Production, Outsourcing, and Logistics

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