Global Manufacturing and Material Management
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In this presentation, we will discuss the value chain and all the primary activities involved. Strategy and decision making procedure, indicators of market potentials, types of strategies is discussed ...

In this presentation, we will discuss the value chain and all the primary activities involved. Strategy and decision making procedure, indicators of market potentials, types of strategies is discussed here. We will talk about strategic alliances, managing cooperative strategies, material management in global business, production system model, locating manufacturing facilities, and various other decision making processes.
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    Global Manufacturing and Material Management Global Manufacturing and Material Management Presentation Transcript

    • Global Supply Chain Management & Outsourced Manufacturing Chapter 3 Global Manufacturing & Materials management chapter3 1
    • Global Manufacturing & Materials management Learning ObjectivesAfter reading this chapter ,you will understand following:1. A Firm as value chain2. The role of strategy3. Profiting from Globalization4. Strategic Choice5. Strategic Alliance6. Manufacturing & Materials management in global business .7. Locating Manufacturing facilities8. Make or buy decisions.9. Coordinating Global Manufacturing system 2
    • The Value ChainTo analyze the specific activities through whichfirms can create a competitive advantage, it isuseful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelatedgeneric activities common to a wide range of firms.The resulting model is known as the value chainand is depicted below: 3
    • The Value Chain Primary Value Chain ActivitiesInbound Outbound Marketing > Operations > > > ServiceLogistics Logistics & Sales The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin. 4
    • The Value Chain Inbound logistics include the receiving, warehousing,and inventory control of input materials. Operations are the value-creating activities that transformthe inputs into the final product. Outbound logistics are the activities required to get thefinished product to the customer, including warehousing,order fulfillment, etc. Marketing & Sales are those activities associated withgetting buyers to purchase the product, including channelselection, advertising, pricing, etc. Service activities are those that maintain and enhance theproducts value including customer support, repair services,etc. 5
    • The Value Chain Any or all of these primary activities may be vital indeveloping a competitive advantage. For example, logisticsactivities are critical for a provider of distribution services,and service activities may be the key focus for a firmoffering on-site maintenance contracts for office equipment. These five categories are generic and portrayed here in ageneral manner. Each generic activity includes specificactivities that vary by industry.Support Activities The primary value chain activities described above arefacilitated by support activities. Porter identified fourgeneric categories of support activities, the details of whichare industry-specific. 6
    • The Value Chain Procurement - the function of purchasing the rawmaterials and other inputs used in the value-creatingactivities. Technology Development - includes research anddevelopment, process automation, and other technologydevelopment used to support the value-chain activities. Human Resource Management - the activities associatedwith recruiting, development, and compensation ofemployees. Firm Infrastructure - includes activities such as finance,legal, quality management, etc. Support activities often are viewed as "overhead", butsome firms successfully have used them to develop acompetitive advantage, for example, to develop a costadvantage through innovative management of information 7systems.
    • The Value Chain Value Chain Analysis In order to better understand the activities leading to acompetitive advantage, one can begin with the generic valuechain and then identify the relevant firm-specific activities.Process flows can be mapped, and these flows used toisolate the individual value-creating activities. Once the discrete activities are defined, linkages betweenactivities should be identified. A linkage exists if theperformance or cost of one activity affects that of another.Competitive advantage may be obtained by optimizing andcoordinating linked activities. 8
    • The Value ChainThe value chain also is useful in outsourcing decisions.Understanding the linkages between activities can lead tomore optimal make-or-buy decisions that can result in eithera cost advantage or a differentiation advantage.The Value System The firms value chain links to the value chains ofupstream suppliers and downstream buyers. The result is alarger stream of activities known as the value system. Thedevelopment of a competitive advantage depends not onlyon the firm-specific value chain, but also on the valuesystem of which the firm is a part. 9
    • The Value ChainThe value chain also is useful in outsourcing decisions.Understanding the linkages between activities can lead tomore optimal make-or-buy decisions that can result in eithera cost advantage or a differentiation advantage.The Value System The firms value chain links to the value chains ofupstream suppliers and downstream buyers. The result is alarger stream of activities known as the value system. Thedevelopment of a competitive advantage depends not onlyon the firm-specific value chain, but also on the valuesystem of which the firm is a part. 10
    • The role of StrategyGlobalization involves decision making onfollowing lines•Deciding whether to go global•Deciding which market to enter•Deciding how to enter market•Learning to handle difference•Adjusting the management process•Selecting a managerial approach•Deciding organization structure 11
    • The role of StrategyDeciding which market to enter:This depend on1.Volume of foreign sales2.Number of countries to market3.The types of countries to enterMost companies start small when they go abroad.Some prefer to stay small ,viewing foreign sales assmall part of there business.Other companies have bigger plan,seeing foreignsales as equal or even more important than localbusiness 12
    • The role of StrategyThe type of countries to enter depends on the type ofproduct,geographical factors,income & population,Political climate & other related factors.The goal is to determine potential of each country.It goes without saying that the countries whichassures long run return on investment must beselected for entering the market.International business generally make political riskassessment before entering into any foreign market. 13
    • The role of StrategyIndicators of market potential• Demographic Characteristics 1. Size of population & rate of growth 2. Degree of urbanization 3. Population density 4. Age structure • Geographic Characteristics 1. Physical size of the country 2. Topological Characteristics 3. 14
    • The role of StrategyIndicators of market potential• Economic factors1. GNP per capita2. Income distribution3. Rate of growth of GNP4. Rate of investment to GNP• Technological factors1. Level of technology skills2. Existing production technology3. Education levels4. Existing consumption technology Cont.. 15
    • The role of StrategyIndicators of market potential• Economic factors1. GNP per capita2. Income distribution3. Rate of growth of GNP4. Rate of investment to GNP• Technological factors1. Level of technology skills2. Existing production technology3. Education levels4. 16
    • The role of StrategyIndicators of market potential• Socio –cultural factors1. Dominant values2. Life style patterns3. Ethic groups4. Linguistics fragmentation• National goals & plans1. Industry priorities2. Infrastructure investment plans 17
    • Strategic ChoiceThere are four basic strategies are used by firms to enter and compete in the international Environment.They are:1. International Strategy2. Multi domestic Strategy3. Global Strategy4. Transnational StrategyThe appropriateness of each strategy varies with the extent of pressures for cost reduction and total responsiveness 18
    • Strategic ChoiceHigh Transnational Global Strategy Strategy Cost pressures International Multi domestic Strategy StrategyLow Low Pressure for local responsiveness High 19
    • Types of Strategic Actions Needs of the Environment Dynamic StaticExternal What business How to compete Strategic Focus to do in a given market Capability Managing Development EfficiencyInternal 20
    • Cooperative StrategyCooperative strategy is a strategy in which firms work together to achieve a shared objectiveCooperating with other firms is a strategy that creates value for a customer exceeds the cost of constructing customer value in other ways establishes a favorable position relative to competition 21
    • Strategic AllianceA strategic alliance is a cooperative strategy inwhich firms combine some of their resources and capabilities to create a competitive advantageA strategic alliance involves exchange and sharing of resources and capabilities co-development or distribution of goods or services 22
    • Strategic Alliance Firm A Firm B Resources Resources Capabilities CapabilitiesCore Competencies Core Competencies Combined Resources Capabilities Core Competencies Mutual interests in designing, manufacturing, or distributing goods or services 23
    • Types of Cooperative StrategiesJoint venture: two or more firms create anindependent company by combining parts of theirassetsEquity strategic alliance: partners who owndifferent percentages of equity in a new ventureNonequity strategic alliances: contractualagreements given to a company to supply,produce, or distribute a firm’s goods or serviceswithout equity sharing 24
    • Reasons for Strategic Alliances by Market Type Market ReasonSlow Cycle • Gain access to a restricted market • Establish a franchise in a new market • Maintain market stability (e.g., establishing standards) 25
    • Reasons for Strategic Alliances by Market Type Market ReasonFast Cycle • Speed up development of new goods or service • Speed up new market entry • Maintain market leadership • Form an industry technology standard • Share risky R&D expenses • Overcome uncertainty 26
    • Reasons for Strategic Alliances by Market Type Market ReasonStandard Cycle • Gain market power (reduce industry overcapacity) • Gain access to complementary resources • Establish economies of scale • Overcome trade barriers • Meet competitive challenges from other competitors • Pool resources for very large capital projects • Learn new business techniques 27
    • Approaches for Managing Cooperative Strategiescost minimization formal contracts specify how the cooperative strategy is to be monitored and how partner behavior is to be controlledopportunity maximization maximize partnership’s value-creation opportunities partners take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities fewer formal, limiting, contracts 28
    • Manufacturing & Materials Management in global businessProduction is the process by which raw materials andother inputs are converted into finished goods.Manufacturing refers to the process of producingtangible goods only.Nature of production can be better understood if weview the manufacturing function fro three angles•Production as a System•Production as an organizational function•Decision making in production 29
    • Manufacturing & Materials Management in global businessA system is understood as a whole which can notbe taken apart.There systems are classified intothree types.•Production System•Conversion subsystem•Control SubsystemProduction system receives inputs in the form of 1) Capital. 2) Utilities. 3) Personnel. 4)Information Cont.. 30
    • Manufacturing & Materials Management in global business Inputs of a Production System•External Legal, Economic, Social, Technological•Market Competition, Customer Desires, Product Info.•Primary ResourcesMaterials, Personnel, Capital, Utilities Cont.. 31
    • Manufacturing & Materials Management in global business Conversion Subsystem•Physical (Manufacturing)•Vocational Services (Transportation)•Exchange Services (Retailing)•Storage Services (Warehousing)•Other Private Services (Insurance)•Government Services (Federal) 32
    • Manufacturing & Materials Management in global business1. Production System: A system whose function is to convert a set ofinputs into a set of desired outputs2. Conversion Sub-System: A Sub-System of larger production system whereinputs are converted into outputs3.Control Subsystem: A subsystem of a larger production system wherea portion of the output is monitored for feedbacksignals 33
    • Production System Model Inputs Inputs Conversion Conversion Outputs Outputs Subsystem SubsystemEnvironment Physical Lavational service Goods or Market Storage service services Business service Primary Government service Resources Control Subsystem 34
    • Where to Manufacture?Country FactorsTechnology FactorsCustomization and Cost EfficiencyProduct FactorsLocating Manufacturing FacilitiesMaking Global Sourcing DecisionLogistics Management in MNCsGlobal Supply Chain ManagementTransfer of Knowledge from Home Country to the HostCountryParent Subsidiary RelationshipNew Product DevelopmentUnleashing Innovation in Subsidiaries. 35
    • Locating Manufacturing Facilities Reducing costs and improving quality are the two interdependent objectives of operations management. R&Dinitiatives help derive competitive advantage a they makecompanies better equipped to respond faster to changes inmarket demands. Three factors determine location of a factory: country,technology and product. Country factors include politicalstability, the FDI policy and the lobbying power of domesticindustrialists and economic stability which is determined byfactors like exchange rate. Land and labor costs of a countryare crucial in deciding the location of manufacturing facility. 36
    • Locating Manufacturing Facilities Technological developments also impact vocationaldecisions. The higher the level of investment required, thestronger the case for centralized manufacturing. Moreover,economies of scale might require companies to concentratemanufacturing in a few locations. But some companies likeLevis have proved that customization and cost efficiencycan go together. Companies are often confronted with make or buyquestions. Global sourcing has been put to use effectively bymany MNCs. The major advantages of sourcingcomponents are that financial and operational risks can bereduced and fixed costs of investments in people, plant andmachinery can be avoided. 37
    • Locating Manufacturing Facilities The risk of dependence on the supplier can be mitigatedeither by vertical integration or by holding equity in thesuppliers firms. There are three types of integration. Backward integrationis said to occur when the firm produces its own raw materialand component parts. In forward integration, a raw materialmanufacturer may produce finished goods. Horizontal integration occurs when a firm acquires itscompetitor to expand capacity or to gain market share.Global Logistics and Supply Chain Management (SCM) areemerging as strategic tools to help companies focus on corecompetencies and achieve cost efficiency. 38
    • Locating Manufacturing Facilities Logistics management involves managing the flow ofgoods from the supplier to manufacturing facilities acrossthe world and then distributing the finished goods to theconsumer. SCM is a wider concept that integrates the activity ofdemand forecasting and inventory management with otherfunctions of logistics management. Forecasting of demand isoften difficult because of the bull-whip effect which is thedistortion of demand information due to certain reasons. Companies have recognized the importance of the R&Dfunction. However, most companies still do not empowerthe subsidiaries to innovate. While companies like Nestlejustify the centralization of R&D, 39
    • ‘Make or Buy’ decision The ‘make or buy’ decision is one of the most criticalsupply chain, strategic decisions. The supply managementorganization has a key role in this decision. The decision is important for a number of reasons. Itdetermines and defines an organization’s core competencies.It determines what level of investment the business shouldmake internally as well as with suppliers. The ‘make or buy’ decision involves financial andcapability issues as companies ask: ‘Do we have theexpertise to manufacture a quality product and deliver it at acompetitive cost?’ 40
    • ‘Make or Buy’ decision Since some industrial tasks cannot be effectivelyaccomplished in- house because of lack of equipment,trained personnel, or material, the answer to the question isoften ‘no.’ So, non-core products and services are contractedto outside suppliers. High Tech Companies Let us look at a high-tech company’s ‘make or buy’decision-making. Following the rule, ‘can’t be all things toall customers,’ high tech companies focus their internalresources on some core technology while depending onstrategically outsourced innovations to complement theirefforts.] 41
    • ‘Make or Buy’ decision In general, high tech companies such as Intel andMicrosoft competitively position themselves based on theircore knowledge competencies so that internal development(‘make’ decision) provides the most competitive advantage.In areas away from chip design and software development,they may outsource, license, or purchase requiredcompetencies. ‘Make or Buy Due Diligence If a company sources a product or service, then it canwork with existing suppliers or find new suppliers. As muchas possible, companies don’t want surprises or variability.They want consistency. 42
    • ‘Make or Buy’ decision They want to work with known people, knownrelationships, and known processes. It’s pretty simple; lifeand business work better when we work with known. Again,think variability. We don’t want unknown variability,unknown risk, unknown people, unknown processes, orunknown suppliers. The solution is to encourage supply-partneringrelationships. Customers and suppliers must trust each otherto share key process information, technologies,cost/delivery/quality targets, and even investments. Thisfrankly isn’t easy. It requires trust that a nondisclosureagreement can’t enforce. 43
    • ‘Make or Buy’ decision The ‘make’ decision also isn’t easy for a supplier. Thesupplier may even pass on the opportunity to provide theproduct or service. The products may not be worthwhile to manufacture. Theproducts may be low volume or ‘one of a kind’ that mayrequire new production equipment or provide insufficientmargins. Is the customer willing to pay for the added supplierinvestment? Many questions - few easy answers. The ‘makeor buy’ decision usually comes down to optimizing manyfactors 44
    • ‘Make or Buy’ decision Alternate Sourcing Options Also, the ‘make or buy’ decision involves a ‘risk/reward’or ‘cost/benefit’ analysis. For example, low value productsare usually commodity and non-strategic items. As well, there are multiple suppliers who can produce thiscommodity so the risk of losing a commodity source orfinding competitive bidders is relatively low. If the supplier provides a high value, innovative productor process technology, the company may partner with asupplier or bring the product in-house. What does a company do if a new or existent suppliercan’t produce the product to the customer’s requirements? 45
    • ‘Make or Buy’ decision The customer has several options. It can find a newsupplier or it can work with an existing supplier. Thecustomer may even improve the supplier’s capabilities.How? The customer can provide technical assistance,machines, incentives, or even pay the cost of improving thesupplier’s capabilities. And, there is the ‘risk-reward’ decision of switchingsuppliers. This isn’t negligible. The risk or cost of anunknown supplier may be too high. When should a companychange a supplier? The change should occur when the cost,pain or risk of keeping the supplier exceed the cost offinding a new supplier. 46
    • Make-or-Buy Decisions Reasons for Making1. Maintain core competence2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply (quantity or delivery)5. Utilize surplus labor or facilities6. Obtain desired quality7. Remove supplier collusion8. Obtain unique item that would entail a prohibitive commitment for a supplier9. Protect personnel from a layoff10. Protect proprietary design or quality11. Increase or maintain size of company 47 Table 11.4
    • Make-or-Buy Decisions Reasons for Buying1. Frees management to deal with its primary business2. Lower acquisition cost3. Preserve supplier commitment4. Obtain technical or management ability5. Inadequate capacity6. Reduce inventory costs7. Ensure alternative sources8. Inadequate managerial or technical resources9. Reciprocity10. Item is protected by a patent or trade secret 48 Table 11.4
    • Just in time Inventory system Just In Time (JIT) is an inventory strategy implementedto improve the return on investment of a business byreducing in-process inventory and its associated costs. Theprocess is driven by a series of signals, or Kanban (看板Kanban?), that tell production processes when to make thenext part. Kanban are usually tickets but can be simplevisual signals, such as the presence or absence of a part on ashelf. When implemented correctly, JIT can lead to dramaticimprovements in a manufacturing organizations return oninvestment, quality, and efficiency. New stock is ordered when stock drops to the re-orderlevel. This saves warehouse space and costs. However, onedrawback of the JIT system is that the re-order level isdetermined by historical demand. 49
    • Just in time Inventory system If demand rises above the historical average demand, thefirm will deplete inventory faster than usual and causecustomer service issues. To meet a 95% service rate a firmmust carry about 3 standard deviations of demand in safetystock. Forecasted shifts in demand should be planned foraround the Kanban until trends can be established to resetthe appropriate Kanban level. Others[1] have suggested thatrecycling Kanban faster can also help flex the system by asmuch as 10-30%. In recent years manufacturers have touteda trailing 13 week average as a better predictor than mostforecasters could provide.] A related term is Kaizen which is an approach toproductivity improvement literally meaning "continuousimprovement" of process. 50
    • Global Manufacturing & Materials managementEnd OfChapter 3 chapter3 51
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