Chapter Eighteen

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Chapter Eighteen

  1. 1. International Business by Daniels and Radebaugh Chapter 18 Global Manufacturing and Supply Chain Management
  2. 2. <ul><li>Objectives </li></ul><ul><ul><li>To describe different dimensions of global manufacturing strategy </li></ul></ul><ul><ul><li>To examine the elements of global supply chain management </li></ul></ul><ul><ul><li>To show how quality affects the global supply chain </li></ul></ul><ul><ul><li>To illustrate how supplier networks function </li></ul></ul><ul><ul><li>To explain how inventory management is a key dimension of the global supply chain </li></ul></ul><ul><ul><li>To present different alternatives for transporting products along the supply chain from suppliers to customers </li></ul></ul>
  3. 3. OPERATIONS STRATEGY <ul><li>Functions </li></ul><ul><li>Marketing </li></ul><ul><li>Exporting and </li></ul><ul><li>importing </li></ul><ul><li>GLOBAL </li></ul><ul><li>MANUFACTURING </li></ul><ul><li>SUPPLY CHAIN </li></ul><ul><li>MANAGEMENT </li></ul><ul><li>Accounting </li></ul><ul><li>Finance </li></ul><ul><li>Human resources </li></ul>Modes MEANS Overlaying Alternatives Global Manufacturing and Supply Chain Management OBJECTIVES EXTERNAL INFLUENCES COMPETITIVE ENVIRONMENT PHYSICAL AND SOCIETAL FACTORS
  4. 4. <ul><li>Introduction </li></ul><ul><ul><li>Supply chain— encompasses the coordination of materials, information, and funds from the initial raw material supplier to the ultimate customer </li></ul></ul><ul><ul><li>Management of the value-added process </li></ul></ul><ul><ul><ul><li>Network is quite broad </li></ul></ul></ul><ul><ul><ul><ul><li>coordination of the network takes place through interactions between firms in the networks </li></ul></ul></ul></ul><ul><ul><li>Logistics (materials management)— that part of the supply chain that focuses on the transportation and storage of materials and final goods </li></ul></ul>
  5. 5. Supplier network Customer network The Global Supply Chain Manufacturing configuration
  6. 6. <ul><li>Global Manufacturing Strategies </li></ul><ul><ul><li>Manufacturing compatibility— degree of consistency between FDI decisions and competitive strategy </li></ul></ul><ul><ul><ul><li>Strategies that managers must consider include: </li></ul></ul></ul><ul><ul><ul><ul><li>cost-minimization strategies —establish economies of scale in manufacturing, often by producing in areas with low-cost labor </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>offshore manufacturing—e.g., Mexico’s maquiladora operations </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>dependability </li></ul></ul></ul></ul><ul><ul><ul><ul><li>quality </li></ul></ul></ul></ul><ul><ul><ul><ul><li>flexibility </li></ul></ul></ul></ul><ul><ul><ul><ul><li>innovation </li></ul></ul></ul></ul>
  7. 7. <ul><li>Global Manufacturing Strategies (cont.) </li></ul><ul><ul><li>Manufacturing configuration— three basic forms </li></ul></ul><ul><ul><ul><ul><li>centralized manufacturing in one country </li></ul></ul></ul></ul><ul><ul><ul><ul><li>regional manufacturing facilities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>multidomestic—country-specific manufacturing facilities </li></ul></ul></ul></ul><ul><ul><ul><li>MNEs choose a combination of these forms </li></ul></ul></ul><ul><ul><ul><li>Rationalization —countries specialize in the production of parts or final goods </li></ul></ul></ul><ul><ul><li>Coordination and control </li></ul></ul><ul><ul><ul><li>Coordinating —linking or integration of activities into a unified system </li></ul></ul></ul><ul><ul><ul><ul><li>must be considered when manufacturing configuration is established </li></ul></ul></ul></ul><ul><ul><ul><li>Controlling —ensures that company strategies are carried out </li></ul></ul></ul><ul><ul><ul><ul><li>includes organizational structure and reporting systems </li></ul></ul></ul></ul>
  8. 8. <ul><li>Global Manufacturing Strategies (cont.) </li></ul><ul><ul><li>Plant location strategies— determine which countries to invest in and where in the specific countries </li></ul></ul><ul><ul><ul><li>Depends on a variety of factors </li></ul></ul></ul><ul><ul><li>Layout planning strategies— decisions about the physical arrangement of economic activity centers within a manufacturing facility </li></ul></ul><ul><ul><ul><li>Economic activity centers—where the different production tasks are performed </li></ul></ul></ul><ul><ul><ul><li>Cost of land is a factor </li></ul></ul></ul><ul><li>Global Supply Chain Management </li></ul><ul><ul><li>Electronic data interchange (EDI)— links suppliers, customers, and third-party intermediaries to expedite documents and financial flows </li></ul></ul><ul><ul><ul><li>Links exporters with customs </li></ul></ul></ul><ul><ul><ul><li>Drawbacks—limited, expensive, and inflexible </li></ul></ul></ul><ul><ul><ul><ul><li>based on proprietary standards </li></ul></ul></ul></ul>
  9. 9. Elements of a Global Supply Chain Management Customer Service Requirements Organizational Design and Training Requirements Performance Goals Global Supply Chain Management Business Processes Plant and Distribution Center Network Design Information Systems Key Customer and Supplier Relationships Performance Metrics Inventory Management Outsourcing and Third-Party Logistics Relationships
  10. 10. <ul><li>Global Supply Chain Management (cont.) </li></ul><ul><ul><li>Enterprise resource planning (ERP)— software that can link information flows from different parts of a business and from different geographic areas </li></ul></ul><ul><ul><ul><li>Brings information together within the firm </li></ul></ul></ul><ul><ul><ul><li>Unable to tie in the customer and take advantage of e-commerce </li></ul></ul></ul><ul><ul><li>E-commerce— use of Internet to join together suppliers with companies, companies with customers </li></ul></ul><ul><ul><ul><li>Helps to automate and speed up internal processes in a company and spreads efficiency gains to the business systems of its customers and suppliers </li></ul></ul></ul><ul><ul><ul><li>Extranet —use of Internet to link a company with outsiders </li></ul></ul></ul><ul><ul><ul><li>Intranet —use of Internet to link parts of the firm </li></ul></ul></ul><ul><ul><ul><li>Use varies by location and industry </li></ul></ul></ul>
  11. 11. <ul><li>Quality </li></ul><ul><ul><li>Meeting or exceeding the expectations of the customer </li></ul></ul><ul><ul><ul><li>Conformance to specifications, value, fitness for use, support, and psychological impressions </li></ul></ul></ul><ul><ul><ul><li>Zero defects —Japanese refuse to tolerate defects of any kind </li></ul></ul></ul><ul><ul><ul><li>Acceptable quality level —unacceptable products dealt with through repair facilities and service warranties </li></ul></ul></ul><ul><ul><li>Total Quality Management (TQM)— proactive strategy whose goal is to eliminate all defects </li></ul></ul><ul><ul><ul><li>Three principles of TQM </li></ul></ul></ul><ul><ul><ul><ul><li>customer satisfaction </li></ul></ul></ul></ul><ul><ul><ul><ul><li>employee involvement </li></ul></ul></ul></ul><ul><ul><ul><ul><li>continuous improvement ( kaizen )—identifying problems and enlisting employees throughout the organization to help eliminate the problems </li></ul></ul></ul></ul>
  12. 12. <ul><li>Quality (cont.) </li></ul><ul><ul><li>Quality standards— exist at three levels </li></ul></ul><ul><ul><ul><li>General standard </li></ul></ul></ul><ul><ul><ul><ul><li>award for quality— Baldridge and Deming awards </li></ul></ul></ul></ul><ul><ul><ul><ul><li>certification standard—accepted worldwide </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>ISO 9000 —European set of five universal standards for quality assurance </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>non-European companies operating in Europe must become ISO certified to have access to that market </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>ISO 9001 —most detailed and comprehensive standard in the series </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>ISO 9004-2 —pertains to software </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Industry-specific standards—typically pertain to quality of suppliers </li></ul></ul></ul><ul><ul><ul><li>Individual companies—set standards for their suppliers </li></ul></ul></ul>
  13. 13. <ul><li>Supplier Networks </li></ul><ul><ul><li>Sourcing— problem of acquiring inputs for the production process </li></ul></ul><ul><ul><ul><li>Sourcing involves both domestic and foreign suppliers </li></ul></ul></ul><ul><ul><ul><ul><li>sourcing in the home country avoids numerous problems </li></ul></ul></ul></ul><ul><ul><ul><ul><li>domestic sources may be unavailable or expensive </li></ul></ul></ul></ul><ul><ul><ul><li>Companies can manufacture parts internally or purchase them from other manufacturers </li></ul></ul></ul><ul><ul><ul><li>Companies can assemble their own products internally or subcontract to other firms </li></ul></ul></ul><ul><ul><li>Outsourcing configurations </li></ul></ul><ul><ul><ul><li>Vertical integration —company owns entire supplier network </li></ul></ul></ul><ul><ul><ul><li>Arm’s-length purchases —outsourcing </li></ul></ul></ul><ul><ul><ul><li>Japanese keiretsu relationships with suppliers </li></ul></ul></ul>
  14. 14. Phases of Export Development <ul><li> Preengagement </li></ul><ul><li>Companies selling goods and services solely in the </li></ul><ul><li>domestic market </li></ul><ul><li>Those companies considering but not currently exporting </li></ul>Phase 1 <ul><li>Initial Exporting </li></ul><ul><li>Companies that do sporadic, marginal exporting </li></ul><ul><li>Companies that see lots of potential in export markets </li></ul><ul><li>Companies unable to cope with exporting demands </li></ul>Phase 2 <ul><li>Advanced </li></ul><ul><li>Companies become regular exporters </li></ul><ul><li>Companies gain extensive overseas experience </li></ul><ul><li>Companies may use other strategies for entering markets </li></ul>Phase 3
  15. 15. Improve Quality Supplier Networks Improve Delivery of Supplies Establish a Presence in a Foreign Market Reduce Costs Reasons for Global Sourcing Strategies React to Competitor’s Offshore Sourcing Practices Increase Exposure to Worldwide Technology Strengthen Reliability of Supply Gain Access to Materials Satisfy Offset Requirements
  16. 16. <ul><li>Supplier Networks (cont.) </li></ul><ul><ul><li>Make or buy decision— outsource or supply parts from internal production </li></ul></ul><ul><ul><ul><li>MNEs could focus on critical parts and parts that they make distinctively well </li></ul></ul></ul><ul><ul><ul><li>Outsourcing —purchasing inputs from outside suppliers not related to the company </li></ul></ul></ul><ul><ul><ul><ul><li>suppliers have distinct competitive advantages </li></ul></ul></ul></ul><ul><ul><li>Supplier relations— firms must determine how to work with their suppliers </li></ul></ul><ul><ul><ul><li>Japanese companies develop close relationships </li></ul></ul></ul><ul><ul><ul><li>U.S. companies tend to have arm’s-length relationships </li></ul></ul></ul><ul><ul><li>Purchasing function— select best supplier, establish a solid relationship, evaluate supplier’s performance </li></ul></ul><ul><ul><ul><li>Alliances —buyer and seller provide information about orders, upcoming design changes, and long-range plans </li></ul></ul></ul>
  17. 17. Home country Abroad Both Global Sourcing and Production Strategy Sourcing of raw materials, parts, and components Manufacture and assembly of components and final products Sale of products Stage of production and sales Home country Abroad Both Home country Abroad Both Location of sourcing, production, and sales
  18. 18. <ul><li>Inventory Management </li></ul><ul><ul><li>Companies must manage the flow and storage of inventory </li></ul></ul><ul><ul><ul><li>Distance, time, and uncertainty in foreign environments cause foreign sourcing to complicate inventory management </li></ul></ul></ul><ul><ul><li>Just-in-time (JIT) systems— sourcing raw materials and parts just as they are needed in the manufacturing process </li></ul></ul><ul><ul><ul><li>Spares the cost of storing large inventories </li></ul></ul></ul><ul><ul><ul><li>Must develop solid supplier relationships </li></ul></ul></ul><ul><ul><ul><ul><li>may have to make concessions to foreign suppliers </li></ul></ul></ul></ul><ul><ul><ul><li>Typically implies sole sourcing </li></ul></ul></ul><ul><ul><ul><ul><li>problematic if sole supplier is foreign </li></ul></ul></ul></ul>
  19. 19. Evaluate operating and competitive environments Define scope of international purchasing effort Identify and evaluate potential suppliers worldwide Determine appropriate nature of buyer-supplier relationship Request/evaluate proposals from suppliers Continual reevaluation of implementation status, requirements, and capabilities Select “best” supplier, establish contract terms and conditions, and build desired relationship Steps in the Global Sourcing Process
  20. 20. <ul><li>Inventory Management (cont.) </li></ul><ul><ul><li>Foreign Trade Zones (FTZs)— special locations for storing domestic and imported inventory and avoiding paying duties until the inventory is used in production or sold </li></ul></ul><ul><ul><li>Intended to encourage foreign investment </li></ul></ul><ul><ul><ul><li>Can be general-purpose zones or subzones </li></ul></ul></ul><ul><ul><ul><ul><li>major growth in subzones </li></ul></ul></ul></ul><ul><ul><ul><li>Use in export business has been expanding </li></ul></ul></ul><ul><li>Transportation Networks </li></ul><ul><ul><li>Transportation of goods is very complicated </li></ul></ul><ul><ul><ul><li>Transportation is key element of logistics system </li></ul></ul></ul><ul><ul><ul><ul><li>gather, track, and process large quantities of information </li></ul></ul></ul></ul><ul><ul><ul><li>Decisions about warehousing system also necessary </li></ul></ul></ul><ul><ul><li>Third-party intermediaries— an important dimension </li></ul></ul>

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