Daniels ib13 ppt_17
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This document discusses global manufacturing and supply chain management. It covers key factors in global manufacturing strategies, including compatibility, configuration, coordination and control. It also discusses elements of global supply chain management, such as quality standards, supplier networks, inventory management and transportation. The overall goal is to describe how companies can effectively manage international operations through strategic global manufacturing and supply chain coordination.
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Daniels ib13 ppt_17
- 1. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-1 International Business Environments and Operations Part 6 Managing International Operations
- 2. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-2 Chapter 17 Global Manufacturing and Supply- Chain Management
- 3. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-3 Chapter Objectives • To describe the different dimensions of a global manufacturing strategy • To examine the elements of global supply-chain management • To show how quality affects the global supply chain • To illustrate how supplier networks function • To explain how inventory management is a key dimension of the global supply chain • To present different alternatives for transporting products along the supply chain from suppliers to customers
- 4. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-4 What is Supply Chain Management? • Supply chain—the coordination of materials, information, and funds from the initial raw-material supplier to the ultimate customer. • Logistics—part of the supply-chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers’ requirements.
- 5. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-5 Global Manufacturing Strategies Four Key Factors: • Compatibility • Configuration • Coordination • Control
- 6. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-6 Compatibility Company managers must consider the following strategies: • Efficiency/Cost • Dependability • Quality & Innovation • Flexibility
- 7. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-7 Manufacturing Configuration • Centralized manufacturing in one country • Manufacturing facilities in specific regions to service those regions • Multidomestic facilities in each country
- 8. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-8 Coordination Control Control systems, such as organizational structure and performance measurement systems, ensure that managers implement company strategies.
- 9. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-9 Information Technology and Global Supply Chain Management • Electronic Data Interchange • Enterprise Resource Planning/Material Requirements Planning • Radio Frequency ID (RFID) • E-Commerce
- 10. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-10 Quality • Zero Defects versus Acceptable Quality Level • The Deming Approach to Quality Management • Total Quality Management • Six Sigma
- 11. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-11 Quality Standards Levels of quality standards: • General level—ISO 9000, Malcolm Baldrige National Quality Award • Industry-specific level • Company level
- 12. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-12 Supplier Networks • Global Sourcing • Major Sourcing Configuration • The Make or Buy Decision • Supplier Relations • The Purchasing Function
- 13. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-13 Global Sourcing
- 14. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-14 Major Sourcing Configuration • Vertical integration • Outsourcing through industrial clusters • Other outsourcing
- 15. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-15 Make or Buy Decision • Make or buy—outsource or supply parts from internal production • If MNEs outsource parts instead of sourcing them from internal production, they need to determine the degree of involvement with suppliers.
- 16. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-16 Supplier Relations • Supplier relationships are very important but sometimes complicated, especially for MNEs trying to manage supplier relationships around the world – Case: Toyota – Case: JCPenney
- 17. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-17 The Purchasing Function Global progression in the purchasing function: • Domestic purchasing only • Foreign buying based on need • Foreign buying as part of a procurement strategy • Integration of global procurement strategy
- 18. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-18 Major Sourcing Strategies • Assign domestic buyers for foreign purchasing. • Use foreign subsidiaries or business agents. • Establish international purchasing offices. • Assign the responsibility for global sourcing to a specific business unit or units. • Integrate and coordinate worldwide sourcing.
- 19. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-19 Inventory Management • Lean Manufacturing and Just-In-Time Systems – Risks in Foreign Systems – The Kanban System • Foreign Trade Zones • Transportation Networks
- 20. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-20 Future: Uncertainty and the Global Supply Chain • Globalization encourages companies to outsource to foreign suppliers to reduce costs. • Political events increase the risk of supply chain disruption.
- 21. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 17-21 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Editor's Notes
- Suppliers can be part of the manufacturer’s organizational structure, as would be the case in a vertically integrated company, or they can be independent of the company. Direct suppliers also have their networks. In a global context, suppliers can be located in the country where the manufacturing or assembly takes place, or they can be located in one country and ship materials to the country of manufacture or assembly. The output of the suppliers can be shipped directly to the factory or to an intermediate storage point. The output of the manufacturing process can be shipped directly to the customers or to a warehouse network. The output can be sold directly to the end consumer or to a distributor, wholesaler, or retailer, who then sells the output to the final consumer. As is the case in the supplier network, the output can be sold domestically or internationally. Materials management is inbound logistics, or the movement and management of materials and products from purchasing through production to meet the demands of the consumer. The difference between supply-chain management and logistics is one of degree. Logistics focuses much more on the transportation and storage of materials and final goods, whereas supply-chain management extends beyond that to include the management of supplier and customer relations.
- Compatibility—the degree of consistency between FDI decisions and a company’s competitive strategy. Manufacturing configuration: • Centralized manufacturing in one country • Manufacturing facilities in specific regions to service those regions • Multidomestic facilities in each country Coordination is linking or integrating activities into a unified system. Control systems, such as organizational structure and performance measurement systems, ensure that managers implement company strategies.
- Efficiency/Cost: Cost-minimization strategies and the drive for global efficiencies force MNEs to establish economies of scale in manufacturing, often by producing in areas with low-cost labor. This is one of the major reasons why many MNEs engage in offshore manufacturing. Offshore manufacturing—any investment that takes place in a country other than the home country. However, when employing a cost-minimization strategy, many companies overlook important elements—such as shipping distances, extra inventory, political and security risks, and the availability of skilled and educated workers—which causes them to underestimate the costs of outsourcing to low-wage countries. In other words, when making decisions to source abroad, companies should consider the total cost of facilitating the strategy, as opposed to merely the acquisition cost. Therefore, companies also need to engage in total cost analysis. Total cost analysis—an in-depth assessment of the complete cost of a transaction that takes into account acquisition, ownership, and disposal costs. Dependability: The growing customer demand for dependability and prompt deliveries has caused companies such as Dell to locate plants closer to customers rather than in low-wage areas. As the supply chain lengthens, there are risks of not being able to get components or finished goods to market on time. Thus, shortening the distance in the supply chain can improve dependability. Quality: Many companies are also responding to the importance of innovation and quality. When companies invest abroad to take advantage of low-cost labor, they are not as concerned about innovation. But as more and more companies establish R&D facilities abroad, they will be able to move beyond low-end manufacturing. Flexibility: The need for responsiveness or flexibility because of differences in national markets may result in regional manufacturing to service local markets. It may not be possible to produce all products in one location and ship them around the world.
- The first configuration is to have centralized manufacturing that offers a selection of standard, lower-priced products to different markets. That is basically a manufacture-and-export strategy. The second configuration is the use of regional manufacturing facilities to serve customers within a specific region. Third, market expansion in individual countries, especially when the demand in those countries becomes significant, might argue for a multidomestic approach in which companies manufacture products close to their customers, using country-specific manufacturing facilities to meet local needs.
- Coordinating is the linking or integrating of activities into a unified system. The activities include everything along the global supply chain from purchasing to warehousing to shipment. Once the company determines the manufacturing configuration it will use, it must adopt a control system to ensure that company strategies are carried out. Control can be the measuring of performance so companies can respond appropriately to changing conditions.
- The key to making a global information system work is getting the relevant information in a timely manner. Many companies use electronic data interchange (EDI) to link suppliers, manufacturers, customers, and intermediaries, especially in the food-manufacturing and car-making industries, in which suppliers replenish in high volumes. In a global context, EDI has been used to link exporters with customs to facilitate the quick processing of customs forms, thus speeding up the delivery of products across borders. However, EDI has some drawbacks. It is relatively limited and inflexible. It provides basic information but does not adapt easily to rapidly changing market conditions—a necessary condition in the global marketplace. It is relatively expensive to implement, so many small- and medium-size companies find it difficult to afford. Also, it is based on proprietary rather than on widely accepted standards, so systems tend to only be able to link together suppliers and their customers. In addition, it focuses more on the business-to-business value chain and does not deal effectively with end-use customers. ERP (enterprise resource planning)—software that can link information flows from different parts of a business and from different geographic areas. ERP is essential for bringing together the information inside the firm and from different geographic areas, but its inability to tie in to the customer and take advantage of e-commerce has been a problem. An extension of ERP is material requirements planning (MRP), a computerized information system that addresses complex inventory situations and calculates the demand for parts from the production schedules of the companies that use the parts. Radio frequency ID (RFID)—a system that labels products with an electronic tag, which stores and transmits information regarding the product’s origin, destination, and quantity. This real-time information allows manufacturers, suppliers, and distributors to keep track of products and components throughout their manufacturing processes and transportation networks, resulting in increased efficiencies and more visibility along the supply chain. E-commerce—the use of the Internet to join together suppliers with companies and companies with customers. The challenge in global supply-chain management is that some networks can be managed through the Internet, but others—particularly in emerging markets—cannot because of the lack of technology, especially high-speed access to the Internet. The use of the Internet varies by location and by industry. This so-called digital divide has created difficulties for companies such as U.S.-based Newmont Mining Corporation. Newmont has struggled to implement its ordering and inventory management information system with its suppliers in Indonesia, who have to rent computers in different towns to even access the Internet and whose managers are typically former farmers who have often never even used e-mail.
- An important aspect of all levels of the global supply chain is quality management, which is true for service as well as manufacturing companies. Quality is defined as meeting or exceeding the expectations of the customer. More specifically, it is the conformance to specifications, value, fitness for use, support (provided by the company), and psychological impressions (image). Zero defects—the refusal to tolerate defects of any kind. Acceptable quality level (AQL)—a tolerable level of defects that can be corrected through repair and service warranties. Deming’s 14 Points encompass the idea that the responsibility for quality resides within the policies and practices of managers. 1. Create constancy of purpose. 2. Adopt a new philosophy. 3. Cease mass inspection. 4. End awarding business on the basis of price tag. 5. Constantly improve the system. 6. Institute training on the job. 7. Improve leadership. 8. Drive out fear. 9. Break down barriers between departments. 10. Eliminate slogans. 11. Eliminate work standards. 12. Remove barriers to pride. 13. Institute education and self-improvement. 14. Put everybody to work. The emphasis on quality management has continued to provide a major source of competitive advantage and to play a major role for companies across the globe. However, just as different countries possess varying cultures, product preferences, and business practices, different regions of the world have approached the concept of quality management in different ways. The Japanese approach to quality is total quality management (TQM), a process that stresses three principles: customer satisfaction, continuous improvement, and employee involvement. The goal of TQM is to eliminate all defects. TQM often focuses on benchmarking world-class standards, product and service design, process design, and purchasing. TQM is a process of continuous improvement at every level of the organization—from the mailroom to the boardroom. It implies that the company is doing everything it can to achieve quality at all stages of the process, from customer demands to product design to engineering. Six Sigma—a quality control system aimed at eliminating defects, slashing product cycle times, and cutting costs across the board.
- The International Organization for Standardization (ISO) in Geneva was formed in 1947 to facilitate the international coordination and unification of industrial standards. From the beginning, it has partnered with the IEC (International Electrotechnical Commission), which is the originator of global technical standards. It also collaborates with the International Telecommunications Union and the World Trade Organization. The ISO is an NGO and represents a network of standard setters in 158 countries throughout the world. It has established a total of 16,455 international quality standards. ISO 9000—a global set of quality standards intended to promote quality at every level of an organization. ISO 14000—a quality standard concerned with environmental management. ISO 9000 is a set of universal standards for a quality assurance system that is accepted around the world. The standards apply uniformly to companies in any industry and of any size. ISO 9000 is intended to promote the idea of quality at every level of an organization. Initially, it was designed to harmonize technical norms within the EU. Now it is an important part of business operations throughout Europe. Non-European companies operating in Europe need to become ISO certified in order to maintain access to that market. In addition to the general standards described earlier, there are industry-specific standards for quality, especially for suppliers to follow. ISO/TS 16946:2002 is derived from ISO 9001, but it is more specific to the auto industry. Under the guidelines, suppliers must adapt their quality systems to meet the expectations of the automakers. Individual companies also set their own standards for suppliers to meet if they are going to continue to supply them.
- Sourcing—the process of a firm having inputs supplied to it from outside suppliers (both domestic and foreign) for the production process.
- When a company wants to source raw materials, parts, or components as a function of its global strategy, it’s faced with some key decisions. It may, for example, decide to source components at home, assemble them abroad, and then export the final product to the home market, to foreign markets, or to both. Companies pursue global sourcing strategies for a number of reasons: • To reduce costs—due to less expensive labor, less restrictive work rules, and lower land and facilities costs • To improve quality • To increase exposure to worldwide technology • To improve the delivery-of-supplies process • To strengthen the reliability of supply by supplementing domestic with foreign suppliers • To gain access to materials that are only available abroad, possibly because of technical specifications or product capabilities • To establish a presence in a foreign market • To satisfy offset requirements • To react to competitors’ offshore sourcing practices, quality and safety are other concerns with global sourcing. This has been especially evident in the highly publicized recalls of tainted pet food and toothpaste, defective tires, and toys with traces of lead in their paint that were produced in China. Subsequent actions led Chinese regulators and inspectors to close 180 food plants and uncover more than 23,000 food safety violations, forcing the Chinese government to admit that 20 percent of its consumer goods have failed safety inspections. China is not the only country producing substandard goods; black pepper with salmonella from India, filthy crabmeat from Mexico, mislabeled candy from Denmark, and produce with traces of illegal pesticides from the Dominican Republic have resulted in thousands of shipments halted by U.S. inspectors. Such incidents have raised concerns over foreign-made products and accusations that quality and safety are being compromised to lower costs. The countries that churn out the cheapest products often lack adequate regulations, enforcement, and logistical infrastructure, leaving it up to the purchasing companies to ensure quality and safety.
- Vertical integration occurs when the company owns the entire supplier network or at least a significant part of it. The company may have to purchase raw materials from outside suppliers, but it produces the most expensive parts itself. By integrating vertically, the company is able to reduce transaction costs (such as finding suppliers, selling output, negotiating contracts, monitoring contracts, and settling disputes with unrelated companies) by internalizing the different levels in the value chain. Outsourcing through industrial clusters is an alternative way to reduce transportation costs and transaction costs. Under clustering, buyers and suppliers locate in close proximity to each other to facilitate doing business. For example, Dell Computer Corporation established an assembly operation in the Multimedia Supercorridor in Malaysia, where it is close to its key suppliers.
- Case: Toyota If an MNE decides it must outsource rather than integrate vertically, it must determine how to work with suppliers. Toyota pioneered the Toyota Production System to work with unrelated suppliers. Toyota sends a team of manufacturing experts to each of its key suppliers to observe how the supplier organizes its factory and makes its parts. Then the team advises how to cut costs and boost quality. It is also common for Toyota to identify two suppliers for each part and have the suppliers compete aggressively with each other. The supplier that performs the best gets the most business. However, both suppliers know they will have an ongoing relationship with Toyota and will not be dumped easily. Case: JCPenney The decision to work closely with suppliers requires a great deal of trust and oftentimes involves making drastic—sometimes risky—changes. However, such changes can provide large strategic advantages. Such is the case for JCPenney and its Hong Kong–based supplier of shirts, TAL Apparel Ltd. The retailer literally allows its supplier to take over some of its own processes. Rather than simply responding to orders sent to it from Penney’s, TAL tracks the retailer’s sales data directly, running it through its personally designed computer program to determine the number of shirts to make, as well as their sizes, colors, and styles. These shirts are then shipped directly to individual JCPenney stores, completely bypassing the retailer’s warehouses.
- Phase 4 occurs when the company realizes the benefits that result from the integration and coordination of purchasing on a global basis and are most applicable to the MNE—as opposed to, say, the exporter. When purchasing becomes this global, MNEs often face the centralization/decentralization dilemma. Should they allow each subsidiary to make all purchasing decisions, or should they centralize all or some of the purchasing decisions? The primary benefits of decentralization include increased production-facility control over purchases, better responsiveness to facility needs, and more effective use of local suppliers. The primary benefits of centralization are increased leverage with suppliers, getting better prices, eliminating administrative duplication, allowing purchasers to develop specialized knowledge in purchasing techniques, reducing the number of orders processed, and enabling purchasing to build solid supplier relationships.
- These strategies move from the simple to the more complex. Companies start by using a domestic buyer and progress all the way to integrating and coordinating worldwide sourcing into the company’s purchasing decisions so that there is no difference between domestic and foreign sources. Some companies are going even further than the last step and coordinating worldwide purchasing with competitor companies.
- Distance, time, and uncertainty in foreign environments cause foreign sourcing to complicate inventory management. Lean manufacturing—a productive system whose focus is on optimizing processes through the philosophy of continual improvement. Just-in-time approach to inventory management—a system that sources raw materials and parts just as they are needed in the manufacturing process. Foreign sourcing can create big risks for companies that use lean manufacturing and JIT, because interruptions in the supply line can cause havoc. Foreign companies are becoming experts at meeting the requirements of JIT—ships that take two weeks to cross the Pacific dock within an hour of scheduled arrival, and factories that are able to more easily fill small orders. However, because of distances alone, the supply chain is open to more problems and delays. Kanban system—a system that facilitates JIT by using cards to control the flow of production through a factory. They are kept in a bin that has a card attached to it identifying the quantity of items in the bin. When the assembly process begins, a production-order card signifies that a bin needs to be moved to the assembly line. When the bin is emptied, it is moved to a storage area and replaced with a full bin. The kanban card is then removed from the empty bin and is used to order a replacement from the supplier. Foreign trade zones (FTZs)—special locations for storing domestic and imported inventory in order to avoid paying duties until the inventory is used in production or sold. FTZs can be general-purpose zones or subzones. A general-purpose zone is usually established near a port of entry, such as a shipping port, a border crossing, or an airport, and it usually consists of a distribution facility or an industrial park. It is used primarily for warehousing and distribution. A subzone is usually physically separate from a general-purpose zone but under the same administrative structure, usually located at a manufacturing facility. The benefits to a zone user are: • No duties or quota charges on goods imported into a zone and re-exported. • Customs duties and federal excise tax are deferred on imports until taken from the zone and used in the domestic market. • Duties can be reduced if foreign inputs that come into the zone at one duty are higher than the duty would have been on the finished product as it leaves the zone for domestic sales (called an inverted tariff). • Steamlined customs procedures. • Elimination of state and local inventory taxes if the goods are held in the zone for export. Transportation is one of the key elements of a logistics system. The key is to link together suppliers and manufacturers on the one hand and manufacturers and final consumers on the other.
- The current chapter emphasizes two competing ideas: The first is that globalization has pushed companies to establish operations abroad or to outsource to foreign suppliers to reduce costs and be closer to markets. The second is that the longer the supply line, the greater the risk. Since September 11, 2001, the risks of longer supply lines have increased dramatically. At any time, global political events could completely disrupt a well organized supply chain and put a company at risk. As the supply chain stretches and uncertainty increases, companies have to become much better at scenario building so that viable contingencies are available. Maybe this means that companies will pursue more multidomestic strategies to insulate their foreign operations from other countries and allow them to be more responsive to local consumers. The important thing is to continue to look at the “what-ifs.” What if there is no secure air or ocean transportation available to move goods? What if the goods can move, but there are delays? What if terrorists begin to use the global supply chain of legitimate companies to contaminate products or to move hazardous materials?