2. Production Issues for Firms
•In today’s global economy, firms must decide.
–where to locate productive activities
–what the long-term strategic role of foreign production sites
should be
–whether to own foreign production activities or outsource those
activities
–how to manage a globally dispersed supply chain and what the
role of Internet-based information technology should be in the
management of global logistics.
–whether to manage global logistics or outsource
3. Strategy, Production, and
Logistics
Production- refers to activities involved in
creating a product.
Logistics- refers to the procurement and
physical transmission of materials through
the supply chain, from suppliers to
customers.
4. Strategy, Production, and Logistics
Firms need to identify how production and logistics can be conducted
internationally to:
1.Lower the cost of value creation
2. Add value by better serving customer needs
The strategic objectives of the production and logistics
function
o To increase product quality
o To lower costs
5. Ways in which improved quality control
reduces cost:
o Increasing productivity because time is not
wasted in manufacturing poor quality products
that cannot be sold.
o Reducing the number of products that can’t be
sold, leading to a direct reduction in unit costs.
o Lowering re-work and scrap costs
o Lowering warranty costs
6. International organizations for Standardization (ISO) 9000
- Is a series of international quality management standards developed for
the purpose of increasing business efficiency and customer satisfaction.
Advantages of ISO
The goal of ISO is to embed a quality management system within
organization, increasing productivity, reducing cost an ensuring quality of
product and services
With ISO, organizations can identify the roots of different products ad
services, finding solutions and maximizing profit.
When multiple organizations participate in utilizing ISO standards, an
internationally know supply chain with a high degree of reliability can be
created.
7. What management tool is used to increase the reliability of
product offerings?
The Six Sigma quality improvement program aims to reduce
defects, boost productivity, eliminate waste, and cut costs
throughout a company.
• Six Sigma is a direct descendant of total quality management
(TQM)
• In addition, some countries have also promoted specific quality
guidelines like the European Union’s ISO 9000 standards.
8. Two other objectives are important for international
companies
production and logistics must
be able to respond quickly to
shifts in customer demand
production and logistics
functions must be able to
accommodate demands for local
responsiveness.
9. Where to produce
Where should production activities be located?
When deciding where to locate production facilities, firms must consider
Country factors
○Firms should locate manufacturing
activities where economic, political, and
cultural conditions, including relative
factor costs, are most conducive to the
performance of that activity
○Regulations affecting FDI and trade can
significantly affect the appropriateness of
specific countries, as can expectations
about future exchange rate changes
Example
During 1950-1980 the relatively value of yen on
foreign exchange markets helped strengthen
Japan position as a low cost location for
manufacturing.
However, between the 1980's the yen steady
appreciation against the dollar, increased the
dollar cost of products exported from Japan,
making Japan a less attractive manufacturing
location.
10. Where to produce
Where should production activities be located?
When deciding where to locate production facilities, firms must consider
Technological factors
The type of technology a firm uses in its
manufacturing can affect location
decisions
Three characteristics of a Manufacturing
technology should consider
The level of fixed costs involved
The minimum efficient scale of the
technology
Flexible Manufacturing and Mass
Customization
Mass Customization
- implies that a firm maybe able to
customize it's product range to suit the
needs of different customer groups
without bearing a cost penalty.
Flexible Manufacturing
- allow a company to produce a wide
variety of end products at a unit cost
that at one time could only be achieved
through the mass production of a
standardized output.
11. Where to produce
Technological factors
It covers a range of manufacturing technologies that are designed to;
○ reduce set up times for complex equipment
○ increase the utilization of individual machines through better
scheduling
○ improve quality control at all stages of the manufacturing process
Adopting flexible Manufacturing technologies can help improve the
competitive position of firms by allowing the firm to customize
products to different national markets in accordance with demands
for local responsiveness.
12. Where to produce
Technological factors
When does it make sense to concentrate production at a few choice locations?
Concentrated production makes sense when
○ fixed costs are substantial
○ the minimum efficient scale of production is high
○ flexible manufacturing technologies are available
Concentrated production does not make sense when
○ both fixed costs and the minimum efficient scale of production are relatively low
○ appropriate flexible manufacturing technologies are not available
13. Where to produce
Where should production activities be located?
When deciding where to locate production facilities, firms must consider
Product factors
Two product factors impact location
decisions
1. The product's value-to-weight ratio
- If the value-to-weight ratio is high, it is
practical to produce the product in a single
location and export iand If the value-to-
weight ratio is low, there is greater pressure
to manufacture the product in multiple
locations across the world
2. Whether the product serves universal need
- The need for local responsiveness is reduced
for products that do, which increases the
attractiveness of concentrated manufacturing.
14. Locating Production Facilities
Two basic strategies of locating
manufacturing facilities;
○ concentrating them in the optimal
location and serving the world market
from there
○ decentralizing them in various
regional or national locations that are
closed to major markets Mockup
15. Locating Production Facilities
Country factors
Difference in political economy
Difference in culture
Difference in factor costs
Trade barriers
Location externalities
Exchange rates
Technological factors
Fixed cost
Minimum efficient scale
Flexible manufacturing technology
Product Factors
Value-to-weight ratio
Serves universal needs
Concentrated
Production
Favored
Substantial
Substantial
Substantial
Substantial
Import Industry
Stable
Decentralized
Production
Flavored
Few
Few
Few
Few
Not important in industry
Volatile
High
High
Available
Low
Low
Not Available
High
Yes
Low
No
Country factors
Difference in political economy
Difference in culture
Difference in factor costs
Trade barriers
Location externalities
Exchange rates
Substantial
Substantial
Substantial
Substantial
Import Industry
Stable
Decentralized
Production
Flavored
Few
Few
Few
Few
Not important in industry
Volatile
Country factors
Difference in political economy
Difference in culture
Difference in factor costs
Trade barriers
Location externalities
Exchange rates
Decentralized
Production
Flavored
16. Types of Foreign Factories
Offshore factory
Source Factory
Contributor Factory
Outpost Factory
Server Factory Lead Factory
17. Strategic role of foreign factories
The strategic role of foreign factories and the strategic advantage of a
particular location can change over time.
A factory initially established to make a standard product to serve
a local market, or to take advantage of low cost inputs, can evolve
into a facility with advanced design capabilities. As governmental
regulations change and/or countries upgrade their factors of
production the strategic advantage of a particular location can
change.
18. Outsourcing Production
Advantages of Make
○ Lower cost
○ Facilitating Specialized Investments
○ Proprietary product technology
protection
○ Improved Scheduling
Make or Buy Decision
Is a business practice of hiring a party outside a company to perform services or
create goods that we're traditionally performed in house by the company's own
employees and stuff.
Advantages of Buy
Buying components parts from
independent suppliers;
○ Gives firm greater strategic Flexibility
○ Helps drive down the firm's cost
structure
○ Helps the firm to capture orders from
international customers
19. Managing a global supply Chain
Logistics encompasses the activities necessary to get materials
to a manufacturing facility, through the manufacturing process,
and out through a distribution system to the end user.
The primary goal is to;
- manage a global supply chain at the lowest possible cost
and in a way that best serves customer needs
- establish a competitive advantage through superior
customer service
20. The Role of Just-In-Time (JIT)
The basic philosophy behind JIT systems is to economize on inventory
holding cost by having materials arrive at a manufacturing plant just
in time to enter the production process, and not before. It is a
manufacturing strategy that increases return on investment by
reducing in process inventory and carrying cost.
The primary purpose of this system
-upgrade efficiency
-control production
-reduce wastage arising during production.
21. ADVANTAGE DISADVANTAGE
-Reduces wastage as inventory levels are low.
-Increases efficiency since the focus of the
firm is on quality.
-Optimum utilization resources as production
takes place only when the demand arises
-Firms incur no holding costs as the inventory
is supplied immediately-Improves customer
service as firms provide a faster and speeder
delivery of goods
-Production errors are easily noticeable in
smaller batches.
-The inventory turnover is also high
-The production process occurs smoothly
-It is difficult to forecast future demand
and start production.
-Hurdles arise when there is a sudden rise
in market demand
-During times of global crises, it becomes
imperative to establish enhanced control
over the supply chain.
-A strong supply chain and coordination
team is required
-Difficult to match the customer’s
expectations.
-Need for multiple or flexible suppliers.
22. * Web-based information systems play a crucial role in materials management. It allow firms
to optimize production scheduling according to when components are expected to arrive.
Electronic Data Interchange (EDI)
-facilitates the tracking of inputs
-allows the firm to optimize its production schedule
-lets the firm and its suppliers communicate in real time
-eliminates the flow of paperwork between the firm and its suppliers
The Role of Information Technology
25. 01.
b.
c.
a.
d.
It refers to the procurement and physical transmission of
materials through the supply chain, from suppliers to
customers?
I. MULTIPLE CHOICE
Logistics
Production
Outsourcing
Supply Chain
26. 02.
b.
c.
a.
d.
Is a business practice of hiring a party outside a company to
perform services or create goods that we're traditionally
performed in house by the company's own employees and
stuff?
Make or Buy Decision
Logistics
Production Outsourcing
27. 03.
b.
c.
a.
d.
All of these is the advantage of make, except for one.
Lower cost
Helps the firm to capture
orders from international
customers
Improved Scheduling
Proprietary product
technology protection
28. 04 - 06. Give at least 3 of types of foreign factories
07 - 08. Enumerate the 3 factors considering in production
II. ENUMERATION
29. ANSWERS
I.MULTIPLE CHOICE
1. A
2. B
3. C
II. ENUMERATION
4-6. Give at least 3 the types of foreign factories
- Offshore factory
- Source Factory
- Server Factory
- Contributor Factory
- Outpost Factory
- Lead Factory
7-8. Enumerate the 3 factors considering in production
- Country Factors
- Technological Factors
- Product Factors
