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International Business: Global Production, Outsourcing &logistics

This document discusses production, logistics, and supply chain management in an international context. It covers key topics like the relationship between production and logistics, total quality management, factors to consider for international production locations, make-or-buy decisions, and the strategic role of information technology in managing global supply chains. The overall aim of production and logistics functions is to lower costs, increase quality, and accommodate both local responsiveness and shifts in customer demand.

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120 views19 pages

International Business: Global Production, Outsourcing &logistics

This document discusses production, logistics, and supply chain management in an international context. It covers key topics like the relationship between production and logistics, total quality management, factors to consider for international production locations, make-or-buy decisions, and the strategic role of information technology in managing global supply chains. The overall aim of production and logistics functions is to lower costs, increase quality, and accommodate both local responsiveness and shifts in customer demand.

Uploaded by

sonia_hun885443
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 16

Global Production, Outsourcing &logistics

International Business
Strategy, Production, and Logistics
Production is the activities involved in creating a

product
o Can be both service and manufacturing activities

Logistics is the activity that controls the transmission

of physical materials through the value chain


Production and logistics are closely linked since a

firm’s ability to perform its production activities


efficiently depends on a timely supply of high quality
Strategy, Production,
and Logistics
 Production and logistics functions have a number of
important strategic objectives
 Lower costs
 Increase product quality by eliminating defective products from both
the supply chain and the manufacturing process
 These objectives are interrelated
 Increasing productivity because time is not wasted producing poor-
quality products that cannot be sold, leading to a direct reduction in
unit costs
 Lowering rework and scrap costs associated with defective products
 Reducing the warranty costs and time associated with fixing defective
products
Relationship Between
Quality and Costs
Total Quality Management
The total quality management (TQM) philosophy was
developed by a number of American consultants such as W.
Edwards Deming, Josephy Juran, and A. V. Feigenbaum
Deming identified a number of steps that should be
included in any TQM program
o Management should embrace the philosophy that mistakes,
defects, and poor quality materials are not acceptable
o Supervisors should work more with employees and provide them
with the tools they need to do the job
o Management should create an environment in which employees
will not fear reporting problems
o Work standards should not only be defined as numbers or quotas,
but should include some notion of quality
Six Sigma
 In addition to lowering costs and improving quality,

two other objectives have particular importance


Production and logistic functions must be able to

accommodate demands for local responsiveness


Production and logistics must be able to respond quickly

to shifts in customer demand


Where to Produce

For the firm contemplating international production a


number of factors must be considered

Country factors

Technological factors

Product factors
Country Factors
Optimum economic, political, and cultural conditions

Externalities
o Skilled labor pools
o Supporting industries

Formal and informal trade barriers

Exchange rate
Technological Factors

Fixed costs
Minimum efficient scale
Flexible manufacturing
o Reduce setup times for complex equipment
o Increase machine utilization
o Improve quality control
Flexible machine cells to perform a variety of
operations
Manufacturing Location
 It includes
 Fixed costs are substantial
 Minimum efficient scale is high
 Flexible manufacturing technologies available

 Arguments to manufacture in all major markets the firm


operates in include
 Fixed costs are low
 Minimum efficient scale is low
 Flexible manufacturing technologies unavailable
 Trade barriers and transportation costs remain major
impediments
Product Factors and
Location Strategies
 Factor costs have substantial impact
 Low trade barriers
 Externalities favor certain location
 Stable exchange rates
 High fixed costs, high minimum efficient scale relative to
global demand or flexible manufacturing technology
 Product’s value-to-weight ratio is high
 Product serves universal needs
Decentralized Location
 Factor costs do not have substantial impact
 High trade barriers
 Location externalities not important
 Exchange rates volatile
 Low fixed costs, low minimum efficient scale
 Flexible manufacturing technology unavailable
 Product’s value-to-weight ratio is low
 Significant differences in consumer tastes and preferences
exist between nations
Strategic Role of
Foreign Factories

 Initially, established where labor costs low

 Later, important centers for design and final

assembly
 Upward migration caused by pressures to:
Improve cost structure
Customize product to meet customer demand
An increasing abundance of advanced factors of
production
Make or Buy Decisions
 Should a firm make or buy the component parts that

go into their final product?


 Advantages of making own components:
Lower costs if most efficient producer
Facilitating specialized investments
Proprietary product technology protection
Improved scheduling
Advantages of Buy Versus Make

 Strategic flexibility in sourcing components

 Lower firm’s cost structure

 Offsets

 Strategic alliances with suppliers give benefits of vertical

integration without the associated organizational problems


Managing a Global Supply Chain
 Objective of materials management in managing a
firm’s global supply chain
Maintain lowest possible cost
In a way that best serves the customer’s needs

 Role of just-in time inventory


Economize on inventory holding costs
Speeds inventory turnover
Drawback: no buffer stock
Role of Information Technology and the
Internet
 Firms increasingly use electronic data interchange (EDI) to
coordinate the flow of materials into manufacturing, through
manufacturing, and out to customers

 EDI systems require computer links between a firm, its


suppliers, and its shippers; these electronic links are then
used
To place orders with suppliers
To register parts leaving a supplier
To track them as they travel toward a manufacturing plant
To register their arrival
Role of Information Technology and the
Internet

 EDI systems have resulted in


 Suppliers, shippers, and the purchasing firm communicate with each
other with no time delay
 Increased flexibility and responsiveness of the whole global supply
system
 Paperwork between suppliers, shippers, and the purchasing firm is
eliminated
 Web-based systems are rapidly transforming the
management of globally dispersed supply chains,
allowing even small firms to achieve a much better
balance between supply and demand
 Because the number of firms adopting these systems has
increased, those that don’t may find themselves at a
significant competitive disadvantage
Questions…

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