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© 2001 Prentice Hall 18-1
International Businessby
Daniels and Radebaugh
Chapter 18Global Manufacturingand Supply ChainManagement
© 2001 Prentice Hall 18-2
ObjectivesTo describe different dimensions of global manufacturing
strategyTo examine the elements of global supply chain managementTo show how quality affects the global supply chainTo illustrate how supplier networks functionTo explain how inventory management is a key dimension of
the global supply chainTo present different alternatives for transporting products
along the supply chain from suppliers to customers
© 2001 Prentice Hall 18-3
OPERATIONS
OBJECTIVES
STRATEGY
EXTERNAL INFLUENCES
COMPETITIVE ENVIRONMENT
PHYSICAL AND SOCIETAL FACTORS
Functions• Marketing• Exporting and importing• GLOBAL MANUFACTURING• SUPPLY CHAIN MANAGEMENT• Accounting• Finance• Human resources
Modes
MEANSOverlayingAlternatives
Global Manufacturing and Supply Chain Management
© 2001 Prentice Hall 18-4
IntroductionSupply chain—encompasses the coordination of
materials, information, and funds from the initial raw material supplier to the ultimate customer
Management of the value-added process• Network is quite broad
– coordination of the network takes place through interactions between firms in the networks
Logistics (materials management)—that part of the supply chain that focuses on the transportation and storage of materials and final goods
© 2001 Prentice Hall 18-5
Suppliernetwork
Customernetwork
Manufacturingconfiguration
The Global Supply Chain
© 2001 Prentice Hall 18-6
Global Manufacturing StrategiesManufacturing compatibility—degree of consistency between
FDI decisions and competitive strategy• Strategies that managers must consider include:
– cost-minimization strategies—establish economies of scale in manufacturing, often by producing in areas with low-cost labor
» offshore manufacturing—e.g., Mexico’s maquiladora operations
– dependability– quality– flexibility– innovation
© 2001 Prentice Hall 18-7
Global Manufacturing Strategies (cont.)Manufacturing configuration—three basic forms
– centralized manufacturing in one country– regional manufacturing facilities– multidomestic—country-specific manufacturing
facilities• MNEs choose a combination of these forms• Rationalization—countries specialize in the production of
parts or final goodsCoordination and control
• Coordinating—linking or integration of activities into a unified system
– must be considered when manufacturing configuration is established
• Controlling—ensures that company strategies are carried out
– includes organizational structure and reporting systems
© 2001 Prentice Hall 18-8
Global Manufacturing Strategies (cont.)Plant location strategies—determine which countries to invest
in and where in the specific countries• Depends on a variety of factors
Layout planning strategies—decisions about the physical arrangement of economic activity centers within a manufacturing facility
• Economic activity centers—where the different production tasks are performed
• Cost of land is a factor
Global Supply Chain ManagementElectronic data interchange (EDI)—links suppliers, customers,
and third-party intermediaries to expedite documents and financial flows
• Links exporters with customs• Drawbacks—limited, expensive, and inflexible
– based on proprietary standards
© 2001 Prentice Hall 18-9
CustomerService
Requirements
OrganizationalDesign andTraining
Requirements
PerformanceGoals
Global SupplyChain Management
BusinessProcesses
Plant andDistribution
Center NetworkDesign
InformationSystems
Key Customerand SupplierRelationships
PerformanceMetrics
InventoryManagement
Outsourcingand Third-Party
LogisticsRelationships
Elements of a Global Supply Chain Management
© 2001 Prentice Hall 18-10
Global Supply Chain Management (cont.)Enterprise resource planning (ERP)—software that can
link information flows from different parts of a business and from different geographic areas
• Brings information together within the firm• Unable to tie in the customer and take advantage
of e-commerceE-commerce—use of Internet to join together suppliers
with companies, companies with customers• Helps to automate and speed up internal processes
in a company and spreads efficiency gains to the business systems of its customers and suppliers
• Extranet—use of Internet to link a company with outsiders
• Intranet—use of Internet to link parts of the firm• Use varies by location and industry
© 2001 Prentice Hall 18-11
QualityMeeting or exceeding the expectations of the customer
• Conformance to specifications, value, fitness for use, support, and psychological impressions
• Zero defects—Japanese refuse to tolerate defects of any kind
• Acceptable quality level—unacceptable products dealt with through repair facilities and service warranties
Total Quality Management (TQM)—proactive strategy whose goal is to eliminate all defects
• Three principles of TQM– customer satisfaction– employee involvement– continuous improvement (kaizen)—identifying
problems and enlisting employees throughout the organization to help eliminate the problems
© 2001 Prentice Hall 18-12
Quality (cont.)Quality standards—exist at three levels
• General standard – award for quality—Baldridge and Deming
awards– certification standard—accepted worldwide
» ISO 9000—European set of five universal standards for quality assurance
» non-European companies operating in Europe must become ISO certified to have access to that market
» ISO 9001—most detailed and comprehensive standard in the series
» ISO 9004-2—pertains to software• Industry-specific standards—typically pertain to
quality of suppliers• Individual companies—set standards for their
suppliers
© 2001 Prentice Hall 18-13
Supplier NetworksSourcing—problem of acquiring inputs for the production
process• Sourcing involves both domestic and foreign suppliers
– sourcing in the home country avoids numerous problems
– domestic sources may be unavailable or expensive• Companies can manufacture parts internally or purchase
them from other manufacturers• Companies can assemble their own products internally or
subcontract to other firmsOutsourcing configurations
• Vertical integration—company owns entire supplier network
• Arm’s-length purchases—outsourcing• Japanese keiretsu relationships with suppliers
© 2001 Prentice Hall 18-14
Preengagement• Companies selling goods and services solely in the domestic market• Those companies considering but not currently exporting
Phase 1
Initial Exporting• Companies that do sporadic, marginal exporting• Companies that see lots of potential in export markets• Companies unable to cope with exporting demands
Phase 2
Advanced• Companies become regular exporters• Companies gain extensive overseas experience• Companies may use other strategies for entering markets
Phase 3
Phases of Export Development
© 2001 Prentice Hall 18-15
Improve Delivery of
Supplies
Establish aPresence in a
Foreign Market
Reduce Costs
Reasons for Global SourcingStrategies
React toCompetitor’s
OffshoreSourcingPractices
Increase Exposureto WorldwideTechnology
StrengthenReliabilityof Supply
Improve Quality
Gain Accessto Materials
Satisfy OffsetRequirements
Supplier Networks
© 2001 Prentice Hall 18-16
Supplier Networks (cont.)Make or buy decision—outsource or supply parts from internal
production• MNEs could focus on critical parts and parts that they
make distinctively well• Outsourcing—purchasing inputs from outside suppliers
not related to the company– suppliers have distinct competitive advantages
Supplier relations—firms must determine how to work with their suppliers
• Japanese companies develop close relationships• U.S. companies tend to have arm’s-length relationships
Purchasing function—select best supplier, establish a solid relationship, evaluate supplier’s performance
• Alliances—buyer and seller provide information about orders, upcoming design changes, and long-range plans
© 2001 Prentice Hall 18-17
Sourcing of rawmaterials, parts,and components
Manufacture andassembly of
components andfinal products
Sale of productsStage ofproductionand sales
Homecountry
Abroad
Both
Homecountry
Abroad
Both
Homecountry
Abroad
Both
Location ofsourcing,production,and sales
Global Sourcing and Production Strategy
© 2001 Prentice Hall 18-18
Inventory ManagementCompanies must manage the flow and storage of inventory
• Distance, time, and uncertainty in foreign environments cause foreign sourcing to complicate inventory management
Just-in-time (JIT) systems—sourcing raw materials and parts just as they are needed in the manufacturing process
• Spares the cost of storing large inventories• Must develop solid supplier relationships
– may have to make concessions to foreign suppliers• Typically implies sole sourcing
– problematic if sole supplier is foreign
© 2001 Prentice Hall 18-19
Evaluate operating andcompetitive environments
Define scope of internationalpurchasing effort
Identify and evaluate potentialsuppliers worldwide
Determine appropriate nature ofbuyer-supplier relationship
Request/evaluateproposals from suppliers
Continual reevaluation of implementationstatus, requirements, and capabilities
Select “best” supplier, establish contract termsand conditions, and build desired relationship
Steps in the Global Sourcing Process
© 2001 Prentice Hall 18-20
Inventory Management (cont.)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
Intended to encourage foreign investment• Can be general-purpose zones or subzones
– major growth in subzones• Use in export business has been expanding
Transportation NetworksTransportation of goods is very complicated
• Transportation is key element of logistics system– gather, track, and process large quantities of
information • Decisions about warehousing system also necessary
Third-party intermediaries—an important dimension