Global ProductionGlobal Production

Strategy, Production, LogisticsStrategy, Production, Logistics Value chain activities

– Production, marketing, logistics, R&D, HR, IS Production:

– physical goods, as well as services Logistics:

– controls physical transmission of materials through the value chain

Production and logistics decisions– Lower costs of value creation– Add value through better attention to customer

needs

Production and Materials Production and Materials Management / LogisticsManagement / Logistics

Production activities– Service and manufacturing

– Conversion of inputs to a product

Materials management activities– Physical transmission of materials through value

chain: procurement –> production –> distribution

Logistics activities encompass– Procurement and physical transmission of material

through the supply chainsuppliers –> customers

Relationship Between Relationship Between Quality and CostsQuality and Costs

Improves Performance

Reliability

Increases Productivity

Lowers Rework and Scrap Costs

Lowers Warranty

Costs

Lowers Manufacturing

CostsIncreases

ProfitsLowers Service Costs

Quality …

Quality and Cost ManagementQuality and Cost Management TQM:

technique to improve products and services quality

Six Sigma: Statistically based cost cutting system– Reduces defects, boosts productivity, eliminates

waste ISO 9000

– European Unions standards for quality– Set by code– Firm must be certified “ISO 9000” before it may

access the EU marketplace

Which Manufacturing Location?Which Manufacturing Location? Country Factors

– Favorable economic, political, cultural conditions Technological Factors

– Fixed costs relatively low– Minimum efficient scale

Magnitude of plant output to realize scale-economies Market demand level adequacy

– Flexible manufacturing; lean production– Mass customization– Flexible machine cells

Product features: value-to-weight ratio, universal needs

Where to Locate? Where to Locate? Concentrate Manufacturing if:Concentrate Manufacturing if:

Costs of manufacturing are responsive to

country environment (one location best)

Trade barriers are low

Product serves universal needs

– Minor difference in customer needs

– Minimal consumer preferences

Where to Locate? Where to Locate? Concentrate Manufacturing if:Concentrate Manufacturing if:

Trade barriers are low

Exchange rates among currencies with

impact on your business are stable

Production technology– Has high fixed costs

– Has high minimum efficient scale

– Exists in flexible manufacturing format

Country environment does not affect costs Trade barriers are high Production technology

– Has low fixed costs

– Has low minimum efficient scale

– Does not exists in flexible manufacturing format

Product value-to-weight ratio is low Product does not serve universal needs

– Customer needs different

– Consumer preferences different

When to Decentralize Manufacturing?When to Decentralize Manufacturing?

Make-or-Buy?Make-or-Buy? “Make” advantage

– Lower costs in-house?– Are specialized assets needed? – Is proprietary technology needed?

Know-how protection issue (Dunning)

“Buy” advantage– Strategic flexibility needed?– Lower costs by buying?

In either case “improved scheduling” is important

Other IssuesOther Issues

Strategic alliances with suppliersJust-in-time inventory system

managementThe role of information technologyThe role of the internet