Global Production

Strategy, Production, LogisticsValue chain activitiesProduction, marketing, logistics, R&D, HR, ISProduction: physical goods, as well as servicesLogistics: controls physical transmission of materials through the value chainProduction and logistics decisionsLower costs of value creationAdd value through better attention to customer needs

Production and Materials Management / LogisticsProduction activitiesService and manufacturingConversion of inputs to a productMaterials management activitiesPhysical transmission of materials through value chain: procurement > production > distributionLogistics activities encompassProcurement and physical transmission of material through the supply chain suppliers > customers

Relationship Between Quality and CostsImproves Performance ReliabilityIncreases ProductivityLowers Rework and Scrap CostsLowers Warranty CostsLowers Manufacturing CostsIncreases ProfitsLowers Service CostsQuality

Quality and Cost ManagementTQM: technique to improve products and services quality Six Sigma: Statistically based cost cutting systemReduces defects, boosts productivity, eliminates wasteISO 9000European Unions standards for qualitySet by codeFirm must be certified ISO 9000 before it may access the EU marketplace

Which Manufacturing Location?Country FactorsFavorable economic, political, cultural conditionsTechnological FactorsFixed costs relatively lowMinimum efficient scale Magnitude of plant output to realize scale-economiesMarket demand level adequacyFlexible manufacturing; lean productionMass customizationFlexible machine cellsProduct features: value-to-weight ratio, universal needs

Where to Locate? Concentrate Manufacturing if:Costs of manufacturing are responsive to country environment (one location best)Trade barriers are lowProduct serves universal needsMinor difference in customer needsMinimal consumer preferences

Where to Locate? Concentrate Manufacturing if:Trade barriers are lowExchange rates among currencies with impact on your business are stableProduction technologyHas high fixed costsHas high minimum efficient scaleExists in flexible manufacturing format

Country environment does not affect costsTrade barriers are highProduction technologyHas low fixed costsHas low minimum efficient scaleDoes not exists in flexible manufacturing formatProduct value-to-weight ratio is lowProduct does not serve universal needsCustomer needs differentConsumer preferences differentWhen to Decentralize Manufacturing?

Make-or-Buy?Make advantageLower costs in-house?Are specialized assets needed? Is proprietary technology needed?Know-how protection issue (Dunning)Buy advantageStrategic flexibility needed?Lower costs by buying?In either case improved scheduling is important

Other IssuesStrategic alliances with suppliersJust-in-time inventory system managementThe role of information technologyThe role of the internet

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