Summary lecture on facilities strategy and...
Transcript of Summary lecture on facilities strategy and...
Summary lecture on facilities strategy and
globalization
• Conclusions from ITT,Applichem, etc.• An integrated approach• New paradigms for the global environment
Conclusions from ITT, Applichem, etc.
• Fit with strategy• Focus of plants• Scale and cost• Centralization and standardization• Means of evaluation and plant roles• Sourcing and allocation models
A strategy for the facilities network emphasizes a number of issues
• Scale
• Logistics and flow patterns
• Focus
• Global flexibility and access
• Access to R&D
Product/Market-Process Focus Mean of Focus• Volume• Product• Market• Process
ExampleOff On
Low Vol. High Vol.
JobBatch
Line
DetroitFremont
LancasterMayesville
Low Vol. High Vol.
JobBatchLine
DetroitSaginaw
Lima
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.30 2 4 6 8
Costper unit($/unit)
Consumer goods example
Volume in millions of units
Additional logistics drivers
• Raw material access (e.g.wood products)• Distributed production for heavy products• Warehouses for commodities because of
transportation scale• Customer service requirements
Modeling supply chain flow
Supply chain management often requires sophisticated models to determine questions such as
• Number of inventory locations• Assignment of market areas and products to facilities
General Manufacturing Models (shared capacity, warehouses or two stages,fixed costs – details in extra slide)
il
k
ljj
lj
ikl
lkj
AA
DDDyx
∑=
= Total flow of l from k to j
= Total flow of type l from i to k
= Demand of l at zone j
= Capacity at warehouse k
= Capacity at plant I for product l
Some Examples of Strategies1. Different process steps and scale, significant logistics
Central stage 1, decentralized stage 22. Significant central R&D
Central plant for at least early life cycle3. Significant product flexibility
Decentralized satellite plants for some stages
The examples underscore the need to develop a strategically consistent focus approach and then appropriately analyze scale and logistics
A suggested approach
• Develop a strategy and appropriate means of focus
• Using data, benchmarking and analysis of technology, develop scale curves
• Identify major decision choices and service requirements covering plant and process options
• Do the analysis
Case StudyWorldwide ConsumerGoods Manufacturer
• 25 Product Groups
• About 10 Production Locations
• Variety of Product Values and Weights
• Over Capacity
• Lack of Focus
• Significant Tax Issues
Stage 1 Stage 2 CustomerWhy Separate?• Differing Scale• Market presence • Tax Laws• Focus• Technological complexity
Approach
• Cross sectional analysis
• Model of variable costs
• Tax analysis
• Detailed analysis of actual fixed costs
Solution:
• Move "light" products to tax havens
• Better focus facilities by product group
Globaliazation adds some additionalcomplexities
• Increase in worldwide exports
• Business level trends• lower scale, higher-skill level manufacturing
systems such as FMS• JIT systems that also underscore the need
for sophisticated vendor infrastructure• TQM and organizational learning• Faster product development• Customization needs• High-value products such as wafers and
chips
Complexities (continued)
• Macro level trends• Large, sophisticated overseas markets with local
needs• Non-tariff barriers• Regionalized trading economies
• Variable factor costs• Particular case of China
Global strategies emphasizesome additional factors
• Global product volumes
• Decentralized network based on regional presence
• Infrastructure versus cost• Changing product cost structure• Skill requirements• Vendors
• Flexibility in several ways
• Multiple stages, players and movements
• Global product and development supply chains
Exchange rate model
400
410
420
430
440
450
460
0 100 200 300 400
Total capacity
Cost
one planttwo plantsthree plantsfour plantsfive plants
Modeling framework for facilities strategy subject to exchange-rate uncertainty (Huchzermeir and Cohen)
ExpectedOptionsValues
ValuationModel
SupplyChainNetworkModel
SupplyChainOptions
SwitchingCosts
StochasticExchange RateModel
State, Option
Value
Business and Operations
Strategy
Location Strategy
Supply ChainModeling
Strengths
GlobalMarket
ProductionTechnologies
InfrastructuralRequirements
LogisticsCosts
CompetitiveEnvironment
Internal Constraints
Supplier Industries
Political and Market
Issues
Factor Costs
Four-stage approach to strategy development
Cross-sectionalData
Supply ChainStrategy andPlant Scale
CapacityFactors
RiskFactors
k
Summary
• Methods for analyzing focus, scale flow, etc.• Impact of new markets and technologies• Global product design and flow patterns• Flexibility• Factors we still need to address:
– Outsourcing and globalization– Longer lead times
For those of you interestedin details, formulation for general case
kjkjlkj
lkjikl
ljlkj
kllkj
ilikl
zzkx
xy
Dx
Afx
Ay
lj
i j
k
lj
k
,
,
∑
∑ ∑
∑
∑
∑
≤
≥
≥
≤
≤
where f is the unit usage of product l
is zero or one, forcing constraint
Could also have shared cap at plants.With no warehouses, define plant variables to go to customers directly. Can add another level for sourcing or two stages of plants.