Chapter

Global Manufacturing and Materials Management

16

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Case: Competitive advantage at Dell

Dells business model based on direct selling of customized product at low prices

Location advantages (Brazil, Ireland, Malaysia, China & US)

Close to markets Low shipping costs Speed of delivery

Supply base global Dell manages global supply chain to minimize

inventory and customize PCs in three days

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Materials management

Activity that controls the transmission of physical materials through the value chain Includes procurement, production and into

distribution Logistics : Procurement and physical

transmission of materials through the supply chain, from suppliers to customers

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Manufacturing and materials management

Strategic objectives Lower costs

Disperse manufacturing

activities to efficient global

locations

Increase productivity Using Total Quality Management

(W. Edward Demming)

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Manufacturing and materials management

Strategic objectives Accommodate demands for local

responsiveness decentralize production

Respond quickly to shifts on customer demand time-based competition

extremely important

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The relationship between quality and cost

Fig 16.1

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CountryFactors

TechnologicalFactors

ProductFactors

LocatingManufacturing

Facilities

Where to manufacture?

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Country factors

Optimum economic, political, and cultural conditions

Externalities Skilled labor pools Supporting industries

Formal and informal trade barriers Exchange rate

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Technological factors

Fixed costs Minimum efficient scale Flexible manufacturing

reduce setup times for complex equipment increase machine utilization improve quality control

flexible machine cells to perform a variety of operations

Mass customization

Low costProduct

customization

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Manufacturing location

Fixed costs are substantial Minimum efficient scale is high Flexible manufacturing technologies available

Fixed costs are low Minimum efficient scale is low Flexible manufacturing technologies unavailableTrade barriers and transportation costs remain major

impediments

Major market locations if it better meets local demands.

Single or few locations.

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A typical unit cost curve

Fig 16.2

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Product factors and location strategies

Two product features affect location decisions: Value to weight ratio. Product serves universal needs

Two basic strategies Concentrating in a centralized location and serving

the world market Decentralizing them in various regional or national

locations close to major markets when opposite conditions exist

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Centralized location

Factor costs have substantial impact Low trade barriers Externalities favor certain location Stable exchange rates High fixed costs, high minimum efficient

scalerelative to global demand or flexible

manufacturing technology Product’s value-to-weight ratio is high Product serves universal needs

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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.

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Location strategy and manufacturing

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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.

and An increasing abundance of advanced factors of production

Dispersed centers of

excellence are consistent with a

Transnational Strategy

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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

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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

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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

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Role of organization

Organizational linkages more numerous and complex More difficult to control costs

Require separate materials management as a function Equal weight with other departments Decide between centralized and decentralized

organizational structure

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Potential materials management linkages

Fig 16.3

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Traditional organizational structure

16.4A

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Organization structure with materials management as separate function

Strategicmanager/CEO

Productionplanning

and controlPurchasing

Manufacturing Marketing Finance

Distribution

Fig 16.4B

Materials management

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Role of information technology and the internet

Track component parts across the globe to an assembly plant Optimize and adjust production scheduling

Electronic data interchange (EDI) Used to coordinate flow of materials between

suppliers ,firm, shippers and customers Communicate without time delay

Increases flexibility and responsiveness of the whole global system

Paperwork decreased Significant competitive advantage