Global Production Strategy, 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 Management / 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 chain suppliers –> customers Relationship Between Quality and Costs Quality … Increases Productivity Improves Performance Reliability Lowers Rework and Scrap Costs Lowers Warranty Costs Lowers Manufacturing Costs Lowers Service Costs Increases Profits Quality 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? 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? 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? 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 When to Decentralize Manufacturing? 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 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 Issues Strategic alliances with suppliers Just-in-time inventory system management The role of information technology The role of the internet