Global
Production ,
Outsourcing ,
and Logistic
Sandy Wibisono
0706306522
Introduction
• Where in the world should production activity be located ?
• What should be the long-term strategic role of foreign
production sites ?
• Should the firm own foreign production activities, or is it
better to outsource those activities to independent
vendors ?
• How should a globally dispersed supply chain be
managed , and what is the role of internet – based
information technology in the management of global
logistic ?
• Should the firm manage global logistics itself, or should it
outsource the management to enterprises that specialize
in this activity ?
Strategy , Production , and
Logistics
• Production as “the activities involved in
creating product”.
• Logistic is “the activity that control the
transmission of physical material through
value chain , from procurement through
production and into distribution.
Strategy , Production , and
Logistics
• Strategic Objective
– Lower cost.
– Increasing Quality.
– Production and logistic function must be able
to accommodate demands for local
responsiveness.
– Production and logistic must be able to
respond quickly to shifts in customer
demands.
Strategy , Production , and
Logistics
Increase
Productivity
Improves
Performance
Reliability
Lowers
Manufacturing
Cost
Lowers Rework
and Scraps
Cost
Increases Profit
Lower Services
Cost
Lower warranty
Cost
Where to Produce
Country
Factor
Technological
Factor
Product
Factor
Country Factor
Political
Culture
Externalities
Economy
Relative
Factor Cost
Formal
Trade Barrier
Exchange
Rates
Informal
Trade Barrier
Technological Factor
Minimum
Efficient Scale
Flexible
Manufacturing
and Mass
Customization
Fixed Cost
Technological
Factor
Product Factors
Value – to –
weight ratio
Serve
universal
needs
Concentrated
Production
Favored
Decentralized
Production
Favored
Differences in political economy
Substantial
few
Differences in culture
Substantial
few
Differences in factor cost
Substantial
few
Trade Barriers
few
Substantial
Location externalities
Important in industry
Not important in industry
Exchange rates
stable
volatile
Fixed Costs
High
Low
Minimum efficient scale
High
Low
Flexible manufacturing technology
Available
Not available
Value – to – weight ratio
High
Low
Serve universal needs
Yes
no
Country Factor
Technological Factor
Product Factor
The Strategic Role of Foreign
Factories
• Pressure from the center to improve a
factory’s cost structure and/or customize a
product to the demands of consumers in a
particular nation can start a chain of
events that ultimately leads to
development of additional capabilities at
the factory
The Strategic Role of Foreign
Factories
• Improvement in the capabilities of a
foreign factory can be the increasing
abundance of advanced factor of
production in the nation in which the
factory is located
Outsourcing Production
Make
Buy
The Advantage of Make
Lowering
Cost
Facilitating
Specialized
Investments
Protecting
Proprietary
Product
Technology
Improving
Scheduling
The Advantage of Buy
Offsets
Lower
Costs
Strategic
Flexibility
Strategic Alliances With Supplier
• Strategic alliance build a trust between the
firm and its supplier.
• Trust results when a firm makes a credible
commitment to continue purchasing from a
supplier on reasonable terms.
• Alliance are not all good
• i.e. : Kodak and Canon , Sony build laptop
for Apple , Microsoft and Flextronics.
Managing a Global Supply Chain
• Lowest possible cost
• Best serves customer needs
The Role of Just-in-Time Inventory
• JIT system is to economize on inventory
holding cost by having materials arrive at a
manufacturing plant just in time enter the
production process and not before.
• The major cost saving comes from
speeding up inventory turnover.
• This reduces inventory holding cost, such
warehousing and storage cost.
The Role of IT and The Internet