Summary Concepts:
Facilities Strategy
and Globalization
Lecture 12
Summary lecture on facilities
strategy and globalization
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2
Conclusions from ITT, Applichem, etc.
Strategic and other factors
An integrated approach
Impacts of globalization
New paradigms for the global environment
Issues from BYD and Applichem
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Fit with strategy
Focus of plants
Scale and cost
Standardization and labor costs
Means of evaluation and plant roles
Sourcing and allocation models
Access to R&D
Product/Market-Process Focus
• Mean of focus
– Volume
– Product
– Market
– Process
Off
On
Volume
Low
High
Job
- Detroit
Volume
Low
High
Job
- Detroit
Example
Batch
Line
4
- Saginaw
- Lima
Batch
Line
- Fremont
- Lancaster
- Mayesville
Scale Analysis
Subcontract
Technology 1
Technology 2
COST
5
VOLUME
Consumer Goods Example
1.5
1.4
1.3
1.2
1.1
1
Cost 0.9
per
unit 0.8
0.7
0.6
0.5
0.4
0.3
0
2
4
Volume in millions of units
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6
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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
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Supply Chain Flow: Simple TwoStage LP
Flows
Sources
8
Destinations
Network for Multi-Location
Supply Chain
Suppliers
Plants
Distribution Centers
Customers
9
General Manufacturing Models (shared capacity, warehouses or
two stages, fixed costs – details in extra slide)
l
i
k
Image by MIT OpenCourseWare.
xlkj
= Total flow of l from k to customer j
yikl
= Total flow of type l from i to k
Dlj
Dj
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j
= Demand of l at customer j
Dlj
Ak
= Capacity at warehouse k
Ail
= Capacity at plant i for product l
Some Examples of Strategies
1. Different process steps and scale, significant logistics
– Central stage 1, decentralized stage 2
2. Significant central R&D
– Central plant for at least early life cycle
3. Significant product flexibility
– Decentralized satellite plants for some stages
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A General 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
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Case Study:
Worldwide Consumer Goods Manufacturer
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25 product groups
10 production locations
Variety of product values and weights
Over capacity
Lack of focus
Significant tax issues
Case Study
Fixed costs
Variable costs
Fixed costs
Variable costs
Taxes
Stage 1
Stage 2
Why Separate?
Approach
• Scale
• Cross sectional analysis
• Capacity
• Tax analysis
• Tax laws
• Model of variable costs
• Focus
• Detailed analysis of actual
fixed costs
• Relative
technological
complexity
Customer
Solution:
• Move “light” products to tax havens
• Better focus facilities by product group
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Globalization Adds Some
Additional Complexities
• Increase in worldwide exports
• Business level trends
– New technologies such lower-scale, higher-skill level
manufacturing systems including FMS systems
– JIT systems that also underscore the need for sophisticated vendor
infrastructure
– TQM and organizational learning
– Competitive factors that focus on customization, rapid product
development, and quick response
– The breakdown of intercompany barriers
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Globalization Complexities
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Macro level trends
– Large, sophisticated overseas markets with local needs
– Non-tariff barriers
– Regionalized trading economies
• Variable factor costs – Static and Dynamic differences
• Longer lead times
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(cont’d)
Global Strategies Emphasize
Some Additional Factors
• Global product volumes and life cycles
• Decentralized network based on regional presence
• Infrastructure versus cost
– Work force capabilities
– Vendors
– Transportation and communication
• Extra plants and capacity to build flexibility for exchange rate
risks
• Flexibility in short, medium, and long term
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Exchange Rate Model
460
# of plants
450
One
Cost
440
Two
430
Three
420
Four
Five
410
400
0
100
200
Total Capacity
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300
400
Facilities Strategy Given Uncertainty
(adapted from Huchzermeir and Cohen)
Alternative
Facilities
Configurations
A
B
Alternative
Exchange Rate
& Factor Cost
Distributions
Supply Chain
Network Model
Outcome for Each
Combination
Expected
Outcomes
A
B
Best
Configuration
for Current
Exchange Rate
and Factor Costs
K
N
Switching
Costs
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N
20
Courtesy of Arnd Huchzermeier. Used with permission.
Five-Stage Approach to
Strategy Development
Stage 1:
Business and
Operations Strategy
and Plant Charters
Competitive
Environment
Cross-Sectional
Data
Stage 2:
Multiple-Technology
Scale Curves
Process
Technologies
Market Presence
and Capabilities
Stage 3:
Major Network
Options
Strengths
Global
Market
Internal
Constraints
Supplier
Industries
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Infrastructural
Requirements
Stage 4:
Location and
Process Options
Political and
Market Issues
Logistics
Costs
Stage 5:
Modeling
Factor
Costs
Summary
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Methods for analyzing focus, scale flow, etc.
Impact of new markets and technologies
Global product design and flow patterns
Flexibility
Factor costs
Other things we need to consider in more detail
– Outsourcing and offshoring questions in globalization
– Longer lead times
For those of you interested
in details, formulation for general case
yikl Ail
k
xlkjfl
Ak
where f is the unit usage of product l
j ,l
xlkj
Dlj
k
yikl
i
xlkj
j
xlkj
k zkj, zkj
is zero or one, forcing constraint
lj
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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.
MIT OpenCourseWare
http://ocw.mit.edu
15.769 Operations Strategy
Fall 2010
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