Facility and Supply Chain
Strategy in a Global Environment
Donald B. Rosenfield
Leaders for Manufacturing Program
LGO and SDM Alumni Web-cast 4/27/01
1
Overview
This talk will present a new model and paradigm
for managing global supply chains and dealing
with major changes and complexities of today's
global networks.
Major Changes:
 New technologies and business-level changes
such as lean manufacturing, FMS , cellular flow
and TQM
 Macro level changes such as large global
sophisticated markets, non tariff trade barriers
and regionalized trading economies
 Competitive factors that focus on customization,
rapid product development, and quick response
 The breakdown of intercompany barriers
2
Overview - 2
Major changes (continued)
The proliferation of higher value, lower-weight
products
The effects of exchange rates on traditional
supply chain strategies
3
Overview - 3
These trends point to some new types of
strategies
 Decentralized plants based on regional
markets
 Locations based on infrastructure issues such
as work force capabilities
 Smaller plants with customization capabilities
 Extra plants and capacity to build flexibility
for exchange rate risks
Globally coordinated systems with multiple
movements
A global product life cycle
We will present some arguments for all of these
strategies
4
Agenda
• Traditional approaches to strategic planning for
the supply chain
• Important trends in global competition
• A new approach for managing global supply
chains and for strategic planning
5
Traditional concepts in
strategic planning
• Top-level concepts
- Roles by all functions
- Consistency for functions and decisions
- Levering capabilities
• Supply chain concepts
- Modeling flows
- Incorporating focus and scale
These are often separate and do not address global
trends
6
Top-level concepts
External
Environment
Internal
Strengths
Strategy
R&D
Marketing
Finance
Operations Logistics
Facilities Transportation
Planning
Technology
etc.
etc.
Functions
Decisions
7
Traditional approaches to supply chain
strategy emphasize a number of issues
 Scale
 Logistics
 Focus
 Global flexibility and access
 Access to R&D
8
Geographic network
 Focus on customer demand zones
 Include production economics
 Look at flows from raw materials to
customers
Suppliers
Plants
Distribution
Centers
Customers
9
Scale analysis
Subcontract
Technology 1
Technology 2
COST
VOLUME
10
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
The examples underscore the need to develop a strategically
consistent focus approach and then appropriately analyze
scale and logistics
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Case Study
Worldwide consumer
goods manufacturer
 25 Product Groups
 About 10 Production Locations
 Variety of Product Values and Weights
 Over Capacity
 Lack of Focus
 Significant Tax Issues
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fixed costs
variable costs
fixed costs
variable costs
taxes
Stage 1
Stage 2
Why Separate?
Scale
Capacity
 Tax Laws
Customer
Approach
 Cross sectional analysis
 Tax analysis
 Model of variable costs
 Focus
Detailed analysis of actual fixed
 Relative Technological costs
Complexity
Solution:
 Move "light" products to tax havens
 Better focus facilities by product group
13
Traditional strategies are subject to
question given a number of
important trends
 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
• Products such as wafers and chips
14
Traditional strategies
and trends (continued)
 Macro level trends
• Large, sophisticated overseas markets with local
needs
• Non-tariff barriers
• Regionalized trading economies

Variable factor costs

The internet
15
These same factors are
leading away from integration
Information technology and e-commerce
Past advantages of tariff, pricing, scale and oligopolies
Current advantages of focus, risk management and
economies of scale and scope
Internet networks and the virtual supply chain
While this is not a strictly global trend, it will have
implications for global supply chains
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New strategies emphasize
several key 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
The new role of supply chain in design
Development in several countries
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An exchange rate model explores a
number of tradeoffs
 Scale economies
 Transportation costs, duties and other costs of
servicing a market externally
 Flexibility for servicing high-cost markets
The most important result of the model is that it is
advantageous to have extra capacity and plants
and cut back production in each period at the most
expensive plants
18
A simplified model showed the
viability of flexibility
• With ten markets of ten units each, we explored
strategies of up to ten plants with varying capacities
• With additional plants, the expected value of the most
expensive plants are significantly higher than the mean
• With exchange rates showing an annual standard
deviation of .12, the minimum was at four plants at
forty units each--in each period we deploy two at forty
and two at ten
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Exchange rate model
460
450
one plant
Cost
440
two plants
430
three plants
four plants
420
five plants
410
400
0
100
200
300
400
Total capacity
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Don Lessard, in his Survey on Corporate
Responses to Volatile Exchange Rates, has
shown that companies may value this
flexibility
 Out of 37 foreign exchange managers, 7 cited
"siting new plants with a view to flexibility in
shifting production capacity" as a method of
managing exposure.
 Out of 19 responses in international siting, 12 cited
locations to "increase flexibility by shifting plant
loadings when exchange rates changed."
21
The validity of these facility strategies are
confirmed by the cases at Polaroid and
Motorola, but are subject to some caveats
 Early life cycle products
 Products of high unskilled labor content
 Products with high minimum scale
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Background:Polaroid’s
Camera Manufacturing Network in 1995
Russia
Norwood
MA
Vale of Leven
Scotland
Shanghai
China
India
(planned)
Manufacturing
Design & Devel.
Materials
Mfg. Eng.
(Size  Capacity)
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These concepts lead to a new approach
to strategic planning for supply chains
Strengths
Business and
Operations
Strategy
Global
Market
Supply Chain
Strategy
Industry
Life
Cycle
Location
Strategy
Production
Technologies
Supply Chain
Modeling
Logistics
Costs
Factor
Costs
Competitive
Environment
Internal
Constraints
Supplier
Industries
Political
and Market
Issues
Infrastructure
Issues
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What do these changes
imply for supply chains?
Quick response strategies such as postponement
Channel coordination strategies that use information
systems to link the multiple players using lean concepts
on a global basis
• Shorter lead times
• Reduced uncertainty
• Low lot sizes
More multiple stage and player moves and delayed
value added
The role of the flexible supply chain in design
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Summary
While traditional strategic planning methods and
supply chain analysis are still crucial, supply chain
management and strategy need to incorporate two
principles
• Integrating strategic planning and supply chain
analysis
• Emphasis of the new global reality
- Decentralized and more sophisticated markets
- Lower-scale but more advanced technologies
- Global product design and flow patterns
- Flexibility
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