International Business
by
Daniels and Radebaugh
Chapter 18
Global Manufacturing
and Supply Chain
Management
© 2001 Prentice Hall
18-1
Objectives
To describe different dimensions of global manufacturing strategy
To examine the elements of global supply chain management
To show how quality affects the global supply chain
To illustrate how supplier networks function
To explain how inventory management is a key dimension of the global
supply chain
To present different alternatives for transporting products along the
supply chain from suppliers to customers
© 2001 Prentice Hall
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Global Manufacturing and Supply Chain Management
OPERATIONS
EXTERNAL INFLUENCES
OBJECTIVES
PHYSICAL AND
SOCIETAL FACTORS
STRATEGY
MEANS
COMPETITIVE
ENVIRONMENT
Modes
© 2001 Prentice Hall
Functions
Overlaying
Alternatives
• Marketing
• Exporting and
importing
• GLOBAL
MANUFACTURING
• SUPPLY CHAIN
MANAGEMENT
• Accounting
• Finance
• Human resources
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Introduction
Supply chain—encompasses the coordination of materials,
information, and funds from the initial raw material supplier to
the ultimate customer
Management of the value-added process
• Network is quite broad
– coordination of the network takes place through
interactions between firms in the networks
Logistics (materials management)—that part of the supply chain
that focuses on the transportation and storage of materials and
final goods
© 2001 Prentice Hall
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The Global Supply Chain
Supplier
network
Customer
network
Manufacturing
configuration
© 2001 Prentice Hall
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Global Manufacturing Strategies
Manufacturing compatibility—degree of consistency between FDI
decisions and competitive strategy
• Strategies that managers must consider include:
– cost-minimization strategies—establish economies of scale in
manufacturing, often by producing in areas with low-cost
labor
» offshore manufacturing—e.g., Mexico’s maquiladora
operations
– dependability
– quality
– flexibility
– innovation
© 2001 Prentice Hall
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Global Manufacturing Strategies (cont.)
Manufacturing configuration—three basic forms
– centralized manufacturing in one country
– regional manufacturing facilities
– multidomestic—country-specific manufacturing facilities
• MNEs choose a combination of these forms
• Rationalization—countries specialize in the production of parts or
final goods
Coordination and control
• Coordinating—linking or integration of activities into a unified
system
– must be considered when manufacturing configuration is
established
• Controlling—ensures that company strategies are carried out
– includes organizational structure and reporting systems
© 2001 Prentice Hall
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Global Manufacturing Strategies (cont.)
Plant location strategies—determine which countries to invest in and
where in the specific countries
• Depends on a variety of factors
Layout planning strategies—decisions about the physical arrangement
of economic activity centers within a manufacturing facility
• Economic activity centers—where the different production tasks
are performed
• Cost of land is a factor
Global Supply Chain Management
Electronic data interchange (EDI)—links suppliers, customers, and thirdparty intermediaries to expedite documents and financial flows
• Links exporters with customs
• Drawbacks—limited, expensive, and inflexible
– based on proprietary standards
© 2001 Prentice Hall
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Elements of a Global Supply Chain Management
Performance
Goals
Customer
Service
Requirements
Outsourcing
and Third-Party
Logistics
Relationships
Inventory
Management
Performance
Metrics
Global Supply
Chain Management
Organizational
Design and
Training
Requirements
Key Customer
and Supplier
Relationships
Business
Processes
Plant and
Distribution
Center Network
Design
© 2001 Prentice Hall
Information
Systems
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Global Supply Chain Management (cont.)
Enterprise resource planning (ERP)—software that can link
information flows from different parts of a business and from
different geographic areas
• Brings information together within the firm
• Unable to tie in the customer and take advantage of ecommerce
E-commerce—use of Internet to join together suppliers with
companies, companies with customers
• Helps to automate and speed up internal processes in a
company and spreads efficiency gains to the business
systems of its customers and suppliers
• Extranet—use of Internet to link a company with outsiders
• Intranet—use of Internet to link parts of the firm
• Use varies by location and industry
© 2001 Prentice Hall
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Quality
Meeting or exceeding the expectations of the customer
• Conformance to specifications, value, fitness for use,
support, and psychological impressions
• Zero defects—Japanese refuse to tolerate defects of any
kind
• Acceptable quality level—unacceptable products dealt with
through repair facilities and service warranties
Total Quality Management (TQM)—proactive strategy whose
goal is to eliminate all defects
• Three principles of TQM
– customer satisfaction
– employee involvement
– continuous improvement (kaizen)—identifying
problems and enlisting employees throughout the
organization to help eliminate the problems
© 2001 Prentice Hall
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Quality (cont.)
Quality standards—exist at three levels
• General standard
– award for quality—Baldridge and Deming awards
– certification standard—accepted worldwide
» ISO 9000—European set of five universal
standards for quality assurance
» non-European companies operating in Europe
must become ISO certified to have access to that
market
» ISO 9001—most detailed and comprehensive
standard in the series
» ISO 9004-2—pertains to software
• Industry-specific standards—typically pertain to quality of
suppliers
• Individual companies—set standards for their suppliers
© 2001 Prentice Hall
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Supplier Networks
Sourcing—problem of acquiring inputs for the production process
• Sourcing involves both domestic and foreign suppliers
– sourcing in the home country avoids numerous problems
– domestic sources may be unavailable or expensive
• Companies can manufacture parts internally or purchase them
from other manufacturers
• Companies can assemble their own products internally or
subcontract to other firms
Outsourcing configurations
• Vertical integration—company owns entire supplier network
• Arm’s-length purchases—outsourcing
• Japanese keiretsu relationships with suppliers
© 2001 Prentice Hall
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Phases of Export Development
Preengagement
Phase 1
• Companies selling goods and services solely in the
domestic market
• Those companies considering but not currently exporting
Initial Exporting
Phase 2
• Companies that do sporadic, marginal exporting
• Companies that see lots of potential in export markets
• Companies unable to cope with exporting demands
Advanced
Phase 3
• Companies become regular exporters
• Companies gain extensive overseas experience
• Companies may use other strategies for entering markets
© 2001 Prentice Hall
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Supplier Networks
Reduce Costs
Improve
Delivery of
Supplies
Satisfy Offset
Requirements
Gain Access
to Materials
Improve Quality
Reasons for Global
Sourcing
Strategies
React to
Competitor’s
Offshore
Sourcing
Practices
Strengthen
Reliability
of Supply
Establish a
Presence in a
Foreign Market
Increase Exposure
to Worldwide
Technology
© 2001 Prentice Hall
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Supplier Networks (cont.)
Make or buy decision—outsource or supply parts from internal
production
• MNEs could focus on critical parts and parts that they make
distinctively well
• Outsourcing—purchasing inputs from outside suppliers not
related to the company
– suppliers have distinct competitive advantages
Supplier relations—firms must determine how to work with their
suppliers
• Japanese companies develop close relationships
• U.S. companies tend to have arm’s-length relationships
Purchasing function—select best supplier, establish a solid relationship,
evaluate supplier’s performance
• Alliances—buyer and seller provide information about orders,
upcoming design changes, and long-range plans
© 2001 Prentice Hall
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Global Sourcing and Production Strategy
Sourcing of raw
materials, parts,
and components
Manufacture and
assembly of
components and
final products
Home
country
Home
country
Home
country
Both
Both
Both
Abroad
Abroad
Abroad
© 2001 Prentice Hall
Sale of products
Stage of
production
and sales
Location of
sourcing,
production,
and sales
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Inventory Management
Companies must manage the flow and storage of inventory
• Distance, time, and uncertainty in foreign environments cause
foreign sourcing to complicate inventory management
Just-in-time (JIT) systems—sourcing raw materials and parts just as
they are needed in the manufacturing process
• Spares the cost of storing large inventories
• Must develop solid supplier relationships
– may have to make concessions to foreign suppliers
• Typically implies sole sourcing
– problematic if sole supplier is foreign
© 2001 Prentice Hall
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Steps in the Global Sourcing Process
Evaluate operating and
competitive environments
Define scope of international
purchasing effort
Identify and evaluate potential
suppliers worldwide
Determine appropriate nature of
buyer-supplier relationship
Request/evaluate
proposals from suppliers
Select “best” supplier, establish contract terms
and conditions, and build desired relationship
Continual reevaluation of implementation
status, requirements, and capabilities
© 2001 Prentice Hall
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Inventory Management (cont.)
Foreign Trade Zones (FTZs)—special locations for storing domestic and
imported inventory and avoiding paying duties until the inventory is
used in production or sold
Intended to encourage foreign investment
• Can be general-purpose zones or subzones
– major growth in subzones
• Use in export business has been expanding
Transportation Networks
Transportation of goods is very complicated
• Transportation is key element of logistics system
– gather, track, and process large quantities of information
• Decisions about warehousing system also necessary
Third-party intermediaries—an important dimension
© 2001 Prentice Hall
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