This chapter covers:
21
•Supply chain
management
•Global sourcing
•JIT production
Global Operations and
Supply Chain Management
•Synchronous
manufacturing
•Six Sigma
•Impediments to
global standardization
•Importance of
technology
•Classes of activities
in manufacturing
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
 Understand supply chain management and the relationship with
design
 Describe the five global sourcing arrangements and appreciate the
importance of the added costs of global sourcing
 Understand the increasing role of electronic purchasing for global
sourcing
 Understand the Japanese efforts to improve quality and lower costs
 Know the just-in-time production system and its problems
 Understand synchronous manufacturing and customization
 Understand Six Sigma systems
 Identify the impediments to global standardization of production
processes and procedures
 Know the two general classes of activities in manufacturing systems
21-2
Lower Costs/Improved Products


Desired results may be
obtained through
 Improvement within
existing operations
 Opening new operations
or finding outside
sources for inputs
 Outsourcing
 Combination of above
Process is referred to as
supply chain management
21-3
Global Supply Chain Management
Supply chain management refers to activities
involved in producing a company’s products and
services, and how these activities are linked
together
 Involves total systems approach to managing flow
of
 Materials
 Information
 Finances
 Services

21-4
Design of Products and Services
Design has a fundamental relationship with type of
inputs required
 Important consideration is extent to which products
and services will be standardized or adapted
 Over-the-Wall approach traditional approach



Sequential steps
Alternative approach cross-functional participation

21-5
Can involve customers
Sourcing Globally
 Important Reasons for Sourcing Globally
 Lower price available from foreign sources
 Availability of foreign products not available
locally
 Firm’s worldwide operation and attitude
 Advanced technology available from foreign
sources
 Higher-quality products available from foreign
sources
Outsourcing

An increasingly
common option





21-7
Focus on core
competencies
Leverage skills of other
companies
Reduce costs
Improve flexibility and
speed of response
Enhance quality
Can outsource in same
country or another
country
 Choices increased by




Global access to vendors
Falling costs of
interactions
Improved information
technology and
communication
Outsourcing

21-8
Any part of value chain can
be outsourced
 Product design
 Input supply
 Manufacturing or
assembly
 Logistics
 Distribution
 Marketing
 Sales
 Service
 Human resources
Outsourcing

Considerations
Costs
 Control
 Expertise required
 Distance
 Languages
 Laws and regulations
Initially better to outsource
simple activities then
gradually outsource more
complex activities


21-9

The Lure of Global
Outsourcing
 Suppliers with improved
competitiveness in terms
of




Cost
Quality
Timeliness
Less developed countries
with low-cost labor

Attractive for laborintensive products with
low skill requirements
Global Sourcing Arrangements
 Arrangement that provide a firm with foreign
products.
 Wholly owned subsidiary
 Overseas joint venture
 In-bond plant contractor
 Overseas independent contractor
 Independent overseas manufacturer
21-10
Use of Electronic
Purchasing for Global Sourcing
 In recent years, many firms
have set up electronic
procurement exchanges
 to identify potential
suppliers or customers
 to facilitate efficient and
dynamic interactions
among these prospective
buyers and suppliers
 Purchasing is
increasingly being
viewed as a strategic
function
21-11
Global Electronic Procurement
 Electronic Exchange Options
 Catalog purchases
 Permits buyers and
suppliers to interact
through a standard
bid/quote system
 Facilitates obtaining
letters of credit,
contracting for logistics
and distribution, and
monitoring daily prices
and order flows
21-12

Benefits
 Cut costs
 Improve productivity
 Cut invoice and ordering
errors
 Reduce trading cycle time
 Reduce supply base
 Improve internal
purchasing processes
 Easily compare bids
 Reduce paper
Global Sourcing

Problems
 Firm’s may be surprised that what initially
appeared to be a lower price is not really lower
 An increase in price occurs due to currency
fluctuations
 E-procurement and electronic commerce as a
whole cannot be isolated from the company’s
overall business system
 Exposing internal business systems to access via
the Internet can expose the firm to a wide range
of potential security issues
21-13
Added Costs








International freight,
insurance and packing
Import duties
Customhouse broker’s fees
Transit or pipeline inventory
Cost of letter of credit
International travel and
communication costs
Company import specialists
Reworking of products out
of specification
21-14
Advanced Production Techniques
Growing international competition requires
companies to achieve efficiency and effectiveness in
production
 To improve competitiveness companies have put
into place systems such as
 Just-in-time supply chains (JIT)
 Highly synchronized manufacturing systems
 Computer Integrated Manufacturing (CIM)
 Robots

21-15
Japan’s Use of JIT
 Requirements to operate without inventory
 Components had to be defect-free
 Components had to be delivered to each point at the time
they were needed
 Sellers maintained inventory of finished products
 Process time required reduction
 Manufacturers had to simplify product lines
 Suppliers had to cooperate
 Designers, managers, purchasing people and marketers had
to work as a team
21-16
Total Quality Management


21-17
Managing the entire
organization so that it excels
on all dimensions of product
and services that are
important to the customer
TQM used Quality Circles
 Small work groups that
meet periodically to
discuss ways to improve
their functional areas and
the quality of the product
Problems with JIT in the U.S.




Failure to realize JIT is a
total system which includes
TQM
Cultural differences in U.S.
workers
 Highly specialized work
 No company loyalty
Failure to train and integrate
suppliers
JIT is restricted to operations
that produce the same parts
repeatedly because it is a
balanced system
21-18




Because JIT is a balanced
system, if one operation
stops, the entire production
line stops
Achieving a balanced system
is difficult because
production capacities differ
among the various classes of
machines
JIT makes no allowances for
contingencies.
Much trial and error are
required to put the system
into effect
Advanced Production Techniques



Synchronous Manufacturing
 Also called Theory of Constraints (TOC)
 Scheduling and manufacturing control system
 Focus on bottlenecks
Mass Customization
 Use of flexible, computer-aided manufacturing systems
 Can customize for demands of individual customers
Six Sigma
 A business management process that combines analytical
tools with infrastructure and leadership to solve problems
and optimize processes
21-19
Logistics

Movement of materials
 Must interface with
sourcing , manufacturing,
design, engineering and
marketing
 Packaging and
transportation
requirements can greatly
increase logistics costs
 Many companies now
outsource logistics
21-20
Standardization of Global Operations
 In most countries standards have been developed
across product lines and for various functions
 In Europe, the most-used standard for quality is
the ISO 9000
 The most comprehensive of standards is the ISO
9001
 This standard applies to industries involved in
the design, development, manufacturing,
installation, and servicing or products and
services
21-21
Reasons for Global
Standardization of Systems
Advantage of synchronous manufacturing and
TQM
 Customers everywhere want quality products at low
prices
 Simplifies the manufacturing organization at HQ
 Increases effectiveness in keeping production
specifications current
 Guarantees parts manufactured in various plants
will be interchangeable

21-22
Reasons for Global
Standardization of Systems

Manufacturing rationalization

Division of production among a number of
production units thus, enabling each unit to produce
only a limited number of components for all of a
firm’s assembly plants
Purchasing
 Control

Quality control
 Production and maintenance control

21-23
Reasons for Global
Standardization of Systems
 Building new plants will be both simpler and quicker with
standardization
 Design engineers need only to copy the drawings and list
of materials that they have in their files
 Vendors will be requested to furnish equipment that they
have supplied previously
 The technical department can send the current
manufacturing specifications without alterations
 Labor trainers experienced in the operation of the
machinery can be sent to the new location without
undergoing special training on new equipment
 Reasonably accurate forecasts of plant erection time and
output can be based on experience with existing facilities
21-24
Impediments to Standardization

Economic Forces
 Wide range of market
sizes




Cost of production


21-25
capital-intensive
labor-intensive process
computer-integrated
manufacturing
High-capacity machines
Backward vertical
integration
Impediments to Standardization

Cultural Forces
 Developing countries
may lack skilled workers
 Resources directed to
professional vs. technical
education
 Use of specialized
machines favored
 Absenteeism creates
further problems
21-26

Political Forces
 Country needs new jobs
 Government insists on
most modern equipment
 Design solutions include



Hybrid designs
Intermediate technology
Appropriate technology
depends on economic,
sociocultural and
political variables
Design of the Manufacturing System

A manufacturing system is
 essentially a functionally related group of
activities for creating value
 Factors involved in the efficient operation of a
manufacturing system
 Plant location
 Plant layout
 Materials handling
 Human element
21-27
Design of the Manufacturing System

Plant location
 Effects both production
and distribution costs
 Need labor, raw
materials, water and
power
 Must locate in export
processing zones


Plant layout


21-28
Arrangement of
machinery, personnel and
service facilities
Materials Handling
 Careful planning can
save production costs
 Poor handling can result
in excessive inventory,
idle machinery, late
deliveries and damaged
goods
Human element
 Effectiveness depends on
people
 People are affected by the
system
Operation of the
Manufacturing System

Once the
manufacturing system
has been put into
operation, two general
classes of activities
must be performed
 Productive activities
 Supportive activities
21-29
Operation of the
Manufacturing System
Manufacturing Activities
 After the initial trial period management will
expect the system to produce at a rate sufficient to
satisfy market demand
 Obstacles to Meeting Manufacturing Standards

 Low
output
 Inferior quality
 Excessive manufacturing costs
Obstacles to Meeting
Manufacturing Standards


Low Output
 Supplier problems
 Poor coordination of
production scheduling
 Culture differences in
attitudes, educational
levels, and planning
 Absenteeism
Inferior Product Quality
 Good quality is relative
 Lack of maintenance and
operating skills
21-31

Excessive Manufacturing
Costs
 Low output
 Budget problems
 Overoptimistic sales
forecast
 Supplier problems
 Water or power failures
 Overstocked inventory
 Resistance to lay off
workers
Supportive Activities



21-32
Quality control
Inventory control
Purchasing
 Must consider costs
 Have to seek out and
develop suppliers
 Must know import
procedures and have
connections with key
government officials
 Must monitor foreign
exchange
Supportive Activities

Maintenance
Goal is to ensure acceptable level of production
 Two alternatives




Preventive
Breakdown
Technical Function
Provides operations with manufacturing
specifications
 Check quality of inputs and finished products
 Influential in selecting sources of supply

21-33


The ISO 9000 family is primarily concerned with "quality
management". This means what the organization does to fulfil:
 - the customer's quality requirements, and
- applicable regulatory requirements, while aiming to
- enhance customer satisfaction, and
- achieve continual improvement of its performance in
pursuit of these objectives.
The ISO 14000 family is primarily concerned with
"environmental management". This means what the
organization does to:
 - minimize harmful effects on the environment caused by
its activities, and to
- achieve continual improvement of its environmental
performance.
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