CHAPTER 18

GLOBAL OPERATIONS MANAGEMENT AND SOURCING STRATEGIES


Case: Black & Decker


I - INTRODUCTION

MNCs are involved in fairly sophisticated forms of production sharing in which they may produce and/or assemble components in one or several countries for worldwide markets.

II - GLOBAL MANUFACTURING STRATEGIES IN THE INTERNATIONALIZATION PROCESS

During the past decade intermediate goods, such as components are increasingly being produced in many countrie and shipped to other countries for assembly and sale.

Global sourcing implies that companies need to determine where parts and components will be manufactured and where final products will be assembled.

As an MNC establishes its manufacturing strategy, it must do so in the context of its competitive strategy. Competitive strategies are based on the following priorities:

a) Efficiency/cost - reduction of manufacturing costs
b) Dependability - degree of trust in a company's products and its delivery and price promises.
c) Quality - performance reliability, service quality, speed of delivery, and maintenance quality of the product
d) Flexibility - ability of the production process to make different kinds of products and/or to adjust the volume of output.
e) Innovation - ability to develop new products and ideas

The manufacturing strategy needs to pay attention to different activities:

a) Location and scale
b) Choice of manufacturing process
c) Degree of vertical integration relative to outsourcing
d) Coordination of R&D units
e) Licensing of technology

Major types of international manufacturing configurations are:

a) Home country production with exporting
b) Autonomous regional plants
c) Combination of regional and global focus
d) Centers of excellence

These different configurations are not mutually exclusive but are often used simultaneously.

Product strategies can be technology-driven, marketing-intensive or low-cost.

Offshore manufacturing often is done in low-cost locations and followed by importation into the home market.

Maquiladoras: under the Mexican maquiladora concept, U.S.-sourced components are shipped to Mexican border facilities duty-free and assembled by Mexican workers; the goods then are re- exported to the United Statesunder favorable tariff provisions.

Plant Location: selecting the number of plants and their locations depends on complex factors, such as transportation costs, duties, need for closeness to the market, foreign-exchange risk; economies of scale in the production process, national image.

Layout Planning: the manufacturing configuration is partly a function of how the manufacturing process will take place. Automation, labor-intensive.

Cobb-Douglas versus Leontieff production functions


III - QUALITY

Quality is a key issue in global manufacturing

Quality has many dimensions. Quality can mean zero defects - Japanese approach.

The japanese approach to quality is total quality management. It stresses three principles: customer satisfaction, employee involvement, and continuous improvements in quality.

Japanese approach: the products is so good that the customer remains loyal to the brand.

Executives who have adopted the zero-defects philosophy claim that long-run production costs decrease as defects decreases


ISO 9000

Deming Award, Malcolm Baldridge National Quality Award.

Under ISO 9000, companies must document how workers perform every function that affects quality and install mechanisms to ensure that they follow through on the documented routine.

ISO 9000 certification involves a complex analysis of management systems and procedures.

More than judging quality of a particular product, ISO 9000 evaluates the management of the manufacturing process.


IV - GLOBAL SOURCING, PURCHASING, AND SUPPLIER RELATIONS

Basic options available by country and by stage in the production process (sourcing of raw materials and the manufacture and assembly of components and final products)

Using domestic sources for raw materials and components allows a company to avoid problems with language differences, distance, currency, political problems, and tariffs.

Companies that pursue global sourcing strategies do so if they expect to achieve dramatic and immediate improvement in four critical areas:

a) Cost Reduction
b) Quality Improvement
c) Increased Exposure to worldwide technology
d) Delivery and Reliability improvements


There are other reasons to source abroad:

a) To strengthen reliability of supply
b) To gain access to materials only available abroad
c) To gain access to high product quality


Make or Buy Decision: MNCs need to determine which production activities should be carried on inside the company and which should be outsourced.

Japanese manufacturers tend to outsource more than U.S. manufacturers do

Supplier Relations: value-adding partnership.

A group of independent companies work together to manage the flow goods and service along the entire value-added chain.

Japanese companies tend to have closer relationships with their suppliers than U.S. companies do


V - INVENTORY SYSTEMS

The greater the interchange of products and components, the more difficult the inventory-control process is.

The problems of distance and time and the uncertainty of the international political and economic environment can make it difficult to determine correct reorder points.

Just-in-Time inventory management: major problems occur because of distance, language, and transportation economics.

Foreign Trade Zones: are special zones designated by a government where tariffs can be delayed or avoided.

In the United States, FTZs have been used primarily as a means of providing greater flexibility as to when and how customs duties are paid. However, their use in the export business has been expanding.


VI - PRODUT DESIGN

International companies attempt to coordinate product design and get input from design facilities in different countries.


Cross-national differences in consumer tastes and preferences argue for decentralized product design


Chapter 16

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