Chapter 16.

Global
Production, Outsourcing,
and Logistics
 Introduction
 trade barriers fall & global market develop
⇒⇒ Firms confront something :
1. production activity location
2. the long - term strategic of foreign
production site
3. own production ? or another production ?
4. globally dispersed supply chain be managed
5. manage global logistics itself
or outsource the management to enterprises
 Microsoft

 Microsoft outsourced production of its

Xbox video game console to Flextronics
 Because it lacked the skills required to
assemble a complex electronics product.
 After ??
 Strateg y, Pro d u ctio n , an d
Lo g istics
 Production
→ production of physical goods
 Logistics
→ the activity that controls the transmission of
physical materials through the value chain
 Production & Logistics are linked
 Strategy,Production, and Logistics
 Strategic objectives
1. lower costs
2. increasing quality
 The objectives of reducing costs and
increasing quality are dependent
 Strategy,Production, and Logistics
 TQM
 Six Sigma
 ISO 9000
 To Other Objective –
w
Production & Logistics

1.Accommodate demands for local

responsiveness

2. Shift in customer demand quickly

 Where to produce
 Country specific factors
 Political economy,culture and relative factor costs
 Presence of concentrated global activities
 Local manufacturing activities
 eTchnology factors
 Fixed costs
 Minimum Efficient Scale
 Flexible Manufacturing
 Mass Customisation
 Product factors
 V
a lue to weight
ration
 High
 Low
 Universal needs
 Consumer
tastes and
preferences
 Location of Production facilities
 Centralisation of
location
 Decentralisation of
location
 Location decisions
can be difficult
 Automobile Industry
 Strategic role of
foreign factories
 Outsourcing Production :
Make or Buy Decisions

 Decisions about whether they should

perform a certain value activity
themselves or outsource it to another
entity.
 TheAdvantage of Make

 Lowering Costs

 Facilitating Specialized Investments

 Protecting Proprietary Product eTchnology

 Improving Scheduling
 Lowering Costs
 If the firm can perform the production
activity most efficiently, they can continue
manufacturing a product or component part
in-house.

 Boeing decided to keep the design and final

integration of aircraft.
Facilitating Specialized Investments

When substantial investments in specialized

assets are required to manufacture a
component, the firm will prefer to make the
component internationally rather than
contract it out to a supplier.
 Protecting Proprietary eTchnology

 If the firm outsources the production containing

proprietary technology,it runs risks.

 T maintain control over its technology,the firm might

o
prefer to make such products or component parts
in-house.
 Improving Scheduling
 Production cost savings by making planning,
coordination, and scheduling of adjoining
processes easier.

 Scheduling can be exacerbated by the time

and distance between the firm and its
suppliers.
 TheAdvantage of Buy

 Strategic Flexibility

 Lower Costs

 Offsets
 Strategic Flexibility
 The firm can maintain its flexibility to switch
orders between suppliers as circumstances
dictate.
 The firm can avoid risks which come from
exchange rates, trade barriers and political
unstableness by buying from an independent
suppliers in that country
 Lower Costs

 The more subunits in an organization, the

more problems coordinating

 The resulting increase in organizational

complexity can raise a firm’s cost structure.
 Offsets

 Outsourcing may help the firm capture more

orders from that country.
 Managing AGlobal Supply Chain
Logistics
Pioneered by Japanese firms during the
1950s and 60s, just in time inventory
systems now play a major role in most
manufacturing firms. The basic philosophy
behind just in time (JIT) systems is to
economize on inventory holding costs by
having materials arrive at a manufacturing
plant just in time to enter the production and
not before.
Information technology,particularly internet
based electronic data interchange, plays a
major role in material management. EDI
facilities the tracking of inputs, allows the
firm to optimize it's production schedule, lets
the firm and its supplier communicate in real
time and eliminates the flow of paperwork
between a firm for its supplier.