Strategic Management

What are the strategic management for locating production facilities? …

What are the strategic management for locating Production Facilities? Two basic strategies: Centralized location Decentralized location

Centralized Location This means to locate all production facilities in one specific region or one country and serving the world market from there.

Centralized Location Why do we want to centralize location of production? 1. Your production process has a high fixed cost. You need to build one mega manufacturing facility. 2. It requires to produce a very large quantity to reduce cost or achieve economies of scale.

Centralized Location Why do we want to centralize location of production? 3. Your product serves universal needs such as cold medicine. 4. Your product is a light weight and has a low cost of transportation such as pharmaceutical products.

Centralized Location Why do we want to centralize location of production? 5. Your product faces with low import tax, low barriers, and stable exchange rate. 6. Your manufacturing technology is a super secret or confidential.

Decentralized Location This means to locate your production facilities in many countries or many regions all over the world. Each production area will mainly serve the local market.

Decentralized Location Why do we want to decentralize location of production? 1. Your production process has a low fixed cost. You can build many small or medium size of manufacturing facilities all over the world. 2. It does not require to produce a very large quantity to reduce the cost.

Decentralized Location Why do we want to decentralize location of production? 3. Your product needs to make an adjustment to local culture and taste such as food products. 4. Your product is heavy and has high transportation cost such as Coke, Pepsi, Beer.

Decentralized Location Why do we want to decentralize location of production? 5. Your product faces with high imported taxes, high barriers, and unstable exchange rate. 6. Your manufacturing technology is not a super secret or confidential.

The next topic: Make or Buy (Strategic management for out-sourcing)

International business often faces with two choices: make or buy the component parts. For example, to produce one car; there are more than 10,000 components. The question is: should we make all components or should we buy some of the components?

The decision to make or buy depends upon: 1. Lower costs: Do the cost and benefit analysis We have to find out which one will be cheaper. If we want to make, we have to make sure that our cost will be lower than buying the same thing.

The decision to make or buy depends upon: 2. Quality: Do the quality analysis Can we buy or do the out-sourcing that has the high quality of components that we want? And if we want to produce, do we have the technology to produce it with high standard of quality?

The decision to make or buy depends upon: 3. Number of suppliers: Do the suppliers analysis How many suppliers in the market? In general, the more suppliers, the less risk of shortage and the lower price to buy.

The decision to make or buy depends upon: 4. Investment; Do the budget analysis Does it require us to invest a lot of money? Do we have the money to invest? If it requires a large fixed investment, the out-sourcing may be a better choice.

The decision to make or buy depends upon: 5. Reliability of suppliers Do the system analysis Can these suppliers be reliable? Do they delivery components on time? Can they increase the volume when we need more and urgent component? Do they have Just-in-time (JIT)?

What is just-in-time? …

Just-in-time (JIT) 1.This is a theory based on a Japanese inventory system such as Toyota. 2. Our factory will not have any inventory at all but will buy from only one or two dependable suppliers. 3. The suppliers must delivery the components immediately when they get the order. Suppliers must be very reliable and dependable.

Just-in-time (JIT) 4. Our factory will save costs from… - No inventory cost - No warehousing cost - No storage cost - No investment on components - No excess or unsold inventory

Just-in-time (JIT) 5. If we got the good partner or reliable suppliers, the Just-in-time system will help to make more profit by… - Reduce cost (from 4.) - Firm has more time to focus on quality of the product. - Firm has more money to invest on production process.

Assignment # 6 1. What is the difference between centralized location and decentralized location? 2. list and explain the six reasons why do we want to centralize location of production facilities? 3. If your product is Beer Chang, do you want a centralized location or decentralized location? Why? 4. List and explain five factors that can help a firm to make a decision to make or to buy. 5. Do you think JIT system can be implement successfully in Thailand? Why? Or why not?