© McGraw Hill Companies, Inc., 2000 Global Manufacturing and Materials Management Chapter 16

© McGraw Hill Companies, Inc., 2000 Materials Management  Materials Management: the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution.  Logistics: the procurement and and physical transmission of material through the supply chain, from suppliers to customers. 16-1

© McGraw Hill Companies, Inc., 2000 Manufacturing and Materials Management - Strategic Objectives -  Lower costs and,  Simultaneously, increase product quality.  Accommodate demands for local responsiveness.  Respond quickly to shifts in customer demand. 16-2

© McGraw Hill Companies, Inc., 2000 The Relationship Between Quality and Costs Increases Productivity Lowers Rework and Scrap Costs Lowers Warranty and Rework Costs Improves Performance Reliability Lowers Service Costs Lowers Manufacturing Costs Increases Profits Figure

© McGraw Hill Companies, Inc., 2000 Total Quality Management (TQM)  The leaders: W. Edwards Deming, Joseph Juran, and A.V. Feigenbaum 16-4 “We have learned to live in a world of mistakes and defective products as if they were necessary to life. It is time to adopt a new philosophy in America.” W. Edwards Deming

© McGraw Hill Companies, Inc., 2000 Where to Manufacture  Country factors.  Technological factors:  Fixed costs.  Minimum efficient scale.  Flexible manufacturing (Lean Production). Reduce setup times. Increase machine utilization. Improve quality control  Flexible machine cells. Mass customization 16-5

© McGraw Hill Companies, Inc., 2000 A Typical Unit Cost Curve Unit Costs Volume Minimum Efficient Scale Figure

© McGraw Hill Companies, Inc., 2000 Manufacturing Location  Fixed costs are substantial  Minimum efficient scale is high  Flexible manufacturing technologies available  Fixed costs are low  Minimum efficient scale is low  Flexible manufacturing technologies unavailable Single or few locations. Major market locations if it better meets local demands. [ Trade barriers and transportation costs remain major impediments] 16-7

© McGraw Hill Companies, Inc., 2000 Product Factors and Location Strategies  Two product features affect location decisions:  Value to weight ratio.  Product serves universal needs.  Two strategies for locating manufacturing facilities:  Concentration.  Decentralization. 16-8

© McGraw Hill Companies, Inc., 2000 Location Strategy and Manufacturing Serves universal needs Yes No Flexible manufacturing technology Available Not Available Minimum efficient scale High Low Substantial Few Differences in factor costs Substantial Few Technological Factors Product Factors Fixed costs High Low Concentrated Decentralized Trade barriers Few Many Value-to-weight ration High Low Country Factors Differences in political economy Favored Manufactured Strategy Differences in culture Substantial Few Table

© McGraw Hill Companies, Inc., 2000 Belfast Carburetors and distributors Treforest Spark plug insulators Leamington Foundry production of engine components Dagenham Final assembly Bordeaux Transmissions Enfield Instruments, fuel and water gauges, plugs Basildon Radiators, water pump assembly, engine components Genk Body panels, road wheels Wülfrath Transmission parts, engine components Saarlouis Final assembly Cologne Die-cast transaxle casings, gear and engine components Valencia Final assembly Map 16.1 in Text 16-10

© McGraw Hill Companies, Inc., 2000 Strategic Role of Foreign Factories  Initially, established where labor costs low.  Later, important centers for design and final assembly.  Upward migration caused by:  Pressure to improve cost structure.  Pressure to customize product to meet customer demand.  Increasing abundance of advanced factors of production. Dispersed Centers of Excellence are consistent with a Transnational Strategy 16-11

© McGraw Hill Companies, Inc., 2000 Make or Buy  Advantages of Make:  Lower costs.  Facilitating specialized investments.  Proprietary product production technology protection.  Improved scheduling.  Advantages of Buy:  Strategic flexibility.  Lower costs.  Offsets

© McGraw Hill Companies, Inc., 2000 Coordinating a Global Manufacturing System  Materials management (includes logistics):  Achieve lowest possible cost that meets customer’s needs.  Power of ‘Just-in-Time’:  Economize on inventory holding costs.  Drawback: no buffer inventory

© McGraw Hill Companies, Inc., 2000 The Role of the Organization  Organizational linkages are more numerous and complex.  More difficult to control costs.  Functionally separate materials management:  Equal weight with other departments.  Purchasing, production and distribution are one basic task: controlling material flow from purchase to customer

© McGraw Hill Companies, Inc., 2000 Potential Materials Management Linkages Plant 1 Market A Source ASource B Plant 2 Market B Source C Plant 3 Market C Markets Manufacturing Locations Source Locations Far EastEuropeNorth America Figure

© McGraw Hill Companies, Inc., 2000 Traditional Organizational Structure CEO Distribution Production Planning and Control PurchasingManufacturingMarketingFinance Figure 16.4A 16-16

© McGraw Hill Companies, Inc., 2000 Organization Structure with Materials Management as Separate Function Strategic manager/CEO Production planning and control Purchasing Materials management ManufacturingMarketingFinance Distribution Figure 16.4B 16-17

© McGraw Hill Companies, Inc., 2000 Role of Information Technology  Track component parts to assembly plant:  Optimize production scheduling.  Accelerate production, when necessary.  Creating linkages between a firm and its suppliers and shippers.  Communicate without time delay.  Minimizes paperwork

© McGraw Hill Companies, Inc.,