1. Facilities Strategy and Globalization
Chapter 5
Facilities Strategy and Globalization
McGraw-Hill/Irwin
Operations Strategy
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

2. Agenda General strategic concepts An integrated approach
New paradigms for the global environment

3. General Strategic Concepts
Fit with strategy
Focus of plants
Scale and cost
Centralization and standardization
Means of evaluation and plant roles
Sourcing and allocation models

4. Issues
Traditional approaches to facilities and supply chains emphasize a number of issues
Scale
Logistics and supply chain flow
Focus
Global flexibility and access to R&D

5. Product/Market-Process Focus
Mean of focus
Volume
Product
Market
Process
Off On
Volume
Low High
Volume
Low High
Job Batch
Line
Detroit
Saginaw
Lima
Job Batch
Line
Detroit
Fremont
Lancaster
Mayesville
Example

6. Scale Analysis
Subcontract
Technology 1
Technology 2
COST
VOLUME

7. Consumer Goods Example
Cost
per
unit
Volume in millions of units

8. Modeling Supply Chain Flow
Supply chain management often requires sophisticated models to determine questions such as:
Number of inventory locations
Assignment of market areas and products to facilities

9. Simple Facilities Network and Supply Chain for Two-Stage LP
Flows
Sources
Destinations

10. Network for Multi-Location Supply Chain
Suppliers Plants Distribution Centers Customers

11. Some Examples of Strategies
Different process steps and scale, significant logistics
Central stage 1, decentralized stage 2
Significant central R&D
Central plant for at least early life cycle
Significant product flexibility
Decentralized satellite plants for some stages
The examples underscore the need to develop a consistent focus and then appropriately analyze scale and logistics

12. A General Approach Develop a strategy and appropriate means of focus
Using data, benchmarking, and analysis of technology, develop scale curves
Identify major decision choices and service requirements covering plant and process options
Do the analysis

13. Case Study: Worldwide Consumer Goods Manufacturer
25 product groups
10 production locations
Variety of product values and weights
Over capacity
Lack of focus
Significant tax issues

14. Case Study Fixed costs Variable costs Fixed costs Variable costs Taxes
Stage 1
Stage 2
Customer
Why Separate?
Scale
Capacity
Tax laws
Focus
Relative technological complexity
Approach
Cross sectional analysis
Tax analysis
Model of variable costs
Detailed analysis of actual fixed costs
Solution:
Move “light” products to tax havens
Better focus facilities by product group

15. Globalization Adds Some Additional Complexities
Increase in worldwide exports
Business level trends
Lower scale, higher-skill level manufacturing systems such as FMS
JIT systems that also underscore the need for sophisticated vendor infrastructure
TQM and organizational learning
Faster product development
Customization needs
High-value products such as wafers and chips

16. Globalization Complexities (cont’d)
Macro level trends
Large, sophisticated overseas markets with local needs
Non-tariff barriers
Regionalized trading economies
Variable factor costs
Particular case of China
Longer lead times

17. Global Strategies Emphasize Some Additional Factors
Global product volumes
Decentralized network based on regional presence
Infrastructure versus cost
Changing product cost structure
Skill requirements
Vendors
Flexibility in several ways
Multiple stages, players, and movements
Global product and development supply chains
Postponement strategies

18. Exchange Rate Model 460 450 One 440 Two Cost 430 Three Four 420 Five
# of plants
One
440
Two
Cost
430
Three
Four
420
Five
410
400
100
200
300
400
Total Capacity

19. Facilities Strategy Given Uncertainty (adapted from Huchzermeir and Cohen)
Alternative
Exchange Rate
& Factor Cost
Distributions
Supply Chain Network Model Outcome for Each Combination
Alternative
Facilities
Configurations
Expected
Outcomes A A
Best Configuration for Current Exchange Rate and Factor Costs B B K N
Switching
Costs N

20. Five-Stage Approach to Strategy Development
Strengths
Stage 1: Business and Operations Strategy and Plant Charters
Competitive Environment
Global Market
Cross-Sectional Data
Stage 2: Multiple-Technology Scale Curves
Process Technologies
Internal Constraints
Market Presence and Capabilities
Stage 3: Major Network Options
Supplier Industries
Infrastructural Requirements
Stage 4: Location and Process Options
Political and Market Issues
Logistics Costs
Stage 5: Modeling
Factor Costs

21. Summary Methods for analyzing focus, scale flow, etc.
Impact of new markets and technologies
Global product design and flow patterns
Flexibility
Factor costs