Presented To

Mr. Israr Khan Raja

Presented By

Farhad Bin Younis

03-FMS/MSCM/F15
Manufacturing Operations in Global Supply Chain
Management
Contents of Presentation

Manufacturing
Global Manufacturing
Why Manufacture Globally
Global Product Model
Decisions in Global Manufacturing
Global Manufacturing Strategies
Legal Compliances in Manufacturing
Role of IT and the Internet
Conclusion
 Manufacturing

 A manufacturing business is any business that

uses components, parts or raw materials to make a
finished good. These finished goods can be sold
directly to consumers or to other manufacturing
businesses that use them for making a different
product. Or

 The process of converting raw materials,

components, or parts into finished goods that meet
a customer's expectations or specifications.

© McGraw Hill Companies, Inc., 2000

 Global Manufacturing

 A Global Manufacturer is a company that

manufactures components, sub-assemblies,
assemblies, and finished products for another
company by leveraging raw material,
manufacturing capabilities, cost, and an
efficient supply chain that spans across the
world.
 Why Manufacture Globally?

•Cost Reduction

•Access to raw-material

•New Markets

•Access to Specialized Talent & Equipment

•Efficient Production

“Overall goal is, improvement in cash flows of the

parent firm to maximize shareholder’s wealth”
A perfect model of a real-world case study of an east
west customer
 Decisions in Global Manufacturing

 Following Decisions have to be made

 Where in the world to put a factory

 How in the world to move goods and services from suppliers to

factories to customers

 What in the world to do themselves versus outsourcing

 Complications arise from many multinational enterprises’ (MNEs’)

reaction to tough global competition
A Typical Unit Cost Curve

Minimum
Efficient Scale

Volume
 Global Manufacturing Strategies

“The idea of global manufacturing strategy brings into play a mix

of economic, competitive, legal, political, and environmental
conditions”
the success of global manufacturing strategy depends on how
well managers deal with the 4 Cs:

 Compatibility

 Configuration

 Coordination
 Control
Compatibility

“The degree of consistency between where and how managers set

up their foreign manufacturing system and the company’s
competitive strategy

 There are many ways that managers can improve compatibility

 In well-run companies, managers safeguard compatibility by
giving greater weight to their forecast of future conditions than
they do to current events
Configuration

It refers to the issue of where the company wants to

physically build its factories

 Centralized manufacturing in a single country

 Regionalized manufacturing in specific regions served
 Local manufacturing in each country market served
 Multidomestic manufacturing is common among
multinationals
Coordination

once an overseas plant is up and running,

 Managers must coordinate the different activities that go into making
and moving a good or service around the world

Control
• a well-designed control system helps everyone in the company
carry out their jobs by outlining their roles and stipulating
responsibilities in the company’s manufacturing strategy by
 Formal manufacturing controls:
 Six sigma
 Standard operating procedures (SOPs)
 Informal manufacturing controls:
 Total quality management (TQM)
 Production Location Strategies

 Firms should locate production so that

 production and logistics can be locally responsive
 production and logistics can respond quickly to shifts in
customer demand
 Firms should consider
1. Country factors
2. Technological factors
3. Product factors
 Country Factors

 Manufacturing should be located where

economic, political, and cultural conditions are
most conducive to the performance of that
activity
 create a global web of activities
 global concentrations of activities at certain locations
 Country Factors

 Firms should consider

 the availability of skilled labor and supporting industries

 formal and informal trade barriers

 expectations about future exchange rate changes

 transportation costs

 regulations affecting FDI

 Technological Factors

 Firms should consider

1. The level of fixed costs
 if fixed costs are high, produce in a single location or a few
locations
 when fixed costs are low, multiple production plants may
be possible
 allows firms to respond to local demands
 Technological Factors
2. The minimum efficient scale
 the level of output at which most plant-level scale
economies are exhausted
 when minimum efficient scale is high, choose centralized
production in a single location or a limited number of
locations
 when minimum efficient scale is low, respond to local market
demands and hedge against currency risk by operating in
multiple locations
 Technological Factors
3. The flexibility of the technology
 flexible manufacturing technology or lean production
 reduces set up times for complex equipment
 increases the utilization of individual machines
 improves quality control
 allows firms to produce a wide variety of end products at a
relatively low unit cost
 mass customization
 flexible machine cells
 Facility Decisions
 Production should be concentrated in a few
locations when
 fixed costs are substantial
 the minimum efficient scale of production is high
 flexible manufacturing technologies are available

 Production in multiple locations makes sense when

 both fixed costs and the minimum efficient scale of
production are relatively low
 appropriate flexible manufacturing technologies are not
available
 Product Factors

 Two product factors impact location decisions

1. The product's value-to-weight ratio
 if the value-to-weight ratio is high, produce the product
in a single location and export to other parts of the
world
 if the value-to-weight ratio is low, there is greater
pressure to manufacture the product in multiple
locations across the world
2. Whether the product serves universal needs
 when products serve universal needs, the need for local
responsiveness falls, and concentrating manufacturing
in a central location makes sense
 Country Factors

 For substantial differences in political, cultural and

factors costs
 Production should be concentrated in a single or few locations

 For few differences

o production can be decentralized in many locations

 For few trade barriers and stable exchange rates

o production should be centralized and decentralized in case of
unfavorable situation.

© McGraw Hill Companies, Inc., 2000

 Location Externalities

 An externality is an effect of a purchase or use

decision by one set of parties on others who did not
have a choice and whose interests were not taken
into account
 Externalities can be negative or positive, and
externalities can result from either the production
or the consumption of a good (or both).
 If location externality has importance to industry
then centralized production makes sense otherwise
decentralized will be the choice.
Relation b/w Location, Strategy,
and Production
Location, Strategy, and Production
 Hidden Costs of Global Production

 There may be hidden costs associated with foreign

production
 Before making the decision to locate production in
a foreign location firms must consider the potential
for

 high employee turnover

 poor workmanship
 poor product quality
 low productivity
 Strategic Role Of Foreign Factories

 The strategic role of foreign factories and the

strategic advantage of a particular location can
change over time
 factories established to take advantage of low cost
labor can evolve into facilities with advanced design
capabilities
 Improvement in a facility comes from
1. Pressure to lower costs or respond to local markets
2. An increase in the availability of advanced factors of
production
 Strategic Role of Foreign Factories

 Many companies now see foreign factories as

globally dispersed centers of excellence
 supports the development of a transnational strategy
 global learning - valuable knowledge can be found in foreign
subsidiaries
 implies that firms are less likely to switch production to new
locations simply because some underlying variable like wage
rates has changed
 Make or Buy Decisions

 Question: Should a firm make or buy the component

parts to go into its final product?
 Make-or-buy decisions are important to firms'
manufacturing strategies
 service firms also face make-or-buy decisions
 decisions involving international markets are more complex
than those involving domestic markets
 Make Decisions

 Vertical integration - making component parts

in-house
1. Lowers costs
◦ if a firm is more efficient at that production activity
than any other enterprise, manufacturing in-house
makes sense
2. Facilitates investments in highly specialized
assets
◦ internal production makes sense when substantial
investments in specialized assets are required
 Make Decisions

3. Protects proprietary technology

 in-house production makes sense when component parts
contain proprietary technology
4. Facilitates the scheduling of adjacent processes
 planning, coordination, and scheduling of adjacent
processes can be easier with in-house production
 Buy Decisions

 Buying component parts from independent

suppliers
1. Gives the firm greater flexibility
 important when changes in exchange rates and trade
barriers alter the attractiveness of various supply sources
over time
 Buy Decisions

2. Helps drive down the firm's cost structure

 avoids challenges of coordination and control of
additional subunits
 avoids the lack of incentive associated with internal
suppliers
 avoids the difficulties with setting appropriate transfer
prices
3. Helps the firm capture orders from international
customers
 can help firms gain orders from suppliers’ countries
 Legal Compliances in Manufacturing

 Manufacturing compliance comprises the technical,

legal and corporate requirements, regulations and
practices manufacturers must comply with in order
to produce and market products.

 This development has been further heightened by

the increasing role of governmental regulatory
bodies in certain industry sectors, along with the
emergence of global standards to address the
increasingly global nature of manufacturing.
Numerous areas of compliance can come to bear on manufacturers
directly or indirectly, including

 Product safety
 Health, safety, and environmental impact
 Data protection
 Export controls
 Anti-corruption
 IT safety and security
 Fair competition
 Employment law
 Standards Development

 Key international industry standards for

manufacturing compliance include:
 ISO 9001
 ISO 13845
 IEC 61215
 IEC 61646
 Moreover, new and harmonized standards for
manufacturing compliance continue to be developed.
 Consumer Safety

 The core mandate guiding FDA regulatory oversight is

 consumer safety.
 As a result, the FDA has defined Good Manufacturing
Practices (GMP) for both device and drug manufacturers
 that dictate the necessary measures that must be taken
to ensure that quality systems and processes are in place
to consistently produce safe, quality products.
 Therefore, manufacturers in these sectors seek a
manufacturing certificate of compliance indicating that
they meet GMP.
 Role Of Information Technology And The Internet

 Web-based information systems play a crucial role

in materials management
 allow firms to optimize production scheduling according
to when components are expected to arrive
 Electronic Data Interchange (EDI)
 facilitates the tracking of inputs

 allows the firm to optimize its production schedule

 lets the firm and its suppliers communicate in real time

 eliminates the flow of paperwork between the firm and its

suppliers
 Conclusion

 Carrying out the activities of international

manufacturing and its management is far more
difficult than conducting a domestic manufacturing.
Due to changes in political, economic, socio-cultural
environment across the nations, most business
entities find it difficult to expand their business
globally.

 To become a successful player in the international

market firms need to plan their business strategies
as per the requirement of the foreign market.