activities involved in creating a product
- procurement and physical transmission of material through the supply chain, from suppliers to customers
Total Quality Management
-aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the company
Deming identified a number of steps that should be included in any TQM program:
- Management should embrace the philosophy that mistakes, defects, and poor quality materials are not acceptable
- Supervisors should work more with employees and provide them with the tools they need to do the job
- Management should create an environment in which employees will not fear reporting problems
- Work standards should not only be defined as numbers or quotas, but should include some notion of quality
- Form of TQM
- Production process operating at Six Sigma are 99.99966 percent accurate.
- Only 3.4 defects per million units
in the EU, firms must meet ISO 9000 standards before gaining access to the EU marketplace
- Quality standards necessary in the EU.
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
Flexible Manufacturing Technology
- reduces set up times for complex equipment
- increases the utilization of individual machines
- improves quality control
- the ability of companies to use flexible manufacturing technology to reconcile 2 goals that were once thought to be incompatible - low cost and product customization.
Flexible Machine Cells
- a grouping (4-6 per cell) of various types of machinery, a common materials handler, and a centralized cell controller (computer).
- cells are dedicated to the prodution of a familly of parts or products.
- 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
How are Location, Strategy, and Production Related?
Location, Strategy, and 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
- the idea that valuable knowledge does not reside just in a firm's domestic operations
- it may also be found in its foreign subsidiaries.
- Foreign factories that upgrade their capabilites over time are creating valuable knowledge the might benefit the whole corporation.
- decisions about whether an international business should perform a certain value creation activity themselves or outsource it to another entity.
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
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
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
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
- an asset whose bale is contingent upon a particular relationship persisiting.
- when substantial investments in specialized assets are required to manufacture a componen, the firm will prefer to make the component in-house rather than outsource.
- Manufacturer relies too heavily on supplier for specialized equipment, gives supplier greater bargaining power.
- describe skills that become more valuable over time through learning.
- learned through experience
Do Strategic Alliances Make Sense?
Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers:
- however, these commitments may actually limit strategic flexibility
- risk giving away key technological know-how to a supplier
-encompasses the activities necessary to get materials to a manufacturing facility, through the manufacturing process,and out through a distribution system to the end user.
The goal is to:
- manage a global supply chain at the lowest possible cost and in a way that best serves customer needs
- establish a competitive advantage through superior customer service
Just-in-Time (JIT) systems
systems economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process
- generate major cost savings from reduced warehousing and inventory holding costs
- can help the firm spot defective parts and take them out of the manufacturing process
- But, a JIT system leaves the firm with no buffer stock of inventory to meet unexpected demand or supply changes
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