Chapter 18

By Craig Gomez,2014-06-16 23:38
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Chapter 18 ...





To describe different dimensions of global manufacturing strategy

     To examine the elements of global supply chain management

     To show how quality affects the global supply chain

     To illustrate how supplier networks function

     To explain how inventory management is a key dimension of the global supply chain

     To present different alternatives for transporting products along the supply chain

    from suppliers to customers

Chapter Overview

Important objectives shared by the global manufacturing and supply chain functions are

    to simultaneously lower costs and increase quality by eliminating defects from both

    processes. Chapter Seventeen examines supply chain networks to see how firms can

    manage the various links most effectively. The chapter begins by discussing global

    manufacturing strategy. It then moves on to explore supply chain management issues,

    quality standards and supplier networks. The chapter concludes with a discussion of

    inventory management and the development of effective transportation networks.

Chapter Outline

OPENING CASE: Samsonite’s Global Supply Chain

     [See Map 17.1, Figures 17.13]

    This case describes how Samsonite, a U.S.-based corporation that manufactures and

    distributes both hardside and softside luggage, developed its global manufacturing and

    distribution systems. Samsonite began its operations in 1910 in Denver, Colorado, but it

    took many years to become a global firm after moving first through decentralized and

    then centralized supply-chain structures. By the end of the 1960s, Samsonite was

    manufacturing luggage in the Netherlands, Belgium, Spain, Mexico, and Japan; it was

    also marketing luggage worldwide through a variety of distributors. During the 1990s,

    Samsonite expanded throughout Eastern Europe and established several joint-venture

    operations in China and other parts of Asia as well. As Samsonite expanded throughout

    the world, it entered into subcontract arrangements in Asia and Eastern Europe for

    outsourced parts and finished goods in order to supplement its own production. By 2002,

    Samsonite’s European operations alone had grown to six company-owned production

    facilities and one joint-venture facility, plus a series of subsidiaries, joint ventures, retail


    franchises, distributors and agents set up to service the European market. R&D is done

    both in Europe and the United States.

    Teaching Tip: Review the PowerPoint slides for Chapter Seventeen and select those you find most useful for enhancing your lecture and class discussion. For

    additional visual summaries of key chapter points, also review the figures in the text.


    The supply chain function encompasses the sourcing and coordination of materials, information and funds from the initial raw material supplier to the final customer. It

    concerns the management of the value-added process from the supplier’s supplier to

    the customer’s customer. Suppliers can be part of the manufacturer’s organizational

    structure, as in the case of a vertically integrated organization, or they can be

    independent organizations. An important part of the supply chain function is

    logistics (aka materials management), which encompasses the planning,

    implementation and control of the efficient and effective flow and storage of

    products and information from the point of origin to the final customer. Because the

    supply chain is quite broad, the coordination of the network actually occurs through

    interactions within the network. The greater the geographic spread of the firm, the

    more difficult it becomes to manage the supply chain effectively.


    The success of a global manufacturing strategy depends on four key factors: (i)

    compatibility, (ii) configuration, (iii) coordination and (iv) control.

    A. Manufacturing Compatibility

    Compatibility refers to the degree of consistency between a firm’s foreign

    direct investment decisions and its competitive strategy. Cost-minimization and

    the drive for globalization force MNEs to pursue economies of scale in

    manufacturing, often by producing at low labor-cost sites. Other key variables

    include dependability, quality, flexibility and innovation.

    B. Manufacturing Configuration

    MNEs consider three basic configurations en route to developing their global

    manufacturing strategies. They are:

     centralized manufacturing in a single country

     (a global export approach)

     regionalized manufacturing in the specific regions served

     (a regionalized marketing and manufacturing approach)

     local manufacturing in each country market served

     (a multidomestic marketing and manufacturing approach).

    C. Coordination and Control

    Coordination represents the linking or integrating of participants all along the

    global supply chain into a unified system. Control embraces systems, such as

    organizational structure and performance measurement, which are designed to

    help ensure strategies are implemented, monitored and revised, when





    Global supply chain management concerns the sourcing and coordination of materials, information and funds from the initial raw material supplier to the final

    customer. A comprehensive supply chain strategy should include the following 10


     customer service requirements

     plant and distribution center network design

     inventory management

     outsourcing and third-party logistics relationships

     key customer and supplier relationships

     business processes

     information systems

     organizational design and training requirements

     performance metrics

     performance goals.

    The key to making a global information system work effectively is information.

    Electronic data interchange (EDI) refers to the electronic movement of money and information via computers and telecommunications equipment in a way that

    effectively links suppliers, customers and third-party intermediaries, and ultimately

    enhances customer value. Enterprise resource planning (ERP) refers to the use of

    software to link information flows from different parts of a business and from

    different parts of the world. E-commerce refers to the use of the Internet to link suppliers with firms and firms with customers. An intranet can be used to help

    automate and speed up internal processes in a company. The extranet refers to

    using the Internet to link a company with external constituencies. Finally, the

    Private Technology Exchange (PTX) refers to an online collaboration model that brings manufacturers, distributors, resellers and customers together to execute trade

    transactions and to share information regarding demand, production, availability, etc.

    While many networks can in fact be managed via the Internet, others (especially

    those in developing countries) cannot because of the lack of available, leading-edge



    Quality refers to meeting or exceeding the expectations of the customer. More

    specifically, it incorporates conformance to specifications, value enhancement,

    fitness for use, after-sales support and psychological impressions (image).

    Acceptable quality level (AQL) is a premise that allows for a tolerable (negotiable) level of defects that can be corrected through repair and service warranties. Zero

    defects describe the refusal to tolerate defects of any kind.

    A. Total Quality Management

    Total quality management (TQM) stresses three principles: (i) customer

    satisfaction, (ii) employee involvement and (iii) continuous improvements at

    every level of the organization. The goal of TQM is to eliminate all defects. It

    focuses on benchmarking world-class standards, product and service design,

    process design and purchasing practices. Kaizen represents the Japanese process


    of continuous improvement, which requires identifying problems and enlisting

    employees at all levels of the organization to help eliminate the problems. Six

    Sigma is a highly focused quality-control system designed to scrutinize a firm’s

    entire production system and eliminate defects, slash product cycle time and cut

    costs across the board.

    B. Quality Standards

    The three different levels (types) of quality standards are: (i) a general level, (ii)

    an industry specific level and (iii) a company level. The general level includes

    International Organization for Standardization (ISO) ISO 9000:2000

    certification, i.e., a set of five universal standards initially designed to harmonize

    technical standards within the EU that is now accepted worldwide; it is applied

    uniformly to companies in any industry and of any size in order to promote

    quality at every level of an organization. Rather than judging the quality of a

    product, ISO 9000:2000 evaluates the management of the manufacturing process

    according to standards in 20 domains, from purchasing to design to training.

    Industry-specific standards and company-specific standards represent the

    quality-related requirements expected of suppliers.


    Sourcing is the path a firm pursues in obtaining materials, components and final

    products either from within or outside of the organization and from both domestic

    and foreign locations. Global sourcing represents the first step in the process of

    global materials management (logistics) (see Figures 17.7, 17.8). Firms pursue

    global sourcing strategies in order to reduce costs, improve quality, increase their

    exposure to worldwide technology, improve the delivery-of-supplies process,

    strengthen the reliability of supply, gain access to strategic materials, establish a

    presence in a foreign market, satisfy offset requirements and/or react to competitors’

    offshore sourcing practices. The three major configurations that have emerged for

    global sourcing are: (i) vertical integration (ii) outsourcing through industrial

    clusters, and (iii) other outsourcing.

    A. Make or Buy Decision

    In determining whether to make or buy, MNEs should focus on making those

    parts and performing those processes critical to a product and in which they

    have a distinctive advantage. Other things can potentially be outsourced.

POINT: Yes, firms should outsource innovation in order to effectively position

    themselves in the highly competitive high tech and electronics industries. Suppliers

    capabilities continue to grow, making them important sources of innovation that can be

    incorporated into final products. Outsourcing R&D can result in tremendous cost savings

    and can greatly speed the R&D process.

    COUNTERPOINT: Companies that outsource any R&D risk losing control of core technologies