GLOBAL MANUFACTURING AND SUPPLY CHAIN
• 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
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.
OPENING CASE: Samsonite’s Global Supply Chain
[See Map 17.1, Figures 17.1–3]
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.
II. GLOBAL MANUFACTURING STRATEGIES
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
III. INFORMATION TECHNOLOGY AND GLOBAL SUPPLY CHAIN
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.
V. SUPPLIER NETWORKS
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