BSB119 L W11

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Queensland University of Technology
Management and Human Resources

BSB119 – GLOBAL BUSINESS LECTURE 11: INTERNATIONAL PRODUCTION Global Production  With a shift towards globalisation of production, firms increasingly source goods and services from various locations to take advantage of national differences in cost and quality of various factors of production  Today, firms are confronted with decisions regarding: o Where should production be located? o Should production be concentrated or dispersed around the globe? o What should be the long-term strategic role of foreign production sites?  Consider the impact of costs both financial and to the brand o Should production and logistics activities be owned by the firm or outsourced?  Has resulted in the creation of complex global supply networks for the distribution of finished products and for the inbound supply of raw materials and components  How can a company best distribute their activities to minimise costs, produce products of good quality in a timely manner?  Production: refers to activities involved in creating a product including o Trend to outsource production to developing nations where skilled and less-skilled labour costs are lower o Converting inputs to a product o What impact does this have on quality control?  Logistics and materials management: refers to activities that control the transmission of physical materials through a value chain o procurement  production  distribution o suppliers  customers  the two terms are closely linked as a firm’s ability to produce efficiently depends on a timely supply of high-quality material inputs which is provided by logistics  Strategic objectives in global operations management o Lowering costs while raising efficiency (maximise productivity, increase quality, reduce waste)  Can be achieved by dispersing production activities to various locations which are able to perform the activity more efficiently.  Manage the global supply chain efficiently – better match supply and demand  Increases inventory turnover and decreases inventory write offs o Responding to customer demands and satisfying customer needs – need to be flexible and efficient o The aim is to control the costs of production while ensuring timely delivery o Increase product quality by eliminating defective products  Results in increasing productivity  Lowering rework and scrap costs  Reducing warranty costs  Additional international logistics challenges o Geographical distances o Involvement of many different transport modes o Different regulatory requirements: pricing, packaging, safety, documentation Relationship between quality and costs  The Six Sigma philosophy (modern successor to TQM) aims to reduce defects, boost productivity, eliminate waste and cut costs throughout a company • Eliminate mistakes, defects and poor-quality materials • Allow staff more time and provide them with the tools to do the job • Focus on continuous improvement • Adjust functions to meet the local conditions and demand • TQM = total quality management: focus on continuously improving the quality of a company’s products Location of Production Decision: Where to locate production activities to best minimize costs and improve quality? Manufacturing Location Factors  Country Factors o Some have a comparative advantage for producing certain goods o Favorable economic, political and cultural conditions o Presence of appropriately skilled labour and supporting industries  Increased use of developing nations e.g. India o Barriers to investment influence decisions as do transport costs and barriers to FDI o Expected movements in exchange rate  Manufacturing Technological Factors – crucial decision o There may only be one place in the world which is capable of producing your product. Or does technology make it possible to produce in many places? o Is there high/low fixed costs in setting up a production plant?  Fixed costs may be high which would result in the firm producing from very few locations  Low fixed costs can make it economical to perform activity in many places.  Helps the firm avoid becoming too dependent on one location o How high/low is the ‘minimum efficient scale’?  Minimum efficient scale = level of output at which most plant-level scale economies are exhausted.  As output increases, unit costs decrease due to greater utilization of capital equipment and productivity increases in employees  Beyond a certain level there are very few increases  Larger the minimum efficient scale = greater argument for centralizing production o Is mass customization possible?  Mass customisation: ability of companies to use flexible manufacturing technology to achieve product customisation at low costs  Best way to achieve high efficiency and low unit costs  May limit variety  Flexible manufacturing technology: designed to reduce set up time  Product Features o Product has high/low value-to-weight ratio?  This influences transport costs  High value to weight ratio = Expensive to transport but don’t weight very much e.g. electronic goods  Produce goods in an optimal location  Low value to weight ratio = inexpensive products to ship which weigh a lot. Shipped long distances and transportation is a considerable proportion of the total costs o Does the product serve universal needs? Concentrated vs. Decentralized Production Central = concentrating activities in one location De-central = various regional locations which are close to major markets Concentrat
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