IB 3101 Lecture Notes - Lecture 12: Outsourcing, Lean Manufacturing, Mass Customization

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Published on 17 May 2017
Week 12 Chapter 15 Global Production and Outsourcing
Production- primary activity in the valuation chain of the firm, activities involved in
creating a product
Logistics- supporting activity, procurement and physical transmission of material
through the supply chain, form suppliers to customers
Strategy Production and Logistics
1. Lower costs of value creation
a. Production can improve reliability of a product JIT arrival
2. Add value by better serving customer needs
Production Location (centralization vs decentralized production)
1. Country factors
a. Skilled labor and supporting industries
b. Trade barriers
c. Future exchange rate changes
d. Transportation costs
e. Regulations affecting FDI
2. Technological factors
a. Level of fixed costs
i. High fixed costs, makes sense for the firm to serve the world
market from a single location or from a very few locations
b. Minimum efficient scale
i. Goes with higher fixed costs
ii. The higher the MES the fewer factories a company can produce
c. Flexibility of the technology / lean production
i. Mass customization
ii. Flexible machine cells
iii. Reduce set up times for complex equipment
iv. Increase the utilization of individual machines through better
v. Improve quality control at all stages of the manufacturing
3. Product factors
a. Product’s value to weight ration
b. Whether the product serves universal needs
Value to weight
Low weight / high value
o Pharmaceutical
o Tech
o Low transportation costs, expensive products
o Ok to decentralize product, exceptions cars
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