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Chapter 16. Global Production, Outsourcing, and Logistics. Introduction . trade barriers fall & global market develop ⇒⇒ Firms confront something : 1. production activity location 2. the long - term strategic of foreign production site

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Chapter 16. Global Production, Outsourcing, and Logistics

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Chapter 16. Global Production, Outsourcing, and Logistics


  • trade barriers fall & global market develop

    ⇒⇒ Firms confront something :

    1. production activity location

    2. the long - term strategic of foreign production site

    3. own production ? or another production ?

    4. globally dispersed supply chain be managed

    5. manage global logistics itself

    or outsource the management to enterprises


  • Microsoft outsourced production of its Xbox video game console to Flextronics

    • Because it lacked the skills required to assemble a complex electronics product.

  • After ??

Strategy, Production, and Logistics

  • Production

    • production of physical goods

  • Logistics

    • the activity that controls the transmission of physical materials through the value chain

  • Production & Logistics are linked

Strategy, Production, and Logistics

  • Strategic objectives

    1. lower costs

    2. increasing quality

  • The objectives of reducing costs and increasing quality are dependent

Strategy, Production, and Logistics

  • TQM

  • Six Sigma

  • ISO 9000

Two Other Objective –Production & Logistics

1. Accommodate demands for local responsiveness

2. Shift in customer demand quickly

Where to produce

  • Country specific factors

  • Political economy, culture and relative factor costs

  • Presence of concentrated global activities

  • Local manufacturing activities

Technology factors

  • Fixed costs

  • Minimum Efficient Scale

  • Flexible Manufacturing

  • Mass Customisation

Product factors

  • Value to weight ration

  • High

  • Low

  • Universal needs

  • Consumer tastes and preferences

Location of Production facilities

  • Centralisation of location

  • Decentralisation of location

  • Location decisions can be difficult

  • Automobile Industry

  • Strategic role of foreign factories

Outsourcing Production : Make or Buy Decisions

  • Decisions about whether they should

    perform a certain value activity

    themselves or outsource it to another


The Advantage of Make

  • Lowering Costs

  • Facilitating Specialized Investments

  • Protecting Proprietary Product Technology

  • Improving Scheduling

Lowering Costs

  • If the firm can perform the production activity most efficiently, they can continue manufacturing a product or component part in-house.

  • Boeing decided to keep the design and final integration of aircraft.

Facilitating Specialized Investments

When substantial investments in specialized assets are required to manufacture a component, the firm will prefer to make the component internationally rather than contract it out to a supplier.

Protecting Proprietary Technology

  • If the firm outsources the production containing proprietary technology, it runs risks.

  • To maintain control over its technology, the firm might prefer to make such products or component parts in-house.

Improving Scheduling

  • Production cost savings by making planning, coordination, and scheduling of adjoining processes easier.

  • Scheduling can be exacerbated by the time and distance between the firm and its suppliers.

The Advantage of Buy

  • Strategic Flexibility

  • Lower Costs

  • Offsets

Strategic Flexibility

  • The firm can maintain its flexibility to switch orders between suppliers as circumstances dictate.

  • The firm can avoid risks which come from exchange rates, trade barriers and political unstableness by buying from an independent suppliers in that country

Lower Costs

  • The more subunits in an organization, the more problems coordinating

  • The resulting increase in organizational complexity can raise a firm’s cost structure.


  • Outsourcing may help the firm capture more orders from that country.

Managing A Global Supply Chain


Pioneered by Japanese firms during the 1950s and 60s, just in time inventory systems now play a major role in most manufacturing firms. The basic philosophy behind just in time (JIT) systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production and not before.

Information technology, particularly internet based electronic data interchange, plays a major role in material management. EDI facilities the tracking of inputs, allows the firm to optimize it's production schedule, lets the firm and its supplier communicate in real time and eliminates the flow of paperwork between a firm for its supplier.

Thank You !

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