Chapter Discussion

Describe the five global sourcing arrangements.
A firm may establish a wholly owned subsidiary in a low-labor-cost country to supply components to the home country plant or to supply a product not produced in the home country. An overseas joint venture may be established in a country where labor costs are lower to supply components to the home country. The firm may send components to be machined and assembled by an independent contract in an in-bond plant. The firm may contract with an independent contract overseas to manufacture products to its specifications. The firm may buy from an independent overseas manufacturer.

Appreciate the importance of the added costs of global sourcing.
International freight, insurance, and packing may add 10 to 12 percent to the quoted price, depending on the sales term used. Import duties, customhouse broker’s fees, cost of letter of credit, cost of inventory in the pipeline, and international travel are some of the other added costs.

Understand the increasing role of electronic purchasing for global sourcing.
The establishment of electronic purchasing systems on a company or industry basis can influence the number and type of suppliers available internationally to firms. Although there are a number of challenges to their use, electronic purchasing systems can produce significant reductions in the costs of inputs, both direct and indirect products and services. These systems can also permit the optimization of supply chains across networks of organizations, not merely within a single company.

Understand the Japanese efforts to improve quality and lower costs.
Japanese manufacturers realized that because of the limited size of Japan’s economy and its lack of natural resources, they would have to export to grow. To do so, they would have to be competitive with other nations, which meant improving their product quality and lowering their costs. To achieve these goals, they created a production system, just-in-time, based primarily on American production concepts.

Know the just-in-time (JIT) production system.
JIT requires coordinated management of materials, people, and suppliers. JIT’s goal is to eliminate inventories, reduce process and setup times, and use participative management to ensure worker input and loyalty to the firm. JIT includes total quality management (TQM), of which continuous improvement is an integral part.

Comprehend the problems with JIT.
JIT is restricted to repetitive operations. It is a balanced system, and so if one operation stops, the whole production line stops. But it is difficult to achieve a balanced system. In addition, JIT makes no allowances for contingencies. A sudden breakdown will stop the entire production system. Finally, it is a slow process to put JIT into effect.

Understand synchronous manufacturing.
The goal of synchronous manufacturing is unbalanced manufacturing scheduling rather than the balanced scheduling of JIT; attention is focused on the bottleneck of the manufacturing system, and scheduling for the entire operation is controlled by the output of the bottleneck operation.

Identify the impediments to global standardization of production processes and procedures.
Differences in the foreign environmental forces, especially the economic, cultural, and political forces, cause units of an international multiplant operation to differ in size, machinery, and procedures.

Understand the importance of intermediate and appropriate technology.
Governments of developing nations, preoccupied with high unemployment and rising capital costs, are urging investors to consider an intermediate technology rather than the highly automated processes of industrialized nations. The multinationals’ response in some instances has been to search for an appropriate technology, which matches a country’s market with its resources. Under this concept, the production processes used may vary from the most advanced to the most primitive, depending on the influence of the economic, sociocultural, and political variables.

Know the two general classes of activities, productive and supportive, that must be performed in all manufacturing systems.
A manufacturing system is essentially a functionally related group of activities for creating value. After the system is operable, two general classes of activities, productive and supportive, must be performed. Productive activities are all those functions that are part of the manufacturing process. Among the important supportive activities are purchasing, maintenance, and the technical function.