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(page 361) In what ways have new cooperative frameworks aided supply-chain strategies in serving customers more quickly and with greater responsiveness to changing demand, despite growing inter-nationalization? Give examples. |
It is helpful to begin by identifying the characteristics of the fragmented supply chain: different organizations operating on a contract-by-contract basis, with little overarching co-ordination (see figure below).
The external supply chain
Vertical integration overcomes this fragmented process, in that the organization exerts control over every phase. However, internalization involves huge investment and costs. The Ford Motor Company is often cited as an example. The newer network approach is more streamline than the fragmented supply chain, and benefits from flexibility which the vertically integrated operation cannot match. The network consists of different organizations, but they are working co-operatively, sharing information and maintaining close ties. When circumstances of customer requirements change, the organization can respond with a new network configuration. The internet permits networks to be coordinated globally.
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(page 366) Look again at the sourcing options presented in Figure 10.3, reproduced alongside. Which companies, in terms of national and corporate culture, are likely to choose which option(s), and why? The companies may be either types of firms or real ones.
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To "make" or "buy" are not the simple alternatives they might seem. Some firms see purchasing from an external source as the sole alternative to making a product "in-house". However, close relations between the suppliers and the customers, through inter-firm alliances and networks, produce more integrated supply chains and the blurring of organizational boundaries.
This figure covers 4 broad approaches to 'make-or-buy' decisions:
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(page 370) In what ways do sourcing decisions of MNEs exemplify the process of globalization, and what aspects of sourcing indicate the importance of localization?
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Ways in which globalization impacts on sourcing decisions:
Ways in which localization plays a role:
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(page 374) Outline the ways in which the following innovations in production are driven by the goal of consumer satisfaction:
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Mass production was once epitomized by the moving assembly lines at Ford's gigantic River Rouge factory. Called Fordist mass production, a top-down management system that was very inflexible in that all the roles and responsibilities were formally allocated and strictly followed, got eventually replaced by the flexible mass manufacturing system. The design of the manufacturing process here includes
Innovations here have been driven by the need to satisfy consumers in the following ways: |
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Many manufacturing processes now envisage the carrying out of different stages of a complex product in different locations, to benefit from specific location advantages. |
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As this chapter has shown, Japanese car
manufacturers rely on this type of relationship, but it can be difficult
to duplicate in other countries. Many manufacturers choose to make
high-value products in their home countries, and make low-value products
in foreign low-cost locations. Some companies have prioritized the
guarding of core competencies, and have been reluctant to outsource.
These companies tend to incur high costs if they are located in
developed economies, but many feel that their reputation for quality
justifies this approach. Germany, a high-cost economy, is still a strong
manufacturing country, valuing its high-quality engineering, although
many Germany companies now manufacture globally. This is an indication
of the need to formulate a global strategy on what activities to carry
out where, in seeking competitive advantage. |
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(page 382) |
Quality management has evolved from a functional approach to a broader management philosophy, which involves the entire organization and supply chain. Total quality management (TQM) is the approach to quality that commits the entire organization to continuous improvement principles and extends to supply chain patterns. Six sigma is an approach to quality management that analyses and seeks to improve performance using a variety of quality measurement tools in order to eliminate defects and reduce costs. |
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ISO 9000 standards too provide a means for companies to apply and meet internationally recognized quality standards. Price competition has become fierce, and is a major consideration in many product areas, as products become standardized or ‘commoditized’. The basic mobile phone is an example. Although consumers expect quality, they, like manufacturers, are aware that quality is not an absolute concept. Expectations of quality and durability vary according to the price of the product. However, consumers do expect the product to perform as described, to be without defects and to stand up to reasonable use. Quality systems such as Six Sigma focus on cost reductions through the elimination of waste. This approach accords with satisfying consumers that quality is not sacrificed in mass-produced products. The strongest growing markets at present are in the large emerging economies such as China and India. In both countries, cost is a primary criterion of consumers. China’s manufacturing strength is well known, but India is now catching up in manufacturing. Quality management systems are sometimes difficult to operate in developing countries. An issue is the responsibility placed on individual workers, which is entailed in continuous improvement systems. In countries of large power distance, this type of approach is difficult to implement. China manufactures more toys than any other country, mainly through production under license for Western markets. Chinese toys have suffered many setbacks due to poor quality, and brand owners have been criticized by consumers, concerned about possible harm to children from poor materials, poor design and defects.
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(page 389) In what respects has transport been a facilitator of globalization? What are the impacts, on both exporting and importing countries, of the huge variations in transport infrastructure, and associated costs, in today's world? |
Transport as a facilitator of globalization The single biggest influence on globalization in transport is probably the container ship (pictured on the cover of this book) which reduced costs and improved safety. Globalization is associated with the extended supply chain, incorporating ports, rail and road. As the IT for managing these movements improved, companies were able to link the different stages in the supply chain together. The costs of transport dropped dramatically, and as a result, shipping mass-produced products from ports in China to Western markets became commonplace. |
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Impacts of the variations in transport infrastructure Traditional ports must be adapted to take container ships, and the new superships need extra wide berths, which require further substantial investment. China has invested heavily in huge container ports able to handle the new container ships which export its goods. However, China is the exception. Port infrastructure varies enormously around the world: the sums involved in funding are huge; the timescale is long, and in many places, planning issues make it difficult to bring such projects to completion. Importing countries therefore vary widely in their ability to handle container ships. Poor road and rail networks in many countries hamper the movement of goods, and also add to costs. You might also consider the recent issue of piracy, mainly off the coast of Somalia. In January 2009, the Chinese government sent its own naval vessels to the area to protect shipping. Increased incidence of piracy, along with rising insurance costs, could lead companies to reconsider overland routes.
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(page 389) Inflexible vertically integrated supply chains gave way to more flexible, less costly alternatives. Global sourcing also offers opportunities to reduce costs. However, the changing environment and changing markets are causing firms to rethink supply chain strategies. What specific factors would you highlight as important in today's environment, and what strategic responses would you recommend? Give examples from different sectors. |
The rethinking on supply chains can be prompted by a number of factors. Indeed, companies should be constantly rethinking supply chains. Some that might be mentioned with relevance to today’s environment:
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Part B review questions (page 390) |
MNEs have sought to choose the best location for a particular component or stage in production. Increasingly, MNEs began thinking of supply chains in terms of the value chain. Three aspects are highlighted in the text:
The growth of networks – these are now cross-border. Internationalization has encouraged firms to look for linkages, often with multiple firms, to coordinate global operations.
The growth of co-operation between firms. Cross-border supply chains have relied on extensive co-operation. The approach of ‘us and them’ in supply chains has evolved to one of shared goals, to the ultimate benefit of all participants.
The re-examination of resource positioning and competencies – The firm must assess what benefits it can achieve from internationalization, bearing in mind its own resources and competencies. It will be attracted to the supplier who can offer an essential component, together with related expertise. The fact that the supplier is in another country is no longer the obstacle that it once was.
Assess the advantages and disadvantages of lean production strategies in global supply chains.
The advantages include:
The need for lower inventory to be held.
Reduction in waste and the ability to minimize the disruption from defects, as they are spotted early in the relevant process.
The ability to respond quickly to changing demand and changing products.
The ability to produce customized products using mass-manufacturing techniques.
The disadvantages include:
Precise timing is needed in complex manufacturing processes, such as carmaking, and this can be problematic over long distances.
Suppliers in other countries are less likely to have the same approach to techniques such as continuous improvement, as Toyota found. The training process can therefore be prolonged and costly.
Students are invited to weigh up the advantages against the disadvantages. It is probable that the advantages are perceived to outweigh the disadvantages in the long term. The disadvantages are often technical hurdles which can be overcome.
Assess the benefits to emerging economies from global sourcing and manufacturing strategies of MNEs; and the risks these strategies pose for the parent company.
China is the best example to date of an emerging economy which has benefited from global sourcing and manufacturing. The benefits include:
Spillover effects from FDI investors, by which local firms gain knowledge and expertise.
Benefits to local firms which take on outsourced manufacturing for Western brand owners. These companies learn manufacturing processes, and eventually aim to develop their own brands. This has happened in China. However, much outsourced manufacturing is carried out by firms which are themselves foreign investors (Taiwanese companies in China, for example; and South Korean companies in Vietnam – see CF9.1)
Manufacturing jobs are created in emerging economies, where employment has traditionally been in agriculture. This industrialization process is, of course, a mixed blessing, but it has brought significant economic growth.
The risks for the parent company include:
Weak control over manufacturing processes, including quality. Any defects can taint the reputation of the brand owner.
Poor working conditions in outsourcing factories. Although they are owned by independent companies, the brand owner is often thought of as having ultimate responsibility.
Leakage of intellectual property rights. An example is joint venture partners in China, who independently produce similar products to those which are made by their joint venture enterprises.
What challenges are posed by differing cultural environments in quality management? Give examples.
As manufacturing and supply chains spread to a wider range of developing and transitional economies, differing levels of economic and technological development become issues. These are linked to the cultural environment in each case: a country in the early stages of industrialization, where most people are still engaged in agriculture, differs from a more industrialized economy, in that family ties and kinship values are likely to be stronger than in industrial economies. In addition, every national culture has its own historical roots, sense of identity and important symbols which bind members together. It should also be noted that regions within countries have distinctive cultures. India is an example: some areas of the country have become more industrialized than others.
In individualist cultures, employees more readily accept responsibility for quality systems than in collectivist cultures. In the latter cultures, which often have large power distance, managers are seen as the authority figures, and workers in subordinate roles. Workers are not accustomed to thinking independently about ways to improve quality or looking critically at processes to see how they can be improved. In many developing and emerging economies, large power distance is the norm, and paternalistic management prevails.
A second challenge faced by companies is that of weak
institutional environment, especially in developing countries. Much of the
impetus for quality improvement has come from government or industry-based
regulation in the developed economies. Where these frameworks are weak,
harmful and dangerous products are more likely to enter consumer markets.
Quality problems in China persuaded McDonald’s to take control of its entire
supply chain. The tainted milk scandal in China is another example. In this
case, a New Zealand company found its reputation damaged by association with
a Chinese firm found to be producing contaminated milk.
The threat of piracy on the high seas is now a major worry for shippers and their customers. Consumers have come to expect an array of imported goods, including food and durable goods such as electronics, constantly available at reasonable prices. A number of factors affect supply chains, which pose risk. This is particularly true in a period of economic downturn.
Following are some of the challenges:
: Raw materials, especially those dependent on only a few sources, can never be guaranteed. Government action, terrorist activities, natural disasters (such as earthquakes and flooding), can halt supply and can also halt traffic on roads and rail.
Cost and availability of raw materials
Trade barriers imposed by governments
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Country focus 10.1: Spain (page 362) What factors accounted for Spain’s attractiveness for foreign investors in the 1990s? |
Low wages in comparison to northern European countries
proximity to European markets for manufactured goods
relative political stability with the introduction of democratic government
EU membership, which brought EU funding for building infrastructure.
Why has Spain’s competitiveness waned in the new millennium?
The main factors:
Costs have risen in Spain, and manufacturing capacity has been expanded in lower cost Central and Eastern European countries, such as Slovakia. Several of these countries have become EU member states. This has enhanced their attraction, convincing many companies to shift from Spain to one of the newer EU members. These countries are now receiving funding for infrastructure from the EU, which has added to their attractiveness in comparison with Spain.
The rise of China has also threatened Spanish manufacturing. Spanish firms have shifted much manufacturing to China, and low-cost imports from China have grown in sectors such as textiles, clothing and shoes.
Spain has lagged behind in spending on education, training and R&D. This has meant that Spanish businesses struggled to compete in high-value sectors.
In what sectors can Spain compete globally, and why?
Spain has numerous entrepreneurial enterprises which attract skilled workers and creative talent. These resources are being tapped by carmakers, such as VW, which opened a design centre near Barcelona. Spain’s outstanding business success story is Inditex, the group which owns the Zara brand. It has become a global leader in the clothing industry, transforming supply chain management in the sector. Its success is evidence of the ability of talented entrepreneurs to draw on local skills and resources to compete globally. Another is Manual Torres, featured in the opening vignette in Chapter 12 (p. 434).
What are the lessons of Spain’s experience in sustaining the benefits of globalization?
Recall the winners and losers from globalization, highlighted in Chapter 2. Spain was a winner, but became a loser as jobs migrated to lower cost locations.
The lessons:
Foreign investors are always on the lookout for more advantageous locations. It is therefore necessary for local firms to be encouraged to develop competitive advantages of their own, such as expertise in high-value activities.
Remember that industries such as motor manufacturing involve numerous players in different stages of the supply chain. The departure of an assembly plant is likely to imply the departure of components manufacturers as well.
Investment in education and training will help to give a country the capacity to build R&D skills, which will aid domestic firms in diversifying into areas where the country has competitive advantage.
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Strategic cross-roads |
Questions
Bosch has a long history of innovation. Its expertise is drawn on by customer firms, with whom it works closely. Some of the changes:
Interaction between components suppliers and car manufacturers is transforming supply chains into networks. Bosch has specialist knowledge which it gains from its own R&D as well as its interactions with customers in a wide variety of networks.
A trend is to move component manufacturing closer to the customer. Much manufacturing in the motor industry has moved to Central and Eastern Europe, and Bosch has followed.
A third change is designing for a wide range of customers, with adaptations for each. Bosch supplies components to numerous companies in different countries, making a wide range of vehicles, from the basic, no-frills car to the luxury models.
A major change highlighted in the case study is the rise of China and India in both vehicle and components manufacturing. These competitors are keen to move up the value chain, challenging Bosch directly. It is notable that Bosch’s business is not solely concentrated in motor manufacturing; it makes central heating boilers, household appliances and industrial machinery. The company would like to expand in these sectors, which would help to offset any downturn in the car parts business.
At present, the global market for car manufacturers is rather bleak. There is over-capacity in the industry, and demand is falling. Delphi, the former General Motors subsidiary, is exemplary of the woes of America’s car manufacturers, beset by high costs and falling demand. Delphi was unable to build up a diversified business or a broad customer base, while Bosch is better placed in both these respects. Bosch should be better able to meet the challenges of downturn in car manufacturing. Its R&D and innovation capacity can be focused on new developments to come on stream when economic recovery rekindles car sales.
BusAd 170
Chapter Review:
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Updated on 05/05/2015
