GLOBAL MANUFACTURING

Increasingly firms are dealing with delivery systems in which the mar­kets are located outside their domestic markets or in which the supply system (either all or part) is located outside their domestic markets. In many cases, this movement to global manufacturing is a recognition that we can improve value and reduce costs by making the transforma­tion process global. However, the movement to global manufacturing can affect the firm in several ways.

• Reduced flexibility: It is difficult to be responsive when a major portion of the supply network is 5,000 miles away. In addition, sepa­rating the design function from the process design process can also decrease organizational flexibility. There has long been a belief that close proximity between product and product and process design functions should result in a better, faster, and cheaper product launches.

• Increased system variance: When dealing with global manufac­turing, we must recognize the presence of variance. This variance can result from uncertainty relating to currency exchange rates. It can also result from the greater distances that must be covered.

• Challenges of integrating operations: Then there is the challenge of determining how to best integrate and coordinate operations. This means dealing with issues of language, cultures, and computer sys­tems to use. It also involves issues of managerial expertise. That is, should the firm use its own managers or should it attempt to recruit and train managers from the countries in which it has operations?

• Achieving global economies of scale: By having a global manu­facturing system and producing for a global market, one opportu­nity now offered is that of having larger runs and lower manufac­turing costs (either variable or fixed).

• Internationalizing management: With global manufacturing, we have the opportunity of developing managers who are familiar with the languages and culture of their foreign suppliers, manufacturing sites, or customers. Such internationalization can affect the firm in numerous ways. It can better enable the firm to cope with diversity within itself. It can enable the firm to better deal with suppliers and customers who are different from them. It can also imbue the firm with a cosmopolitan, international outlook that may even help at­tract quality employees and suppliers. In short, global manufacturing is becoming a fact of life. It brings with it a unique set of opportunities and challenges. It can complicate the management process; it can also enable the firm to better compete in today's more competitive environment.

SUPPLY CHAIN MANAGEMENT

Firms are still faced by the need to meet their customers' ever-chang­ing demands. In many cases, these demands are coming from custom­ers that some have described as being "never satisfied." Companies are being asked to design and deliver better products in shorter lead times and at lower costs. In the past, firms would have responded to these demands by focusing on the internal factory (the production fa­cilities owned by the firm itself). However, many firms in today's economy are responding to these demands by increasingly relying on their suppliers and on the capabilities offered by the supply chain.

To most managers, the term "supply chain" implies working with suppliers. However, there is nothing really new here, if we look at the supply chain from this perspective. Suppliers have always had to rely to some extent on their suppliers. Yet the concept of the supply chain involves more than working with suppliers. The new supply chain con­sists of all the parries involved in the delivery of the product, begin­ning ultimately with the extraction of the resources and ending with the delivery of the product or service to the ultimate consumer and the eventual disposal of any associated residuals (waste). This system brings together and integrates the activities of all the parties involved. It en­compasses such activities as design, delivery, transformation, and dis­posal. One of the ultimate objectives of the supply chain (and an objec­tive driving such new developments as efficient consumer response) is the seamless integration of the various groups through the extensive share of information and joint decision-making.

The modern supply chain can be broken into two major compo­nents. The first component is the downstream supply chain. This is the supply chain that goes from our firm to the customer. The second is the upstream supply chain. To many managers, the term "supply chain" and the upstream supply chain are synonymous. However, this view is very narrow, for it overlooks the importance of the downstream supply chain. Increasingly today's supply chain brings together both compo­nents. The reason for the integration of these components—value. You cannot effectively eliminate waste in the upstream supply chain unless you know what the consumer wants and does not want. Furthermore, the downstream supply chain can be a major source of variance for the upstream supply chain.

The importance of the supply chain is increasing due to several new developments, the most important of which are the following:

• Collaborative networks. In the past, each group involved in the supply chain tended to take a myopic perspective. Each party would make decisions in its own best interests. What firms working in these types of relationships quickly found was that by following such an approach, the overall performance across the supply chain deteriorated. The symptoms were clear—inventory was too high, replenishment lead times were too long, too many items were not in stock when they were needed by the customers. Beginning in the late 1990s, firms such as Wal-Mart and Procter & Gamble have begun to turn to collaborative networks. At the heart of this concept is the notion of customers sharing information and purchase re­quirements on one hand and suppliers sharing capacity and produc­tion information with their customers. The result was that the sec­ond-guessing and forecasting of forecasts (which is what the sup­pliers essentially did) was replaced with real data. It is a system that is based on trust. This notion of the collaborative network is impor­tant because it forms the foundation of new supply chain manage­ment tools, such as collaborative planning, forecasting, and replen­ishment (CPFR).

• Efficient consumer response. This is a process-based system in which the distributors and suppliers work closely together to bring better value to the ultimate customer, the end consumer. The goal of ECR is to improve the efficiency of the total supply chain, rather than the efficiency of the individual components. ECR systems deal with all aspects of product flow. They touch on store assortments (how products are placed and located), replenishment (how orders are placed and replenishment time managed), promotion (how trade and consumer promotions are managed), and product introductions (how new product development and introductions are managed). • E-commerce and the Internet. This development focuses on us­ing the Internet to form a forum in which products can be bought and sold, information made available, and searches completed at low costs. It is also making suppliers and customers rethink exist­ing supply chain structures. This has resulted in firms' questioning the value and costs associated with every stage and participant in the supply chain. As a result, some partners have found themselves dropped from these reengineered supply chains.

Greater reliance on the supply chain has become a fact of life. Its benefits are too important to ignore. This new system, while succeed­ing in delivering better value, has created a more complex and dy­namic environment. It is an environment in which the activities of more parties have to be considered and coordinated. All elements must be considered when managing the supply chain. It is an environment with which the modern manager must feel comfortable.

To Be Continued

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