Manufacturing Management DM202 Semester 2 'Globalisation & Factory Location' PDF

Manufacturing Management DM202 Semester 2 ‘Globalisation & Factory location’ Colin Andrews: [email protected] Agenda  Factors Driving Globalisation  Economics of Globalisation  Factory location https://www.bbc.co.uk/news/business-56533250 Drivers of Globalisation (1)  Techno...

Manufacturing Management DM202 Semester 2 ‘Globalisation & Factory location’ Colin Andrews: [email protected] Agenda  Factors Driving Globalisation  Economics of Globalisation  Factory location https://www.bbc.co.uk/news/business-56533250 Drivers of Globalisation (1)  Technology  Communications technology  Manufacturing technologies  Design  Logistics  Bulk shipping  Logistics specialists Drivers of Globalisation (2)  Markets & competition  World Trade Organisation  NAFTA  EU  TPT  Cost base  e.g. China v. EU UK = $19 Advantages of Globalisation  Access to new markets  Reduced stigma of imported goods  Side-step trade barriers  Make use of reduced labour rates  Support Just-in-Time manufacture Dis-advantages of Globalisation  Political risks  Restrictions on operations by governments  Share (exposure) of intellectual property  Cultural differences complicate management  Skills and productivity may be lower  Local infrastructure may be compromised Issues with Globalisation Language barriers   Ex-pats’ ‘sense of humour’  Taught English ≠Mother Tongue (‘Colin your support will not be forgiven’) Cultural differences   Drinks reception planned for Friday in Malaysia  ‘Power distance’ Laws and regulations    Licenses etc. Economics of Globalisation  If maximum utilisation is best why would a company replicate manufacturing around the world?  Address ‘external’ costs (tariffs, certification etc.)  Accept lower return to address market ‘risk’ (more responsive to local change, risk exposure in one site)  Use ‘decoupling point’ to split common components from market specific offering What do industries do?  Automotive  VAG, Mercedes & BMW: Same products sold everywhere different manufactured in Europe and USA  Toyota, Nissan, Honda: Market specific products manufactured ‘near market’, Japan, US, EU. Some lower volumes single site  GM, Ford, FCA: US focus for manufacture, local market brand and manufacturing  Aerospace  Boeing: Components made globally, final product assembled in US  Airbus: Components made globally, final products assembled in EU & US  Services  Call Centres: Outbound calls from lowest cost provider countries, inbound calls close to market. Facility location Facility location  Goal: To select the optimum geographic placement for a new facility   Why this is important?  Long-term investment; likely to be around for many years; may take many years to repay the investment  Can’t easily move; equipment is embedded in the building (clean rooms, transfer lines, pipework)  Reputational impact of closure Outsourcing v Offshoring   Strategic ‘make v. buy’ decisions can become more complex when the business aims to benefit from globalised operations  Outsourcing: The business works with an overseas partner to produce or provide the required goods or services  Offshoring: The business develops its own operations in an overseas territory Today’s focus is on offshore locations The Optimum Location  This will balance the competing objectives of: Spatially variable costs of the business Revenue potential of operation Service level (responsiveness) to customers Making Location decisions 1)Determine the dominant factors 2)Determine alternative locations 3)Evaluate alternative locations Factors affecting location decisions  Supply side  Demand side  Labour costs  Perceived labour skills  Labour skills  Suitability of the site  Land costs  Image of the location  Energy costs  Convenience of the site  Transportation costs  Community factors Example issue  Greenfield Development  Brownfield Development  Low cost  Available infrastructure  Local support ‘Perfect’ location  Maximum design flexibility   No infrastructure  Limited availability  Local hostility  Limited flexibility  Cost  Hidden costs Example Case – Linn HiFi     Greenfield site in Glasgow ‘Greenbelt’ Years of planning conflict Architect designed building (Richard Rodgers) Key asset in brand projection for Linn Evaluation – Factor rating 1) Identify the pertinent factors for this decision 2) Assign relative weighting for each factor (based on minor importance to critical) 3) Set a rating scale for each factor (e.g. 1 = poor match, 5 = adequate, 10 = excellent) 4) Evaluate each factor for every alternative (rating x weighting) 5) Calculate a score for each alternative (multiply or sum?) 6) Select alternative with the highest score Evaluation – factor rating   Benefits of method  Simple approach does not require training  Relatively transparent  Results in a single choice Disadvantages  Each rating becomes a negotiation  Makes subjective choice ‘look’ objective  No guarantee final choice is ‘right’ Evaluation – Load-distance model 1) Identify distances between involved sites 2) Identify loads between each location 3) Calculate the load*distance factor for each location 4) Optimum site has the lowest load*distance factor Evaluation – load-distance model   Benefits of Load-distance method  Analytic method based on objective numbers  Generates a true optimum  Closeness to optimum can be assessed Disadvantages  Reliant on good data  Optimum is for transport costs only  Requires analytic skills Some additional things to consider ...   ‘Fashion’ in decision making  Following the fall of the Iron Curtain out-sourcing & moving production to eastern Block countries became ‘the thing to do’  Even UK based suppliers who could compete lost out because ‘we think this will be better in the long run’  Firms now beginning to bring back to UK Emotional factors in locating facilities   Singer Sewing machines Facility location challenges are ‘generational’ (most decision makers do this only once in their career.