82.
Discuss the strategic objectives of the production and logistics functions of
an international firm.
The production and logistics functions of an international firm have a
number of important strategic objectives. A primary objective is to lower
costs. Dispersing production activities to various locations around the globe
where each activity can be performed most efficiently can lower costs.
Costs can also be lowered by managing the global supply chain to better
match supply and demand. A second strategic objective is to increase
product quality by eliminating defective products by both the supply chain
and the manufacturing process. A third objective involves meeting demands
for local responsiveness. Finally, production and logistics must be able to
respond to shifts in customer demand.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-01 Explain why production and logistics decisions are of central importance to many multinational
businesses.
Topic: Strategy, Production, and Logistics
83.
Describe the major arguments put forth by Edward Deming.
Deming identified a number of steps that should be part of any TQM
program. He argued that management should embrace the philosophy that
mistakes, defects, and poor-quality materials are not acceptable and should
be eliminated. He suggested that the quality of supervision should be
improved by allowing more time for supervisors to work with employees and
by providing them with the tools they need to do the job. Deming
recommended that management should create an environment in which
employees will not fear reporting problems or recommending improvements.
He believed that work standards should not only be defined as numbers or
quotas, but should also include some notion of quality to promote the
production of defect-free output. He argued that management has the
responsibility to train employees in new skills to keep pace with changes in
the workplace.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
84.
Briefly describe the Six Sigma methodology.
Six Sigma is the modern successor to TQM. It is a statistically based
philosophy that aims to reduce defects, boost productivity, eliminate waste,
and cut costs throughout a company. Six Sigma is the principle tool used by
most managers to increase the reliability of their product offering. At Six
Sigma, a production process would be 99.99966 percent accurate, creating
just 3.4 defects per million units.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-01 Explain why production and logistics decisions are of central importance to many multinational
businesses.
Topic: Strategy, Production, and Logistics
85.
What are the three main factors that affect the decision of locating
production?
The decision of where to locate production is determined by three main
factors. Country factors: Include a country’s economic, political, and cultural
conditions and their effect on the production of the firm’s product.
Technological factors: The type of technology a firm uses to perform
specific manufacturing activities can be pivotal in location decisions.
Product factors: Specifically, a product’s value-to-weight ratio and whether
the product serves universal needs will affect where a firm locates its
production activities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
86.
Discuss the effect of country factors on the decision of where to locate
production?
All other things being equal, a firm should locate its manufacturing activities
in countries where the political, economic, and cultural conditions are
conducive to the performance of those activities. Other country specific
factors that play a role in location decisions include formal and informal
trade barriers and rules and regulations regarding foreign direct investment,
expected movements in currency exchange rates, and also the quality of the
local labor pool.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
87.
How does the type of technology a firm uses affect its decision of where to
locate production?
The type of technology a firm uses to perform specific manufacturing
activities can be pivotal in location decisions. The three primary factors that
drive location decisions in terms of technology are a manufacturing
activity’s level of fixed costs, its minimum efficient scale, and its flexibility.
When the fixed costs of setting up a manufacturing operation are high, a
firm must serve the world market from a single location or from a few
locations. In contrast, when fixed costs are low, a firm can scatter its
manufacturing activities throughout the world to better accommodate local
markets. The larger the minimum efficient scale of a plant, the greater is
the argument for centralized production at a single location. Finally, when
flexible manufacturing technologies are available, a firm can manufacture
products customized to various national markets at a single factory at the
optimal location.
88.
Explain how fixed costs impact the decision to locate a plant.
In some cases the fixed costs of setting up a production plant are so high
that a firm must serve the world market from a single location or from a very
few locations. For example, it now costs up to $5 billion to set up a state-of–
the-art plant to manufacture semiconductor chips. Given this, other things
being equal, serving the world market from a single plant sited at a single
(optimal) location can make sense. Conversely, a relatively low level of fixed
costs can make it economical to perform a particular activity in several
locations at once. This allows the firm to better accommodate demands for
local responsiveness. Manufacturing in multiple locations may also help the
firm avoid becoming too dependent on one location.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
89.
Describe the concept of minimum efficient scale. Discuss the implications
of minimum efficient scale.
Minimum efficient scale of output refers to the level of output at which
most plant-level scale economies are exhausted. This is the level of output
a plant must operate to realize all major plant level scale economies. The
concept suggests that the larger the minimum efficient scale of a plant
relative to total global demand, the greater the argument for centralizing
production in a single location or a limited number of locations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
90.
What is mass customization?
The term mass customization has been coined to describe the ability of
companies to use flexible manufacturing technology to reconcile two goals
that were once thought to be incompatible: low cost and product
customization. Mass customization implies that a firm may be able to
customize its product range to suit the needs of different customer groups
without bearing a cost penalty. Research suggests that the adoption of
flexible manufacturing technologies may increase efficiency and lower unit
costs relative to what can be achieved by the mass production of a
standardized output.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
91.
Explain how the concept of production efficiency has changed with the rise
of flexible manufacturing technologies.
Flexible technology, also known as lean production, covers a range of
manufacturing technologies designed to reduce setup times for complex
equipment, increase the utilization of individual machines through better
scheduling, and improve quality control at all stages of the manufacturing
process. A firm that adopts flexible manufacturing technologies can
increase efficiency and lower unit costs relative to what can be achieved by
the mass production of a standardized output, while at the same time
allowing the firm to customize its product offering to a much greater extent
than was once thought possible. In fact, flexible manufacturing technologies
allow companies to produce a wider variety of products at a unit cost that at
one time could only be achieved through the mass production of a
standardized output.
AACSB: Analytic
Blooms: Understand
92.
How do flexible machine cells work? What is the advantage of incorporating
this type of technology into a strategy?
Flexible machine cells are a common flexible manufacturing technology. A
flexible machine cell is a grouping of various types of machinery, a common
materials handler, and a centralized cell controller (computer). Each cell
normally contains four to six machines capable of performing various
operations. The typical cell is dedicated to the production of a family of
parts or products. The settings on machines are computer controlled. This
allows each cell to switch quickly between the production of different parts
or products.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
93.
How do product factors affect the decision of where to locate production?
Where will you locate your firm’s production plant if your firm produces
refined sugar?
There are two product factors that affect the decision of where to locate
production. First, a product’s value-to-weight ratio must be considered
because of its effect on transportation costs. Students should recognize
that sugar has a low value-to-weight ratio, therefore, other things being
equal, there will be pressure to make these products in multiple locations
close to major markets to reduce transportation costs.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
94.
When does concentration of production make sense?
There are several situations when concentrating production facilities in a
centralized location and serving the world from there makes sense.
Concentration of production makes sense when the product serves
universal needs, the product’s value-to-weight ratio is high, trade barriers
are low, important exchange rates are expected to remain stable,
externalities from the concentration of like enterprises favor certain
locations, differences between countries in factor costs, political economy,
and culture have a substantial impact on the costs of manufacturing in
various countries, and when the production technology has high fixed costs
and high minimum efficient scale relative to global demand, or flexibility
manufacturing technology exists.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
95.
Explain how the strategic role of foreign factories evolves over time.
The strategic role of foreign factories can evolve over time. Initially, many
foreign factories are established where labor costs are low, and at that
time, their strategic role is to produce labor intensive products at as low a
cost as possible. Over time, the strategic role of the factories may evolve to
one in which the factories become important centers for the design and
assembly of products for the global marketplace. This change may take
place as factories upgrade their capabilities as the factories respond to
pressure to improve their cost structures and/or customize a product to the
demands of consumers in a particular nation. In addition, as the local
factors of production improve, it is easier for the factories to take on a
greater strategic role.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they
accumulate knowledge.
Topic: The Strategic Role of a Foreign Production Site
96.
Describe global learning with reference to foreign subsidiaries of a firm.
A major aspect of a transnational strategy is a belief in global learning —the
idea that valuable knowledge does not reside just in a firm’s domestic
operations; it may also be found in its foreign subsidiaries. Foreign factories
that upgrade their capabilities over time are creating valuable knowledge
that might benefit the whole corporation.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they
accumulate knowledge.
Topic: The Strategic Role of a Foreign Production Site
97.
Explain make-or-buy decisions with an example.
International businesses frequently face make-or-buy decisions, decisions
about whether they should perform a certain value creation activity
themselves or outsource it to another entity. Most manufacturing firms do
their own final assembly, but have had to decide whether to vertically
integrate and manufacture their own component parts or outsource the
production of such parts, purchasing them from independent suppliers.
Such make-or-buy decisions are an important aspect of the strategy of
many firms. In the automobile industry, for example, the typical car contains
more than 10,000 components, so automobile firms constantly face make-
or-buy decisions.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or–Buy Decisions
98.
Explain specialized assets with an example.
A specialized asset is an asset whose value is contingent upon a particular
relationship persisting. For example, imagine Ford of Europe has developed
a new, high-performance, high-quality, and uniquely designed fuel injection
system. The increased fuel efficiency will help sell Ford cars. This system is
a specialized asset for Ford.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or–Buy Decisions
99.
Explain why a firm might adopt the just-in-time system. Why might a firm
choose a different inventory system?
The JIT system was developed by Japanese firms in the 1950s and 1960s.
Today, most manufacturing firms have adopted the system in some way.
The basic philosophy behind just-in–time (JIT) manufacturing is to
economize on inventory holding costs by having materials arrive at a
manufacturing plant “just in time” to enter the product process and not
before. This results in potential cost savings and quality improvements. In
addition, JIT systems can lead to quality improvements. A firm might
consider a different type of inventory system in some cases because the
disadvantage of a JIT system is that it leaves a firm without a buffer stock
of inventory. As a result, a labor dispute at a supplier’s plant or a disruption
in the transportation system could leave a manufacturer without adequate
component parts.
AACSB: Analytic
Blooms: Understand
100.
Discuss the role of information technology and the Internet in materials
management.
Web-based information systems play a crucial role in modern material
management. Firms increasingly use EDI to coordinate the flow of materials
into manufacturing, through manufacturing, and out to customers. EDI
systems require computer links between a firm, its suppliers, its shippers,
and sometimes its customers. These electronic links are then used to place
orders with suppliers, to register parts leaving a supplier, to track them as
they travel toward a manufacturing plant, and to register their arrival.
Suppliers typically use an EDI link to send invoices to the purchasing firm.
The EDI system enables suppliers, shippers, and the purchasing firm to
communicate with each other with no time delay, which increases the
flexibility and responsiveness of the whole supply system. The EDI system
also eliminates much of the paperwork between suppliers, shippers, and the
purchasing firm.