Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 17 ‒ Global Production and Supply Chain Management
17-8
{http://www.epiqtech.com/supply_chain-Global-Management.htm} and explore some of
the services that the company provides.
Interorganizational Relationships
Interorganizational relationships range from those requiring a low degree of coordination
(with vendors or buyers, for example) to those requiring a high degree of coordination
(such as those with partners or clients).
Benefits of relationships with vendors (upstream) and buyers (downstream) include those
typical of a transactional exchange: costs equal to quality for the goods bought, but not
necessarily for the best goods in the marketplace.
Benefits of relationships with suppliers (upstream) and customers (downstream) is that
the firm will receive all the favorable characteristics that the raw materials, component
parts, and/or products have relative to the next best alternative in the global marketplace.
Benefits of relationships with partners (upstream) and clients (downstream) include the
one or two points of higher quality for the raw materials, component parts, and/or
products whose improvement will yield the greatest value to the customer for the
foreseeable future (quality greater than cost).
Another Perspective: One industry where benefits of relationships with upstream and
downstream activities occur is in the electric car industry. To learn more, go to:
{https://www.bloomberg.com/news/articles/2017-11-27/electric-cars-success-leaves-
toyota-isolated-with-hydrogen-bet}.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: An electronics firm is considering how best to supply the world market
for microprocessors used in consumer and industrial electronic products. A
manufacturing plant costs approximately $500 million to construct and requires a highly
skilled workforce. The total value of the world market for this product over the next 10
years is estimated to be between $10 billion and $15 billion. The tariffs prevailing in this
industry are currently low. Should the firm favor concentrated manufacturing or
decentralized manufacturing? What kind of location(s) should the firm favor for its
plant(s)?
ANSWER 1: The firm should pursue a concentrated manufacturing strategy because (1)
the tariffs prevailing in the industry are low; (2) the cost of building a plant to produce
the microprocessors is high; and (3) the product's value-to-weight ratio is high. All of
Chapter 17 ‒ Global Production and Supply Chain Management
17-9
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
the number of its manufacturing facilities because of the high cost of constructing a plant.
Third, in terms of product factors, the firm can manufacture its product in a central
location due to the relatively high value-weight ratio and the universal appeal of the
product.
QUESTION 2: A chemical firm is considering how best to supply the world market for
sulfuric acid. A manufacturing plant costs approximately $20 million to construct and
requires a moderately skilled workforce. The total value of the world market for this
product over the next 10 years is estimated to be between $20 billion and $30 billion. The
tariffs prevailing in this industry are moderate. Should the firm favor concentrated
manufacturing or decentralized manufacturing? What kind of location(s) should the firm
seek for its plant(s)?
ANSWER 2: This question is a tougher call than the scenario depicted in Question 1. The
firm should probably pursue a limited decentralized manufacturing strategy (meaning that
the firm should not set up a plant in every country that it sells to, but should set up plants
in several "regions" of the world). This strategy makes sense because (1) the tariffs
prevailing in the industry are moderate (rather than low); (2) the cost of constructing a
QUESTION 3: A firm must decide whether to make a component part in-house, or to
contract it out to an independent supplier. Manufacturing the part requires a
nonrecoverable investment in specialized assets. The most efficient suppliers are located
in countries with currencies that many foreign exchange analysts expect to appreciate
substantially over the next decade. What are the pros and cons of (a) manufacturing the
component in-house and (b) outsourcing manufacturing to an independent supplier?
Which option would you recommend? Why?
ANSWER 3: Manufacturing in-house would reduce the risk of currency appreciation and
rising costs from independent suppliers. Specialized asset investment would make the
firm dependent on specific suppliers; however, technological know-how would be
Chapter 17 ‒ Global Production and Supply Chain Management
17-10
QUESTION 4: Reread the Management Focus on IKEA Production in China and then
answer the following questions:
a. What are the major benefits to IKEA of shifting so much of its global production to
China?
b. What are the risks associated with a heavy concentration of manufacturing assets in
China?
c. What strategies might IKEA adopt to maximize the benefits and mitigate the risks
associated with moving so much product?
ANSWER 4:
a. China is an attractive production location for IKEA for several reasons. Perhaps the
most important factor is the country’s cheap wages. In addition, locating production in
on costs savings that come from economies of scale as well as the low wages.
b. Most students will recognize that IKEA is taking a risk by concentrating its
c. Some students might recommend that IKEA consider forming joint ventures with local
Another Perspective: To learn more about IKEA’s global operations, go to:
{https://www.cnbc.com/2017/01/15/ikeas-strategy-stick-to-the-retail-basics-and-expand-
in-the-us.html}.
CLOSING CASE: Amazon’s Global Supply Chains
Summary
The closing case explores Amazon global supply chain channels and strategy. As the
world’s largest online retailers, some $160 billion passes through Amazon’s channels.
Amazon is currently considering expanding its reach by launching its own global
shipping and logistics operation. Discussion of the case can begin with the following
questions.
QUESTION 1: Do you think Amazon will become customers’ favorite retail shopping
interaction, taking over the retail shopping from companies like Walmart and Target, for
example, in the next few years? Will customers buying commodity products such as
toothpaste and other relatively low cost items want to do that in brick-and-mortar stores
or have it shipped directly to their doorstep in two days or less?
Chapter 17 ‒ Global Production and Supply Chain Management
17-11
ANSWER 1: Most students will probably agree that there will always be a place for
brick-and-mortar stores. Students may note that shopping is not always simply the
QUESTION 2: Some people say that the prices for the product associated with Amazon
Prime are always higher than if you buy the same product on Amazon or elsewhere
without the guaranteed two-day shipping. But, what do you think customers are buying
when they use Prime—the quick service of getting it in two days or the guarantee that
they will get the product in two days?
ANSWER 2: The instant gratification of having a product in hand that comes with a
QUESTION 3: Should Amazon, and companies like it, get into the supply chain and
logistics business and start having their own shipping platforms? Do you think operating
global supply chains can become one of Amazon’s core competencies, is it already a
competency they profit from, or should they focus on simply connecting buyers and
sellers online?
ANSWER 3: Student responses will vary. Most students, though, will probably argue that
Another Perspective: For more information on the Amazon and potential supply chain
strategies, go to: {https://www.computerworld.com/article/3032656/retail-it/amazons-
supply-chain-move-could-prove-devastating.html},
{https://www.bloomberg.com/features/2016-amazon-delivery/}, and
{http://www.digitalistmag.com/digital-supply-networks/2017/09/08/amazon-effect-on-
supply-chain-05350754}.
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library which provides an
ongoing stream of updated video suggestions correlated by key concept and major topic.
Every new clip posted is supported by teaching notes and discussion questions. Please
Chapter 17 ‒ Global Production and Supply Chain Management
17-12
feel free to leave comments in the library that you feel might be helpful to your
colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:
Exercise 1
The globalization of production makes many people aware of the differences in
manufacturing costs worldwide. The U.S. Department of Labor’s Bureau of International
Labor Affairs publishes a Chartbook of International Labor Comparisons. Locate the
latest edition of this report, and identify the hourly compensation costs for manufacturing
workers in China, Brazil, Mexico, Turkey, Germany, and the United States.
Exercise 2
The World Bank’s Logistics Performance Index (LPI) assesses the trade logistics
environment and performance of countries. Locate the most recent LPI ranking. What
components for each country are examined to construct the index? Identify the top 10
logistics performers. Prepare an executive summary highlighting the key findings from
the LPI. How are these findings helpful for companies trying to build a competitive
supply chain network?
Answers to Exercises
Exercise 1 Answer
Exercise 2 Answer
Additional Info:
Chapter 17 ‒ Global Production and Supply Chain Management
17-13
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Based on a worldwide survey of operators on the ground—such as global freight
forwarders and express carriers—the Logistics Performance Index (LPI) measures the
logistics “friendliness” of 155 countries. It helps countries identify the challenges and
opportunities they face in their trade logistics performance and what they can do to
improve. It is published every two to three years.
