Summary Lecture on Facilities Strategy and Globalization

Summary lecture on facilities strategy and globalization • Conclusions from ITT,Applichem, etc. • An integrated approach • New paradigms for the global environment Conclusions from ITT, Applichem, etc. • • • • • • Fit with strategy Focus of plants Scale and cost Centralization and standardization Means of evaluation and plant roles Sourcing and allocation models A strategy for the facilities network emphasizes a number of issues • Scale • Logistics and flow patterns • Focus • Global flexibility and access • Access to R&D Product/Market-Process Focus Mean of Focus • Volume • Product • Market • Process Off On Example Low Vol. High Vol. Low Vol. High Vol. Job Batch Line Detroit Saginaw Lima Job Batch Line Detroit Fremont Lancaster Mayesville Scale Analysis Subcontract Technology 1 Technology 2 COST VOLUME Consumer goods example 1.5 1.4 1.3 1.2 1.1 1 Cost 0.9 per unit ($/unit)0.8 0.7 0.6 0.5 0.4 0.3 0 2 4 Volume in millions of units 6 8 Additional logistics drivers • Raw material access (e.g.wood products) • Distributed production for heavy products • Warehouses for commodities because of transportation scale • Customer service requirements Modeling supply chain flow Supply chain management often requires sophisticated models to determine questions such as • Number of inventory locations • Assignment of market areas and products to facilities flows Destinations sources Simple facilities network and supply chain for two-stage LP Suppliers Plants Distribution Centers Network for Multi-location supply chain Customers General Manufacturing Models (shared capacity, warehouses or two stages, fixed costs – details in extra slide) xlkj yikl Dlj Dj = ∑ Dlj = Total flow of l from k to j = Total flow of type l from i to k = Demand of l at zone j Ak = Capacity at warehouse k Ail = Capacity at plant I for product l Some Examples of Strategies 1. Different process steps and scale, significant logistics É Central stage 1, decentralized stage 2 2. Significant central R&D É Central plant for at least early life cycle 3. Significant product flexibility É Decentralized satellite plants for some stages The examples underscore the need to develop a strategically consistent focus approach and then appropriately analyze scale and logistics A suggested approach • Develop a strategy and appropriate means of focus • Using data, benchmarking and analysis of technology, develop scale curves • Identify major decision choices and service requirements covering plant and process options • Do the analysis Case Study Worldwide Consumer Goods Manufacturer • 25 Product Groups • About 10 Production Locations • Variety of Product Values and Weights • Over Capacity • Lack of Focus • Significant Tax Issues Stage 1 Stage 2 Customer Why Separate? Approach • Differing Scale • Cross sectional analysis • Market presence • Model of variable costs • Tax Laws • Tax analysis • Focus • Detailed analysis of actual fixed • Technological complexity costs Solution: • Move "light" products to tax havens • Better focus facilities by product group Globaliazation adds some additional complexities • Increase in worldwide exports • Business level trends • lower scale, higher-skill level manufacturing systems such as FMS • JIT systems that also underscore the need for sophisticated vendor infrastructure • TQM and organizational learning • Faster product development • Customization needs • High-value products such as wafers and chips Complexities (continued) • Macro level trends • Large, sophisticated overseas markets with local needs • Non-tariff barriers • Regionalized trading economies • Variable factor costs • Particular case of China Global strategies emphasize some additional factors • Global product volumes • Decentralized network based on regional presence • Infrastructure versus cost • Changing product cost structure • Skill requirements • Vendors • Flexibility in several ways • Multiple stages, players and movements • Global product and development supply chains Exchange rate model 460 450 one plant Cost 440 two plants three plants 430 four plants 420 five plants 410 400 0 100 200 Total capacity 300 400 Modeling framework for facilities strategy subject to exchange-rate uncertainty (Huchzermeir and Cohen) Stochastic Exchange Rate Model Supply Chain Network Model Supply Chain Options State, Option Valuation Model Value Expected Options Values Switching Costs Four-stage approach to strategy development Strengths Business and Operations Strategy Global Market Crosssectional Data Production Technologies Supply Chain Strategy and Plant Scale Location Strategy Capacity Factors Competitive Environment Internal Constraints Supplier Industries Supply Chain Modeling Infrastructural Requirements Logistics Costs Factor Costs Political and Market Issues Risk k Factors Summary • Methods for analyzing focus, scale flow, etc. • Impact of new markets and technologies • Global product design and flow patterns • Flexibility • Factors we still need to address: – Outsourcing and globalization – Longer lead times For those of you interested in details, formulation for general case ∑y ikl ≤ Ail k ∑x f ≤ A lkj l where f is the unit usage of product l k j ,l ∑x lkj ≥ Dlj k ∑y ≥∑x ikl i lkj j ∑x lkj ≤ k zkj, zkj is zero or one, forcing constraint lj Could also have shared cap at plants.With no warehouses, define plant variables to go to customers directly. Can add another level for sourcing or two stages of plants.