Global Production, Outsourcing, and Logistics

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Global Production, Outsourcing, and Logistics

• Discussion Section
• April 6, 2007
• Brian Chen

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Agenda

• Review Chapter 15 (Export/Import)
• Review Chapter 16 (Global Production)
• Briefly Discuss Dell Case
• Global Production Group Discussion

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Chapter 15 Export/Import/Countertrade

• Outline some of the tremendous advantages and
  common pitfalls of exporting
• Identify the primary sources of information
  available to firms interested in exporting
• Describe the "nuts and bolts" of exporting
• L/C, Draft (Bill of Exchange), Bill of Lading
• What do these documents serve to do?
• To transfer the risk of nonperformance to a third
  party specializing in taking such risks
• Suggest how firms can use the EXIM bank and
  insurance to facilitate exports

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Chapter 16 Global Production, Outsourcing, and
Logistics

• Where should production be located and should
  they be concentrated or dispersed?
• What should be the long-term strategic role of
  foreign production sites? Should the firm abandon
  a foreign site if factor costs change, or is
  there value to maintaining an operation at a
  given location even if economic conditions
  change?
• Should the firm own foreign production or should
  production be outsourced?
• How should a globally-dispersed supply chain be
  managed?
• Should the firm manage the logistics or outsource
  their management?

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Dell Case Question 1

• What are the advantages to Dell of having
  manufacturing sites located where they are? What
  are the potential disadvantages?

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Answer

• Dells manufacturing sites are in Brazil, China,
  Malaysia, Ireland, and the U.S. Advantages of
  these locations are that some of them are low
  cost (Brazil, China, Malaysia and, relatively,
  Ireland), they have educated work forces that are
  highly productive, and they are near large
  regional markets.

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Dell Case Question 2

• Why does Dell purchase most of the components
  that go into its PC from independent suppliers,
  as opposed to making more itself? (Does does
  little more than final assembly of components
  into PC)

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Answer

• Dell outsources because it enables Dells
  business model to be successful. Dells
  comparative advantage is in pricing,
  customization and rapid order fulfillment, all
  advantages gained through supply chain management
  and logistics. By outsourcing, Dell does not
  carry risks connected to inventory such as
  obsolescence, Dell can maintain flexibility in
  its manufacturing, and Dell has lower
  coordination costs than if it were vertically
  integrated, producing its own parts. Outsourcing
  allows Dell to focus on what it does best.

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Dell Case Question 3

• What are the consequences for Dells cost
  structure and profitability of replacing
  inventories with information?

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Answer

• Dell has been able to achieve the lowest
  inventory levels in the industry. In 2004, that
  was only three days of inventory on hand,
  compared to 30, 45, or even 90 days worth at
  competitors. This is a critical advantage in the
  computer inventory, where component costs account
  for 75 percent of revenues and typically fall by
  1 percent per week due to rapid obsolescence.
  Replacing inventory with information has
  contributed greatly to Dells business model it
  is the cornerstone of their cost structure.
  Reducing inventory also reduces the need for
  working capital. In sum, replacing inventory
  with information boosts profitability.

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Dell Case Question 4

• Do you think that Dells model can be imitated by
  other PC manufacturers and manufacturers in other
  industries?

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Answer

• Yes, Dells model can be imitated, but the
  managerial skills are difficult to build. Other
  companies who are trying to replace inventories
  with information include Wal-Mart, Target, Best
  Buy, and Circuit City. Auto manufacturers also
  have been making strides in this direction.

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Dell Case Question 5

• What factors might make it difficult for other PC
  companies to adopt Dells model?

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Answer

• The chief factor that makes it difficult for
  other PC firms to adopt Dells model has to do
  with managerial know-how. Knowing what to do is
  simple. Knowing how to do it is immensely
  complicated.

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Dell Case Question 6

• What is the source of Dells competitive
  advantage? How secure is this advantage?

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Answer

• Low cost is the source of Dells competitive
  advantage. Dell seems to be able to counter
  competitive challenges, which evidences
  management capability. This indicates a
  relatively secure advantage, but because it is
  imitable, it is not tremendously secure.

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Dell Case Question 7

• What are the potential risks associated with
  Dells global supply chain strategy? How can
  these risks be mitigated?

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Answer

• There are many risks associated with Dells
  supply chain management. If the transportation
  links are disrupted (work stoppages, terrorism),
  Dells approach will be affected. Also, they are
  vulnerable to problems their suppliers have.
  Dell is also vulnerable to IT issues hacking,
  system failures. Their competitors would be
  facing the same issues, though. The risks that
  need most to be mitigated are the supplier ones
  because they would not be shared by competitors.
  These can be mitigated by integration with the
  supplier, and Dell has integrated with the
  suppliers supplier as well.

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Global ProductionGroup Discussion

• You are Apple, Maytag, Toyota, and Sony. How
  will you coordinate your production activities
  for the iPhone, the Maytag Neptune Washer, the
  Prius, and the Sony Playstation Portable?
• Where should production be located and should
  they be concentrated or dispersed?
• What should be the long-term strategic role of
  foreign production sites? Should the firm abandon
  a foreign site if factor costs change, or is
  there value to maintaining an operation at a
  given location even if economic conditions
  change?
• Should the firm own foreign production or should
  production be outsourced?
• How should a globally-dispersed supply chain be
  managed?
• Should the firm manage the logistics or outsource
  their management?