Published on September 22, 2014
Industry Studies 1 Make, Take and Sell Challenge: Manufacturing Capability Topic Number: 3
Overview Organisations continually strive to maximise efficiencies whilst sourcing the best quality and sustainable raw materials. A key consideration when developing a product is how best to manufacture it in order to achieve the scale required to service customers. There are a variety of options to consider that we will explore in this workshop. We will also discuss the issues with sourcing and manufacturing in one country and then selling it in another. Finally, we will develop our understanding of the various manufacturing implications on your product and come up with the optimal approach.
Learning outcomes for these workshops • Develop and determine how to source a variety of raw materials from around the world to maximise product efficiencies • Critically evaluate the variety of manufacturing options you have available and apply them appropriately to your business • Be able to forecast the demand for your product • Articulate the various manufacturing implications of producing a product in one country and selling it in another
Where to source your raw materials from?
A three point plan to identifying raw material suppliers Analyse the situation Supplier Evaluation 1 2 3 Identify Opportunities
Identify Opportunities: What do you need? Opportunities are usually triggered by a business requirement for a product or service. Material Requirements Service Requirements Equipment Components Raw materials Computer programmers Transportation services Maintenance service
Analyse the situation: Where can you get what you are looking for?
Analyse the situation: Determine ease of getting materials to your factory You need to assess the associated costs of transport and other factors such as tariffs. Therefore, the lowest cost production option may not be the best route to go down.
Once we have identified where, the question is whom is the best supplier? Quality Processes/Ca pabilities Do they offer the best product within the price that you want to pay? Do they have the ability to deliver what is expected currently and in the future? Price Regulations/Ethics Do they offer the best product at the most competitive price? Do they work within an internationally accepted regulatory/ethical code?
Example from Walmart View video: https://www.youtube.com/watch?v=yZC4neLax5o
What manufacturing model do you deploy?
So you know what you want to produce… lets understand how to produce it… consider three routes… Outsource Insource Outsource & Insource 1 2 3
Adopts to consider: A DLG Example Source: McIvor (2008)
Outsourcing Production Typical Outsourcing Locations India Pakistan Bangladesh
Outsourcing Production: Implications Pros Immediate access to skilled personnel Cons Speed of delivery Minimal management risk Lack of control Requires continual monitoring Viability of service provider
Insourcing: Zara in Action It is claimed that Zara needs just two weeks to develop a new product and get it to stores, compared to the six-month industry average, and launches around 10,000 new designs each year. Zara has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries.
Insourcing Production: Implications Pros Complete control over process Cons Easier planning cycle Learning economies Longer to put in place Potentially more costly New capability required
A hybrid model? Apple’s Top 200 Suppliers
Hybrid Production: Implications Pros Cons Ability to move quickly Scale with demand Maintain majority control Coordination issues Bottlenecks harder to identify Worst of both worlds?
Where to manufacture? Home vs host country
Considering risk and reward Home Country Host Country • Less upfront cost • Less risky • Less restrictions However… • May not make to local spec • Tariffs & duties to be paid • Issues in logistics • Less logistical issues • More tailored to needs • Speed to market However… • Set up costs/investment • Adhere to local regimes/requirements • Not easy to pull out
Stage of growth is important; lets look at internationalisation model Source: Uppsala
Forecasting demand helps to minimise risk Total Population Income on Food Income on beverages Income on alcohol Income on beer Source: Kotler et al (2012)
Consider local tariff and non-tariff barriers Duty on imports Local content requirements A tax collected on imports and some exports by the customs authorities of a country. This tax is used to raise state revenue. A minimum level of local content is requireed under trade laws when giving foreign companies the right to manufacture in a particular place. Quotas Anti-dumping regulations A limited quantity of a particular product which under official controls can be produced, exported, or imported. A company is dumping if it is exporting a product to the EU at prices lower than the normal value of the product
How to manufacture?
Consider the 4 V model
Mass Production vs Mass Customisation
Mass Customisation in Action: Nike
Consider ‘Just in time’ operations
End of Workshop Note: This recording is for your personal use only and not for further distribution or wider review. © Pearson College 2013
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