10.9 Summary: Part A
In Part A we looked at a range of factors to be considered in the choice of an optimal manufacturing location:
- country factors include factor costs, politics and culture
- technological factors include set-up costs, minimum efficient scale and the availability of flexible manufacturing technology
- product factors include value-to-weight ratio and whether or not the product serves universal needs.
There is seldom one clear choice and trade-offs will involve decisions on concentration (centralisation) or decentralisation.
The make-or-buy issue was discussed in the context of the extent to which the firm is vertically integrated. A high level of vertical integration implies make while a low level of integration implies buy. Making the component preserves trade secrets, but creates an incestuous buying/selling arrangement with subsidiaries. Subsidiaries have a guaranteed market, the parent company has a guaranteed supply and there is little incentive to achieve lowest cost and highest quality. Outsourcing risks exposure of proprietary technology but provides flexibility of supply, albeit with some risk to continuity of supply.
Strategic alliances offer the benefits of vertical integration without the costs, but they may limit strategic flexibility because of the commitment to alliance partners.
We looked at materials management which encompasses all the activities from supply of materials through the manufacturing process to the distribution of the product to the customer. This process is subject to problems of distance, time, exchange rates and customs and other trade barriers.
The technologies associated with manufacturing and materials management were discussed in the final section. They are broadly described as flexible manufacturing systems, a term which subsumes:
- robots
- numerically controlled machinery
- computer integrated manufacturing; which includes:
- computer-aided design (CAD)
- computer-aided manufacturing ( CAM )
- administrative automation, which includes electronic data interchange (EDI) and just-in-time (JIT).
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