Chapter 5
Facilities
Strategy and
Globalization
McGraw-Hill/Irwin
Operations Strategy
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
5-1
Agenda
 General strategic concepts
 An integrated approach
 New paradigms for the global environment
5-2
General Strategic Concepts






Fit with strategy
Focus of plants
Scale and cost
Centralization and standardization
Means of evaluation and plant roles
Sourcing and allocation models
5-3
Issues
 Traditional approaches to facilities and supply
chains emphasize
a number of issues
 Scale
 Logistics and supply chain flow
 Focus
 Global flexibility and access to R&D
5-4
Product/Market-Process Focus
 Mean of focus
 Volume
 Product
 Market
 Process
Off
On
Volume
Low
High
Job
- Detroit
Volume
Low
High
Job
- Detroit
Example
Batch
Line
- Saginaw
- Lima
Batch
Line
- Fremont
- Lancaster
- Mayesville
5-5
Scale Analysis
Subcontract
Technology 1
Technology 2
COST
VOLUME
5-6
Consumer Goods Example
1.5
1.4
1.3
1.2
1.1
1
Cost 0.9
per
unit 0.8
0.7
0.6
0.5
0.4
0.3
0
2
4
6
8
Volume in millions of units
5-7
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
5-8
Simple Facilities Network and
Supply Chain for Two-Stage LP
Flows
Sources
Destinations
5-9
Network for Multi-Location
Supply Chain
Suppliers
Plants
Distribution Centers
Customers
5-10
Some Examples of Strategies
1.Different process steps and scale, significant
logistics
 Central stage 1, decentralized stage 2
2.Significant central R&D
 Central plant for at least early life cycle
3.Significant product flexibility
 Decentralized satellite plants for some stages
The examples underscore the need to develop a consistent
focus and then appropriately analyze scale and logistics
5-11
A General 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
5-12
Case Study:
Worldwide Consumer Goods Manufacturer
 25 product groups
 10 production locations
 Variety of product values and weights
 Over capacity
 Lack of focus
 Significant tax issues
5-13
Case Study
Fixed costs
Variable costs
Fixed costs
Variable costs
Taxes
Stage 1
Stage 2
Why Separate?
Approach
• Scale
• Cross sectional analysis
• Capacity
• Tax analysis
• Tax laws
• Model of variable costs
• Focus
• Detailed analysis of actual
fixed costs
• Relative
technological
complexity
Customer
Solution:
• Move “light” products to tax havens
• Better focus facilities by product group
5-14
Globalization 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
5-15
Globalization Complexities
(cont’d)
 Macro level trends
 Large, sophisticated overseas markets with local
needs
 Non-tariff barriers
 Regionalized trading economies
 Variable factor costs
 Particular case of China
 Longer lead times
5-16
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
Postponement strategies
5-17
Exchange Rate Model
460
# of plants
450
One
Cost
440
Two
430
Three
420
Four
Five
410
400
0
100
200
300
400
Total Capacity
5-18
Facilities Strategy Given Uncertainty
(adapted from Huchzermeir and Cohen)
Alternative
Facilities
Configurations
A
B
Alternative
Exchange Rate
& Factor Cost
Distributions
Supply Chain
Network Model
Outcome for Each
Combination
Expected
Outcomes
A
B
Best
Configuration
for Current
Exchange Rate
and Factor Costs
K
N
Switching
Costs
N
5-19
Five-Stage Approach to
Strategy Development
Stage 1:
Business and
Operations Strategy
and Plant Charters
Competitive
Environment
Cross-Sectional
Data
Stage 2:
Multiple-Technology
Scale Curves
Process
Technologies
Market Presence
and Capabilities
Stage 3:
Major Network
Options
Strengths
Global
Market
Internal
Constraints
Supplier
Industries
Infrastructural
Requirements
Stage 4:
Location and
Process Options
Political and
Market Issues
Logistics
Costs
Stage 5:
Modeling
Factor
Costs
5-20
Summary





Methods for analyzing focus, scale flow, etc.
Impact of new markets and technologies
Global product design and flow patterns
Flexibility
Factor costs
5-21