Intbusl Su 8.2

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Study unit 8.2 Global manufacturing and materials management 8.2.1 Importance of strategy, management and logistics a. Production:
* Activities involved in creating a product
* Applies to service and manufacturing activities
b. Logistics:
* Activity that controls the transmission of physical materials through the value chain (procurement -> production -> distribution) * Linked to production – firm’s ability to perform production activities efficiently depends on timely supply of inputs c. Strategic objectives:

* Production and logistics have a number of strategic objectives * To lower costs:
* Disperse production activities to different global locations where they can be performed most efficiently * efficient global supply chain management – better match supply and demand – reduced amount of inventory in system and increased inventory turnover – means less working capital in inventory – less likely to have excess inventory on hand which cannot be sold and has to be written off * To increase product quality

* Eliminate defects from both supply chain and manufacturing process * Improved quality control linked to lowering costs: * Increased productivity – no time wasted on producing poor quality products which cannot be sold - leads to direct reduction in unit costs * Lowering rework and scrap costs related to defective products * Reduced warranty costs related to fixing defective products * Costs of both production and after-sales reduced – costs of value creation reduced d. Quality and Cost linked to TQM and Six Sigma

* Six Sigma quality improvement methodology
* Used by most managers to improve reliability of product offering * Direct descendant of TQM
* Statistically based – aims to reduce defects, boost productivity, eliminate waste, cut costs throughout company * Sigma – from Greek letter statisticians use to represent a standard deviation from a mean – higher number of “sigmas” – smaller the number of errors * Production process – 99.99966% accurate – 3.4 defects per million units. Almost impossible for company to achieve this – but Six Sigma quality is a goal companies should strive towards. More companies adopt the approach to boost product quality and productivity * Total Quality Management

* First widely adopted by Japanese then American companies during 1980s and early 1990s * Developed by American consultants (Deming, Juran, Feigenbaum) * Number of steps identified – management should embrace philosophy that mistakes, defects and poor quality not acceptable – should be eliminated * According to Deming:

* Quality of supervision to be improved – allow more time for supervisors to work with employees and by providing them with more tools they need to do the job * Management to create an environment where employees not afraid to report problems or recommend improvements * Standards to not only be defined by quotas or numbers but include some notion of quality to improve production of defect free output * Managements should have the responsibility to train employees in new skills – keep pace with changes in workplace * Responsibility and commitment of all in company needed to achieve better quality * Production and demand in response to demand

* Production and logistics functions need also to be able to accommodate demands for local responsiveness -> arise from national differences in consumer tastes and preferences, infrastructure, distribution channels, and host-government demands * Local responsiveness demands create pressures to decentralise production activities to the major...
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