Creating a sustainable supply for business
For an international business, supply chain from finding raw materials until the finished goods are reached to the end users is very important. In an open global market, production within a country may not be profitable putting pressure on the companies to find a appropriate place for production to meet the market demands. But the local laws and other trade barriers might adversely affect production in another country. Under such circumstances, a company may benefit from outsourcing production.
Production means creating products while logistics refers to the control of transmission of physical materials through the value chain – procurement, production and distribution. The value chain must enhance output quality and efficiency. Production and logistics are closely linked because a firm’s production efficiency is determined by the timely supply.
Dispersing production activities to various locations can lower the cost of production, lowers risks and increased product quality. Quality can be boosted through Six Sigma (the successor of TQM) program, which aims to cut costs, improve quality, eliminate waste and reduce defects. There are many instruments to determine the quality of products such as ISO 9000.
Making decision on where to produce is not easy. Political economy of the country, technological factors, products’ value-to-weight ratio factor and facilities at the production location determine where to produce.
One location cannot be a permanent place of production. Over time, the factors affecting the production would change. Initial production centre could transfer into an advance design centre while labour and other factors may encourage company to look for cheaper place for production. Change in government regulation would also transform the strategic location of the firm’s production facilities.
In-house production, instead of outsourcing from other companies, helps a firm to lower costs, invest in specialised assets and protects proprietary technology. On the other hand, outsourcing or ‘buy’ decision gives firm greater flexibility, reduces cost structure and helps capture order from international customers (offset). This is more popular in commercial aerospace industry.
Taking into consideration into both advantages of ‘make’ and ‘buy’, a company must decide on best feasible output.
Following production, delivering the finished goods to the end users is challenging. Managing an efficient supply chain is crucial for a company. Distance, exchange rates, transportations, time and trade barriers complicate the supply chain. For this, strategic alliance, effective and efficient communication mechanism should be in place, at all times.