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S TRATEGY , P RODUCTION , AND L OGISTICS Production : the activities involved in creating a product Logistics : activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Production and logistics are closely linked since a firm’s ability to perform its production activities efficiently depends on a timely supply of high quality material inputs - Lower costs - Increase product quality by eliminating defective products from both the supply chain and the manufacturing process Improved quality control reduces costs by: = Increasing productivity because time is not wasted producing poor-quality products that cannot be sold, leading to a direct reduction in unit costs = Lowering rework and scrap costs associated with defective products = Reducing the warranty costs and time associated with fixing defective products The effect if to lower the costs of value creation by reducing both production and after-sales service costs TQM (total quality management) -> Six Sigma methodology W. Edward Deming, Joseph Juran, A.V. Feigenbaum Deming identified a number of steps that should be included in any TQM program - Management should embrace the philosophy that mistakes, defects, and poor quality materials are not acceptable and should be eliminated - Supervisors should work more with employees and provide them with the tools they need to do the job - Management should create an environment in which employees will not fear reporting problems or recommending improvements - Work standards should not only be defined as numbers or quotas, but should include some notion of quality to promote the production of defect-free output Six Sigma : It is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company 99.99966 % accurate, only 3.4 defects per million units In Europe, quality standard-> ISO 9000 => costly to the firms, focus management attention on the need to improve the quality of products and processes. lowering costs and improving quality: - Production and logistic functions must be able to accommodate demands for local responsiveness - Production and logistics must be able to respond quickly to shifts in customer demand W HERE TO P RODUCE Country Factors Political economy, culture, relative factor Externalities : (decide where to locate) - Skilled labor pools - Supporting industries Formal and informal trade barriers Transportation cost and rules and regulations (FDI) Exchange rate - Appreciation (low cost -> high cost) Technological Factors Fixed Costs : are high so that a firm must serve the world market from a single location or from a very few locations -> relatively low lever of fixed costs can make it economical tp perform a particular activity in several locations @ once => local responsiveness, help avoid becoming too dependent on one location (risky) Minimum Efficient Scale : the level of output as which most plant-level scale economies are exhausted
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This note was uploaded on 04/22/2008 for the course IBUS 211 taught by Professor Ullmann during the Spring '07 term at Binghamton University.

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