Production and International Logistics - Case Study Example

Production and International Logistics 0 Introduction Production is the life of any business organisation. It sustains theoperation and all functions within the entity and its external partners. There are customers because products are manufactured that satisfy the needs of target customers. Where production ceased, the organisation cease to operate, too. Efficient and successful production however is dependent on the cooperation and systematic collaboration of all other functions including logistics.It helpsorganisations deliver the expectations of its customers. The ultimate goal to satisfy customers also led to the development of production strategies. 1.1 Birth of Production Strategy In the early 1900, Henry Ford, the owner of Ford Motor company became the world's richest men by his mass production success in the automobile industry. During World War II, the US government also requested him to mass produced bomber air crafts for the US Air Force. Ford Motor Company's production system during those years is a good example of a mass production system. Demand was so high, Ford has to mass produced to satisfy demand. Ford has all the good reason to hold high inventories during those years, that was, to please his customers by keeping a steady supply of his automobiles. This is also one of the reasons why some firms chose to mass produced. Another reason is the uncertainties in supply and supply capacity (Morton 1999). Toyota saw the success of Ford Motor but cannot replicate Henry Ford's production strategy due to the devastation suffered by Japan's economy after the war. This gave birth to a new concept of production where inventory level is zero, the lean production system, otherwise known as the Just-in-Time or JIT system. In the Machine That Changed the World, James Womack, used 'the term lean production to describe the profound revolution in manufacturing that was initiated by the Toyota Production System (cited by Asay, D. and Ott, S ,1998 ). Toyota's factories, along with most of its suppliers, can be spotted around Toyota City. Delivery of components and parts depended on the speed of the assembly line, and parts were delivered using logistics just at the right time when these are needed. The system eliminates the need to carry large inventories but close coordination between suppliers and logistics for the success of the system. When delivery of components or raw materials lagged behind, or when there are defects on deliveries, the strategic advantage and benefits that could have been gained from using the lean concept would be defeated. This led adherents of JIT to embark on a system of managing inventory and logistics in collaboration with total quality management (Heizer, Render 2001). The movement of supplies and other commodities from suppliers to users or consumers in the supply chain is a function of logistics. This is particularly important in a global economy where competition is borderless. International logistics therefore plays an important role in the success of production. The following section compares and contrast the traditional mass production system and lean production system. 2.0 Mass Production vs. Lean Production Traditional mass production differs from lean production in its overall organizational characteristics and manufacturing methods. Let us compare and contrast mass production as against lean production on the following terms: business strategy, organizational culture, customer relationship, production and scheduling, inventory management, quality assurance, information management and manufacturing cost. 2.1 Business Strategy In mass production strategy, the focus is on exploiting economies of scale of existing products and technologies. This strategy takes advantage of the decrease in the unit cost of the product as the volume of production per period of time increases (Kroll, et al, 1996). On the other hand, lean production strategy is customer focused. It seeks to identify and exploit new opportunities and competitive advantage through product design, new technology, or new product features. 2.2 Organizational Culture Under the mass production strategy, the organization is hierarchical, controls and orders come from top management. This structure discourages the flow of critical information on product defects, operator errors, machine and equipment downtimes, and other operational deficiencies. Leadership comes from top management, loyalty and obedience by the rank and file. Worker involvement and empowerment is weak, and therefore there were lesser inputs from the workers end (Kroll,et al 1996). In lean production system, flat organisational structures encourage initiative from concerned parties and allow free flow of critical information of defects, errors, abnormalities, and deficiencies. Leadership is governed by the vision of the company, and employees are empowered to make decisions when required (Mid -American Manufacturing Technology Center). 2.3 Customer Relationship Customer relationship in mass production strategy is based on price and statistical quality levels. The customer can bargain on the price of the product. In contrast, customer standards dictate the quality level of products under the lean productions system. Customer demand controls quality and quantity of products to be produced. Therefore close and long-term working relationship with customers is highly important (MAMTC). 2.4 Production and Scheduling The mass production system relies on sales forecast to determine production volume and product is pushed to the market through this facility. Goods are manufactured to replenish stocks on hand or goods for sale inventory. Finished goods are stored or distributed to marketing arms. Unsold inventories are sold later at sale or lower prices. Production cycle time is longer which may take weeks or months. Inspection of products is through product sampling by designated inspectors. The system encouraged large-scale production with long production runs and stocking of inventories. However, under the lean production system, a product is produced only when there is an order from a customer. The product is pulled by the market demand rather than pushed. Finished product is delivered to the customer right after completion. Lot size of production depends on the quantity ordered by customer. Production cycle time therefore is per customer order. There is no finished goods inventory to stockpile. Product inspection is done at source by workers thus assuring quality right at the very beginning of the process. 2.5 Inventory Management Inventory management is a crucial function in mass production system because all production goes to inventory while waiting for buyers. Failure to manage inventory effectively may result to spoilage, wastage, and losses on the operation. The cost of setting up storage facilities and salaries paid to storage personnel will add up to the cost of the product. In contrast, there is low or no inventory at all under the lean system of production because production is dictated by customer order (Nahmias, 2005). 2.6 Quality Assurance Under the mass production system, quality is not 100% assured because inspection is not done at source but only by inspectors through sampling. In contrast, there is 100% quality assurance through the lean system because of the quality check performed by the workers themselves at every stage of production for each product. Most firms under the lean system also practiced total quality management and the six sigma, or zero defects, to ensure customer satisfaction right at the beginning of the production process. 2.7 Information Management For the mass production system, there is less information to manage because of lesser inputs from customers and the workers. Recording and storage of historical information is highly important as these will be needed in forecasting activities. On the contrary, there is massive data and information to manage with the lean system of production including feedback from the customers, from the workers, and from the supply chain and logistics involved. Processing of real time information is very crucial to the success of lean time production system. The use of user interface software and other electronic data processing system will help management monitor its logistics and supply chain to ensure absolute coordination among all functions involved in delivering customer needs. 2.8 Manufacturing cost Manufacturing cost or cost of goods sold is higher under the mass production system. The cost of storing high inventories, low quality controls, product obsolescence, breakage, spoilage and deterioration will add up to the manufacturing cost. Besides, 'there is an opportunity cost of alternative investment of the funds tied up in the value of the inventory itself' (Morton 1999, p. I-6). For the lean production system, manufacturing cost is under control. The lean concept eliminates unnecessary or non-value adding cost of storing inventories and disposing of wasted products. 3.0 International Logistics and Success in Production Logistics encompasses all activities involved in the process of planning, implementing, and controlling the flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of satisfying customer demand (Bowersox, Closs 1996). In today's global economy, logistic activities go beyond national boundaries. It is responsible for all phases of the movement and storage of materials in a supply chain, from any point of origin to any point of destination. With the global scene, third party international logistics largely contribute to the operational success in any organisation that plays in the international market. Through international logistics, the right quantity of raw materials, goods and other commodities are delivered to the right location through transport and delivery facilities like trucking, air freight, marine shipping, transhipment and warehousing with the diligence and due care that will ensure that consumer's order will reach destination complete and in good condition. Fedex is one of the companies that provide international logistics services. It is a worlwide network of companies that provide customers and businesses with 'the same absolute positive zeal' for various services in the supply chain of businesses across the continents(FedEx). Another international logistics company is SR International Logistics. SR promised customers 'the best solution for total transport needs, handles all types of cargo for on-time deliveries anywhere in the world (SRInternational). 4. Conclusion In any production system, traditional mass production or lean production, logistics is indispensable. There is no single organisation that can efficiently perform all the functions including logistics and be globally competitive in terms of cost efficiencies and quality. When manage properly, international logistics adds value to the production activities by eliminating non-value adding cost involved in seeking and procuring raw materials and other production requirements by the organisation itself. REFERENCE LIST Asay, D., Ott, S., 'Publisher's Message'. Inside Stories of U.S. Manufacturers, Becoming Lean,. Liker, J.K. ed. viewed 17th August, 2009. http://www.books.google.com.ph/books'isbn=1563271737. Bowersox, D.J., Closs, D.J., 1996, Logistical Management: The Integrated Supply Chain Process. International edn, McGraw-Hill Companies, Inc., Singapore. Chatterjee, L., Tsai, C. Transportation Logistics in Global Value and Supply Chains, viewed 17th August 2009. http://www.bu.edu/transportation/CTS2002G.pdf. Federal Express (n.d.), viewed 17th August 2009. http://www.fedex.com/. Heizer, J., Render, B. 2001, Operations Management. 6th edn, Prentice-Hall, Inc. New Jersey. Hermann, J.W. ed. 2006, Handbook of Production Scheduling. New York: Springer Science+Business Media, Inc. Kroll, M. J., Parnell, J. A., Wright, P., 1996, Strategic Management: Concepts and Cases. Prentice Hall, Inc., New Jersey. Mid-American Manufacturing Technology (n.d.), viewed 17th August 2009. http://wwwmamtc.com/lean/intro_trad.asp. Morton, T.E., 1999, Production Operations Management, South-Western College Publishing, Ohio. Nahmias, S., 2005, Production and Operations Analysis. 5th edn, McGraw-Hill Education (Asia), Singapore. SR International Logistics (n.d.),viewed 17th August, 2009. http://www.srinternational.com/ Read More