Supply chain and location planning recommendations

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Background of the Division

The division is a $50,000,000 (sales) subsidiary of a $750,000,000 corporation. This division produces industrial products that are used in the construction, maintenance, transportation, and equipment manufacturing industries. Division is currently number three in your market place having 15% of the market.

Objectives

- Develop a systematic framework for analyzing the behavior of complex supply chain networks and supply chain drivers.
- Examine the concepts of managing operations as they apply to the production of goods and services.
- Apply the appropriate operations tools to aid in decision-making and optimize performance.

1. Should production remain in Mexico or be brought back to the US?

a. If so, where would you recommend?

This issue deals with facility location planning. The prime objectives of location planning are:
- Access to customers and raw material
- Improving productivity
- Increasing revenues and bottom line
- Labour costs
- Ease of doing business (Level of bureaucracy, regulatory environment)
- Infrastructure reliability
- Level of taxation

Yes, currently it should remain in Mexico as they are not facing any problems except delay in distribution and high distribution costs and they should focus on improvement in supply chain management by applying benchmarking and flexible manufacturing systems as discussed below.

b. Should only part of the production be brought back to the US?

No, because it will lead to high costs and also there will be no economies of scale and scope involved.

c. Should production be shifted to Asia (China)?

First of all, the marketing of products in Asia should be started, then only this option should be explored. Otherwise it will lead to increase in distribution costs.

Application of Flexible manufacturing system to improve productivity and reduce costs:

Flexible Manufacturing Systems (FMS) involve substituting machines capable of performing a wide and redefinable variety of tasks for machines dedicated to the performance of specific tasks. FMS can also be programmed to handle new products, thus extending the machines' life cycles. Thus they represent a change from "standardized goods produced by customized machines" to "customized goods produced by standardized machines".

For this Flexibility process layout is preferred as operators can trade elements of work. One can add and subtract operators. Trained one can nearly self balance at different output rates.

While variations abound in what specifically constitutes flexibility, there is a general consensus about the core elements.

2. Seeking benefits on flexibility

Today's manufacturing strategy is to seek benefits from flexibility. This is only feasible when a production system is under complete control of FMS technology. Having in mind the Process- Product Matrix you may realize that for an industry it is possible to reach for high flexibility by making innovative technical and organizational efforts. See the Volvo's process structure that makes cars on movable pallets, rather than an assembly line. The process gains in flexibility. Also, the Volvo system has more ...