Unit 5: Global Production management

GLOBALIZATION
Globalization is actually not a fresh trend. With companies slowly enlarging beyond their national border, the networking of the world's economy has been
growing for centuries. The dramatic acceleration of the globalization process is something that is latest. The web-like value chains that increasingly span
the world reflect the rapid networking of global communications. To grow into new markets while being competitive is the big opportunity that global
production offers. So, more and more business organizations are going global in terms of their production.

PHASES OF GLOBALIZATION

1. First Phase/Immobile Factors of Production

This phase concerns a conservative outlook on international trade that existed until the 1970s where factors of production were greatly there was less
mobility.Before the conclusion of World War I, global trade was mostly controlled by colonial relations, but was quite unregulated. There was a restricted
level of mobility of raw materials, parts and finished products. Following World War I, international trade became somewhat regulated with barriers like
tariffs, quotas and limitations to foreign ownership. Trade chiefly focused on range of particular products, specifically commodities, (and very little
services) that was not readily accessible in regional economies. Owing to regulations, protectionism and rather high transportation costs, trade continued
to be limited and delayed by incompetent freight distribution. In this situation, trade was more an application to deal with shortage than to encourage
economic efficiency.

2. Second Phase/Mobility of Factors of Production

As of the 1980s, the mobility of factors evinction, predominantly capital, became achievable. The legal and physical enviro alizati which international
trade was happening showed the way to an improved realization of the comparative advantages of specific locations. Along with, regional trade
agreements surfaced and the global trade framework was reinforced from a legal and transactional standpoint (General Agreement on Tariffs and
Trade/World Trade Organization).

In addition, containerization offered the capabilities to support more complex and long distance trade flows, as did the growing air traffic. Due to high
production costs in old industrial regions, activities that were labor intensive were gradually transferred to lower costs locations. The process began as a
national one, then went to nearby countries when possible and afterwards became a truly global phenomenon. Thus, foreign direct investments surged,
mostly towards new manufacturing regions as multinational corporations became more and more flexible in the global positioning of their assets.

3. Third Phase/Global Production Networks

There is an expansion in international trade, now including a wide variety of services that were formerly fixed to regional markets and a surge in the
mobility of the factors of production. Since these trends are well recognized, the main concern is now shifting to the geographical and functional
integration of production, distribution and consumption with the surfacing of global production networks.

Multifaceted networks relating to flows of information, commodities, parts and finished goods have been set, which in turn demands a high level of
command of logistics and freight distribution. In such an environment, powerful actors have appeared which are not openly involved in the function of
production and retailing, but chiefly taking the responsibility of managing the web of flows.

The global economic system is thus characterized by a growing level of integrated services.

FACTORS ACCELERATING GLOBAL PRODUCTION

1. Huge factor cost differences - Manufacturing costs at different production location are considered in isolation and the gaps are mainly due to labor
cost. The development of labor costs has become congruent to prosperity. In rich countries wages go up while in poor economies wage
increase is limited. Growth rates in Europe and North America soared with the onset of Industrial Revolution. However, those in communist rule
suffered a different fate. A misleading economic policy resulted in hampered economic development of many nations.
2. High growths in emerging markets - Emerging markets are experiencing high growth in some sectors in relative as well as in absolute market
volume. As a result, markets outside the highly industrialized nations are becoming more and more attractive particularly for manufacturing
companies. These huge growths of good opportunities have become the main motivation for the globalization of production.
3. Lower transaction costs - A particular obstacle for global production has been transaction costs. This is from the angle of the entire value chains and
not from the individual location. With the falling transportation cost, the productivity gains in logistics are continuing. Large ships become
abundant. Automation has brought lesser need for crews who are needed for steering and loading and decline transport risks.
4. Lower communication costs - The impressive advancement in communication technology has been a good contributor in lowering transportation
costs. Intangible information can now be conveyed globally within an instant. To the benefits of all parties to transaction, technological
connectivity has lower than communication costs.
5. Fewer trade barriers - The dissolution of the East-West divide and the fall of Iron Curtain has changed the world politically. Following these events
was the liberalization of markets that were not accessible to Western companies. Russia, Eastern Europe and China become very attractive as
markets for higher-value goods.
GOALS OF GLOBAL PRODUCTION
The main reasons why companies set their eyes on globalization are market development and cost reduction. Other reasons include low sourcing of
supplied parts, high grade knowledge and qualifications and avoiding business risks like fluctuations of exchange rate.

Approaches of companies differ depending on their chief reasons. They will go globally through putting up new offices and strengthen their local
customer services if they primarily desire to add new customers in other countries.

THE GROWTH IMPACT

Today production in new markets is a significant element for expansion of local sales and service capabilities.

The main motive is the transaction costs for imported products that will make them too expensive.

Products cannot be tailored flexibly enough to local market needs.

Other dispute is the gain in image and trust in relation to the customer from the local manufacturing plus the elimination of country regulation required on
imported products.

Local production often makes it simpler to open up a new market. Even with capital goods like machinery and plant local presence can become the factor
of a business firm's success. Other advantages are:

Easier maintenance and availability of spare parts.

In the perspective of customers, trust could be developed due to competent contacts like having production staff available anytime needed.

Customers can rely on fast response and good communication because they know that personnel have the same language with them.

GLOBAL PRODUCTION NETWORK AND LOCATION STRATEGY

Global Production Network
A concept in developmental literature which refers to the nexus of interrelated functions, operations and transactions by which a specific product or
service is produced, distributed and consumed.

Global Production Networks can be structured into two types which is multidomestic and globally integrated structures:

1.) Multidomestic - this type concerns operations where each market is serviced independently. It can relate to simple products that are easy to replicate
but costly to transport over long distances.
2.) Globally integrated- in this type, Systems of production are located in several countries and commonly involve complex products manufactured in
several stages. Logistics activities are highly important as production and distribution capabilities need to be effectively reconciled and synchronized.

Four major location strategies for Global Production Networks:

1. Centralized global production. The entire production occurs within only one nation (or region) and is then exported to the global market.

2. Regional production. It takes place within each region that manufactures a good with the size of the production system related to the size of the
regional market.

3. Regional specialization. This global production network involves a spatial division of the production based on comparative advantages. Each region
specializes in the production of a specific good and imports from other regions what it requires.

4. Vertical transnational integration. This global production network is another variant of specialization. Different stages of production occur at locations
offering the best comparative advantages in terms of input costs, availability of labor, and skills.

UNIT 6: LEAN ENTERPRISE

What is Lean Production?

The Lean Production Idea is to manufacture the kinds of units considered necessary, at the time considered necessary and in quantities considered
necessary.

The essential idea of lean production came from the assembly line manufacturing methodology developed by Toyota Production System (TPS) for
automobiles

Lean production is beyond techniques and approaches. It is a mindset both for employees and managers that centers on riddance of waste and
lessening of variability in all business processes. Most lean production model could also be to service sector.
What is Lean Thinking?

The original lean thinking was credited to Henry Ford and his Ford production system (FPS) In the early 20th century. In 1937 when Toyota was
established, an engineer by the name of Taiichi Ohno was sent by the company to be trained in the principle and approach initiated by FPS. Ohno had
extended his knowledge of the FPS by adding principles and approaches that enhances its effectiveness and later became Toyota Production System
(TPS). The concept of TPS was applied widely all over the organization which made Toyota very successful in markets worldwide.

Some approaches in TPS like Just in Time (JIT), kanban, and kaizen received so much interest when Japanese manufacturers had gained large market
share at some point in the US oil crisis.

The following are the five core principles of lean production:

1. The value in production system must be described coming from the viewpoint of the customers for each product of family.
2. Every production stage must be assessed using its contribution to value creation. Non-added value activities should be removed.
3. The value-creating series of stages must be structured in a firm and integrated series to develop a smooth flow toward the customer.
4. Instead of organizing production to push finished goods to customers, products pulled by the customers must be the motives for planning, organizing
and scheduling upstream production activities.
5. All members of the organization must practice perfection using continuous improvement.

Waste Elimination

The key principle behind lean thinking is valuing the point of view of customers. This means if the customers do not find a product or service valuable,
they will not be willing to spend money in exchange for it.

Based from the TPS, the following are the three broad categories on the types of waste in a production system:

1. Muda - This is a Japanese term for non-value added production activities which could be wasteful. The context of value came from the perspective of
customers. Customers are not willing to spend their money for non-value added activity.

2. Mura - This type of waste is related to irregularity of the process, The process of JIT is used to lessen the irregularity in the production process
3. Muri - This is the waste that comes from overburden and unreasonableness. Reduction from this waste could be done through better standardization
of the production processes.

The following is another breakdown of the many types of waste:

1. Overproduction - it is better to manufacture products in smaller number that are more or less close to what is demanded by the market to avoid
overproducing
Setup time - Under lean production system as much as possible set up time is lessen in relation to different production process steps
Processing time - Under the lean production system, much attention is given to determine approaches that lessen the number of steps and the times
related with them in the production process.

Waiting time - Longer production lead time results to wastes and contributes to quality problems due to obsolete or expire raw materials and components.

Transportation - Facilities must be located near to each other to avoid wastes.

Movement - Layout must be designed to diminish the waste from movement

Inventory - It is best to maintain a minimum inventory for a smooth production process.

Poor quality - Products and components that are not produced based on specifications are scrapped or wasted.

COMPONENTS OF LEAN PRODUCTION SYSTEM

A lean production is made of the following interrelated characteristics :

1. Pull Production System - A pull system is a production system that utilizes customer demand as the prime motive for production planning to maximize
the useof production resources. Producers that have highly repetitive processes, well-defined workflows and standard products use a pull system

2. Push Production System- The push system centers on maximizing the use of production capacity and depend on estimated customer demand.
Producers with processes that entail long lead times and with available precise forecasts of demand, a variety of products the need common processes
and customers who are not eader to wait long for the product use push system.
3. Small Batch Sizes- A batch is a quantity of products that are manufactured together. Under the lean production system batch sizes have to be small as
possible. Small batches are advantageous due to reduced average level of inventory. In addition small batches pass through the system quicker than
large batches. Small batches allow for early detection of any quality problems and help attain a standardized workload on the system. Smal batches
could also be moved around more effectively leading to capacity efficiency.

4. Short Setup Times - Small lots are advantageous to operations, but to the disadvantage of the increasing set up. A setup is a group of activities to
change or readjust the process between successive batches of products. Normally, a setup takes the same amount of time in spite of the batch size.
Formula for most economical batch size is:

Most Economical batch size = √2 x D x s/h

Where D = the demand for the product
s = set up time
h = processing time

5. Just-in Time Inventory- Known popularly as JIT, its objective is to make the correct amount of inventory accessible at the right time. In TPS, kanban is
the method of implementing the JIT. Kanban is the card used to control the flow of production through a factory. The original concept was borrowed from
the product control cards with product-related information like product name supermarkets. Supermarkets and other mass merchandising stores utilizes
product code, and storage location are contained.

6. Uniform Production Planning- The lean production system is advantageous to be used during the time that production conditions are stable. High
fluctuation in demand needs either higher inventory or the ability to change the production capacity and schedule quickly. In manufacturing operations,
the standardization of components across multiple products known as part commonality or modularity increases repeatability. Part commonality permits
a company to make immediate change from production of one product to another production of product. Therefore, modularity lessens dust to another
inventory requirements. Under the lean production system, standardization of work functions is also possible. Standardization of both components and
work function increases productivity. Owing to increased repetition, workers are able to work efficiently.
7.Continuous Improvement or Kaizen-Kaizen means continuous improvement. Under the lean production system it is best to produce goods and
services that will delight customers. Hence, the main concept is to create quality into the production process instead of inspect finished goods for
quality defects. In order to achieve this concept, the practice of quality at the source is being practiced. Quality at the source means that every
employee should act as his own quality inspector. This will prevent a defective unit from abandoning a work station and moving to the subsequent
process. Pidoka is another approach used to prevent quality problem from happening repetitively in a production process. In pidoka, a defective part or
equipment when discovered malfunctioning, the machine concerned automatically stops, operators stop working and correct the mistake.
8. Close Supplier Relationships - Lean system functions with low levels of capacity slack and inventory, companies must create close relationship with
their suppliers. This relationship will guarantee uninterrupted supply of raw materials and component parts. Firms need to to regard suppliers as partners
and co-value creators in the supply chain. In addition, suppliers must be near to the production facility to avoid waste in transportation and to deliver raw
materials and components at frequent intervals. The long term relations put pressure on suppliers to deliver high quality materials and components
though enjoy its benefits. Access to information from the lean producers offers the advantage of planning ahead for their production. Lean producers
always include suppliers in the first part of product development to prevent problems from happening once production begins which is called engineering.
It is a win-win situation when there is close cooperation between concurrent lean producers and their suppliers.

9. Multifunctional Work Force- Under the lean production systems, workers are trained to perform several tasks at the same time. This way worker can
flexible that he can be shifted among workstations when needed especially when some employees are on vacation or sick. Training is not only for
flexibility but also for making certain the quality at workers' own tasks. Workers of lean producers need a higher level of training due to higher level of
skills required of them. Workers enjoy this type of environment because it adds more diversity in their jobs.

10. Five S - A messy and disorganized workplace produced inefficient workers. It takes a lot of wasted time looking for tools and equipments moving
around scattered things. Under the lean production system, the "five S" principle is utilized to produce a more organized workplace. The five S's consists
of seiri (sort), seiton (straighten), seiso (shine), seikitsu (standardize) and shitsuke (sustain).

THE FIVE S

1. Sort - Separate needed from unneeded items and discard unneeded.

2. Straighten - Neatly arrange what is left with the place for everything and everything in its place. Organize the workplace so that it is easy to find what is
needed
3. Shine - Clean and wash the workplace and make it shine
4. Standardize - Establish schedules and methods for performing the cleaning and sorting. Formalize the cleanliness that results from regularly carrying
out the first three S practices so that perpetual cleanliness and a state of readiness are maintained.
5. Sustain - Create the discipline to perform the first four S practices so that everyone understands, obeys, and practices the rules when in the plant.
Implement mechanisms to sustain the gains by involving people and recognizing them via a performance measurement system.
11. Visual Control- Visual controls or ardon are indicators that are situated in plain sight of all employees in order to quickly and easily comprehend the
and performance of the work system. Ardon is a Japanese practice of placing cords that operators can pull to signal supervisors and other workers that
a problem happened.

12. Preventive Maintenance- Under the lean production system, there is little slack or buffer inventory between workstations and any unplanned
downtime could pose destruction. It is a requirement under the lean system that all equipments and processes operate unfailingly. Planned downtime
and scheduled maintenance are better than unplanned downtime. Preventive maintenance can lessen the occurrences and length of machine downtime.
Maintenance is usually done in a scheduled time that makes balance the cost of preventive maintenance and the risks and costs of machine failure.
Another technique is to let workers do the routine maintenance of their own equipment or machine and keep them in good conditions to generate pride in
them.

13. Value Stream Mapping- Under the lean production system, value stream Mapping (VSM) is an essential component. It can be the initial point to assist
management, engineers, production associates, suppliers and customers alike to identify waste and their causes. It is used both as a communication
practice and a strategic plan instrument. In the value stream mapping the flow of materials and information are mapped from the time products come in
the back door as raw materials, throughout all production steps until such time they are moved off the loading dock as finished goods. The map reveals
both the present condition and guidelines in arriving at a future desired condition through utilizing lean production technique. There are a number of icons
used to create a value stream map.

Process Symbols
Icon Name Description

Customer/Supplier This icon represents outside sources, it represents the supplier when placed in the upper
left, and the customer when placed in the upper-right.

This icon is a process box with operator The process or activity narne is listed in the top
Process bar, and the department or function name in the center area. It may represent a process,
operation, department or other activity involved in material flows.

This icon is a process box; an area where value can be added to a product. The process or
Production Control activity name is listed in the top bar, and the department or function name in the center
area. It is a shared process operation or department. It includes estimates for the number of
operators required, for the value stream.

Process or activity name in the top bar, Department or function name in the center area.
Process Box with Note the Information technology used to assist in the processing of information in the lower-
Information Technology left comer. If largely or completely manual, may indicate "manual or "manual plus the
information technology used.

This data box is placed under other icons that have information required for analyzing the
Data Table system. It typically includes Cycle Time (Process Time, Lead Time). Changeover Time, and
other processing information.

Information Symbols
 Icon Name Description

This is a visual signal representing a trigger of production of a

Production Kanban specific number of parts.

This indicates batch processing

Batch Kanban

This is a card or device that instructs a handler or operator to

Batch Withdrawal Kanban withdraw items via batch processing from a supermarket.

This is a card or device that instructs a handler or operator to

Withdrawal Kanban withdraw items from a supermarket.

A database.
Database

Text box for including relevant information only as needed.

Information Box

Figure 4 Material Symbols

Icon Name Description

Physical Pull This is a withdrawal of materials from a supermarket.

Shipment Truck This represents shipments using external transport from a supplier. It may be labeled with
the frequency of shipment.

Inventory This is a material Queue of products that are not being processed. It represents storage of
raw materials as well as finished goods. The time period may be listed below the icon.

Supermarket This is an inventory “supermarket” that contains some inventory available to downstream
customers enabling them to select what they need. The next process or customer would
pull from this inventory.

Push Arrow This icon represents a push of information or material from one process to another. A
process produces something regardless of the downstream needs.

FIFO Lane This represents a First In, First Out Sequence Flow.

Inventory/In - box An In-box is an information queue. This icon indicates inventory. Inventory is usually
paperwork or electronic files. If there is a cost (5 value) listed below the symbol. It
represents the scheduling priority.

Operator This is the symbol for worker. It is added to a process box to indicate a worker completes
some or all of the process tasks.
Multiple Operators This symbol and number represents the number of workers involved. percentage of time
to perform the specific process may be noted in parentheses to the right of the number of
workers.

Load Levelling This icon batches karibans to level mix or volume.

Phone This represents collecting information via telephone.

Kaizen Burst This highlights improvement needs at a specific process that is critical to achieving the
future state map.

Manual Information This arrow indicates manual flow of information.

Electronic Information This shape represents electronic flow of information.

Go See Scheduling Glasses represents collecting information visually. It can also indicate Informal
Scheduling.

Kanban Post This represents a location for kanban signal packup.

Pull Arrow This indicates that a customer or process pulls from a previous process.

Pull Arrow 2 This indicates that a customer or process pulls from a previous process.

Pull Arrow 3 This indicates that a customer or process pulls from a previous process.

Pull Arrow 4 This indicates that a customer or process pulls from a previous process.

Safety / Buffer Stock This is an inventory stock reserved for specific circumstances.

Sequence Pull Ball This icon represents a pull system that gives instruction to other processes to produce a
predetermined type and quantity of product without using a supermarket.

Shipment or Materials This represents material or product flow from supplier to process or from process to
Movement arrow customer. Supplier to process flows top to bottom; process to customer flows bottom to
top.
 Timeline Total This represents the end of a lifetime. It includes totals for value-added and non-value-
added time.

NEW ADVANCES IN LEAN PRODUCTION

Technology in Lean Production

In production facilities today, fresh types of automated reasoning, learning and control are being employed. One example is the expert system that make
use of intelligent rules to make logical decisions to answer a specific problem or control an operation or machine; advanced search logarithms to explain
complex optimization problems and intelligent agents that execute tasks like machine scheduling, material transfer, and web auction bidding.

The use of radio frequency identity (RFID) is now increasingly becoming popular in use to manage lean inventory systems.

RFID is a data collection that uses radio waves to send and receive data between tags and readers. It is used by organizations to better track their
inventory hence lessening the need to hold surplus quantities.

RFID is very new but it has already shown potential to modernize the value chain for products and enhance the advantages of lean production practices
more.

Lean Production and Six Sigma = Lean Sigma

Lean Six Sigma is a combination approach using lean production and six sigma. It centers on improving process flow and speed plus enhancing the
quality. In order to make the process successful the following are the five different laws for Lean Six Sigma:

1. The law of the market: Customers are critical to quality because they define quality and is the highest priority for improvement.
2. The law of flexibility: The more the process is receptive and flexible to adopt changes, the better the progress of the project implementation is.
3. The law of focus: This can be interpreted as main causes of delay of activities originating from just 20% of activities thus enables a faster refocus
during the reorientation phase.
4. The law of velocity: Higher the number of work in progress (read unfinished tasks) the lower is the speed of progress due to various ground level
handicaps.
5. The law of complexity and cost: The bulky nature of products is against the foundation of Lean manufacturing principles. The bulk, complex
manufacturing process and product and service specifications contributes to render the offerings redundant.