Chapter 9 Outsourcing
Problem 1: Answer the following questions about the case at the beginning of this chapter: a) Describe Zara’s current sourcing strategy. How is it a competitive advantage for the rm! b) "hat specic challenges is a result of Zara’s rapid inventory turnover! portions ofZara’s replenishmen replenishmentt strategy ma#e it easier to manage!
"hat
c) "ill Zara’s current sourcing strategy continues to be useful as it e$pands! How should this strategy change! "hat are the ris#s associated with this new strategy!
Answer a):%ost other retailers &li#e American chain 'A( and wedish retailer H*%) completely outsource outsource their production to factories around the world+ most of them in low cost Asian countries. ,he production which is not outsourced is owned or closely-controlled closely-controlled facilities-tremendous facilities-tremendous amount of e$ibility and control. Answer b):hort lead time / more fashionable clothes 0ower quantities / scarce supply %ore styles / more choice+ more chances of hitting it right%ore designers / rapid implementation of ideas 1sually shorter routes tore receives garments within 2-3 days several times a wee#. Answer c): 4oncerning ZA5A s impressive6 growth during the last years despite of their di7ering strategy+ itwould not ma#e sense to e$pand the new strategy. strategy. 8f course for the moment they prot by the highermargins &because of the lower production costs)+ but ZA5A s customers set value on premium quality6and in-season fashion. ZA5A does not ma#e brand advertising li#e other brands do so. ,herefore the most important about ZA5A is their 9%A'.
Problem 2: Discuss the impact of the product product life cycle on the buy;ma#e framewor# developed inection 9.3 Answer: 9n order to assess the e7ect of product life cycles on the ma#e;buy framewor# developed in ection <.=+we need to understand how product #nowledge and capacity requirements evolve over the life cycle ofa product. A typical product product life cycle has several stages: 2. ,he product is newly introduced+ and bought initially by a relatively small number of customers&early adopters). At this stage of the product life cycle+ production level
is low and capacity is usuallynot an issue. 1nder these conditions+ the buy;ma#e framewor# implies that anew product should not beimmediately outsourced. outsourced. 3. 9n the rapid adoption phase+ demand for the product increases at an increasing rate. 9f this leads totight production capacity+ and the production processes are already stable+ then outsourcing should beconsidered. 9t may even be the only choice to #eep up with the increasing demand. =. "hen the product product reaches the maturity phase+ i.e.+ when demand stabili>es over time+ then the outsourcing decision should be re-conside re-considered red under the framewor# discussed in ection <.=. ?or instance+ if earlier an integral product was outsourced due to capacity constraints+ constraints+ then the rm should consider installing additional capacity to meet the stabili>ed demand+ and manufacturing the product in-house. @. "hen the product is approaching its end-of-life+ outsourcing is a good option for both integral andmodular products because the company should focus on new products.
Problem 3:Apply the hierarchical model discussed in section <.= to 9% decision in the early 2ing. At one point in the last few years+the mar#et value of %icrosoft+ a company with 2;2C the revenue of 9%+ was higher than that of 9%. Problem 4: 4onsider a consumer product manufacturer such as (rocter * 'amble. Analy>e whether the company should outsource the production of products such as shampoo. 9s your recommendation consistent with (*'Es strategy! 9f not+ e$plain the reason for the the di7erence between your strategy strategy and and what what is done by (*'. Answer: Fes+ Fes+ ,he impetus for (*'’s outsourc outsourcing ing strategy can can be traced to the formation of the company’s global business services department in 2<<<. 8ne of the largest and most far-reaching shared services organi>ation in the world at the time+ 'lobal usiness ervices &') consolidated more than GCservices+ including facility management+ real estate+ accounting+ information information technology and human resources
Chapter 8: Global Logistics and Risk Management
Problem 1: Discuss situations in which each of these supply chains might be the appropriate choice for a rm: a.
9nternational 9nternational distribution systems. b. 9nternational 9nternational suppliers. c. 87shore manufacturing. d. ?ully integrated global supply chain. Answer (a): Domestic production with international distribution is typical for small businesses that attempt to e$pand to serve global mar#ets. ?or instance+ %avi eans manufactures its products in two facilities in 9stanbul+ ,ur#ey+ but sells them in more than =+CCC locations worldwide. &ee %avi eans&3CC=).) Answer (b): ,he product&s) may be so comple$ that the necessary e$pertise and resources tomanufacture di7erent components are spread across the world. ?or instance+ oeing has more than2I+CCC suppliers in B2 countries. &ee ,he oeing 4ompany &3CC=).) Answer (c): ,ypically+ high labor cost in labor-intensive industries causes manufacturing operationsto shift o7shore. ?or instance+ consider Ji#e+ which subcontracts its manufacturing to appro$imately=IC factories in the Asia-(acic region employing nearly @CC+CCC wor#ers. &ee Ji#e &3CC=).) Answer (): A fully integrated supply chain is crucial for companies that implement e$ible globalsupply globalsupply chain strategies in a highly variable environment+ e.g.+ for companies that intend to shift production from country to country in order to reduce costs or ris#. ,he (4 manufacturing industry isa good e$ample of this.
Problem 2: Discuss a recent e$ample of an un#nown-un#nown ris# that proved damaging to a supplychain. $plain specically specically how each of the following strategies might have mitigated this ris#:
a. 9nvest in redundancy. b. 9ncrease velocity in sensing and responding. c. 4reate an adaptive supply chain community. Answer:
Problem 3. Fou Fou are the the 48 of a small electronics electronics manufacturing manufacturing rm rm that is about to develop a global strategy. "ould you prefer a speculative strategy+ a hedge strategy+ or a e$ible strategy! "ould your answer to this question change if you were the 48 of a large electronics rm! Answer: Although the specic answer depends on the management style+ resources and long-term strategies ofthe rm+ a hedge strategy seems more appropriate for a small rm. ?ollowing a speculative speculative strategy may be disastrous if the company does not have the si>e and nancial strength strength to absorb potentiallosses associated with a speculative strategy. 8n the other hand+ following a e$ible strategy mayrequire a signicant amount of additional investment in infrastructure to ensure the necessary coordination+ and for the re-design of products and processes. ,he resources necessary to implement ae$ible strategy successfully may not be available to a small rm. 4learly+ for a large rm+ thenancial and resource 3< constraints may be much less relevant than for a small rm+ and the globalstrategy to be employed may be any of the three strategies mentioned above depending on thespecics of the situation.
Problem 4: Discuss some e$amples of regional products and of true global products. "hat is it aboutthe products that ma#es them better suited to being regional or global products!
Answer: ome of the factors that a7ect whether a product can be sold globally without modication are discussed below:
2. rand recognition. recognition. ome brands have developed a global image of quality and desirability thatthey do not have to be customi>ed to regional and national tastes. ,his is especially true for lu$ury brands+ such as ?errari that sells the same cars globally. 3. 4ultural di7erences. ome products reect long-term traditions and;or a certain regional tastedeveloped over time+ and t into the regional category. A lot of food products fall here+ and it is muchharder for these products to get accepted globally. ?or instance+ it is hard to thin# of #abobs that arevery arevery popular in the %iddle ast to be sold in global chain restaurants. restaurants. An e$ception in this category is pi>>a+ for instance. =. tandardi>ation. tandardi>ation. 9n consumer electronics and computer manufacturing there are plenty ofe$amples of global products. ,he comple$ity of such products requires standardi>ation throughout theworld+ and ma#es them global products. However+ note that e$ceptions e$ist. ?or instance+ ,Ksystems in the 1 and urope urope are are di7erent+ di7erent+ and the same same ,K set cannot cannot be sold in both mar#ets.%edical products also t into this category as long as they satisfy di7erences in health regulations indi7erent countries. Problem !: Fou are the manager of a regional ba#ery. 4ontrast the issues you would face if your rm is located in each of the following countries:a. elgium b. 5ussiac. 5ussiac. ingapored. 4anadae. Argentinaf. Jigeria
Answer: 9n elgium and 4anada+ the most important issue would be #eeping #eeping the costs down. a#ery production is labor-intensive and requires relatively uns#illed labor. However+ uns#illed labor costs inthe ?irst "orld countries are typically very high compared to the rest of the world. 9n the emergingnations+ such as 5ussia+ ingapore and Argentina+ logistics issues would be most important since thenecessary infrastructure may not be in place. 8ntime delivery of ba#ery products is crucial becausethey are perishable items+ and there is a time window they need to reach the ba#eries in order to besold. ?or instance+ if the fresh
products arrive arrive at noon+ instead of early in the morning+ most of theseitems may be left on the shelves at the end of the day. 9n a ,hird "orld country+ such as Jigeria+ inaddition to the logistics problems mentioned above for the emerging nations+ environmentalconditions environmentalconditions may not be suLcient to ensure a healthy production of ba#ery products. ?or instance+water may not be clean+ etc. Problem ": Answer these questions about the article at the beginning of this chapter: chapter:
&a) 8ther than a need to e$pand+ what other reasons would "al-%art have for opening stores globally! &b) "hy would it be benecial for "al-%art "al-%art to have suppliers in di7erent countries! &c) "hy would "al-%art want strong centrali>ed control of its stores! "hy would "al-%art wantstrong local control of stores! &d) "hat pitfalls and opportunities+ other than those mentioned in this article+ will "al-%art face overthe ne$t few years! Answer &a): (ossible reasons for "al-%art to start international operations include:2. Domestic revenues do not increase at a pace "al-%art wants them to. ,herefore+ "al-%art intendsto achieve a high growth rate in foreign countries to hedge against the slow business in the domesticmar#ets.3. A rival uropean chain+ 4arrefour A+ has already a strong presence in the outh American mar#et."al-%art could lose the mar#et totally if it did not respond quic#ly.=. ?oreign operations would also help "al-%art identify potential new low-cost suppliers fordomestic operations. Answer &b): Having many suppliers in di7erent countries would enhance "al-%arts everyday low pricing formula by allowing it to hedge against cost increases due to economic and;or politicalconditions in a given country. Answer &c): trong centrali>ed control is helpful for aligning local operations with the overallcorporate obectives. Additionally+ "al-%arts years of domestic e$pertise in retail operations+ e.g.+distribution e.g.+distribution systems+ can best be leveraged to improve distribution in outh America if
strongcentrali>ed strongcentrali>ed control is implemented. 8n the other hand+ it may be impossible to analy>e customer preferences and understand cultural di7erences unless local managers control cert ain aspects of the business. Answer &d): 9n general+ political instability instability is a maor concern in outh American countries. ?orinstance+ ?orinstance+ due to the recent downfall of the Argentine economy+ "al-%art may e$perience diLcultiesif the Argentine government starts to employ policies that favor domestic producers rather thanforeign thanforeign companies. Also+ if the dollar continues to gain in value against maor outh Americancurrencies such as the Argentine (eso and ra>ilian 5eal+ American e$ports into these countries will be e$pensive compared to their local competitors+ which will negatively impact "al-%arts margins.
Chapter 1#:
Coorinate Prouct an $uppl% Chain &esign
Problem 1: 0ist two low cloc# speed products+ two medium cloc# speed products+ and twofast cloc# speed products. Answer: 0ow cloc# speed products would include diamond mining and electricity.%edium cloc# speed products would include automobiles and computer operating systems.High cloc# speed products would include and cosmetics and games and toys.
Problem 2: How does a low cloc# speed impact the product design strategy! strategy! How about afast cloc# speed! Answer: 0ow cloc# speed a7ects the product design strategy in that the focus is less on speeding up product development or postponing di7erentiation and modularity as it is not that import antfor more functional products.
High cloc# speed a7ects product design in that the focus is on modular product architecturesin architecturesince ce it allows independent development of product subcomponents. ,here is
also greaterweight greaterweight placed on postponement of product di7erentiation+ di7erentiation+ sometimes until demand isreali>ed.
Problem 3: 'ive an e$ample of a product appropriate for each of the bo$es in ?igure 22.=. Answer: o$ A-5iceo$ - 9nfotainmento$ 4-emi-conductorso$ D- ewellery
Problem 4: Discuss some e$amples of products that are designed to lower shipping andstorage costs. Answer: ome of the items that are designed to reduce shipping and transportation costs are productsthat can be pac#ed compactly and can be pac#ed in great quantities without the transportationmode reaching weight carrying capacity. ,hese would include fashion items+ such as clothes+shoes and bags. Also included would be products that can be bo$ed bo$ed or placed in containerssuch as consumer goods such as canned food or other such groceries. Also included would plastic products that can be easily pac#aged such as ,upperware. 2.
9MA ?urniture 3.
?loor lamps =.
,upperwar ,upperware e made by 5ubbermaid 5ubbermaid @.
4ollapsible chairs I.
?ede$ pac#age bo$
Problem !: How does the proliferation of products+ models+ and options ma#e the supplychain more diLcult to manage! Answer: ,he proliferation proliferation of products+ products+ models and options ma#e ma#e the supply chain more diLcult diLcult tomanage in that the great variety of products as they are produced in sequence cause longerlead times. ,his means that concurrent and parallel processing is necessary. ,his then meansthat the manufacturing manufacturing process itself has to be modied to be conducive to such processingand manufacture. Another diLculty may arise in that for each product or module+ di7erentlevels di7erentlevels of inventory may be necessary and these have to be integrated into the manufacturing process for each product or model.87ering more products+ models+ and options requires more customi>ation and morecomplicated production scheduling.(roduct proliferation ma#es it diLcult for manufacturers to ta#e advantage of economyof scale+ because products are processed in small batches.87ering more products adds diLculty to inventory tracing. Jon-aggregate demand usually has higher variability than aggregate demand.
'reat demand variability ma#es forecast inaccurate."hen demand variability is high+ a rm needs to prepare more stoc# to maintain the sameservice level than when demand variability is little.
Problem ": "hat are the advantages of downward substitution! "hat are the disadvantages! Answer: ome of the advantages for downward substitution include being able to ma#e use ofaggregate forecast for products+ which means the forecasts would be more accurate as theywould be aggregated over a larger number of products that would then be di7erentiatedfurther downstream+ or those products which are already of slight di7erence. Anotheradvantage Anotheradvantage would be that components can be made ready for the consumer when demandarises but no stoc# is #ept for a specic end product+ which means the available componentscan be used thus capitali>ing on downward substitution+ and thus loss due to obsolescence isless li#ely to occur.Disadvantages of downward substitution include that fact that certain products may requiremodules that are not of the same quality as the standard modules provide. ,his can lead tolower quality products because one of the components was not of the correct quality. Anotherdisadvantage is that if the components had an error at manufacturing all the products cannot be assembled thus resulting resulting in a loss of customer satisfaction.
Problem ': "hat are some products or industries that have been damaged by e$cessive partstandardi>ation! Answer: 8ne of these industries is the personal computer industry. tandardi>ation must be a positiveforce positiveforce to eliminate the cost and inconvenience caused by the possible incompatibility incompatibility between products o7ered by di7erent vendors+ and still allows competition and innovation. $cessivestandardi>ation $cessivestandardi>ation could reduce design options and a7ects the development of a product orindustry. %icrosoft windows is an e$ample of e$cessive standardi>ation. standardi>ation. ,he large population of % windows users and the wide acceptance of this operating system am ongvarious software vendors ma#e many % window technologies industrial standards.%icrosoft ta#es advantage of this to bloc# competition and manipulate mar#et rather thanimprove the performance of its products.
Problem : Discuss some e$amples of modular and non-modular products and processes. Answer: A modular product would be a cell phone+ a television or a watch. Jon-modular products include remote controls or rice products.A modular process would include the assembly of an automobileAnon-modular automobileAnon-modular process would include the ma#ing of chocolate or ice cream.
Problem 9: How do standardi>ation standardi>ation strategies help managers deal with demand variabilityand the diLculty of ma#ing accurate forecasts! Answer:
tandardi>ation strategies help managers deal with demand variability and accurate forecasts in that by standardi>ing+ the organi>ation can reduce the uncertainty of forecasts by using aggregate forecasting across all the products thereby getting a more accurate forecast. tandardi>ation helps managers deal with variability in demand in that the products can be di7erentiated according to demand at the point of demand by the customer. 9n this way+ the products that are wanted by customers are the ones assembled using the component parts which can be used for other products as well. Problem 1#: "hat are the advantages and disadvantages disadvantage s of integrating suppliers into the product development process! Answer: 8ne of the advantages is that the organi>ation may not have the e$pertise to develop those new products and in involving suppliers who do+ the organi>ation can still continue with the introduction of the new product but without going through the process of trial and error that would incur costs. Another advantage is that the suppliers can gain e$perience with the new product while the organi>ation continues with its core competencies. ,he fact that costs and ris# could be separated between the organi>ation and suppliers is also an advantage. A disadvantage could be that the organi>ation may lose out on being credited for the idea
alone but also faces the possibility of the innovation getting out too early. Another disadvantage disadvantage would be that the organi>ation may not be learning everything about the product and could thus lose out on further opportunities to innovate
