Global Production,

Outsourcing, and Logistics

Discussion Section
April 6, 2007
Brian Chen

Agenda

Review Chapter 15 (Export/Import)

Review Chapter 16 (Global
Production)
Briefly Discuss Dell Case
Global Production Group Discussion

Chapter 15:
Export/Import/Countertrade

Outline some of the tremendous

advantages and common pitfalls of
exporting
Identify the primary sources of information
available to firms interested in exporting
Describe the "nuts and bolts" of exporting

L/C, Draft (Bill of Exchange), Bill of Lading

What do these documents serve to do?

To transfer the risk of nonperformance to a

third party specializing in taking such risks

Suggest how firms can use the EXIM bank

and insurance to facilitate exports

Chapter 16: Global Production,

Outsourcing, and Logistics

Where should production be located and should they

be concentrated or dispersed?
What should be the long-term strategic role of
foreign production sites? Should the firm abandon a
foreign site if factor costs change, or is there value to
maintaining an operation at a given location even if
economic conditions change?
Should the firm own foreign production or should
production be outsourced?
How should a globally-dispersed supply chain be
managed?
Should the firm manage the logistics or outsource
their management?

Dell Case: Question 1

What are the advantages to Dell of

having manufacturing sites located
where they are? What are the
potential disadvantages?

Answer

Dells manufacturing sites are in

Brazil, China, Malaysia, Ireland, and
the U.S. Advantages of these
locations are that some of them are
low cost (Brazil, China, Malaysia and,
relatively, Ireland), they have
educated work forces that are highly
productive, and they are near large
regional markets.

Dell Case: Question 2

Why does Dell purchase most of the

components that go into its PC from
independent suppliers, as opposed to
making more itself? (Does does little
more than final assembly of
components into PC)

Answer

Dell outsources because it enables Dells

business model to be successful. Dells
comparative advantage is in pricing,
customization and rapid order fulfillment, all
advantages gained through supply chain
management and logistics. By outsourcing,
Dell does not carry risks connected to
inventory such as obsolescence, Dell can
maintain flexibility in its manufacturing, and
Dell has lower coordination costs than if it
were vertically integrated, producing its own
parts. Outsourcing allows Dell to focus on
what it does best.

Dell Case: Question 3

What are the consequences for Dells

cost structure and profitability of
replacing inventories with
information?

Answer

Dell has been able to achieve the lowest inventory

levels in the industry. In 2004, that was only three
days of inventory on hand, compared to 30, 45, or
even 90 days worth at competitors. This is a critical
advantage in the computer inventory, where
component costs account for 75 percent of revenues
and typically fall by 1 percent per week due to rapid
obsolescence. Replacing inventory with information
has contributed greatly to Dells business model; it is
the cornerstone of their cost structure. Reducing
inventory also reduces the need for working capital.
In sum, replacing inventory with information boosts
profitability.

Dell Case: Question 4

Do you think that Dells model can be

imitated by other PC manufacturers
and manufacturers in other
industries?

Answer

Yes, Dells model can be imitated, but

the managerial skills are difficult to
build. Other companies who are
trying to replace inventories with
information include Wal-Mart, Target,
Best Buy, and Circuit City. Auto
manufacturers also have been making
strides in this direction.

Dell Case: Question 5

What factors might make it difficult

for other PC companies to adopt
Dells model?

Answer

The chief factor that makes it difficult

for other PC firms to adopt Dells
model has to do with managerial
know-how. Knowing what to do is
simple. Knowing how to do it is
immensely complicated.

Dell Case: Question 6

What is the source of Dells

competitive advantage? How secure
is this advantage?

Answer

Low cost is the source of Dells

competitive advantage. Dell seems
to be able to counter competitive
challenges, which evidences
management capability. This
indicates a relatively secure
advantage, but because it is imitable,
it is not tremendously secure.

Dell Case: Question 7

What are the potential risks

associated with Dells global supply
chain strategy? How can these risks
be mitigated?

Answer

There are many risks associated with Dells supply

chain management. If the transportation links are
disrupted (work stoppages, terrorism), Dells
approach will be affected. Also, they are vulnerable
to problems their suppliers have. Dell is also
vulnerable to IT issues: hacking, system failures.
Their competitors would be facing the same issues,
though. The risks that need most to be mitigated are
the supplier ones because they would not be shared
by competitors. These can be mitigated by
integration with the supplier, and Dell has integrated
with the suppliers supplier as well.

Global Production:
Group Discussion

You are Apple, Maytag, Toyota, and Sony. How will

you coordinate your production activities for the
iPhone, the Maytag Neptune Washer, the Prius, and
the Sony Playstation Portable?

Where should production be located and should they be

concentrated or dispersed?
What should be the long-term strategic role of foreign
production sites? Should the firm abandon a foreign site if
factor costs change, or is there value to maintaining an
operation at a given location even if economic conditions
change?
Should the firm own foreign production or should production
be outsourced?
How should a globally-dispersed supply chain be managed?
Should the firm manage the logistics or outsource their
management?