Page 266 - DMGT545_INTERNATIONAL_BUSINESS

Unit 14: International Production and Logistics Management

notes

Note Mostly all MNCs have based their production units in South-East Asia due to
very low labour costs.

Technology to reconcile two goals that were once though to be incompatible-low cast and product
customization. Flexible manufacturing technologies vary in their sophistication and complexity.
One of the famous examples of flexible manufacturing technology, Toyota’s production system,
is relatively unsophisticated but it has been credited with making Toyota the most efficient auto
manufacturing in the world. Toyota’s flexible manufacturing system was developed by one of the
company’s engineers, Ohno Taiichi. He observed numerous problem with the mass production
system:

l z First, long production runs created massive inventories that had to be stored in large
warehouses. This was expensive, both because of the cost of warehousing and because
inventories tied up capital in unproductive uses.

l z Second, long production runs because of initial machine settings were long resulted in the
production of a large number of defects.
l z Third, the mass production system was unable to accommodate consumer preferences for
product diversity.
In response, Ohno looked for ways to make shorter production runs economical. He
developed a number of techniques designed to reduce set-up times for production
equipment (a major source of fixed costs). By using a system of levers and pullets he
reduced the time required to change dies on stamping equipment from a full day in
1950 to 3 minutes by 1971. This made small production runs economical, which allowed
Toyota to respond to customer demands for product diversity. Small production runs also
eliminated the need to hold large inventories, thereby reducing warehousing costs. This
allowed Toyota to produce a more diverse product range at a lower unit cost that was
possible with conventional mass production.
Flexible manufacturing cells are another common flexible manufacturing technology. It is
a groping of various types of machinery, a common materials handler, and a centralized
cell controller (computer). Each cell contains four to six machines capable of performing
a variety of operations. The typical cell is dedicated to the production of a family of parts
or products. The settings on machines are computer controlled which allows each cell to
switch quickly between the production of different parts or products.
Besides improving efficiency and lowering costs, flexible manufacturing technologies also
enable companies to customize products to the unique demands of small consumer groups-
at a cost that at one time could be achieved only by mass production of a standard product.
Thus the technologies help a company achieve mass customization, which increases its
customer responsiveness.

self assessment

Fill in the blanks:
1. ................. to the concept of economies of scale is the idea that the best way to achieve high
efficiency, and hence low unit costs, is through the mass production of a standard output.
2. The ................. implicit in this idea is between unit costs and product variety.
3. Producing greater product variety from a ................. implies shorter production runs, which
in turn implies an inability to realize economies of scale.

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