Page 271 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes out through a distribution system to the end user. The twin objectives of materials management
are to achieve this at the lowest possible cost and in a way that best serves customer needs,
thereby lowering the costs of value creation and helping the firm establish a competitive
advantage through superior customer service. The potential for reducing costs through more
efficient materials management is enormous. For a typical manufacturing enterprise, material
costs account for between 50 and 70 per cent of revenues, depending on the industry. Even a
small reduction in these costs will have a substantial impact on profitability.

Power of Just-in-time

The basic philosophy behind just-in-time systems is to economise on inventory holding costs by
having materials arrive at a manufacturing plant just in time to enter the production process and
not before the major cost saving comes from speeding up inventory turnover.
The drawback of a JIT system is that it leaves a firm without a buffer stock of inventory. Although
buffer stocks are expensive to store, they can tide the firm over a shortages brought about by
disruption among suppliers (such as labour disputes).

role of organization structure

As the number and dispersion of domestic and foreign markets and source grow, the number
and complexity of organizational linkages increase correspondingly in a multinational enterprise,
the challenge of managing the costs associated with purchase, currency exchange, inbound and
outbound transportation, production, inventory, communication, expediting, tariffs and duties
and overall administration is massive.
figure 14.1: Potential materials management linkages
North America Europe Far East

Market Market Market Markets

Plant 2 Plant 3 Manufacturing
Plant 1 Locations
Plan 1
t

Source A Source B Source C Source
Locations

Figure 14.1 shows the linkages that might exist for a firm that sources, manufactures and sells
internationally. Each linkage represents a flow of materials, capital, information, decisions and
people. The firm must figure out the best organization to achieve tight coordination of the various
stages of the value creation process.

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