The Global Economy

Forces Surrounding Global System of Production

• 3. Enabling Technologies- transport, communications, production and organizational improvements
• Explosion of enhanced transport and communication services such as air cargo, integrators offering definite time delivery (FedEx and UPS), electronic mail and electronic data interchange (EDI)
• Advanced inventory management such (just-in-time (JIT)) and new systems of distribution such as third party logistics (3PL)

Just-in-Time and its Logistic

Moving storage

units

Delivery units for

parts

Delivery units for

finished goods

Warehouse

Old warehouse before

Just-in-Time

FACTORY

Assembly and warehousing

place

Production Unit

Moving storage

units

Assembly Line

% of Products Shipped for “Just-in-Time” Manufacturing

Forces Surrounding Global System of Production

• 4. Shifts in Market Conditions and Demand
• Economic cycles affect markets and production, e.g. the Asian financial crisis
• Dramatic shifts in demand affect over time influence type of good being produced and production schedules
• Application of new technology can mean product obsolescence
• These changes can be described in part through product life cycle

Product Life Cycle

• Essence of PLC is that growth in sales of product follows systematic path, from initial introduction to market through development, growth, maturity, decline and obsolescence

Product Life Cycle

Sales

Stage 1

Stage 2

Stage 3

Monopoly

Competition

Research and

development

Maturity

Decline

First competitors

Mass production

Innovating firm

Competitors

Growth

Stage 4

Promotion

Idea

Decline of

production

Cellular Phones of Nokia

• Evolution of basic Cellular phones are an example of a product which is especially applicable to the notion of the product life cycle
• phone to color enhancement to camera and email device

Global Financial Centers

London

New York

Los Angeles

Singapore

Hong Kong

Tokyo

Telecommunications

Space

Time

Hinterland

Stock Market Opening Period

Global Production Chains and Networks

• Production Chain: Materials > Procurement > Transformation > Marketing and Sales >Distribution > Service
• Definition: transactionally linked sequence of functions where each stage adds value to the process of goods and services production
• Two aspects important: coordination and regulation and geographical configuration
• Production chains may be very localized but increasingly are global in scale to take advantage of international division of labor

KIA Auto Parts Flow

• Assembled in S Korea KIA Sorrento clear example of global supply chain
• Uses 30K parts from all around world
• Parts shipped from places as diverse as Wales and Mexico—but very risky
• War in Iraq and piracy in Malacca Straits
• Demonstrate surprising adaptability due to advance planning, multiple sourcing of parts and ability to shift routes on short notice

KIA Auto Parts Flow

• Communicates regularly with suppliers-at least once a week
• Order several months in advance
• If necessary use air freight instead of sea freight
• Greater demand forced KIA to air freight airbags from Swedish company which makes them in the U.S.
• Greater expense of trans-Pacific flight better than slowing down production line