Exercise 1: Consider the excerpt written by Jim Pinto below and discuss the advantages and disadvantages of the strategy of locating manufacturing facilities where the product is consumed rather than where the company is located in terms of what you have read. (100 points)

Conventional Manufacturing Manufacturing the transformation of materials into products is no longer a primary source of prosperity in the U.S. and almost every advanced economy in the last two generations. The percentage of people employed in manufacturing in the U.S. has declined steadily since the 1960s, from 25% then to less than 10% today. And since perhaps half of the workers in a typical manufacturing firm are involved in service-type jobs, such as design, distribution and financial planning, the true share of workers actually making products is only about 5%. Even China is losing manufacturing jobs between 1995 and 2002, China lost 15 million manufacturing jobs, compared with just 2 million in the U.S. Discussing manufacturing strategies in the first decade of the new century is somewhat like discussing agricultural strategies at the start of the last century. Farming used to employ some 35% in the US at that time, and now employs less than 2%, generally with a surplus of food and agricultural products. To follow the time-shifted parallel a bit further, at the turn of this new century, agriculture in the U.S. is all about high-tech, bio-tech, and info-tech. Theres a continued trend toward fewer, larger, and more specialized production units, continuing until a half-dozen or so large, multinational corporations control virtually all processing and distribution of agricultural commodities in a single global food and fibers market. Also theres increasing vertical integration of production, processing, and distribution functions, and increasing reliance on bio-tech and information technologies at all levels within the global agricultural system. One wonders how much of that is prescient for industrial manufacturing in this century. Manufacturing Strategies in the New Environment Speed, quality, service, flexibility and global focus are identified as the essential elements for successful manufacturing for the next decade. Manufacturers are measured by their ability to respond quickly to sudden, often unpredictable changes in customer needs and wants. In this new era, manufacturing strategy can be defined as a set of coordinated objectives applied to manufacturing functions and aimed at securing sustainable advantage over competitors. Issues generally addressed include: Manufacturing capacity, production facilities, technology advances, vertical integration, quality, production planning/materials control, organization and personnel. Of course, the strategic approach must be combined with a pragmatic approach to continuous improvement at an operational level to ensure competitiveness in global markets. A key part of a manufacturing strategy is the definition of whether products will continue to be produced at the traditional manufacturing sites, or if the cost advantages make it beneficial to set up manufacturing in geographic areas with a lower cost base. The Boston Consulting Group, among others, has advocated that not considering this strategy is tantamount to giving up on a major cost benefit. The initial rush to offshore manufacturing has given way to a more cautious approach. Many companies are taking into account the practical and logistical difficulties and the full financial implications of setting up and operating facilities in remote countries. Greater care is being taken to ensure that product quality issues are properly addressed in the outsourcing or off-shoring exercise, along with recognition of the requirement for active management and control. The China Challenge The key strategic objectives remain how are manufacturing firms supposed to compete with the low-priced goods coming into this country from China? How to beat overseas suppliers that can deliver products for prices that are perhaps 30% lower, because China manufacturers accept much lower profit margins? What can smaller firms in the U.S. do when their domestic customers are moving production and assembly operations out of this country to take advantage of irresistible cost advantages? Manufacturers must strive to identify customer values that offer advantages. China has cheap labor, low cost of capital and improving capabilities in the areas of quality and technology as well as a government-sponsored competition. The result is that, when it comes to large volume production of standard design goods, Chinese manufacturers are tough to beat. But, by that same token, they really dont wish to compete for low-volume and high-variability business. Study your existing and prospective customers. Which among them can afford long lead times after they order the product? The customers that constantly demand quick delivery will have difficulty making a switch to Chinese sourcing. Tactical Solutions The trend over the last several years has been for companies to manage their inventories very tightly to keep costs down. If there is any unpredictability in demand, it is difficult to rely on suppliers that will take months to respond to their needs. In dealing with this uncertainty, they cannot expect a supplier to keep buffer stocks to meet their changing demands, with inventory liability if the market dictates that products must change. The ability to provide fast delivery presents an opportunity to offer significant value beyond the actual price of the products supplied. So, offer customization, modifications and quick product improvements in response to market demands. Search for customers that have this need. They will be more loyal to demonstrated ability for fast turn-around on modifications and improvements. For the supplier, this means developing the ability to modify production quickly. All employees should recognize that this represents the companys strengths, and every customer change-request should be welcomed as a compliment to the companys ability to accommodate them. Suggestions for small manufacturers: Look for customers that view your company as a valuable partner in their product development and design process. In the interest of cost cutting, many of customers may have cut back in some areas crucial for product development. Seek to develop process capabilities and areas of technological expertise that fill these gaps. Once you feel you have the potential to take over these activities on behalf of your customers, change your sales pitch to convince your customer that you have additional ways to contribute to their long-term health. Mass customization Conventional wisdom demands that the route to achieving reduced manufacturing costs and improving profitability in a company is to focus its activities on a limited range of technologies, volumes, products and markets. However, while customers are becoming ever more demanding about cost, quality and performance, they still demand more variety and product customization, rather than less. In the new-age, companies must adopt manufacturing strategies and production technologies (programmable automation, flexible robotics, etc), which will allow increased manufacturing flexibility and the capability to respond quickly and cost-effectively to demands for product variants or truly customized products.