Chapter 16 Outline

Introduction

In the opening case, Li & Fung deals with a number of issues that many other firms competing in today's global economy also have had to deal with. To serve the needs of its customers, Li & Fung has to decide how best to distribute manufacturing activities among operations based in various countries so as to minimize costs, produce products that have an acceptable level of quality, and do so in a timely manner. Li & Fung scans its global network of some 7,000 suppliers located in 26 countries to make these decisions, weighing factors such as labor costs, trade barriers, transportation costs, and product quality, and only then deciding what should be produced where and in what quantities. Li & Fung often unbundles the value chain associated with producing a product, dispersing various parts of the chain to different locations depending on an assessment of the value that can be created by performing an activity in a particular location. Li & Fung must then coordinate and control the globally dispersed value chain so that it minimizes the time between receipt of an order and delivery of the finished product.

In this chapter, we look at the problems that Li & Fung and many other enterprises are facing and at the various solutions. We will be concerned with answering three central questions:

• Where in the world should productive activities be located?

• How much production should be performed in-house and how much should be out-sourced to foreign suppliers?

• What is the best way to coordinate a globally dispersed supply chain?

We will examine each of the three questions posed above in turn. We begin, however, by reviewing how the information covered in this chapter fits into the "big picture" of global strategy that we introduced in Chapter 12.