Manufacturing Methods essay paper

Operations Management

Outline how a strategy of globalization will impact on a policy of pursuing economies of scale advantages

Globalization is now becoming a critical aspect in regards to business operations. Due primarily to technological advances, and economic development, a more interconnected world is becoming standard. As such companies that rely primarily on fixed assets will depend more heavily on economies of scale to reduce the unit cost of each unit produced. Due to globalization, it is not uncommon for fixed assets to be structured geographically in a multitude of countries. By having operations domiciled in various countries, companies can further their cost advantages through economies of scale. Global auto manufactures use this technique extensively in the production of their vehicles. Auto manufacturers rely heavily on fixed assets to produce and assemble vehicles. These assets irrespective of production will cost the company. As such Toyota has incentive to spread the fixed costs associated with production and assembly across as many vehicles as possible (Silvestre, 1987). To accomplish economies of scale, the company has strategically placed production facilities around the world to further enhance its cost advantage. For example, Mexico may assemble engines, while an Asian territory may assemble the transmission. Through specialization of labor, and increasing production capacity around the world, Toyota is a better able to achieve economies of scale by reducing the per unit costs of it vehicle components. Many global firms around the world, which rely extensively on a high fixed cost structure, use this technique to achieve lower costs for consumers (Jones, 2010).

2) Evaluate the strategies of lead capacity, match capacity and lag capacity for a retail outlet

Lead capacity- Lead capacity would allow retailers to hold extra inventory above their forecasted level of sales. Through the use of lead capacity retailers can insure that available quantities of merchandise are available when needed. This strategy is particularly useful during the holiday season, when sales are at their peak. To ensure, that popular assortments are readily available, a lead capacity strategy could be implemented to help facilitate sales. The downside of such a strategy however, is that it depends on forecasts which could be in error. In the event that products are not in demand or forecasts are too high, retailers will be saddled with inventory holding costs that could dampen profit for the company.

Match capacity- Match capacity, when used effectively, would match inventory with forecasted demand. When done properly, retailers can avoid the costs associated with holding large amounts of inventory. These costs could include theft, obsolescence, insurance costs, and more. When products are not selling properly, these costs have the potential to be substantially high. By effectiveily matching capacity with demand, retail companies can avoid these costs, while also generated excess sells. The downside of this method is that consumer demand is very unpredictable. Fashion trends change, product offering change, and economic circumstances change. As such, by not having an inventory “cushion” retailers risk lost sales by not having a highly demanded product in stock when the consumer demands it. In addition, consumers through technology now have the option of simply going elsewhere for their retail needs. By not having the product in stock, retailers may potentially lose profitable long-term customers to rival competitors who do have the proper assortment.

Lag capacity- Lag capacity only adds stock when demand for them is fairly certain. From a financial perspective, this method reduces the error and ambiguity associated with forecasting. Through this method, retailers would only add or increase inventory in an item, when demand for that item is certain to produce sales. This method is predicated on hindsight rather than foresight, which presents problems for retailers. Depending on the severity of the lag, consumer preferences may have changed by the time the items arrive within the store. In addition, much like the matching capacity method, retailers could risk losing customers to more nimble competitors in the industry.

3) Discuss the location decision of an organization with which you are familiar in terms of supply-side influences and demand-side influences

An location strategy for the retailer Macys is very dynamic. For one, the retailer recognizes the growing influence of e-commerce on sales and overall profitability. In response, the store has been hesitant to open new brick and mortar stores in a traditional shift. Instead, the retailer is creating distribution networks from its existing assortment of stores. This decision was primarily influenced by demand side aspects. Consumers now demand flexibility in their shopping experience. They like to shop how and when they choose. With the internet, this concept is compounding on itself as consumers now have ample choice in regards to their overall purchasing decision. To help facilitate the shopping experience, Macy’s is using what it terms as an Omni-channel strategy to create locations that are always around the customer. By making stores distribution networks, the customer can be serviced more efficiently through e-commerce. In addition, inventory levels are reduced as products are shipped from stores with a very low sell through instead of those with high sell through. This provides incentive from a supply side perspective as Macys reduces inventory storage costs while also generating sales (Halkias, 2009).

4) Rank the four sites in order of their total weighted points score for suitability for the proposed location







Const. Cost 0.1





Oper. Cost 0.1





Pop. Density






Conv. Access 0.2

















1) Site C

2) Site B

3) Site D

4) Site A

5) Using the center of gravity method, determine the best location for plant D. To serve its customers using the facility location and yearly demand shown below


X Coordinates

Y Coordinate












1) Halkias, Maria (July 28, 2009). “Macy’s tailors stores, including new Fairview location, to match local tastes.” Dallas Morning News. Retrieved May 1, 2010

2) Jones, Andrew (2010) Globalization. Key Thinkers. Cambridge: Polity Press, John Wiley & Sons. ISBN 074564322

3) Silvestre, Joaquim (1987). “Economies and Diseconomies of Scale.” The New Palgrave: A Dictionary of Economics 2. London: Macmillan. pp. 80 — 84. ISBN 0-333-37235-2.

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