Manufacturing Management: Navigating Globalization and Supply Chain Disruption

Introduction: The Medical Supply Manufacturing Context

The current business atmosphere is dramatically different from the one that retail competitors entered just a decade ago. A variety of broad-based economic changes have prompted the need for core strategic reformation, with many organizations struggling to survive in the face of both global recession and the forces of trade liberalization. Both of these forces have significantly impacted the degree to which manufacturing and production operations are able to function. For organizations such as the one at the center of this theoretical case study, this change has carried significant implications for retaining operational viability.

This case concerns a theoretical organization operating within the medical supply manufacturing field. This industry is selected for several reasons, including the continued robustness of healthcare supply demand even in the midst of recession and the importance of both production and service delivery. These conditions allow for a hypothetical scenario in which the author serves as the manufacturing manager responsible for ensuring that production and operations remain steady in the face of supplier and resource changes.

The discussion is informed by the insights found in Heizer & Render (2005), which provides core management competencies such as defining the balance between goods and services, recognizing the core challenges produced by globalization, and identifying supply chain conditions as they impact future operational decisions. In the recommendations produced and the industry within which the case study has been contextualized, Heizer & Render provides critical background knowledge.

In the medical supply industry, dependency on established supplier relationships is crucial. The company's price structure, distribution efficiency, and available stock all hinge on the steady and consistent practices of domestic suppliers with whom the organization has historically conducted business. In the current economic scenario, where suppliers are beginning to close operations and declare bankruptcy, the company has been forced to make difficult decisions in the interest of preventing critical disruption to its supply chain. The discussion hereafter considers the various practical managerial implications of this scenario, detailing the impact of macro-economic factors such as recession and globalization on the company's outlook and the decisions which the manufacturing manager must therefore consider.

Our clients tend to be healthcare facilities, with private doctors and specialist clinics purchasing bandages, wound dressings, and hand sanitizer products, while larger hospitals, nursing homes, and hospice facilities make up the largest share of revenue. In addition to providing a regular flow of bandage and wound care products, the company also provides several in-house nurses who accompany sales representatives for presentations, assist distributors in making hospital rounds, and deliver training and guidance to help clients use products more optimally. This service is included as a benefit for sustained and regular clients. Both the goods and services aspects of the operation are therefore fully dependent upon the pricing, availability, and distribution facilitated by various supplying partners.

The company's situation is not unique in today's business environment. The challenge of balancing price competition with quality management juxtaposes sharply against current marketplace conditions. The deep retraction of America's manufacturing sector has eliminated labor opportunities, reversed growth trends, and shifted the center of the country's manufacturing economy away from markets it previously designed and sustained. Simultaneously, the trade liberalization facilitated by globalization has opened up labor markets with much lower costs of operation. In countries where labor and environmental protections are less stringent and where smaller economic scales also mean proportionally lower labor costs, manufacturers in nations such as the United States have found it increasingly difficult to compete.

This has been true in the medical supply business, where suppliers have one by one retracted or folded their operations, sending jobs and clients to firms overseas. The company worked hard to retain quality through its in-house manufacturing process even as competitors slashed quality and price. While this approach had already contributed to a decline in market share, the company had been able to refocus its marketing efforts toward clients who prioritize quality over affordability. As suppliers become increasingly incapable of remaining viable in this atmosphere, however, the pressure to adapt has become an even greater imperative — now a matter of survival.

Shaiken (2004) draws the conclusion that the diminished emphasis on labor skills informed by the socio-cultural context of the intended product market is reducing the performance and production quality yielded by workers. This is especially true of manufacturing sites where advanced technological processes are utilized, with global outsourcing removing workers from the environments in which new technology has evolved. As Shaiken observes, a "fierce world-wide competition for jobs threatens to undercut wages and working conditions" (Shaiken, p. 1). This situation has helped prompt the dilemma currently facing the organization, which must find ways not to evade but to participate in the changing nature of business.

Globalization, Free Trade, and the Erosion of Domestic Suppliers

Progressive stock speculator and philanthropist George Soros observed that "the salient feature of globalization is that it allows financial capital to move around freely; by contrast, the movement of people remains heavily regulated" (as cited in Shaiken, p. 3). This is particularly true of socioeconomic mobility, which is evidently supplanted in a globalizing market by the extension of wealth for the economically elite and a simultaneous widening of the gap between rich and poor. For an organization deeply dependent on the quality labor of its in-house manufacturing staff, an incapacity to continue executing its long-standing manufacturing strategy has precipitated serious consideration of dismantling many of its in-house facilities.

During the last decade, the presence of American corporations in developing nations such as India has produced a new class of technology labor. Offshore outsourcing has advanced to the point where, as Prestowitz (2005) notes, "Indian programmers, already well educated and fluent in English, became proficient in exactly the systems American and European companies were rushing to embrace" (p. 85). This has precipitated a reality in which, beyond the loss of American production jobs during the first wave of free trade, service job markets are now shifting overseas en masse as well.

Even as education costs continue their annual climb, competition for jobs in service and technology industries is disadvantaging the American white-collar worker. The economic demands created by American educational and professional advancement require wages far exceeding those of an aspiring programmer in a developing country. The global proliferation of information and communication technologies — including mobile communication, the internet, and voice-over-internet-protocol devices — has created a far cheaper workforce in many disciplines that first gained economic importance in the United States. With the enhancement of telehealth communication possibilities, this reflects a growing danger that the nursing consultation services provided by the company could eventually be undercut by cheaper overseas alternatives.

Prestowitz (2005) argues that "the long-held assumption that U.S. exports of robust services and high-tech products would so dominate world markets as to balance trade has been seriously undermined by the third wave of globalization. Instead, much of the technology developed in U.S. universities and funded by taxpayer money is likely to be commercialized abroad" (p. 250). This pattern is harming the U.S. laborer, now competing in both production and service industries with a more affordable foreign counterpart working under more lax environmental standards and fewer labor protections. The United States has stagnated on multiple fronts while allowing its operations to move abroad in pursuit of higher profit margins. With labor market growth, educational standards, and job opportunities all enduring an era of retraction, this illustrates that America has been unwilling to create an environment suitable for a functioning economy within globalizing markets.

A critical understanding of globalization is also necessary in terms of its governance. As Bhagwati (2004) argues, globalization itself is an appropriate framework for understanding the world economy, but its failures stem from mismanagement. He asserts that "the WTO has been corrupted by various lobbies in the rich countries into being no longer a pure trade institution" (p. 83). Pressured by the United States, for example, to help pursue the collection of foreign debt from developing nations, the WTO serves more as a vehicle for its most influential parties' interests than as a neutral channel for regulating free trade. As Prestowitz further notes, "the United States accepts asymmetric investment and trade conditions that further exacerbate U.S. deficits, which in turn result in enormous piles of U.S. Treasury bonds sitting in the coffers of foreign central banks" (p. 251). This dynamic has placed irresistible pressure on organizations like this one, which have worked hard to retain fair labor practices, in-house production methods, and domestic supplier partnerships.

This situation poses a considerable dilemma for the firm, and particularly for those in manufacturing management roles. Weighing the implications of what so many competitors have done — beginning to import products from overseas manufacturers — requires careful consideration of the realities associated with a change in location strategy. A theoretical examination of strategic planning is appropriate here. As Teece et al. (1997) observe, "the competitive advantage of firms is seen as resting on distinctive processes shaped by the firm's specific asset positions, such as the firm's portfolio of difficult-to-trade knowledge assets and complementary assets, and the evolution path it has adopted or inherited" (p. 509). A consideration of these aspects of business management helps inform decisions grounded in sound strategic planning theory.

In terms of the layout strategy for in-house facilities, a greater degree of manufacturing outsourcing appears necessary. Outsourcing carries several key advantages. According to Farrell (2003), cost savings remain "a key outsourcing benefit," with the reduced cost of transferring labor to external settings or overseas stemming from access to new markets (p. 1). Building costs and regulations are often cheaper in smaller markets as well. Another benefit Farrell notes is the freedom it gives in-house workers to focus on core responsibilities, while specialized tasks are handled by specialists in independent service agencies.

For this organization, this could mean reducing in-house operations and relocating the manufacture of basic wound dressings and coverings to more affordable overseas markets. This would allow the company to remain competitive on price without ceding significant market share while still retaining its flagship premium products within its own manufacturing context. The focus could center on products that local suppliers remain capable of supporting, with in-house manufacturing reserved for higher-quality items that command a premium on the market.

However, there are distinct consequences for human resources. Kandikar (2005) argues that with the externalization of important business functions, those areas are now overseen by individuals not necessarily aligned with company culture, mission, and vision. Another drawback is the resentment that outsourcing can generate among in-house employees, who may feel threatened by the redistribution of responsibilities to external parties. This concern is compounded by the warranted fear that outsourcing could cost employees their jobs. From the perspective of internal management, this demands a clear design of which jobs will be kept in-house. Positions that are retained must be reinforced with assurances of job security and a clear articulation of new responsibilities. Any failure to properly guide personnel through this transition will be demoralizing and will negatively impact performance and workplace culture.

In this context, a shift in organizational focus toward products accompanied by nursing consultation — and a greater emphasis on this service as a complementary aspect of client-manufacturer relations — becomes strategically important. The outcome may well be an increased emphasis on the service dimensions of the operation, which can provide distinct advantages over what more affordable manufacturers or distributors offer. The HR focus should accordingly shift toward the recruitment, training, and promotion of nursing specialists capable of supporting the users of the company's products.

One of the most significant areas of the operation which will undergo change is supply chain management. The disruption and uncertainty created by the failure of domestic suppliers has demanded a fundamental change in familiar processes. Specifically, the company will be forced to relocate its supplier interests overseas, where partners are more readily available and prices are distinctly lower. This also means finding ways to facilitate more streamlined ordering, inventory management, and customer delivery methods. E-commerce databases may provide a positive solution to this need, with online ordering methods connecting to stock inventories and automated overseas shipments from outsourced manufacturers. This approach also reduces the need for idle warehouse facilities, as online methods allow photographic presentation of products rather than requiring physical stock.

The capacity to stock photographs and product specifications, rather than maintaining a daily inventory of physically available items, is demonstrative of a broader set of supply chain advantages. As Taylor (2005) notes, organizations have "tightened the links with suppliers, eliminated all interim warehousing, and adopted just-in-time production techniques" (p. 1). This has been facilitated in part by the relocation of manufacturing cores to developing economies in Mexico and Asia, where more affordable and less-restrictive parameters have allowed companies to become more directly linked to overseas production. For this organization, such an approach may also heighten the emphasis on in-house brand products, which can be produced and inserted into the market upon real rather than projected demand.

Strategic Implications of Outsourcing

The just-in-time production approach is particularly significant, as it nullifies the traditionally costly demand of building or leasing warehouse space to accommodate the lag time between production and retail. The proliferation of internet communication is the key factor enabling a small company to achieve such fast turnaround in spite of geographical and practical boundaries.

A consideration of the supply chain also underscores a broader reality in manufacturing: responsibilities and leadership will be spread across different areas of the operation. As Hao et al. (2004) assess, "manufacturing management issues are addressed at three levels: virtual enterprise (inter-enterprise), enterprise (intra-enterprise), and shop floor levels" (p. 71). This means that management not only functions at different levels and in different departments, but that a coordinated management core must develop unified purpose across these different aspects of the operation. For any manager, this denotes the need for an orientation not just toward one's own team or department but also toward the solidarity of the broader management team. The sharing of leadership responsibilities is crucial in this regard.

Additional research points to coordination as essential for maintaining a singular organizational culture, identity, and vision. As one source notes, "management at the operations level is seen to consist of the centralized creation, revision and implementation of plans. This approach to management views a strong causal connection between the actions of management and the outcomes of the organization" (Koskela, 2002, p. 4). Thus, even when turnover becomes necessary, it is anticipated that a properly chosen leader will have remained in position long enough — and with sufficient integrity — to facilitate a smooth transition with properly trained successors. This is why Uhl-Bien et al. (2007) make a case against bureaucratic rigidity and the danger it poses in terms of a failure to prepare for leadership change (p. 298).

One of the clear misfortunes provoked by the current scenario will concern the status of many members of the team. The company will not be able to retain its current scale of labor given that many manufacturing operations will be shipped to overseas markets. Layoffs will be necessary to offset payroll costs as the organization schedules its next steps in changing its business orientation. Since the primary objective of this recalibration is to prevent any gaps in the capacity to serve clients, the labor staff will unfortunately bear the brunt of the decisions which have become necessary.

Under these conditions, it is incumbent upon management to employ goal-oriented strategies closely aligned with the needs and capabilities of the retained labor staff. As Terry (2007) notes, factors such as multi-directional communication, technical ability, delegation of responsibility, and integrity all "reflect and practice the shared goals and principles of a positive team culture" (p. 59). If these qualities are not reflected at the leadership level, it will be difficult to restore a sense of normalcy in which retained personnel have regained trust in the organization's management. A renewal of organizational culture emphasizing the positive opportunities of the new framework will be necessary to weather the psychological blow of widespread layoffs. Literature affirms that "the type of work goals whose pursuit is encouraged and rewarded depend in part on the prevailing cultural value emphasized" (Jaw et al., 2007, p. 2).

Consistency at the leadership level is therefore essential to stability during this transition. Any major transition must be supported by the retention of stable leadership figures who will help the operation regain its composure in a new market context. Instability in leadership can be damaging to the maintenance of changes made and the outcomes sought. As Bass (2008) acknowledges, leadership change can at times not be avoided, and such transitions will often be challenging — especially under conditions of rapid technological change and globalization (p. 17). However, the current body of knowledge indicates a need to channel through the Human Resources department a refined focus on leadership recruitment and development that seeks candidates of long-term viability. Where leadership is inconsistent, so too will be the success of the organization.

Ultimately, the changes which now stand before the organization promise to be rigorous and will in many regards manifest as a difficult experience for members of the organization and the organization as a whole. Given that many of the economic indicators leading to this event were distinctly unwanted and negative, the resolutions available are to a significant extent imposed from without. They are, however, the realities of a retracting domestic marketplace. The organization has been faced with many of the same difficult dilemmas confronting its competitors. For lack of autonomy in defining supplier-manufacturer relations, it has been forced to adapt to the rising tide of a globalizing market. The widespread layoffs that will aggressively deplete manufacturing capabilities in areas previously crucial to the operation are not seen as elective but as fully necessary in light of competitive forces that have felled the company's most important domestic suppliers.

Conclusion: Adapting to a Globalizing Market

Shaiken, H. (2004). Work, development and globalization. Center for Latin American Studies.

Taylor, D.A. (2005). Supply Chains: A Manager's Guide. Business Intelligence.

Teece, D.J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

Terry, J. (2007). Motivating a multicultural workforce. Industrial and Commercial Training, 39(1), 59–71.

Uhl-Bien, M., Marion, R., & McKelvey, B. (2007). Complexity leadership theory: Shifting leadership from the industrial age to the knowledge era. The Leadership Quarterly, 18(4), 298–318.