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.

Globalization, Free Trade, and the Erosion of Domestic Suppliers

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.

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.

Strategic Implications of Outsourcing

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.

Conclusion: Adapting to a Globalizing Market

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.

By outsourcing the manufacture of the most basic and lowest-cost products, and by implementing necessary layoffs of significant portions of the manufacturing core, the organization will at least be able to retain some personnel and some aspects of its operation while competing with lower-cost rivals in commodity product areas. The offsetting advantage is the optimistic anticipation of retaining the viability of premium in-house products for clients that require higher quality over greater affordability — the area in which the company retains trademark characteristics and processes relating to its in-house production methods.

Simultaneously, the organization anticipates improving its focus on support services. By investing in the recruitment and promotion of on-call nursing and wound care specialists who provide support and consultation to clients, the company expects to reinvent the balance of its organizational identity. A greater emphasis on on-site consultation could significantly reduce the competitive threat posed by shifting markets to the company's cost structure. Ours is ultimately a case examination that demonstrates the position in which globalization and recession have placed many manufacturers, and it illustrates the hard decisions that must be made as a result.

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