Globalsupply chainmanagement

What is a Supply Chain?

• Supply chains are linkages of
partially discrete, yet
interdependent entities that
collectively transform raw
materials into finished products.

• Supply chains connect the

functions of inbound activities
(such as purchasing) with
outbound activities (such as
logistics and “place” activities).
 What is Global Supply Chain?
• A global supply chain is made up of the interrelated
organizations, resources, and processes that create and
deliver products and services to end customers. In the
instance of global supply chains, it is extended around
the world
• Any company that uses parts and services from another
factory overseas faces issues with global supply chain
management
 Ford Example
Enfield Basildon
Belfast Instruments, fuel Radiators, water
Carburetors and and water pump assembly,
distributors gauges, plugs engine components

Treforest Genk Body

Spark plug panels, road
insulators wheels

Leamington Wülfrath
Foundry production Transmission
of engine parts, engine
components components

Dagenham Cologne Die-cast

Final assembly transaxle casings,
gear and engine
components
Bordeaux
Transmissions
Valencia Final Saarlouis
assembly Final assembly
 Forces Driving Globalization
• Global Market Forces
• Technological Forces
• Global Cost Forces
• Political and Economic Forces
 Global Market Forces
• Foreign competition in local markets
• Growth in foreign demand
– Domestic consumption from 40% to <30% of world
consumption since 1970
– Foreign sales fuel growth
• Global presence as a defensive tool
– Nestle’s and Kellogg’s
• Presence in state-of-the-art markets
– Japan -- consumer electronics
– Germany -- machine tools
– US: Sport Utility Vehicle’s
 Technological Forces
• Diffusion of knowledge
– Many high tech components developed overseas
– Need close relationships with foreign suppliers
– For example, Canon has 80% of laser engines
• Technology sharing/collaborations
– Access to technology/markets
• Global location of R&D facilities
– Close to production (as cycles get shorter)
– Close to expertise (Indian programmers?)
 Global Cost Forces
• Low labor cost
– Diminishing importance (Costs underestimated, benefits
overestimated)
• Other cost priorities
– Integrated supplier infrastructure (as suppliers become
more involved in design)
– Skilled labor
• Capital intensive facilities
– tax breaks
– joint ventures
– price breaks
– cost sharing
 Political and Economic Forces
• Exchange rate fluctuations and operating
flexibility
• Regional trade agreements (Europe, North
America, Pacific Rim)
– Value of being in a country in one of these regions
– Implications for supply network design
– Reevaluation of foreign facilities (Production
processes designed to avoid tariffs)
 Political and Economic Forces
• Trade protection mechanisms
– Tariffs
– Quotas
– Voluntary export restrictions
• Japanese automakers in US
– Local content requirements
• TI/Intel factories in Europe
• Japanese automakers in the EU
– Health/environmental regulations
• Japanese refused to import USskis for many years (different snow)
– Government procurement policies
• Up to 50% advantage for American companies on USDefense contracts
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 Global Supply Chain
Suppliers Corporation Customers

Order
Order
processing placement

transportatio
transpo Materials Physical n
rtation management distribution
Physical
distribution

storage Inventory Inventory

Storage
management management

Forward and reverse flows of information, products and funds

 Global Supply Chain System Components
 International distribution systems :
– Manufacturing(domestically), Distribution (overseas)
 International suppliers :
– Raw materials and Components(foreign suppliers), Final assembly/
Manufacturing(domestically)
 Offshore manufacturing :
– Product is sourced & manufactured in a single foreign location,
– Shipped back to domestic warehouses for sale and distribution.
 Fully integrated global supply chain :
– Products are supplied, manufactured and distributed from factories
located throughout the world
– In a truly global supply chain, it may appear that the supply chain was
designed without regard to national boundaries.
– The true value of a global supply chain is realized by taking advantage of
these national boundaries
 Types of International
Sourcing Strategy
Sourcing

Intra-Firm Sourcing Outsourcing

Domestic International Domestic International

Domestic In-House Sourcing Offshore Subsidiary Sourcing Domestic Purchasing Arrangement Offshore Outsourcing

A company procures A company procures A company buys major A company buys major
major components in- major components from components from components from
house by procuring them its foreign subsidiary independent suppliers at independent suppliers
domestically home internationally

Source: Kotabe (2000)

 Competencies Needed for Efficient
Global SCM
Positioning The selection of strategic and
structural approaches to guide
global operations

Integration The establishment of what to do and

how to do it creatively

Agility The achievement and retention of

global competitiveness and global
customer success

Measurement The internal and external

monitoring of global operations

Source: Michigan State University (1995)

 Global SCM Factors
• Costs
– Local labor rates
– International freight tariffs
– Currency exchange rates

• Customs Duty
– Duty rates differ by commodity and level of assembly
– Impact of GATT/WTO: Changes over time

Source: Global Supply Chain Associates (GSCA) 1999

 Global SCM
Factors Continued
• Export Regulations
• Denied parties list
• Export licenses

• Time
• Lead time
• Cycle time
• Transit time
• Export license approval cycle
• Customs clearance
 Global SCM
Factors Continued
• Taxes on Corporate Income
– Different markups by country
– Make vs. buy effect

• Offset Trade and Local Content

– Local content requirement for government purchases
– Content for preferential duty rates
Areas to be considered while moving from domestic to
International supply chain

1. Substantial geographical distances

2. Forecasting problems/difficulties in foreign markets
3. Fluctuations in exchange rates for different currencies
4. Demand for great variety of products
5. Inadequate infrastructures such as
labor skills,
availability of supply
Supplier quality
Lack of local process equipments and technologies
Inadequate transportation facilities and
Inadequate telecommunication facilities
 Advantages
• The main reason for any business to exist is to increase sales and
profits.
• When you go global, then the likelihood of increasing sales goes up as
you open up your market to consumers all over the world.
• This allows businesses to reduce dependence on their local and
national economies.
• With the number of Internet users on the rise, global businesses are
able to do business at all hours of the day with consumers from every
point on the globe.
• The potential for expansion for businesses increase as they enter into
more markets.
• Lower supply chain costs , reduced cycle time & Enhance speed and
efficiency
• Competitive advantage
• Untapped markets
 Disadvantages
• Heavy investment of time, money, and resources needed to implement and
overlook the supply chain.

• Inefficient and undersized transportation and distribution systems

• Market instability
• Integrating the supply chain and choosing the correct suppliers is muchmore
difficult than one can imagine.
• Not only do companies have to strongly consider price and quality, but they
also have to make sure that all the organizations are willing to cooperate to
benefit the group.
• Managerial styles, objectives, and goals must have a strategic fit between all
companies involved and power must be evenly distributed throughout the
supply chain.
• When entering the global market, businesses need to be aware that
the gains may not be seen in the short term.

• It may be many years before they start reaping the rewards of their
efforts.
• Hire additional staff to help launch their companies in the global
markets they expand into.
• Companies usually have to modify their products and packaging to
suit the local culture, preferences and language of the new market.

• Travel expenses are sure to increase for the administrative staff, as

(travel all over the world to oversee their business outlets)
 Global SCMExample :
Large Computer Company

• Goals

– Reduce cost
– Improve ROA
– Simplify the worldwide supply chain

Source: Global Supply Chain Associates (GSCA) 1999

 Objectives
• Redesign the entire worldwide supply chain

• Determine how many plants and where they should

be located

• Determine what process technologies should be in

each plant

• Specify the loading on each plant and the service

area
Global Supply Chain Structure Before
Reorganization

Source: Global Supply Chain Associates (GSCA) 1999

 Redesigned
Global Supply Chain

• Recommended plant closings and re-tooling

• Reduced number of facilities from 33 plants to 12 plants
• Created three relatively self-contained customer-oriented
supply zones: Americas, Europe, Pacific Rim
• Estimated benefits:
– Reduced manufacturing / logistics cost by $375 Mil. annually
– Improved Corporate ROAby 3.2 points

Source: Global Supply Chain Associates (GSCA) 1999

Global Supply Chain Structure After
Reorganization

Source: Global Supply Chain Associates (GSCA) 1999

EXAMPLES

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