Chap 012

Global Supply Chains
McGraw-Hill/Irwin
Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Global supply chain challenges
Video link with Dr. Pat Dixon (7:03 min.) http://www.youtube.com/watch?v=_wWHfrBz104
12-2
Global supply chain overview

Global economies are the overarching rationale for global supply chains Global supply chain integration happens in stages based on business strategy decisions Global sourcing decisions are complex and require input from logistics managers
12-3
Global economies
Most firms today are impacted by global economies
Global sourcing of materials or products Global customers who want to purchase
Common objectives to go global include

Increasing revenue through access to new markets Increasing production capacity Reducing direct cost using cheaper resources and labor
12-4
Major reasons that firms expand into other countries

Table 12.1 Rationale for Globalization
12-5
Global supply chain integration requires

Understanding the complexity of logistics in the a global economy Setting the firm on a path through the stages of international development
Export/Import Local presence Globally integrated enterprise
Managing the global supply chain differently from domestic operations
NASA photo View of the Earth seen by Apollo 17 crew traveling toward the moon
12-6
Complexity of logistics systems vary significantly in each major global region

North American operating challenges
Open geography Extensive transportation options Limited cross-border documentation
European operating challenges

Relatively compact geography Numerous political, cultural, regulatory and language situations Congested transportation infrastructure
Pacific Rim operating challenges

Island-based geography Relatively poor infrastructure Extensive water and air shipments to travel vast distances
12-7
Operating unique North American, European or Pacific Rim business strategies was common
Easier to create and operate separate regional strategies However, duplication of activities led to
Loss of economies of scale Poor asset utilization
Growth oriented firms are integrating their regional strategies into global business strategies to eliminate duplication
Requires global integration of the entire enterprise Regionalization will remain viable for some firms
12-8
Logistics in a global economy face more complex operating characteristics

Increased uncertainty results from
Greater distances Longer leadtimes Decreased market knowledge
Decreased control results from

Extensive use of international service firms Potential customs requirements and trade restrictions by governments
Increased variability arises from

Unique customer requirements Unique documentation requirements Shifting political environments
Decreased visibility results from

Longer transit times Longer holding times Less ability to track shipment locations
12-9
Continuum of global trade capabilities shown in 3 stages of development

Table 12.2 Differential Characteristics of Global Development
12-10
Export/Import with a national perspective

International transactions in support of domestic business
Focus is to increase revenues or decrease costs
Influence on logistical decisions

Sourcing and resource choices are artificially constrained
E.g. use restrictions, local content laws or price surcharges
Planning complexity is increased Extends domestic logistics systems and operating practices to global origins and destinations
Exceptions become numerous
E.g. bribery may be necessary in some developing countries
12-11
International operations with local presence

Establishment of operations in a foreign country
Some combination of sales, marketing, production and logistics
Local presence of facilities and operations increases awareness and sensitivity to the foreign market Often restricted to a limited number of geographic areas Over time, business units operating within foreign markets will adopt local business practices
E.g. unique sales organization and local business systems
12-12
Globally integrated enterprise

Market, location, and resource decisions made with little or no regard to national boundaries
locates work, skills, and operations wherever it makes sense
Truly global firms

Employ global brands with limited customization Operate in most global regions Employ a global resource view of production and logistics Use integrated reporting systems and planning technologies no specific home or parent country dominates policy.
E.g. ABB (Switzerland), Coca Cola (USA), Dow Chemical (USA), Hoechst (Germany), Nestle (Switzerland) and Philips (Netherlands)
12-13
Managing the global supply chain

Five major differences between domestic and international operations
Performance cycle structure Transportation Operational considerations Information systems integration Alliances
12-14
Length of the performance cycle is a major difference

Longer performance cycles for international operations
Domestic is measured in days International is measured in weeks or months
E.g. fashion merchandise takes 30 to 60 days
Reasons for longer order cycle to delivery cycle times

Communication delays Financing requirements Special packaging requirements Ocean freight scheduling Slow transit times Customs clearance
Overall this change requires higher asset commitment

Inventory is in transit for longer periods
12-15
Transportation is impacted by four significant global changes

Removal of intermodal ownership and operation
Reduced complexity of operation and tracking of international shipping
Increased carrier privatization

Government-owned carriers often costly and unreliable Privatization has led to increased availability of efficient carriers
Relaxing of cabotage restrictions in European Union

Increases trade efficiency
E.g. US corporations save 10% to 15% in intra-European shipping costs
Major constraints on physical infrastructure capacity

Significantly increasing demand on port and airport capacities Infrastructure in much of the world was built over 50 years ago
12-16
Operational considerations of international trade

Requires multiple languages for both product and documentation
E.g. computer keyboard or handheld calculator Increases complexity since product is limited to a specific country on it is language-customized
May require unique national accommodations

E.g. performance features, technical characteristics, environmental considerations, and safety
Requires large amount of documentation

See Table 12.4 in text
High incidence of countertrade and duty drawback
12-17
Information systems integration is a major challenge

Systems integration typically lags the acquisition or merger used to make the enterprise global Requires a substantial capital investment Requires two system types to be integrated
ERP system Global planning system
Few firms have fully integrated global information systems or capability

12-18
Alliances with carriers and specialized service providers are essential

Alliances provide
Market access Market expertise Reduced inherent risk of global operations
Using alliances an enterprise maintains contact with supply chain partners around the globe
Retailers Wholesalers Manufacturers Suppliers Service providers
12-19
Global sourcing remains on the rise particularly among low-cost countries

All durable goods industries are investigating global sourcing options for finished goods in
Asia
China and Malaysia
Eastern Europe Latin America Africa
Why does low-cost country sourcing remain in such demand?

Rationale Challenges Guidelines
12-20
Rationale is driven by need to remain competitive

Low-wage rate typically reduces manufacturing cost Increases the number of possible sources to keep competitive pressure on domestic suppliers Can increase firms exposure to state-of-the-art product and process technologies Establishes a local presence to facilitate sales in the international country
12-21
Challenges related to global sourcing strategies

Identification of sources capable of producing the materials in the quality and quantity required Protection of a firms intellectual property Understanding import/export compliance issues
E.g. Made in the USA requires 95% of the material to be domestic
Communication with suppliers and transportation companies

Differences in time zones, language and technology
Guarantee the products security while in transit Obsolescence risk to inventory due to extended transit times Understanding the difference between piece price and total cost
12-22
Guidelines for making complex sourcing decisions

Use the criteria in Table 12.5 to structure the decision analysis Some examples using criteria from the table
Products with high labor content should consider a low-cost country source Products with high intellectual property content should be sourced domestically
Logistics managers should provide realistic assessments of

Total cost Performance implications
12-23
A list of general sourcing guidelines for use in decision making

Table 12.5 Sourcing Guidelines
12-24

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Global Supply Chains

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Global supply chain challenges

Video link with Dr. Pat Dixon (7:03 min.) http://www.youtube.com/watch?v=_wWHfrBz104

Global supply chain overview

Common objectives to go global include

Major reasons that firms expand into other countries

Global supply chain integration requires

Managing the global supply chain differently from domestic operations

Complexity of logistics systems vary significantly in each major global region

European operating challenges

Pacific Rim operating challenges

Logistics in a global economy face more complex operating characteristics

Decreased control results from

Increased variability arises from

Decreased visibility results from

Continuum of global trade capabilities shown in 3 stages of development

Export/Import with a national perspective

Influence on logistical decisions

International operations with local presence

Globally integrated enterprise

Truly global firms

Managing the global supply chain

Length of the performance cycle is a major difference

Reasons for longer order cycle to delivery cycle times

Overall this change requires higher asset commitment

Transportation is impacted by four significant global changes

Increased carrier privatization

Relaxing of cabotage restrictions in European Union

Major constraints on physical infrastructure capacity

Operational considerations of international trade

May require unique national accommodations

Requires large amount of documentation

High incidence of countertrade and duty drawback

Information systems integration is a major challenge

Few firms have fully integrated global information systems or capability

Alliances with carriers and specialized service providers are essential

Global sourcing remains on the rise particularly among low-cost countries

Eastern Europe Latin America Africa

Why does low-cost country sourcing remain in such demand?

Rationale is driven by need to remain competitive

Challenges related to global sourcing strategies

Communication with suppliers and transportation companies

Guidelines for making complex sourcing decisions

Logistics managers should provide realistic assessments of

A list of general sourcing guidelines for use in decision making

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