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
• Increased variability arises from
– Unique customer requirements
– Unique documentation
requirements
– Shifting political environments
• Decreased control results from
– Extensive use of international
service firms
– Potential customs requirements
and trade restrictions by
governments
• 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 firm’s 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 firm’s 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 product’s 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