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CORE-Logistic and Supply Chain Management (1)

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MID –I IMPORTANT QUESTIONS
Logistic and Supply Chain Management
1. Discuss Gaining Competitive advantage through logistics
INTRODUCTION:
Businesses are always searching for a competitive advantage that will set them apart from
others offering a similar product or service. The competitive advantage is gained by offering
a customer services of greater value, lower pricing or greater benefits. Without a
distinguishing advantage, what is the lure for a potential customer to select one provider over
the other? Businesses without a competitive advantage will have a harder time maintaining
their relevance in the market.
In today’s global economy, being adaptive and flexible is the key to staying relevant.
Changes to the logistics industry have been driven by reasons such as the price of oil, labor
costs, security, trade regulations, labor stoppages, vessel capacity and technology. Having
the personnel, practices and tools to proactively adapt to these changes will give a company
the competitive advantage.
COMPETITIVE ADVANTAGE THROUGH LOGISTICS:
A firm can gain competitive advantage only when it performs its strategically important
activities (designing, producing, marketing delivering and supporting its product) more
cheaply or better than its competitors.
Value chain activity disaggregates a firm into its strategically relevant activities in order to
understand behavior of costs and existing and potential sources of differentiation. They are
further categorized into two types
(i)
Primary – inbound logistics, operation outbound logistics, marketing and sales, and
service
(ii)
Support – infrastructure, human resource management, technology development and
procurement
To gain competitive advantage over its rivals, a firm must deliver value to its customers
through performing these activities more efficiently than its competitors or by performing
these activities in a unique way that creates greater differentiation.
Logistics management has the potential to assist the firm in the achievement of both a
cost/productivity advantage and a value advantage. The under lying philosophy behind the
logistics concept is that of planning and coordinating the materials flow from source to user
as an integrated system rather than, as was so often the case in the past, managing the goods
flow as a series of independent activities. Thus under a logistics management regime the goal
is to link the marketplace, the distribution network, the manufacturing process and the
procurement activity in such a way that customers are service at higher levels and yet at
lower cost.
Solutions help a company gain the competitive advantage:
 Shipper Associations / Consortiums: By being a part of a shippers association, a business
can benefit from lower transportation rates due to the competitive negotiations and
economies of scale.
 Transportation Management Systems (TMS): Such platforms allow a business to manage
their data flow more efficiently and allows for visibility of performance and cost.
Keeping an eye on costs, transit times, delivery performance, freight claims, and
compliance will allow for strategic thinking and put a company a step in front of its
competitors.
 Auto-Tender Functionality: This feature allows freight to be tendered directly to carriers,
greatly reducing the time spent scheduling a shipment. When set up using a least cost
carrier, the savings combined with the efficiency gain provide a great advantage.
 Advanced Tracking: Visibility and transparency are becoming more and more important
in business. Advanced tracking features have been adopted to give customers real-time
information on where their goods are.
2. Describe various Models in Logistics Management.
INTRODUCTION:
When a company is designing its new logistics network, it will take into account all the
location elements such as customer market, labor pool, quality of life requirements, and
government incentives. When these elements have been analyzed, it is possible to create
models which give companies more of an insight into the choices that they make. There
are a number of modeling techniques, which can be used, each coming with its own
benefits and pitfalls.
The different types of models:
Modeling Techniques
The use of modeling techniques is important to companies who are deciding upon their
new logistics network. The various modeling techniques can allow companies to look at a
comparison of the functioning, cost efficiency, and customer service efficiency of the
various logistics networks that have been proposed. Companies can look at the various
modeling techniques and decide which one offers them the best insight into their network
options.
Optimization Modeling
The optimization model is derived from the precise mathematical procedures that offer
the best or optimum solution based on the mathematical formula used. This model is
based on mathematical formula only.
This means that there is no subjective input to the model, only assumptions and data. The
optimization model looks at data such as the level of customer service to be obtained, the
number and location of distribution centers, the number of manufacturing plants, the
number of distribution centers assigned to a manufacturing plant, and the inventories that
must be maintained.
One optimization model that has been used for logistics networks is the model using
linear programming, sometimes referred to as LP. This is particularly useful for linking
supply and demand limitations of manufacturing plants, distribution centers, and market
areas.
Given the goal of minimizing costs, linear programming can define the optimum facility
distribution pattern, based on the constraints identified.
However, as this uses mathematical formulas, there is no allowance for any subjective
input.
Simulation Models
A simulation model is defined as creating a model that is based on the real world. When
the model has been created, you can perform experiments on the model to see how
changes made to the model can affect the overall cost of the logistics network.
For example, by changing the constraints on the network, it is possible using a simulation
model to see how this affects the cost-effectiveness of the overall network.
For a simulation model to be effective, you need to collect significant amounts of data on
transportation, warehousing, labor costs, material handling, and inventory levels, so that
when you make changes to the constraints, the model accurately reflect the changes.
However, the changes to the simulation model will not produce the optimum logistics
network, as produced by the optimization model; it will just evaluate the changes that
were made to the model. This type of model is very useful when companies have made
general decisions on the network and want to see what the overall effect of any changes
will be.
Heuristic Model
Similar to simulation models, heuristic models do not generate an optimum solution for a
logistics network.
A heuristic model is used to reduce a large problem to a more manageable size. It has to
be understood that heuristic models do not guarantee a solution and that a number of
heuristic models may contradict or give different answers to the same question and still
be useful to the overall creation of a logistics network.
Heuristic models are often referred to a "rule of thumb" which can be useful in creating
a logistics network.
For example, a heuristic model can be used to consider the best site for a distribution
center that is at least ten miles from the market area, fifty miles from a major airport, and
more than three hundred miles from the next closest distribution center. A heuristic
model will look at all areas that fit within the parameters defined, and finds the areas best
suited.
3. Briefly describe measuring logistics costs and performance.
INTRODUCTION:
The aim of every Logistics and Supply Chain Management is to keep the cost of logistics
to minimum and product performance higher for the profit of the organization higher.
Logistics cost usually involves the cost that is occurring other than the production cost.
This includes the cost for service, transportation, inventory and warehouse. Companies
see these costs which adds price to the product after production thus decreasing the
performance.
Measuring logistics costs and performance
Logistics management is a flow-oriented concept with the objective of integrating
resources across a pipeline which extends from suppliers to final customers. Typically,
conventional accounting systems groups costs into broad, aggregated categories which do
not then allow the more detailed analysis necessary to identify the true costs of serving
customers with particular product mixes.
The concept of total cost analysis
Conventional accounting systems do not usually assist in the identification of company
wide effects of changes in the logistic management (for example minimum order value),
nor are able to determine the cost of processing orders (because the involve costs from
different functional areas).
Principles of logistics costing.
- A logistics costing system should mirror the material flow and identify the costs that
result from providing customer service, and also it should be capable of enabling separate
cost and revenue analysis to be made by customer type and by market segment or
distribution channel (no to deal with averages).
- A mission cost approach can be implemented, in which a customer service goal is set
within a specific product/market context, then cost associated with this mission are taken
from a number of functional areas within the firm.
- Barret’s mission costing method: 1) identify activity centres associated with a
distribution mission, 2) identify and isolate the incremental costs (no sunk costs) incurred
as a result of undertaking that mission.
- This approach becomes particularly powerful when combined with a customer revenue
analysis, because even the customers with low sales off-take may still be profitable in
incremental costs terms if not on an average cost analysis.
Logistics and the bottom line
The 3 financial dimensions for decision making are the bottom line (immediate pay-back
only), strong positive cash flow, and the productivity of capital (return on Investment
ROI)
ROI = Profit/Capital employed
ROI = (Profit/Sales) (Sales/Capital employed)
Margin X capital turnover

Retailers can have good ROI with low margins but high capital productivity (limited
inventory, high sales per square foot, leasing instead of owning)

Logistics management can improve the following elements that determine ROI:
1) Sales revenue
Service can improve sales and be a powerful source of differentiation.
2) Costs
Higher cost when outsourcing, inventory holding, obsolescence, and deterioration.
3) Asset deployment and utilization.
Better cash and receivables with shorter order cycle time, better order completion
rate and invoice accuracy. Lower inventories, minimizing the premature purchase
of materials (by using MRP and DRP –Distribution requirements planning). By
converting fixed assets into continuing expenses with the use of third-party
suppliers (for transport and warehousing)
Logistics and shareholder value
Shareholder value is a key performance of corporate performance (what is the company
worth)
1. The simplest way to determine it is by the net present value of future cash flows.
Net operating income – Taxes – Working capital investment – Fixed capital investment =
After tax free cash flow
2. Another method is the Economic Value Added (EVA), which is the difference between
operating income after taxes less the true cost of capital employed to generate those
profits:
EVA = Profit after tax – True cost of capital employed
3. Another method is the Market Value Added (MVA) which is the net present value of
expected future EVAs:
(Stock price x issued shared) – Book value of total capital employed = MVA
MVA = Net present value of expected EVA
With logistics management lengthy pipelines requiring working capital can be shortened
and assets can be moved off the balance sheet through the use of third party logistics
service providers.
Customer profitability analysis
- The basic principle of customer profitability analysis is the assign all cost that are
specific to a individual accounts. By using the principle of ‘avoidability’ (what costs
would I avoid if I didn’t do business with this customer), one can find that some
customers make a negative contributions to profits. However, as long as the net
contribution is positive and there are no ‘opportunity costs’ in servicing that customer,
the company would be better off with the business than without it.
- Results from this analysis can be used in contract negotiations, sales and marketing
strategies (to focus in profitable accounts), and in creating alternative strategies for
managing customers with high service costs.
- Because customers are who make profits and no products, companies should develop
accounting systems that collect and analyse data on customer profitability (instead of
being product based), in addition of having cost reporting in a transactional basis rather
than customer focused.
Direct product profitability
- Also know as “Total cost of ownership”, it relates to identifying al the costs that attach
to a product or an order as it moves through the distribution channel (Warehousing,
transportation, retail costs). Expensively used in retail, the concept is that the customer
incurs in other costs other than the immediate purchase price of the product
- Here the key objective in customer service is to reduce the customers’ total cost of
ownership by making changes such as changing the case size, increasing the delivery
frequency, direct store deliveries Etc.
Cost drivers and activity-based costing
- Conventional accounting problems when used in logistics management
There is a general ignorance of the true costs of servicing different customer t
types/channels/market segments.

Costs are captured at too high a level of aggregation.

Full cost allocation still reigns supreme.

Conventional accounting systems are functional in their orientation rather than output
oriented.

Companies understand product costs but not customer costs - yet products don't make
profits, customers do.
- The best approach would be to separate the expenses and match them to the activities
that consume the resources.
- Activity-based accounting (ABC) seeks out the ‘cost drivers’ along the logistics
pipeline that cause cost because they consume resources. For example invoice items costs
instead of invoice costs.
- Mission costing seeks to identify the unique costs that are generated as a result of
specific logistics/customer service strategies aimed at targeted market segments.
- Stages in the implementation of an effective mission costing process:
1. Define the customer service segment
Identify the different service needs of different customer types
2. Identify the factors that produce variations in the cost of service
Factors that impact cost of service (product mix, delivery frequency…)
3. Identify specific resources used to support customer segments
Here ABC and mission costing coincide. Identify the activities that generate cost
along with their specific cost drivers (order items, people involved, inv. Support…)
4. Attribute activity costs by customer type or segment
Use the principle of ‘avoid ability’ o assign the incremental cost incurred. It should be
cost attribution and no cost allocation.
- Because logistics management is concerned to meet customers service requirements
in the most cost effective way then it is essential that to have the more accurate and
meaningful data possible.
4. Explain the significance of Benchmarking the logistics process and SCM operations.
INTRODUCTION
Benchmarking generally refers to the process of measuring one’s performance against a set
of pre-established standards by the world or your competitors present in the same business
process as you. It is essentially aimed at improving the business and operational practices
that your company is already following, and refining those practices after carrying a thorough
comparison with that of your competitors. Thus, the benchmarking activity is driven by a
desire to enhance operational capability, to lower costs and improve service.
Benchmarking, with regards to logistics, has the same meaning as it is the main constituent
of any supply chain. Benchmarking in logistics involves evaluating the amount of time that a
product takes to reach its ultimate customer; expediting the flow of material within a supply
chain; monitoring the storage, and shipping operations; and checking the cost effectiveness
of logistics operations.
The following areas of logistics may require benchmarking:

Loading/ offloading;

Warehousing;

Transportation;

Value added services;

Packaging
All these factors are crucial in logistics, and needs to be evaluated against the standard
practices to remove any financial loopholes or human error. Effective logistics require
managing the aforementioned areas, and making necessary improvements after checking
them through performance measurement tools.
Significance of Benchmarking the logistics process and SCM operations:
In times of economic hardship, it has become increasingly challenging for logistics
companies to maintain their performance, and costs together. The ever increasing fuel prices
have also doubled the freight rates which is affecting their business tremendously.
Through benchmarking, you may identify areas that are taking more than what should be
invested, or doesn’t have all the necessary resources. Remember, more than anything, time
and money is crucial in logistics.
Thus, by reducing the amount of time and money, you can have a valuable competitive
advantage over your competitors. For example, if they take 6-10 hours to deliver a product,
you can take less than 4 hours to do the same job.
Also through this assessment, you’ll be able to discover new opportunities that can be helpful
in improving the quality of your services, and handling processes at each step.
Benchmarking and best practices provide answers to the key questions that form the
foundation of a sound supply chain strategy:

Economic Impact — How do I compare to my peers? Where can I improve?

Costs — Are my supply chain costs competitive?

Operations - How do my operating characteristics compare to my peers (e.g. freight
terms, modes, contract relationships, etc.)? What operating characteristics are found most
often in the best performing supply chains?

Performance Measurement - How do my peers measure their supply chain performance?
Where do they stand in developing a measurement process? What are their goals? Where
do they stand in achieving those goals?

Organization — How does my organization's structure compare to my peers? Are some
organizations' supply chain structure more effective than others? Where is control for the
key functions vested?

Collaboration — How much real collaboration is there today with suppliers and logistics
service providers? What is being done on performance scorecards, incentive programs
and innovative contractual relationships?

Outsourcing — Where and why do my peers use outsourcing? Does outsourcing result in
lower overall costs and better services?

Technology — What technologies are my peers using in their supply chain operations?
What is working and what is not? Is there a correlation between the use of technology
and supply chain effectiveness? What are the near term priorities in technology?

Value — How do my peers demonstrate the contribution their operation is making
towards the overall corporate goals?

Security — What are my peers doing on security? Is there something I should be doing
that I am not?

Supply Chain Network — How does the design of my inbound supply chain network
compare to my peers? Is my network, more or less efficient or more or less reliable?
MID –II IMPORTANT QUESTIONS
Logistic and Supply Chain Management
1. Explain about Channel relationships and logistics service alliances.
INTRODUCTION:
Strategic alliance or partnership is solely depended on trust, faith relationship between
simultaneous stages in Supply Chain. This increases ability and dependability of various stages
involved in the supply chain. As strategic alliances can be between two or more organizations so
each stage should be managed by welfare of the others' and should not change or use that stages
for own advantage without consideration of the organization involved. This alliance is kept
formal in relationship between two or more organization to achieve some beneficial goals
through business by supply chain.
Some of the Strategic alliance resources are:







Products
Distribution channels
Manufacturing capability
Project funding
Capital equipment
Knowledge
Expertise or intellectual property
This alliance is actually a collaboration of firms to work together to form a greater effect than
before. There are some reasons which can improve the performance which are:




Decision making is done by the consideration of other party.
Easy coordination between the parties by their managers with the trust. This result in
better operational implementation and scheme valuation.
It will lead to redundancy due increase in supply chain productivity.
This ensures proper sharing of sales and production information, hence helping in
coordinate production and distribution decisions.
Building strategic alliance and its trust
Building these types of alliances is totally dependent on Managers of the organization. Mostly
this is done by sharing clean information trusted by every results matching with supply and
demand throughout the supply chain processes and lower cost. better relationship helps to lower
the cost between the supply chain stages.
Example: As far as trust over here is concerned a supplier can avoid forecasting about
information received for the retailer. Similarly the retailer can lessen the receiving effort by
decreasing counting and inspections on the trust of the supplier's quality and delivery. This
ensures better coordination between supplier and retailer. Wal-Mart and P&G have been trying
to build a strategic alliance that will help for better coordination and actions can be mutually
beneficial.
A typical strategic alliance formation consists of some steps:

Strategy Development: development involves feasibility of alliance, objectives and
goals, decisions, focus on critical issues, technology and people with their challenges
and resources.

Partner Assessment: In this assessment partner's strength, potential, developing
managing styles, preparing criteria for partner selection and understanding their
motives for joining alliances.

Contract Negotiation: It is the development of realistic objectives among the group
and forming the high calibre or developing synergy. Consideration on security of
information, termination clauses, and penalties for poor performance is formulated.

Alliance Operation: it is linking of budgets and resources to fulfil the strategic
priorities, measuring the performance etc.

Alliance Termination: It is the winding down of partnership due to failure or not
meeting the clauses decided before.
Types of strategic alliances

Joint venture: In this type of alliance two or more firms create legally independent
company to develop competitive advantage

Equity Strategic Alliance: There is sharing of different percentages of the company.

Non-equity Strategic Alliance: It is alliance on a contractual- relationship to share the
unique resources.

Global Strategic Alliances: It is formed between a company and foreign company.
Achieving Strategic Alliance:
It is agreed that the cooperation and the trust in supply chain are quite important and develops
the value but it very hard to maintain, sustain and develop till the last point. Therefore two views
have been analyzed to categorize into any supply chain relationship.
Those views are as follows:
1. Deterrence-based view: In this view a variety of formal contracts are formed amongst
to ensure cooperation
2. Process-based view: with this view the development of trust and cooperation is built
over a long time with the series of interactions between the parties.
In practical situation the contract established between parties and design of such contract is
impossible to make where all contingency is accounted in future by all parties so the only way
out here is to trust each other and have a long relationship relying on developed contract.
Example: If there is a situation where supplier sign the initial contract containing the
contingencies with the manufacturers and then those manufacturers turns out of not referring that
contract again. So here hope remains to resolve such contingencies with the negotiation.
Designing a relationship with Cooperation and Trust
Main steps for this are:





Assessing the value of the relationship
Identifying operational roles and decision rights for each party
Creating effective contracts
Designing effective conflict resolution mechanism
Assessing the value of the relationship
2. Write a brief note on CRM and Internal supply chain management
Customer Relationship Management
Customer relationship management is about building and maintaining profitable long-term
customer relationships; typically by supplying customers with what they want. To know
what your customers want, ask them; or ask the customer relationship management system
that the marketing and sales departments rely on to track what customers want, prefer,
dislike and are likely to do in the near future.
Not only does an existing CRM system contain a ready-made database of customer
information, but it is also a purpose-built tool for getting more. From web surveys that ask
supply chain related questions, or unstructured notes made by customer service
representatives, a CRM system can collect valuable data to show which groups of customers
want which kind of service. However you do it, supply chain has to connect with the
marketplace. Leveraging the knowhow and tools of your marketing colleagues is a smart
way forward.
Putting SCM and CRM Together
On a conceptual level, information flows out of CRM and into SCM. On a practical level,
there may be challenges to this apparent simplicity. Even if a company already has software
systems for both, there is no reason to expect the two environments to be exactly in phase in
terms of their activities, their data and their inputs and outputs. CRM systems already
consist of sales automation, marketing information systems and call centre technology.
SCM is built up of procurement, transportation, inventory, production, packaging and
distribution. Throw an enterprise resource planning system into the mix, and the complexity
grows further.
Whether an integrated system to give end to end supply chain visibility starts from SCM
strengths in logistics, ERP solidity in financials or CRM precision concerning customers
will depend on what needs to be created, modified or replaced. However, it can be done; in
fact American Airlines has been doing it for years, taking customer information from its
reservation systems and website to feed into planning for fuel, food, spare parts and more.
And Cemex (second largest US producer of cement and concrete mix) uses CRM and SCM
to guarantee future deliveries to the hour, without over-producing; a key capability for a
company whose finished product sets rock hard so soon after preparation.
The Seven ‘R’s of CRM’s Contribution to Supply Chain
Good customer relationships are the result of ‘the right product, for the right customer, in
the right place, at the right time, in the right quantity, in the right condition, and at the right
cost’. CRM is a way to identify each of these ‘rights’ and to segment customers accordingly.
Yet besides relationship marketing and cross-selling techniques favoured by sales and
marketing, CRM can also be used to predict future customer behaviour. Forecasts can be
made of the likelihood of customers’ purchases, and even of the risk that they may move
over to a rival company and stop buying from yours.
US supermarket Walmart and Target both use CRM to run sales promotions aimed at
specific customer groups, using these business analytics. Other advantages of well-tuned
business analytics include being able to display key status information at any time
(‘dashboards’ showing quantities of customer orders and levels of satisfaction, for instance);
they can also give recommendations for immediate action according to the trends or events
predicted for the future.
3. Explain the Global supply chain business processes.
In today’s global competitive environment, individual companies no longer compete as
autonomous entities but as supply-chain networks. Instead of brand versus brand or company
versus company, it is increasingly suppliers-brand-company versus suppliers-brand-company.
In this new competitive world, the success of a single business increasingly depends on
management’s ability to integrate the company’s intricate network of business relationships.
Supply-chain management (SCM) offers the opportunity to capture the synergy of intra- and
intercompany integration and management. SCM deals with total business-process excellence
and represents a new way of managing business and relationships with other members of the
supply chain.
Companies can gain a competitive advantage by integrating business processes together
with their global supply chain partners. When different members of the supply chain align
their operations through the integration of their business processes, the supply chain becomes
more efficient. Such supply chain management can reduce the cost of supplies and improve
business profitability.
Global supply chain business processes.
Primary Activities
An integration of business processes across your product supply chain starts with
ensuring that the strategies pursued by members match. For example, if you are a
manufacturer and implement a just-in-time strategy, your incoming logistics provider and
your suppliers have to adopt strategies that allow the required flexibility in supply. If
your marketing carries out a low-price promotion, the manufacturer of your supply chain
has to implement a low-cost production strategy. When strategies match, company
objectives reinforce each other along the supply chain.
Strategy
In an integrated and aligned supply chain, the activities resulting from the matched
strategies work together. You have to identify the primary activities that the members of
the supply chain carry out. For example, your company does the marketing, another
supplier has the contract for transportation and another company manufactures the
product. Each primary activity has business processes associated with it. Integrating the
processes means that they act in a coordinated fashion. If the manufacturer adds certain
features to the product, your marketing people receive that information and can develop
ads promoting the new features.
Organization
The activities making up the business processes are coordinated through organizational
alignment. Ideally, the companies making up the supply chain can accommodate matrix
inputs into their organizational structures. The different companies of the supply chain
forge links between individuals who perform tasks that require coordination. For
example, you may have an employee in operations who is responsible for shipping
finished products. He has internal matrix organizational links to billing, so they can write
invoices, and marketing, so they can update sales figures and demand forecasts. In an
integrated supply chain, the employee has additional links to the customer's receiving
department, to let them know that the material is coming, and to the customer's
operations, to tell them they will soon be able to use the product.
Operations
The final step in aligning your supply chain is to make sure the activities making up the
business processes are operating in a coordinated fashion. While integration can take
place through the organizational links, management has to assign responsibility for
exchanging the relevant information at the operational level. Employees in the
organizational matrix positions that link supply chain members receive responsibility for
the whole process that they can influence. Instead of being responsible for internal
processes, they share responsibility for the efficient operation of their section of the
supply chain with employees of partner organizations with whom they coordinate their
activities.
4.What are the Issues and Challenges in Global supply chain Management?
Over the past twenty years, the business environment has been continuously responding to the
pressures of globalization. In every industry, networks of suppliers, manufacturers, trade
intermediaries and customers have spread around the globe as companies strive to lower their
costs, increase their profits and improve productivity in a highly competitive global
marketplace. A paradigm shift has occurred in which companies that once built domestically
to sell internationally now look globally for raw materials, services and finished goods to sell
into a defined marketplace. This shift is happening because of reduced barriers to trade and
investment, lower transportation costs, ease of information flows, new enabling technologies
and the emergence of economies such as China and India. Supply chain management aims to
manage the flow of goods, information and finances among these business networks in the
most efficient manner. Companies have discovered that effective supply chain management
cuts costs, reduces waste, prevents over-production and helps ensure that customers are more
satisfied with product, price and service. This means it is an essential tool for competitiveness
in a global marketplace.
Issues and Challenges:

A primary challenge is that each company in the chain is likely to have conflicting
business objectives and requirements. For example, a supplier of raw materials would
prefer a manufacturing company to purchase large amounts of raw products on a
regular basis. The supplier will also want the best possible price for its raw product.
However, the manufacturer wants to pay the lowest possible price for the product and
also wants flexibility in when and how much to purchase.

Trying to predict the unpredictable
o Another major challenge is the inherent uncertainty embedded in every supply
chain. This must always be planned for, but can never be predicted. With
global supply chains, the level of uncertainty increases with each additional
market that is involved. Political actions in another country can have dramatic
effects on the supply chain; natural disasters might have a major impact on
shipping and transportation; and wars, labor strikes, or civil unrest can result in
low productivity. The supply chain can also be affected by shortages of raw
materials or product components and transportation problems. Costs of raw
products and components also tend to vary over time. Global supply chain
management also faces the challenge of variations in customer demand that
occur seasonally and over longer time periods. Managing the production and
transportation of goods over large distances to meet the peak period of demand
can be very difficult.

Other challenges that companies face with global supply chains include the following:
1. Currency fluctuations: When dealing with suppliers or customers overseas,
companies must plan for fluctuating charges and income from foreign exchange
rate variations.
2. Maintaining intellectual property protection: A company might be able to have
a product assembled overseas more cost effectively than assembling it
domestically. However, some countries have less stringent laws regulating
protection of intellectual property.
3. Identifying and assuring the reliability of international business partners:
With suppliers, distributors, customers and business partners located in many
regional areas of the world, it can be difficult for companies to monitor the
business practices and financial stability of all organizations in the supply chain.
4. Accessing
finance
and
insurance:
Financial
transactions
conducted
internationally are always more complicated than domestic transactions.
Companies must establish lines of credit with banks and work with other
members of the supply chain to identify preferred methods of payment. Obtaining
the correct insurance to protect foreign property and shipments is also essential.
5. Compliance with international regulations and standards: Quality standards,
import and export restrictions, safety and packing regulations and labelling
regulations vary around the globe. For companies new to international trade,
ensuring that materials provided by a foreign supplier will meet all domestic entry
regulations can be a daunting undertaking.
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