APEC e-Trade and Supply Chain Management Training Course
(Phase III: Logistic Management for SMEs)
The Establishment of Global
Supply Chain
November 9th, 2010
Hong Kong China
Eric Futin
Agenda
Prologue: The International Context
A.
Roadmap to Global Supply Chains
B.
Objectives of Global Supply Chains
C.
Characteristics of Global Supply Chains
D.
Benchmarking the Global Supply Chains
E.
Global Supply Chains Management and
the Role of Logistics
F.
Global Supply Chain Management in the
future
G.
Beyond Global Supply Chains: Global
Value Chains
1
Agenda
Prologue: The International Context
A.
Roadmap to Global Supply Chains
B.
Objectives of Global Supply Chains
C.
Characteristics of Global Supply Chains
D.
Benchmarking the Global Supply Chains
E.
Global Supply Chains Management and
the Role of Logistics
F.
Global Supply Chain Management in the
future
G.
Beyond Global Supply Chains: Global
Value Chains
2
Supply Chains become more Internationally linked
3
Source: OECD (2007)
Trade has grown faster than GDP
Average of exports and imports as a percentage of GDP, 1980 and 2008
4
Source: OECD (2010)
Intermediate trade has become more important?
Share of intermediate trade in total trade, OECD
Intermediate to total trade - Goods
Intermediate to total trade - Services
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
5
Source: OECD (2010)
Intermediate trade has become more global (1)
Intra- and inter-regional imports of intermediate goods
(Billion USD, 2005)
6
Source: OECD (2010)
Intermediate trade has become more global (2)
Intra- and inter-regional imports of intermediate services
(Billion USD, 2005)
7
Source: OECD (2010)
Trade within industries…
Index of intra-industry trade in manufactures, average 1997-2008
8
Source: OECD (2010)
… and within firms
Share of intra-firm exports in total exports of affiliates under foreign control, 1997-2007
%
90
Sweden
80
70
60
Israel
Netherlands
United States
Italy
50
40
Poland
30
Japan
20
10
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
9
Source: OECD (2010)
… and increasing international sourcing of
Intermediates
Imported intermediates/domestic intermediates
%
1995
2005
30
25
20
15
10
5
0
10
Source: OECD (2010)
How imports can distort competitiveness figures (1)
Contribution to the manufacturing trade balance, 2008
11
Source: OECD (2010)
How imports can distort competitiveness figures (2)
Import content of exports
1995
2005
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
12
Source: OECD (2010)
How imports can distort competitiveness figures (3)
Import content of exports with partner countries
From Europe
From NAFTA
From East Asia
From Other Asia
From RoW
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
13
Source: OECD (2010)
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
14
What are Global Supply Chains
Global Supply Chains (GSCs) are worldwide networks of
suppliers, manufactures, warehouses, distribution centers and
retailers through which raw materials are acquired,
transformed and delivered to customers
(OECD, Supply Chains and the OECD Guidelines for Multinational Enterprises,
2002)
15
Globalization has changed the way firms do
business…
 Since the end of WWII, the importance of trade and international investment has
grown steadily.
 Large multinational firms have become the main players in all major sectors.
 Through FDI and international mergers and acquisitions, they were able to jump
tariff barriers and tap into natural resources, labour, and technology, around the
world.
 Production chains were traditionally vertically integrated, i.e. multinational firms
owned an entire production process.
But recent phenomena are fundamentally changing the way global firms operate.
16
… driven by key factors
 Rapid technical progress
12
 Low and falling telecommunication
costs
 Technological advances
Cost of 3 min. call
to U.S. ($U.S.)
10
Africa
Amer-South
Asia&Pacific
Europe
World
8
6
 Falling transportation costs
4
2
 The adoption by a large number of
countries of more open economic
policies
0
1996
1997
1998
1999
2000
2001
2002
2003
Source: IFS V5.28, WDI CD 05.
 (e.g. lower tariffs, lower FDI
restrictions)
Average Tariffs
 The emergence of developing, low
wages economies
Goods and services can be
delivered globally at lower cost.
17
Source: Yi (2003)
GSCs are becoming increasingly important
 GSCs have existed as long as trade in intermediate products has
taken place, but they are now increasingly important.
 World exports and FDI outward stock has been growing faster than
global GDP
 Foreign affiliates (FA) no longer only engage in serving local
markets in host countries but often export more than host country
domestic firms
18
…while technology is changing the way firms do
business…
 Technological advances, particularly in ICTs, have enabled a
better coordination of activities between different links in the
chain through logistics.
 Technologies are used to undertake joint design, to coordinate
shipping in just-in-time systems, and to manage inventories in
real-time.
 There is rapid growth in Supply Chains and Logistics Services.
19
… giving rise to GSCs as a more established way of
doing business.
 In recent years, we have seen a change in how firms organize their
production into global supply chains:
 Firms are increasingly outsourcing some of their activities to
third-parties.
 They are locating parts of their supply chain outside their home
country (offshoring)
 They are increasingly partnering with other firms through strategic
alliances and joint ventures.
 Smaller firms and suppliers are now becoming global
 These new business strategies have allowed firms to specialize on
“core” competencies (vertical specialization) to sustain their
competitive advantage.
20
Offshoring is gaining importance…
 Companies now offshore
more activities, both in terms
of size and scope
 Business process
outsourcing (BPO) and
information technology (IT)
services are supplied from a
large number of locations
 Some firms also offshore
other high-knowledge
activities such as R&D.
21
… strategic alliance are on the rise…
 Worldwide, the number of new strategic alliances (both domestic and
international) have significantly increased in recent decades.
 Alliances are seen as crucial in GSCs to facilitate entry in new markets,
commercialize products, share risk and costs, including for R&D.
 The top four industries for alliances are: Business services, financial
services, retail trade and software.
22
… and ownership is evolving.
 Production chains used to be almost exclusively owned by a single
multinational.
 Today, the trend is toward multiple ownership of complex supply chains,
where several business partners are located in different countries.
 This trend is prevalent when:
 Products or activities can easily be defined or standardized
 The technology can be protected or is difficult to copy
 It is possible for business partners to write and enforce legal contracts.
 It is possible to monitor (to a certain extent) the activities of business
partners
 New technologies such as ICTs, modern transportation and
communication infrastructures, and establishment of international
(e.g. WTO) have facilitated the emergence of global supply chains.
23
Key enablers of Global Supply Chains
 Globalization, falling transportation and telecom costs, low tariffs, and
technological improvements have changed global supply chains.
 Firms are increasingly:
 Outsourcing / offshoring some of their activities.
 Relying on alliances and joint ventures for global competitiveness.
 Using logistics to improve supply chain efficiency.
 Firms are increasingly part of global supply chains, mostly through trade
and investment relationships with the foreign countries.
 In order to thrive, firms need:
 Smart Borders and world-class transportation infrastructure.
 Leading edge communication infrastructure.
 Free trade and investment.
 Smart Regulations.
24
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
25
The objectives of Global Supply Chains
Two main objectives could be identified:

Prompt and reliable delivery of high-quality products and
services at the least cost.

To effectively meet rising customer expectations.
26
Top 3 challenges for North American Exporters
Greatest Facing
North American Exporters (2003)
Customs Compliance
Top 3
challenges
are SCM
based
Duties and Tariffs Management
Supply Chain Collaboration
Finding New Buyers
Expanding to New Locales
Transportation management
Financial Payment and Settlement
Freight Forwarding
0%
10%
20%
30%
40%
50%
27
Why integrating a GSC: practicality and usefulness
 Help companies compete all over the world
 Expand business operations
 Offer new services and applications to meet global customers
needs
 Give company a competitive advantage
 Falling international trade barriers mean rising profits
28
Recent changes affecting Global Supply Chains
 Internet and technological change
 Proliferation of trade agreements
 Falling Trade Barriers
 Increase in international trade groups
 New Markets
29
Advantages of Global Supply Chains
 Reduced total costs
 Inventory reduction
 Increase intellectual asset
 Delivery improvement
 Improved fulfilment cycle time
 Diversified business and trading
 Reduce cycle time
 Competitive advantage
 Increased forecast accuracy
 Productivity increase
 Improve capacity
 Untapped markets
 Enhance speed and efficiency
 Expand international connexion
30
Potential obstacles to Global Supply Chains
 Member nations VS. Non member nations
 Trade imbalances
 Inefficient transportation and distribution
 Export surges and recessions
systems
 Market instability
 Different languages
 Differences in currencies
 Differences in measurement systems
(metric versus decimal)
 Greater distance
 Tax policies
 Operational threats
 Strategic challenges
 Technological capabilities
 Different customs, beliefs and cultures
 Political turmoil
31
Combating these obstacles
 Duty specialists and trade specialists
 Be innovative & Be flexible
 Join nation groups
 Research
 Banding together
 New technology
 Form consortiums
 Infrastructure improvements
 Vertically integrate
 Reduce the number of “stops” in the
chain
32
APEC Supply-Chain Connectivity Framework
APEC is addressing issues by identifying 8 chokepoints

Chokepoint 1
 Lack of transparency/awareness of the full scope of regulatory issues affecting logistics;
 Lack of awareness and coordination among government agencies on policies affecting
logistics sector;
 Absence of single contact point or champion agency on logistics matters.

Chokepoint 2
 Inefficient or inadequate transport infrastructure;
 Lack of cross border physical linkages (e.g. roads, bridges).

Chokepoint 3
 Lack of capacity of local/regional logistics sub-providers.

Chokepoint 4
 Inefficient clearance of goods at Customs;
 Lack of coordination among border agencies, especially relating to clearance of regulated
goods ‘at the border.
33
APEC Supply-Chain Connectivity Framework

Chokepoint 5



Chokepoint 6

Underdeveloped multi-modal transport capabilities;

Inefficient air, land, and multimodal connectivity.
Chokepoint 7


Burdensome customs documentation and other procedures (including for preferential
trade).
Variations in cross-border standards and regulations for movement of goods, services and
business travelers.
Chokepoint 8

Lack of regional cross-border customs-transit arrangements
34
Some other impediments to GSCs
 Increased border security and customs requirements
 Port and border congestion, and the increased security measures,
require better shipment planning and
coordination
 Impact of natural disasters and pandemics
 Regional disruptions in key component supplies
 Reduced productivity
 Capacity re-directed to emergency causes
 Reduced manpower availability
 Need for robust contingency plans
 Need for infrastructure investment
35
GSCs entail additional considerations
●
Security
●
Port issues
●
Tax and tariff issues
●
Partnerships with local experts
●
Cultural differences
●
Technology abilities and capabilities
●
Risk management
36
Some reasons for extending businesses globally
 Cost, Access to raw-material
 Increase sales, New Markets
 Satisfy shareholders
 Falling tariffs
 Increase in International Trade, Multi-Point Communication
 Increase in internet use throughout the world.
37
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
38
Globalization is a driver for GSCs
39
So, GSC means making operations globally
Global operations
Suppliers
Global sourcing
- Dealing with
foreign suppliers
- Managing
international logistics
- Managing risks
Operations
Global manufacturing
- Facility location
- Coordinating networks
of plants
- Coordinating networks
of R&D facilities
- Operations in other
countries
Markets
Global distribution
- Local content regulations
- Managing global
distribution
- Managing risk
40
A GSC as its simplest expression
Simple Supply Chain
Materials and
components
Design and
Product
Development
Production
Marketing
Distribution
Consumption/
recycling
41
Major entities in a GSC
Capacity, inventory levels, delivery schedule, payment terms
Supplier
Manufacturer
Distributor
Retail
Outlets
Customer
Orders, return requests, repair and service requests, payments
42
Supply chain fundamental
43
A PBMMS model…
Plan
Demand
& Supply
Planning
Buy
Sourcing
& Supplier
Management
Make
Move
Manufacturing
Storage &
Transportation
Sell
Customer
& Order
Management
44
… would look like this.
Plan
Source
Suppliers
Make
Manufacturers
Deliver
Warehouses &
Distribution Centers
Buy
Customers
Transportation
Transportation
Costs
Costs
Material Costs
Transportation
Manufacturing
Inventory
Costs
Costs
Costs
45
Application of a GSC
Source: Chuck Poirier (CSC Consulting), Frank Quinn (Supply Chain Management Review), “Survey of Supply Chain
Progress– Best Practices and More,” U-Connect 2007.
46
Traditional domestic supply chain
• Limited border crossings
• Coordinated customs
processes
• Regional plant locations
• Integrated logistics centers
and cross-docks
Plants
Supplier
Locations
• Stable
distances
• Static supplier base
• Established logistics
networks
• Established carrier base
• Existing infrastructure
• Effective regulatory agencies
• National distribution
capacity
• Specialized equipment
47
Source: AutoDiversity Management inc. (ADMi) (2009)
Extended Global supply chain
Supplier
Locations
• Multiple International border
crossings
• Complicated customs
regulations
• Various data requirements
• Multiple mode requirements
• Dynamic supplier base
• Broad and diverse carrier base
• Increased number of
• Multiple language requirements
supplier options
• Regional customs
• Multiple source
• High level of coordination
countries
Source: AutoDiversity Management inc. (ADMi) (2009)
• Multiple plant locations
• Flexible manufacturing
• Parts commonization
Plants
• Increased mileage
• International
dealership network
48
A more detailed GSCs: Aerospace supply chain
Upstream supply chain
Downstream supply chain
49
Source: KPMG, 2009.
A more detailed GSCs (Oil & gas supply chain )
Upstream supply chain
Downstream supply chain
50
Source: KPMG, 2009.
Business activities that could be
relocated…
 Distribution and logistics

e.g. transportation activities, warehousing and order processing
 Call centers and help desks

e.g. after sales services and customers support services
 Marketing, sales and sales services

e.g. advertising, telemarketing, exhibitions, fairs
 Operations

e.g. provisions of services or production of goods
 Software development
 Data processing
51
… and also…
 Other information and communication technologies services

e.g. hardware and software consultancy, database services, maintenance and
repair, web-hosting and other related technology services
 Legal services
 Accounting, book-keeping and auditing
 Human resources management

e.g. training and education, staff recruitment, provision of temporary personnel,
payroll management, health and medical services
 Financial and management functions
 Engineering and related technical services

e.g. technical consultancy, technical testing, analysis and certification, design
services
 Research and development
52
… but companies could face some issues.
 Legal and administrative barriers
 Physical infrastructure in the country or at
the border
 Taxation issues
 Tariffs and trade barriers
 Border security issues
 Problems with the distance to customers
 Uncertainty of international standards
 Linguistic or cultural barriers
 Access to financing
 Customer requirement to use specific
technologies/systems
 Concern of violation of patents and/or
intellectual property rights
 Foreign tariffs or trade barriers
 Meeting cost requirmenent
 Meeting quality requirement
53
Different types of Global supply chains models
●
Own and manage your own infrastructure
●
Use strategic alliances
●
Partner with an asset-based third-party
●
Partnership with a global integrator of logistics
services
54
1. Own and manage your own infrastructure
Pro
●
Con
Maximum control

Heavy cost
55
2. Use strategic alliances
Pro
Con

Convenience

Large area covered

Unreliable allianceprone
56
3. Partner With An Asset-Based Third-Party
Pro
Con

Operational standards

Ignorance of complex
customs regulations

Uniform identity and
marketing strength

Lack of connections

Local economic
downturns

Dedicated mgmt
structure
57
4. Partnership With a Global Integrator of Logistics
Pro
Con

Customer friendly

In-country knowledge

True information
systems integration

Uniform standards

Limited use

Less control
58
Enabling SMEs to enter in GSCs mode
 Development of a supportive business environment for SMEs.
 Build-up of human, technical, and financial capacity of these SMEs so
they can understand the policies and operations of global supply chains
and profitably respond to those requirements.
 Research have found that retail and wholesale distribution services are a
key channel to exports and global supply chains for manufacturers,
especially SMEs.
 Retail and wholesale distribution services are a key channel to exports
and global supply chains for manufacturers, especially SMEs.
59
Barriers for SMEs to integrate GSCs
 Lack of entrepreneurial, managerial and marketing skills
 Bureaucracy and red tape
 Lack of accessibility to information and knowledge
 Difficulties accessing financial resources/Lack of capital
 Lack of accessibility to investment (technology equipment and know-how)
 Non-conformity of standardization, lack of quality awareness and lack of mutual
recognition schemes
 Product and service range and usage differences
60
Barriers for SMEs to integrate GSCs
 Language barriers and cultural differences
 Risks in selling abroad
 Competition of indigenous SMEs in foreign markets
 Inadequate behaviors of multinational companies against domestic
SMEs/Lack of government supply-supporting programs
 Complexity of trade documentation including packaging and labeling
 Lack of government incentives for internationalization of SMEs
 Inadequate intellectual property protection
61
Key technology, process and SCM mandate
play a key role in GSC
Key technology and processes developed and mandated by service providers to
manufacturers:
EDI:
Electronic Data Interchange; exchange of formatted data between the
different applications of the partner’s computer systems (computer to
computer).
ECR:
Efficient Consumer Response; cooperative approach between
manufacturing companies and distributors with the objective of increasing
customer satisfaction while improving economics performance of the
participating companies.
CPFR:
Collaborative Planning and Forecasting Replenishment; an approach of
collaboration and integration of forecasting and planning processes
between customers and suppliers. Partner companies exchange
information on product sales and forecasts in order to synchronize
their operational plans.
62
Enablers of innovation and productivity in
GSCs
Distribution Services (retail, wholesale and supply chain/logistics services) are key to
diffusion of innovative technology and processes to manufacturers active in global
supply chains.
Wal-Mart: Introduced Radio Frequency Identification (RFID) to the industry and
expects $8.35B of internal annual cost savings and $10B for it’s manufacturer
suppliers involved in their global supply chains
Due to the introduction of global supply chain collaboration models by the distribution
services, U.S. firms across all sectors decreased their logistics costs as percentage of
GDP by 41% from 1982 to 2003.
Manufacturers that will deploy the global supply chain collaboration model
applications, mandated by the distribution services,are expected to enjoy a 5% to 25%
decrease in supply chain/logistics cost and a 15% to 40% increase in quality and timeto-market over competitors.
63
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
64
Drivers of supply chains performance
Facilities


places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory


raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation


moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information


data and analysis regarding inventory, transportation, facilities throughout the supply chain
potentially the biggest driver of supply chain performance
Sourcing

functions a firm performs and functions that are outsourced
Pricing

Price associated with goods and services provided by a firm to the supply chain
65
Importance of metrics for GSCs

Metrics are important to firms for the following reasons:

Tracking metrics allows firms to track performance over time and guides you on how to
optimize your Supply Chain.

Allows management to identify problem areas.

It also allows for comparison to other companies through like industry benchmarking.
 Certain metrics, such as Inventory Turns, have a widely accepted definition.

Other metrics, such as Backorders, may need to be customized for particular industry or
logistics business model.

Measurements should have dedicated departments or management that are responsible for
achieving an agreed upon target on the metric.

Supply Chain Management needs to encourage and support the process changes to achieve
the desired targets.
A supply chain is only as strong as its weakest link
66
Metrics are also useful for policy making
 Existing data resources are inadequate to support policy responses to
global integration.
 Increasing need for more firm levels data and surveys for policy makers
and researchers.
67
KPI for GSCs
Key Performance Indicators (KPI):
A measure which is of strategic importance to a company or
department.
 For example, a supply chain flexibility metric is Supplier-On-time
Delivery Performance which indicates the percentage of orders that
are fulfilled on or before the original requested date.
68
Finding solutions using metrics and KPIs
 Measurements alone are not the solution to all problems
 The solution lies in the corrective actions that are taken to improve the
measure.
 Businesses thrive or fail based on their ability to identify, define, track,
and act upon Key Performance Indicators (KPIs). Executives and line of
business management are increasingly feeling the pressure to establish
the right KPIs to enable more timely and more accurate decisions.
 The faster and more accurately KPIs can be accessed, reviewed,
analyzed, and acted upon, the better the chance an organization has for
success.
69
KPIs and Best in Class companies (BiC)
 According to Aberdeen Group, surveyed companies can be categorized in three
groups:
 Best-in-Class,
 Average
 Laggards
 Aberdeen,s main research findings show that most companies focus on
financial and customer KPIs, and less so on process, organizational, and
product KPIs.
 Best-in-Class companies have taken a more well-rounded approach to KPI
initiatives, and have identified metrics that encompass key performance
measures beyond the typical KPIs focused on profitability and cost.
 Additionally, Best-in-Class companies are also stressing the importance of KPI
visibility throughout the organization. Performance is greatly affected when
more people have access to KPI information and have the ability to act on it.
Best in Class companies want agility and responsiveness
70
Source: Aberdeen Research, « Smart Decisions: The role of Key Performance Indicators », 2007
What Best-In-Class companies do better than
others?

Best-in-Class companies are far more likely to establish an ongoing review of KPIs as part of their
overall strategy.

Industry Average and Laggard companies that neglect this step are at risk of measuring KPIs that
are based on metrics that do not reflect the current business climate.

KPIs are an integral part of a company’s performance management strategy. The correct
definition, use, and (most importantly) continual adaptation of KPIs directly impacts performance.

Best-in-Class companies have adopted a set of capabilities that deliver positive results across a
diverse set of performance metrics. To achieve Best-in-Class performance, organizations must:

Institutionalize a KPI strategy – Best-in-Class companies are instituting a KPI culture for alignment
of business strategy and company goals

Continuously revise KPI definitions – business changes and so are the KPIs

Provide access to KPI information to all decision makers – dashboards, scorecards and auto-alert
reporting are being used by Best-in-Class companies
71
Source: Aberdeen Research, “Smart Decisions: The role of Key Performance Indicators” (2007)
Innovation is moving from a firm-to-firm level to a
supply chain versus supply chain
● Lean manufacturing principles have revolutionized the way leading firms deliver
products to their customers and manage their global supplier relationships.
● As competition becomes more global, many firms must develop supply chain agility in a
Just-In-Time (JIT) and mass customisation mode.
● Logistics and supply chain management (SCM) are key components of any Lean
manufacturing initiative.
● The two most preferred key performance indicators (KPI) measured by North American
lean manufacturers are logistics and SCM JIT related (on-time delivery and inventory
turns).
● While inventory turns is the main KPI for evaluating lean supply chain agility, logistics
cost KPI allow firms to evaluate the efficiency of their logistics and SCM operations in
their global Lean initiatives.
The combination of supply chain agility and efficient SCM practices is key to the
long term competitiveness and prosperity of firms in a GSC context.
72
Survey results findings
Survey results are useful to assess the importance of participation of firms in GSC
Statistics Canada study showed that :
 In 2004, more than half of all manufacturing plants participated in a global supply
chain
 Large plants were more likely than both small and medium-sized plants to participate
in a global supply chain
 Innovative plants were more likely to participate in a global supply chain than non-
innovative plants
 Innovative plants were four times more likely to contract out to a global supplier than
non-innovative plants.
 Innovative plants that were part of a global supply chain more likely to have world-
first innovations than those that were not.
73
Source: Statistics Canada, Innovation and global supply chains: Findings from the Survey of Innovation (2005) (2007)
Benchmarking: challenges and tactical
requirements
 Dynamic ever-growing
supplier base
 Multiple countries, languages,
and customs
 Diverse transportation modes
and infrastructure
 Complex data coordination
requirements
 Disaster recovery planning
 Improve volume forecasting
and data transparency
 Develop coordinated supply
chain contingency plans
 Promote collaborative supply
chain networks (OEM’s and
suppliers)
 Support industry best-
practice communization and
productivity improvement
initiatives
 Expanding mileage factors
Incorporating benchmarking activities into the strategic planning
process will enable effective best practice development and adoption
74
Source: AutoDiversity Management inc. (ADMi) (2009)
Performance measurement and benchmarking
Investors
Financial analysis comparison with other targets to assess overall
competitiveness and productivity
Financial
Comparison of peer or target companies market performance in
considering corporate investment alternatives
Product
Process of designing new products or upgrades to current ones,
including reverse engineering of competitive products
Strategic
Process of observing common or uncommon groups’ competitive
advantages or disadvantages
Process
Identifies and observes specific business processes with a goal of
identifying best practices
Functional
Focuses on a single function in order to improve the operation of that
particular function.
Performance
Helps companies assess their competitive position by comparing
specific performance dimensions
Metrics
Used to develop yardstick comparisons, allowing outsiders to evaluate
the performance of operators in an industry
Supply chain benchmarking generally revolves around Strategic, Process, Function, and
Performance benchmarking… thus promoting more effective performance metrics
75
Source: AutoDiversity Management inc. (ADMi) (2009)
Integrating Benchmarking Activities
Logistics scorecard
Leading
Lagging
1
Outsource all logistics
functions
Some internal logistics
capabilities
Retain critical strategy logistics
resources and capabilities
Fully decentralized
Specific functions / groups
are centralized
Centralized and integrated
Network design and
operation
Rigid network; defined by
third party
Flexible
Flexible, optimal network
Cost management
Lack of control of cost drivers;
Significant cost disadvantage
Internal / external costs
managed moderately well
External affairs
Lack of awareness of key
issues
Limited involvement in key
issues
Full control of cost drivers;
significant competitive
advantage
Strategic involvement in key
issues
Systems
Externally developed and
managed
Internally managed, but
primarily tactical
Internally managed and
strategic integration
Strategy
2
Organization
3
4
5
6
Supply chain benchmarking contains 6 performance and structural elements.
76
Source: AutoDiversity Management inc. (ADMi) (2009)
Current metrics for supply chain management
 On-time delivery;
 production throughput;
 forecast accuracy;
 fill rate;
 overtime labour;
 supplier performance;
 freight and delivery costs;
 lead time performance;
 stock-outs and backorders;
 inventory turns;
 obsolescence
77
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
78
What is Global Supply Chain Management?
Supply chain management (SCM) is the management of a
network of interconnected businesses involved in the
ultimate provision of product and service packages
required by end customers.
(Harland, 1996)
79
History of Supply Chain Management
1960’s Inventory Management Focus, Cost Control
1970’s MRP & BOM - Operations Planning
1980’s MRPII, JIT - Materials Management, Logistics
1990’s SCM - ERP - “Integrated” Purchasing, Financials,
Manufacturing, Order Entry
2000’s Optimized “Value Network” with Real-Time Decision
Support; Synchronized & Collaborative Extended Network
80
Activities in Supply Chain Management
Supply chain management is a cross-functional approach to
manage the movement of raw materials into an organization, certain
aspects of the internal processing of materials into finished goods,
and then the movement of finished goods out of the organization
toward the end-consumer.
Whereas Purpose of SCM:
The purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving inventory
visibility and improving inventory velocity.
81
Supply Chain Management and Uncertainty
●
Inventory and back-order levels fluctuate considerably across the
supply chain even when customer demand doesn’t vary
●
The variability worsens as we travel “up” the supply chain
Wholesale
Distributors
Time
Sales
Sales
Time
Consumers
Retailers
Sales
Manufacturer
Sales
Multi-tier
Suppliers
Time
Time
Bullwhip Effect
82
Role of logistics in GSCM
 The success of supply chain management rests with logistics.
 Five Key Issues of Logistics Effectiveness which are core to Supply
Chain Management:
 Movement of Product
 Movement of Information
 Time / Service
 Cost
 Integration, both internal and external, both organizations and
systems
 Supply chain management requires a logistics model based on quick
order to delivery response. A model which focuses from vendors' doors
through to delivery to customers' doors.
 The model must meet the customers' demanding and specific
requirements. It requires organizational flexibility and responsiveness,
internal and external teamwork and demands the use of processes and
technology.
83
Drivers that affect could logistics and SCM
 The impact of global commerce
 Security within supply chains
 Increasing energy costs
 Sustainable development practices
 Technology and innovation
Reasons for using metrics in logistics: to help supply chain managers and
decision-makers better understand:
 Current and future trends
 Competitive position in relation to leading firms within their own
sector
 Steps that can be taken to become more competitive.
84
Canadian findings on the role of logistics
 Logistics and supply chain services are the enablers of
integrated global supply chains
 Descartes Systems Group, a Canadian service provider of
supply chain and logistics technology, provide a system that
synchronize and connects more than 1000 manufacturers with
2000 logistics service providers in 180 countries.
 The results is the access to global synchronized virtual
supply chain to Canadian firms from all industrial sectors
by service providers.
Source: Logistics / Supply Chain Management, Industry Overview and Statistical Profile (2005)
85
The Canadian experience: the logistics sector is
restructuring to remain competitive
 Consolidations, mergers, and
acquisitions have been extremely
common in the Canadian logistics
sector in the last few years
 Increased number of large firms in
all sub sectors
 Decreased number of medium
firms in transportation based sub
sectors
86
Manufacturing sector is the most innovative and
agile in logistics and SCM processes
Possible factors:
 Infrastructure
 Head Quarters
 Supply chain mandates
 Technology and process
adoption
 Size of firms
Inventory Turns : How many times a year the average inventory for a firm
changes or is sold
e.g. 1 = 365 days of inventory; 12 = 1 month of inventory; 365 = 1 day of
inventory
87
Supply chain collaboration is more important than
costs in terms of innovation drivers

Users (manufacturers,
wholesalers, and
retailers) are prioritising
better co-ordination with
suppliers and/or
customers over lower
costs

The users perceive
more benefits from
these practices both in
terms of costs and coordination than do
logistics service
providers
88
Collaborative Planning, Forecasting and
Replenishment (CPFR) Model
89
The role of innovation in GSCM
 As competition becomes more global, innovation is moving from a firm-to-
firm level to a supply chain-to-supply chain perspective
 The adoption of logistics and SCM technology across supply chains is a
key component for developing efficient collaboration networks
90
Integration of e-SCM applications
e-SCM applications are not fully integrated across supply chain partners
 Most e-SCM applications are not
linked internally (mainly large
firms)
 Very few firms across all sizes
have integrated supply chain enetworks
91
Source: Electronic Commerce Survey, Statistics Canada, 2007
Leveraging logistics technology by linking to
retailers’ suppliers via their CPFR initiatives
 Retailers are leveraging their
logistics technology by linking to
their suppliers via their CPFR
initiatives while wholesalers are
not fully embracing the integrated
supply chain concept
 Logistics service providers are
linking their e-SCM applications
with other transportation &
logistics service providers in
order to provide global supply
chain visibility
 Manufacturing sector is the least
e-SCM integrated sector
92
Source: Electronic Commerce Survey, Statistics Canada, 2007
Outsourcing of e-SCM innovation is
mainly conducted by large firms
 Very few firms using e-SCM
applications outsource this
activity
 Connecting multiple supply
chain partners together though
application service providers
(ASP) is the main focus of eSCM outsourcing
Small (1-19 employees)
Medium (20-99 – services, 20-499 – manufacturing)
Large (100+ – services, 500+ -manufacturing)
93
Source: Electronic Commerce Survey, Statistics Canada, 2007
Best-in-Class Analysis
 It is estimated that North American (NA) Small and Medium Sized Enterprises
(SMEs) that will deploy logistics and SCM e-collaboration applications will enjoy:

5 to 25 percent decrease in logistics and SCM costs

15 to 40 percent increase in distribution service quality and time-to-market
over competitors that fail to make these investments
 90 percent of NA companies that embrace leading edge logistics and SCM
collaboration applications achieved an increase of at least 15 percent of order fill
rate accuracy
 Only 40 percent of low technology adopters are achieving similar results
 High technology adopters in SCM collaboration are also achieving comparative
advantage in logistics and SCM KPI such as total delivered cost, lead time
reduction, increase in perfect orders and increase compliance to customer
mandates such as RFID and JIT1
94
Source: SMBs Embrace SRM Solutions via Service Providers, Gartner, 2008 and Extending Warehouse Management Beyond the Four Walls, Aberdeen Group, 2008
Sectors that have embraced Lean, Just-In-Time and
Six Sigma concepts…
 Certification of suppliers
focuses on purchasing from
suppliers whose production
processes meet standards
setting organisations
… are leading in the certification of suppliers processes
95
Source: Advanced Technology Survey, Statistics Canada, 2007
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
96
Trends surrounding the future of GSCs…
 Declining economy
 Social structures
 Cost and availability of raw materials
 Awareness of sustainability
 Consumers and technology
 Business models change
 Availability of information in the supply chain
 Product safety
97
Forces and trends that will impact the Future
Supply Chain
New markets and
a new
economic
balance
Sustainability
and
the scarcity of
natural resources
Ecological
Economic
Consumer
Behaviour
Driving the value
chain
Regulatory
Redesigning
supply chain
Product
Flow
Information
Flow
Demographic
Graying and
urbanisation
New rules,
new compliancy
New
technologies
Explosion of
information
Managing complexity
through transparency
98
… more specifically

Globalization is accelerating, leading to large structural shifts for supply chain organizations

Despite 17% average cost reduction from globalization, many companies do not save on management
costs

Product quality, safety, and supply chain delivery and security are critical concerns

Limited flexibility and the lack of internal competency to manage partners are major barriers to globalization

Environmental sustainability is driven by the need for regulatory compliance and satisfaction of customer
demands

Supply chain maturity, enabled by advanced supply chain practices, appears to have reached a plateau

Pressures to reduce cost and penetrate local markets are the two key drivers of accelerated globalization

By 2010, the need for higher supply chain flexibility will be the major driver of supply chain strategy

China and India are primary targets for globalization, while Eastern Europe is catching up

The COO agenda is converging on improving supply chain flexibility and delivery performance
99
Source: PRTM (2008)
Globalization is accelerating
 Globalization, the level of value creation outside the home country, is gaining
momentum and leads to Supply Chain Organization Shifts
 More and more manufacturing activities and final assembly have already been
globalized
 The primary shift of manufacturing and assembly operations has been to lowcost locations like China, India, and Eastern Europe
 The trend of outsourcing IT and other shared services such as HR and
finance is decreasing, as most of the surveyed companies have already
achieved anticipated benefits from offshoring these functions
 As a result of manufacturing and assembly globalization, support functions such
as warehousing and procurement have also been globalized in support of
international locations
 Rapid increasing globalization of product and technology development by
offshoring R&D and technology development activities.
100
Summary of Key Industry-specific trends
Automotive & Industrial
Consumer Goods
 Local market presence is major
 Product innovation is a major driver
driver
 Outsourcing trends will continue
 Product development outsourcing
will help drive local market access
and presence
 Brand focus leads to higher product
safety and sustainability concerns than
in other industries
 Mass customization a challenge as
companies seek emerging market
growth
Life Sciences
Electronics, Telecoms, Services
 Product cost emerging as major driver
 Overall SC maturity has declined as
and concern
 Globalization has been forcing function
for better internal collaboration
 External partner capabilities are seen as
a major barrier
electronics supply chains have become
more complex
 Highest level of physical globalization of
all industries
 Flexibility is the major concern
101
Source: PRTM (2008)
New ways of working together to eliminate supply
chain disruptions and enable growth
Industry Track (Collaborate)
Best
Practices/
Standards
Documentation,
Education,
Communication
Guiding
Principles
and Frameworks
Share
Results
Focus on
Consumer
Connected
Business
Information
Prepare People
for New World
Share Our
Supply Chain
Strategy
Alignment
Common Goals
& Measures
Knowledge,
Skills &
Capabilities
Sustainability
Jointly Agreed
Growth (JAG)
Framework
Information
Sharing*
Electronic
Product
Code (EPC)
Cross-Industry
Integration
Incentives &
Rewards
Organization
Design
Integrated
Supply
Chain
Specific
Measures
& Priorities
Other
Data-Sharing
Opportunities
Consumer/
Shopper
Satisfaction
Data Synch
Strategic Issues
Between Trading
Partners
Common Goals,
Common
Measures
Trading Partner Track (Competitive Advantage)
Source: Global Commerce Initiative, Capgemini (2008)
102
New Model for the Future Supply Chain
Highlights Sustainability Benefits
103
Source: Global Commerce Initiative, Capgemini (2008)
Starting Point to build the future supply chain
 In-store logistics
 Collaborative physical logistics
 Reverse logistics
 Demand fluctuation management
 Identification and labeling
 Efficient assets
 Joint scorecard and business plan
104
New parameters for GSCs
 Collaborative city replenishment
 Collaborative warehouse and distribution
 Neighborhood delivery
 Lead-time reduction
105
Is your supply-chain “sustainable”?
106
Addressing sustainability issues in GSCs
Recent events and regulations are driving the necessity to address
sustainability issues in GSCs
 Kyoto Protocol, December 1997.
 United Nations Climate Meeting, Bali, December 2007.
 Carbon Disclosure Project (CDP).
 EU Directive on Renewable Energy, January 2008.
107
GSCs could rise environmental concerns
0.25
The carbon exposure of
many Canadian industries is
not insignificant.
Electricity Generation
Increase in costs
associated with a
0.20 CO2 e price
$100/tonne
applied on all emissions
0.15
Iron and Steel
Agriculture
Carbon
Exposure
0.10
Industrial
Minerals
Government
Services
Petroleum
Refining
0.05
Gas Oil
.
Chemical Products
o Coal
Freight
Construction
Other Mineral Mining
Wholesale, Retail Trade
Other Manufacturing
(autos, etc.)
Pulp and Paper
0.00
Services
0.0
0.2
0.4
0.6
0.8
The area of each
circle corresponds
to the relative size
of sectoral output
Percentage of Industry Output that is Exported
108
Source: National Roundtable on the Environment and the Economy (2009)
Evolving Global Value Chains
Company Cultural and Behavioural changes
•Shared services
•Shared information/collaboration
Information Sharing
•Open platforms for distributed data-sharing models
Shopper Dialogue
•A new interface with
the consumer
Integrated Logistics/
Home Fulfilment
Synchronised Production
•Working from one demand signal
•Integrated upstream suppliers
Sustainability
•Economic development
•Environmental protection
109
New KPIs for the Future Supply Chain
Current KPIs

Availability to consumer
(percent in-stock)

Cost reduction

Financial KPIs





Return on investment
(ROI)
Gross Margin Return
on “X”(GMROX)
Return on brand equity
Inventory
Traceability
Sustainability KPIs

Energy consumption

CO2 emissions
(greenhouse gases)

Traffic congestion

Water consumption

Security compliance

Infrastructure
simplification
110
Impact of Supply Chain Redesign
111
Moving from GSCM to “G”SCM…
Global Supply Chain Management
(GSCM)
“Green” Supply Chain Management
(“G”SCM)
112
… with a “sustainability” angle to GSCM
“Green Supply Management is integrating
environment thinking into supply chain
management, including product design, material
sourcing and selection, manufacturing process,
delivery of the final product to the consumers, and
end-of-life management of the product after its
useful life.”
(Srivastara, 2007)
113
Objectives of “G”SCM
 “G”SCM mainly focuses on making the business orientation eco-friendly
 To achieve competitive advantage and high performance through “G”SCM
practices
 To integrate the green supply chain into the corporate policies and strategies
for smooth operation
 To make difference in its approach
 To show how important it is to conserve environment and sustain our natural
resources and show to what extent is our business activities dependant on
environment
114
Advantages of being “Green”
 Wal-Mart anticipates its goal of a 5 percent reduction in packaging by 2013
will produce $3.4 billion in direct savings and roughly $11 billion in savings
across the supply chain.
 Johnson & Johnson’s energy efficiency program resulted in an estimated $30
million in annualized savings over the 10 years prior to the company’s 2006
sustainability report.
 Nestlé, through a combination of packaging source reduction, re-use,
recycling, and energy recovery, saved $510 million, worldwide, between 1991
and 2006.
115
Mathematics of “G”SCM
Green Procurement
+
Green Manufacturing/Materials
Management
+
Green Distribution/Marketing
+
Reverse Logistics
---------------------------------------------Green Supply Chain Management
116
Scope and relevancy of “G”SCM
Scope:
 Companies effort to incorporate GSCM leads to reduction of wastage.
 Reduction of pollution
 Sustainability of natural resources.
 Better environment and world to live in.
 Opportunity to slowly orient to “Green” SCM should be the focus of the companies to
world class standards.
Relevancy:
 Eliminate wastes.
 Optimum utilization of resources.
 Sustaining environment.
 Competitive advantage.
 Impress customers.
 To make difference.
 Reverse logistics.
 Create social responsibility.
117
Approaches to “G”SCM
 Reactive approach by complying with domestic legislation
 Proactive approach by pre-empting new legislation
 Value-seeking approach
118
“Green” Supply Chains practices
119
Addressing “G”SCM: a Canadian perspective
Objectives of the Canadian Green SCMs project:
 Provide industry with the latest key performance indicators (KPI),
 Productivity and competitiveness analysis,
 Best practices and future trends on “G”SC in distribution activities.
Expected outcomes of the Canadian “G”SCMs project:
 Provide policy makers with industry perspectives for developing policies
that better respond to current and future industry needs.
120
Source: Industry Canada
Concepts: “G”SCM in Distribution Activities
“G”SCM practices involve integrating environmental
thinking into distribution practices
 “G”SCM practices include:
 Energy efficiency
 Reduction of GHG air emissions
 Water conservation or processing
 Waste reduction
 Reduced packaging/increased use of bio-degradable packaging
 Product and packaging recycling/re-use
 Green procurement practices
121
Source: Industry Canada
“G”SCM drivers across supply chains
Costs coupled with the need for competitiveness advantages
are the main “G”SCM drivers across supply chains

Energy costs can amount to
55% of air transportation costs
and 29% of truck transportation
costs

Logistics and transportation
firms value GSCM as a service
differentiator in a highly
commoditized market
122
Source: Industry Canada
Leading sectors on the use of “G”SCM practices
Logistics and transportation (L&T) companies are leading the use of GSCM
practices compared with manufacturing and retail firms
 Logistics and transportation
service providers own more
transportation assets than
manufacturing and retail
firms
 Retail chains GSCM
opportunities are more
complex due to multiple
store locations and
franchise business models
123
Source: Industry Canada
Some facts about the use of “G”SCM practices

Firm size may no longer impact whether “G”SCM activities are pursued

Retail chains “G”SCM mandates encourage suppliers to become greener

Initial retail chains “G”SCM practices are within organizations

Second generation “G”SCM practices include “G”SCM mandates with suppliers at both services
(transportation and logistics) and manufacturers

“G”SCM practices translate into reduced energy consumption and waste in distribution, decreased GHG
emissions, and less packaging

Retail chains have an opportunity to have access to carbon credits and decrease harmful air emissions and
waste

Transportation services have an opportunity to reduce their global industry carbon emission footprint.

Emissions differ widely by transportation mode

The emission ratio of:
 Marine to rail is 1.5
 Truck to marine is 1.4
 Air to truck is 2.7
124
Source: Industry Canada
Overall Key Findings of “G”SCM
 Main “G”SCM business drivers include the high cost of energy and a
desire to have a competitive advantage over other firms.
 Since many “G”SCM practices require limited investment, are low-risk, and
offer short-term return-on-investment periods, businesses of all sizes are
able to engage in these activities.
 Despite the large number of businesses that understand the importance of
“G”SCM, the number of firms that actually engage in such practices is
significantly lower.
 Retail chain “G”SCM mandates bring business and environmental benefits
to the entire consumer products supply chain.
 Most Best-in-Class (BiC) businesses are able to better differentiate their
distribution services, improve risk management, increase sales, and
increase access to foreign markets, all while reducing distribution costs.
125
Source: Industry Canada
Publications related to “G”SCM
126
Agenda
Prologue: The International Context

Roadmap to Global Supply Chains

Objectives of Global Supply Chains

Characteristics of Global Supply Chains

Benchmarking the Global Supply Chains

Global Supply Chains Management and
the Role of Logistics

Global Supply Chain Management in the
future

Beyond Global Supply Chains: Global
Value Chains
127
The World is changing…
 Fragmentation of the production process
 Manufacturing and Services sectors have changed
 Technical advances: lower costs and globalisation
 Key role of trade liberalization
 Increasing outsourcing
 Increasing partnering
 Increasing participation of emerging countries
 Increasing participation of smaller firms
... giving rise to a new business model: Global Value Chains
128
What are Global Value Chains?
Global Value Chains (GVCs) include the full range of
activities that are required to bring a product from its
conception to its end use and beyond (e.g. design,
production, distribution). Value chain activities can be
contained within a single firm or divided among different
firms, and can be contained within a single geographical
location or spread over wider areas.
(Gereffi, Humphrey, Sturgeon, Global Value Chains Initiative,
www.globalvaluechains.org/concepts/index.html, 2006)
129
Global Value Chains: A New Paradigm for all Firms
 Globalization trends are placing particular pressure on industries
offering both opportunities and challenges
 Fast growing emerging markets
 Increasingly global competition for talent and innovation

Rise of intermediate trade reinforces the need for global connection
 Firms are increasingly fragmenting their production processes and
spreading them around the world

GVCs are about a lot more than developing foreign markets
 Foreign affiliates no longer only serve local markets
 Global transactions and partnerships seen as key to access skills,
inputs, technology and other opportunities
Challenge is to be involved in high value-added, high impact sectors...
130
GVCs VS. GSCs
Supply chains require…
Value chains require…
 Trade infrastructure
 Markets
 Trade finance
 Firms
 Trade intermediaries
 Innovation
 Logistics providers
 Technology
 Transport services
 Rule of law
 Information flow (ICTs)
 Finance
131
Value chains and supply chains
End users
Competition
Lead firm A
Lead firm B
Value
Chain
Co-evolution
First tier
Supply
Chain
Supply base A
Supply base B
Second tier
Materials
132
Do you speak GVC?
GVC actors
 Lead firms, suppliers, global suppliers, and platform leaders
GVC Linkages
 Five kinds: market, modular, relational, captive, and integrated
GVC processes
 Outsourcing and offshoring
 Co-evolution and industrial upgrading
GVC features
 Industry value chains and supply bases
 Specialized industrial clusters
133
Five kinds of value chain linkages
Governance
type
Market
Key variables
Complexity of
transactions
Ability to codify
transactions
Low
High
Capability in the
supply-base
Degree of explicit
coordination and
power asymmetry
High
Low
Modular
High
High
High
Relational
High
Low
High
Captive
High
High
Low
High
Hierarchy
High
Low
Low
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Source: Gereffi, Humphrey and Sturgeon (2005)
Key questions raised by Global Value Chains

What business functions are establishments doing internally and externally
(outsourcing)?

What business functions are establishments doing domestically and abroad (offshoring)?

What types of jobs go with various business functions, including employment by
occupation, wages, tenure, and number and type of new hires in past 12months?

What educational and training requirements are associated with various business
function combinations?

How do the business functions that an establishment engages in relate to the goods and
services bought and sold (inputs and outputs)?

How do the business functions that an establishment engages in relate to its economic
performance (market share, profitability, employment, share of value added, market
share)

How do the mix of business functions in firms compare to establishments in other
countries?
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GVC strategies are motivated by numerous
factors

Changing business models allow firms to seize opportunities by:
-
Tapping into new growth markets
-
Accessing lower cost resources and best in world capabilities
-
Specializing in “core” competencies to sustain competitive
advantage
-
Achieving economies of scale and scope

Growing competition in domestic and international markets force firms
to increase efficiency and to move into higher value-added activities.

A fragmentation of the production process increases competition. Firms
can be easily replaced and must therefore constantly innovate and
seek to develop a global reach.

Industries are finding innovative ways to adapt.
Today, many firms in diverse sectors view operating globally, and
serving and utilizing GVCs as essential to growth and competitiveness.
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An Example of a Partially Integrated Firm
Germany:
•Eight Manufacturing Facilities
•Corporate Headquarters
Canada:
•Marketing Subsidiaries
Russia:
•Kaliningrad Assembly Plant
United States:
•R&D Center
•Manufacturing Plant
United Kingdom:
•Four Manufacturing Plants
China:
•Shenyang Joint venture with
Brilliance China Automotive
Switzerland:
•Manufacturing Plant
•R&D Center
Egypt:
•Kairo Assembly
Plant
Mexico:
Marketing Subsidiaries
Thailand:
•Rayong
Assembly Plant
Malaysia:
•Kuala Lumpur
Assembly Plant
Indonesia:
•Jakarta Assembly
Plant
Brazil:
•Curitiba (Tritec Motors)
South Africa:
•Rosslyn Manufacturing Plant
BMW
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Activities can be located anywhere…
… and have major implications for competitiveness that have not been well explored.
Bombardier C-Series
Final assembly
Aircraft interior
Avionics
Development,
manufacturing of wings
CDIA
Advanced order
from Lufthansa
Supplier FDI
Financing (UK)
Cockpit, tail
assembly and
other sections of
fuselage
Headquarters,
R&D
Air management
systems
Potential customers
1
138
Global Value Chains: an example
Design: California, USA
Moulds, paint
pigments: USA
Nylon hair: Japan
Body material:
Taiwan
Assembly: Indonesia
and Malaysia
Clothing: China
Marketing: USA
Quality testing:
USA
Global Process for
Producing
Marketing:
USAa Barbie doll
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Source: Grossman and Rossi-Hansberg (2006)
The business model has changed dramatically…
Issue
Old Economy
New Economy
Boundary of the firm:
Established
Less clear
Production:
Mass production
Specialized
Product cycles:
Long
Shortened
Integration of industries:
Vertically integrated
Horizontally integrated
Innovation model:
Proprietary and closed model
Open and collaborative
model
Foreign investment:
Capture local markets
Serve all components of
firms activities
Firm size:
Giant vertically integrated leadfirms
Smaller highlyspecialized lead-firms
Capacity utilization:
Volatile
Volatility managed
through outsourcing
Note: this doesn’t apply to all sectors or all firms of the economy.
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…and can have significant impacts on economic
performance
The organization of production into GVCs can affect:
Productivity growth and competitiveness

by encouraging firms to specialise and focus on their core competencies
 by creating an incentive for firms to move into activities where they have a clear competitive
advantage
 by increasing competitive pressures on firms, and thus promote innovation and efficiency
gains
 by putting pressure to attract and retain high-value activities (skills and FDI)
Employment and wages

if certain activities are moved offshore or decline in importance
 if domestic firms focus on new activities
 if foreign affiliates expand/decrease their activities in the country
Consumers and prices

by reducing prices of some goods (e.g. Wal-Mart effect) and increasing product variety, for
both business and individual consumers
 by maintaining inflation low which creates an appropriate environment for investment
These impacts may vary across activities, industries, regions, and countries
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Opportunities, Challenges and Policy Implications
Implications of GVCs for industry:

Increased specialization causes shifting comparative advantages
Firms must respond by moving-up the value chain and perform
in knowledge intensive segments

Emerging economies are competing in both traditional and knowledge
intensive segments (e.g. China in electronic equipment and India in ICT)
Firms must develop specialized markets, product branding, and
specialized knowledge-assets

Industries and firms must seize global opportunities
Firms must take advantage of greater modularity of production
and more collaborative innovation policies
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Guiding principles for policy framework

Policies must encourage economic openness
 Competition is a cornerstone of industrial policy and a key driver of
innovation and productivity growth

Policies must enable firms to seize the opportunities of
globalization and GVCs
 Comparative advantage must be fully leveraged globally using
appropriate business models and strategies

Policies must also facilitate the adjustment of the economy to
global competitiveness pressures
 Must adapt to changing global environment while minimizing
hardship on affected communities
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Upcoming policy opportunities in Canada
Potential opportunities to pursue GVC policy options include:
 Global Commerce Strategy

Expand role of missions abroad to promote R&D partnerships, licensing, joint
ventures opportunities.
 National Gateway and Trade Corridor Strategy

Provide world-class border, transportation, communication, and logistic
infrastructures.
 Smart Regulations

Provide harmonized regulations to facilitate Canadian firms global integration.
 North American Leaders Summit (former Security Partnership and Prosperity)

Enhance prosperity among the United States, Canada and Mexico through
greater integration of the North American economy as a strong base to compete
globally.
144
One example of Canada’s initiative to help
SMEs integrating GVCs
Publication of a guide for SMEs

The Government of Canada published a guide entitled: Linking In to Global Value Chains: A Guide for Small and
Medium-Sized Enterprises

This guide was created for Canada’s small and medium sized enterprises (SMEs) who are interested in expanding
internationally.

Its intent is to present the global value chain business model as a means for boosting firms’ global competitiveness,
profitability and long term sustainability.
How The Guide Works

First section

Presents the global value chain business model and its relevance for Canadian SMEs.

Second section

Help the firm to evaluate firm’s operational capabilities and determine whether or not it has the capacity for doing
business internationally and determine whether or not it is ready to take advantage of this business model.

Third section

Presents various opportunities for how to optimize your own global value chain. Whether it be selling,
outsourcing, investing abroad or entering into a joint venture.
145
Thank you for your attention
For further information, please contact
Eric Futin at AGVCI@ic.gc.ca
146