introduction to global supply chain tei, larissa 2012
Post on 25-Dec-2015
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Outsourcing
Why Outsourcing?
Because there are others who can do it: cheaper faster better have the resources we don’t
have
What is Outsourcing?
Outsourcing
Outsourcing initiatives have evolved from short term projects focused on cost savings to executive level business strategies that enable companies to gain revenues and profits in the competitive global marketplace.
• Outsourcing has been bantered around as the big revolution, the new management buzzword.
• When people talk about outsourcing they are normally NOT talking about the same “outsourcing”.
OutsourcingComponents of outsourcing
SupplierOrganization
Project
Outsourcing
Supplier is the service provider.
Project is the actual work being outsourced.
Organization that would like to outsource.
Outsourcing Access to Resources
andknowledge
Factorsdriving the
need to outsource
Global diffusion ofknowledge
Rise of globalknowledgeworkforce
Increasedsophistication
of ITCost
savings
Focus on core
competencies
Internal
External
Fact
ors
driv
ing
the
need
to o
utso
urce
Outsourcing
Time
Fragmentation
Release
Consolidation
Enlarging
Emergence
Convergence
3 E’s/Inception
egg
Stages
caterpillar chrysalis butterfly
Metamorphosis of Enterprise
Fragmentation
Release
Consolidation
Enlarging
Emergence
Convergence
Idea
StagesMetamorphosis of Enterprise
Where to outsource
Location • On-site
• Vendor in house• Off-site
• Onshore• Near shore• Offshore
Depth• Individual - specific position• Functional - cost center• Competency - activities TPL
Work • Process - standard• Project - development
Types of outsourcing:
Where to outsource
Off-shore – a foreign location with low cost base and access to skills supported by technology providing equal or improved quality of service at lower cost.
Near-shore – nearby location with common/similar language, culture and business environment provides convenience of access to compensate for lower cost savings.
On-shore – same country as client with mix of in-house and external service provision. Low risk but minimal cost savings. Used to gain access to improved process, technology or to solve an internal problem.
High
Low High Cost
Cont
rol
Drivers and logistics implication of internationalisation
• Transport technology:– Transport cost have continued to decline over time as a
relative cost item– Speed is available through different transport modes
• Information and Communication Technology:– Eliminate barriers related to geographical distance so a
networked company can be well coordinated– Allow real time response to market change which reduces
delivery time
Enablers of globalization
Drivers and logistics implication of internationalisation
• Search for low-factor and supply costs (land, labour, materials)
• Need to follow customers internationally in order to be able to supply locally and fast
• Search for new geographical market areas• Search for learning opportunities and exposure
to knowledge. (Silicon Valley)
Company level drivers of globalization
Drivers and logistics implication of internationalisation
Consequences:
-InventoryInventory holding costs high and low value products
-Handling Implementing best practice
-Transport Cope with differences in infrastructure across
countries
Drivers and logistics implication of internationalisation
Dimensions of different internationalism strategies
Drivers and logistics implication of internationalisation
The time aspect:Managing time to market
Issue Implication
Risk of obsolescence during transport
Especially products with short life cycleRapid technological change
Increase in Inventory holding costs
Actual transport timeWaiting time for consolidationCustoms clearance
Drivers and logistics implication of internationalisation
Trends
• Sourcing from low-wage economies especially commodities
– Selected suppliers despite location– Sourcing in low-wage countries
• Western Europe to Eastern Europe and Far East• Concentration at specific sites • Bulk transportation / Consolidating transportation
The global consolidations
Drivers and logistics implication of internationalisation
The global consolidations
Risks– Geopolitical
• Political risksWars - Boycotts
• DiseasesBirds Influenza – SARS – etc.
– Transportation breakdowns• Strikes• Natural disasters
The tendency towards internationalisation
From (a) Local To (b) global
”Focused markets”Full range production on a local factory to a local market
”Focused factories”A limited range of products on a global factory to the global market
Decentralised inventoryLocal inventories to local markets
Central inventoryglobal inventory to global market
Focused factories
The tendency towards internationalisation
Focused factories
Inventory centralisation against logistics costs and service dimensions
The challenges of international logistics and location
What to take in consideration:
• Extended lead time of supply• Extended and unreliable transit
times• Multiple consolidation and
break points• Multiple freight modes and
cost options
Organising for international logistics
The three last elements in organizing the international logistics:
• Layering and tieringOEM plant services global
• The evolving role of plantsPostponementThird part logistics
• Reconfiguration process
Organising for international logistics
Layering and tiering
OEM plant services global
Information strategy
Shop
Production
Flow of goods
Customer order
Production - postponement Paint are mixed at the shop
Distribution
Organising for international logistics
Organising for international logistics
Third party logistics:• Long-term cooperation agreement between two companies
that consider each other partners with the purpose of meeting the requirements of the transport buyer
• Earlier the focus was on the transport costs • Today several links of the supply chain can be included: storage, labelling, packing, mounting…..
The evolving role of plants
Reverse logistics
Reverse logistics deals with the flow of goods going back up the supply chain for a number of reasons:
• Product returns• Repairs• Maintenance• End-of-life (recycling)
Reverse logistics
How to solve this problem!
When you build up the supply chain, think at the reverse logistics at that time, and make sure that the chain can handle the reverse logistics
It has something to do with customer service!!
The role of time in competitive advantage
A working definition of competing on time is:
The timely response to customer needs
The role of time in competitive advantage
The trade-off between cost and quality can be altered by PREVENTING defects from happening
Costs reduction:
• Design the process so that defects cannot occur.• Deign products so that they are easy to make and distribute.• Training personal so that they understand the process and its
limitations.
The quality approach demonstrated that good quality reduces costs!
The role of time in competitive advantage
Total quality costs=
(prevention + detection + failure)
• Costs do not have to increase in order to improve quality, they can reduce.
• Costs do not have increase when lead times are reduced. It may possible to reduce both in some processes.
• Costs do not have to go up as product variety increases and time reduce, they can also reduce
The role of time in competitive advantage
Time-based opportunities to add value:
• Increased responsiveness to customer needshow long time it takes to deliver the product
• Managing increased varietyreducing the over all lead time
• Increased product innovationmeet customers need by using short development time
• Improved return on new productsshort developing time earlier on the marked
• Reducing risk by relying less on forecastwrong ones and lucky ones
Input Wait for Wait to Move Wait in queue Setup Run Outputinspection be moved time for operator time time
Lead time
95% 5%
The role of time in competitive advantage
Lead time:
Managing timeliness in the logistics pipelines
Strategies for managing timeliness in the logistics pipeline:• Make to Stock:
Products for customers are available from stock of finished goods
• Assemble to order: By shifting the decoupling point upstream it is possible to reduce risk of holding inventories of finished goods.
The design must be flexibly, because the end product are made from a combination of basic components
Managing timeliness in the logistics pipelines
Strategies for managing timeliness in the logistics pipeline:• Make to order:
The customer order decoupling point is moved to the product design. Many different end items are made from a small group of components
• Engineered to order:The product is specially designed and produced to that actual order.
Definition:
Delivery service
The part of the company's customer service that concerns the ability to deliver goods and services to the company's customers
Delivery time include:
Technical order handling Administrative order handling Purchase delivery time Production delivery time Distribution delivery time
Distribution
Delivery service
Administrative ProductionPurchaseTechnical
The sale increases as a function of the growing delivery service:
Delivery Service
Sales volume
Delivery service
Is the expression for the company's wish to deliver from stock.
Measure:
Storage service degree = Delivered number of orders x 100Number of orders
Storage service degree
Delivery service
Delivery service
Month Ordered quantity
Delivered quantity
Storage service degree
JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
26883000
10000700950
500068009000
230240
15000800
25002700
10000690600
450063009000
190180
15000700
9390
10098639092
1008375
10088
Storage service degree
0
20
40
60
80
100
120
Create trust between partners in the supply chain.
Measures:
Delivery observance = Number of orders delivered on time x 100Total number of orders
Delivery observance = Number of articles delivered on time x 100Total number of delivered articles
Delivery serviceDelivery observance:
Delivery flexibility: Production flexibility:
ability to deliver new products Function flexibility:
ability to deliver variants Volume flexibility:
ability to change the volume Distribution flexibility:
ability to use different transport
Are all qualitative elements and difficult to measure.
Delivery service
Delivery service
Delivery information:
To create trust between partners in the supply chain by offering information about orders and goods, by releasing delivery information using
effective information systems
Logistics costs
Supply Chain & Inventor Costs:
• Expedited Raw Material Inbound to Factory• Inventory Write offs inclusive Excess and
Obsolescence, Shrink, etc.• Factory to Distribution Center Transportation
(Freight)• Freight to Customer• Finish Goods Warehouse (Space & Handling)• Inventory Carrying Costs (Cost of Capital)
• Transport • Insurant• Duty • Forwarding of goods
Logistics costs
Transportation costs:
Inbound and outbound transportation of goods and internal goods handling, in the company
Logistics costs
Covers the operation of the warehouse: Rent, energy etc. and unsalable, waste, damage
Warehousing costs:
For: Raw materials stocks – WIP – Finish goods stocks
• Internal transportation materiel• Fork lift• Salary • Insurant
Logistics costs
Cost of locked-up capital in inventory
Safety stock!!
and interest of the locked-up capital
• Raw material• Work in progress• Finished goods
Warehousing costs:
Stock turnover rate = Goods consumptionThe average value of inventory
High Stock turnover rate gives low inventory costs
Logistics costs
Stock turnover rate:
Shows how many times the inventory of a specified product realizes in a fixed period, normally one year
Measure:
Logistics costs
Other Costs:
• Ongoing Managements Costs (Planning, Purchasing, Engineering, etc.)
• Import Tax & Duty• Corporate Income Tax• Product Capital• Facility Capital
Logistics costs
Managements Costs:
Contain all costs for the employees, technical and administrative order handling, operation
of IT system in the logistics area
Logistics costs
Hidden Costs:
• Cost of Price Markdowns• Cost of Lost Sales due to Inventory Availability• Cost of Lost Sales due to Trade Agreements• Cost of Stock Outs (Additional Costs of Finish
Goods Transportation to Customer)• Quality Costs (Rework etc.)
For instance:
• Better delivery service - Delayed deliveries causes production stop
Logistics costs
Lack costs:
Arise when a customer chose a competitor and meet with delays.
Trade off between delivery service and logistics costs:
Logistics costs
Logistics costsAmount
Income
Profit
Deliver service
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