Chapter 2: global supply chain

TABLE OF CONTENTS

2.1 HISTORY OF THE GLOBAL SUPPLY CHAIN

2.2 DEFINITIONS OF THE GLOBAL SUPPLY CHAIN

2.3 WHY DO WE NEED GLOBAL SUPPLY CHAIN MANAGEMENT (GSCM)?2.4 GLOBAL SUPPLY CHAIN SYSTEM COMPONENTS

2.5 GSCM FACTORS

2.6 OBJECTIVES OF GLOBAL SUPPLY CHAIN

2.7 ADVANTAGES OF GLOBAL SUPPLY CHAIN

2.8 DISADVANTAGES OF GLOBAL SUPPLY CHAIN

2.9 BENEFITS OF GLOBAL SUPPLY CHAIN

2.10 GLOBAL SUPPLY CHAIN PROCESS

2.11 CHALLENGES OF GLOBAL SUPPLY CHAIN

2.12 MANAGING THE GLOBAL SUPPLY CHAIN

2.1 History

Global supply chain management is directly linked to the rise of globalization. Pinpointing an exact date in history as the advent of global supply chain management isn't possible because its origin varies by company.

As companies began looking overseas for inexpensive parts and labor, managers were hired to orchestrate these complex operations.

 http://www.ehow.com/about_6666941_global-supply-chain-management_.html#ixzz1rS6VgAT8

Global supply chain management trend is evolving as new technologies emerge. Instead of vendors mailing their products and assuring its delivery, companies are now able to track the product's exact location through GPS tracking devices. These devices are imperative for global supply chains. The farther the goods are from the final destination, the riskier its arrival. Before RFID scans, supply chain managers took inventory weekly or monthly to track sales and supplies. Now, many companies like Wal-Mart track their products with RFID technology. The moment a product is purchased; inventory levels are updated to reflect the sale. A third trend affecting global supply chain management is the lowered barriers of economic trade. The General Agreement on Tariffs and Trade (GATT) enabled companies to buy products from other countries for lower costs.

 http://www.ehow.com/about_6666941_global-supply-chain-management_.html#ixzz1rS6gYUzH

2.2 Definitions of global supply chain management:

(Any company that uses parts and services from another factory overseas faces issues with global supply chain management. Douglas C. Long "International Logistics: Global Supply Chain Management" when he explains every business operation incorporates logistics from shipping food to assembling cars. As such, he explains that logistics affects everyone and in his words, can be a matter of life and death). http://www.ehow.com/about_6666941_global-supply-chain-management_.html#ixzz1rS6N5D2u

(The facilities, functions, and activities involved in producing and delivering a product or service, from suppliers to customers).

(A global supply chain is made up of the interrelated organizations, resources, and processes that create and deliver products and services to end customers. In the instance of global supply chains, it is extended around the world).

http://www.google.com.eg/url?sa=t&rct=j&q=definitions+of+global+supply+chain&source=web&cd=4&ved=0CEwQFjAD&url=http%3A%2F%2Fwww.freequality.org%2Fdocuments%2FTraining%2FClasses%2520Spring%25202002%2FThe%2520Global%2520Supply

%2520Chain.ppt&ei=MqCBT__SBYK3hQfqy7SlBw&usg=AFQjCNGmW0ZZHNoOJjM8oYkyHjrTtMzVBw

2.3 Why do we need GSCM (GLOBAL SUPPLY CHAIN MANAGEMENT)?

2.3.1 GLOBAL MARKET FORCES

– Foreign competition in local markets

– Growth in foreign demand

– Global presence as a defensive tool

– Companies forced to develop and enhance leading-edge technologies and products.

2.3.2 TECHNOLOGICAL FORCES

– Knowledge diffusion across national boundaries, hence need for technology sharing to be competitive

– Global location of R&D facilities

• Close to production (as product cycles get shorter)

• Close to expertise (Indian programmers?)

2.3.3 GLOBAL COST FACTORS

– Availability of skilled/unskilled labor at lower cost

– Integrated supplier infrastructure (as suppliers become more involved in design)

– Capital intensive facilities like tax breaks, price breaks etc.

2.3.4 POLITICAL AND ECONOMIC FACTORS

– Trade protection mechanisms:

• Tariffs, Quotas, Voluntary export restrictions, Local content requirements, Environmental regulations, Government procurement policies (discount for local)

– Exchange rate fluctuations and operating flexibility

2.4 Global Supply Chain System Components:

International distribution systems :

- Manufacturing(domestically), Distribution (overseas)

International suppliers :

- Raw materials and Components(foreign suppliers), Final assembly/ Manufacturing(domestically)

Offshore manufacturing :

- Product is sourced & manufactured in a single foreign location,

- Shipped back to domestic warehouses for sale and distribution.

Fully integrated global supply chain :

- Products are supplied, manufactured and distributed from factories located throughout the world

- In a truly global supply chain, it may appear that the supply chain was designed without regard to national boundaries.

- The true value of a global supply chain is realized by taking advantage of these national boundaries

2.5 GSCM Factors

• Costs

- Local labor rates / International freight tariffs

- Currency exchange rates

• Customs Duty

- Duty rates differ by commodity and level of assembly

- Impact of GATT/WTO: Changes over time

• Export Regulations & Local Content

- Denied parties list / Export licenses

- Local content requirement for government purchases

• Time

- Lead time /Cycle time /Transit time /Customs clearance

• Taxes on Corporate Income

- Tax havens and not havens

- Make vs. buy effect

2.6 OBJECTIVES OF GLOBAL SUPPLY CHAIN

International manufacturing sources—whether company-owned or external suppliers—have in recent years been sought out by managers because of reduced cost, increased revenues, and improved reliability. Manufacturers typically set up foreign factories to benefit from tariff and trade concessions, low cost direct labor, capital subsidies, and reduced logistics costs in foreign markets (Ferdows, 1997).

2.7 Advantages:

The main reason for any business to exist is to increase sales and profits.

When you go global, then the likelihood of increasing sales goes up as you open up your market to consumers all over the world.

This allows businesses to reduce dependence on their local and national economies.

With the number of Internet users on the rise, global businesses are able to do business at all hours of the day with consumers from every point on the globe.

The potential for expansion for businesses increase as they enter into more markets.

 http://www.ehow.com/info_8172773_global-business-advantages-disadvantages.html#ixzz1rSKACywU

Diversified business and trading

Lower supply chain costs

Reduced cycle time

Competitive advantage

Untapped markets

Enhance speed and efficiency

2.8 Disadvantages:

The biggest disadvantage of global supply chain management is the heavy investment of time, money, and resources needed to implement and overlook the supply chain.

The decision to outsource a production facility or call center lowers the cost of doing business for a company using global supply chain management, but the decision to outsource or not can lead to consumer backlash.

 http://www.ehow.com/about_5122848_disadvantages-global-supply-chain-management.html#ixzz1rS8yrI00

Inefficient and undersized transportation and distribution systems

Market instability

Integrating the supply chain and choosing the correct suppliers is much more difficult than one can imagine.

Not only do companies have to strongly consider price and quality, but they also have to make sure that all the organizations are willing to cooperate to benefit the group.

Managerial styles, objectives, and goals must have a strategic fit between all companies involved and power must be evenly distributed throughout the supply chain or the businesses will not benefit from the advantages of global supply chain management.

 http://www.ehow.com/about_5122848_disadvantages-global-supply-chain-management.html#ixzz1rS9PCUdn

When entering the global market, businesses need to be aware that the gains may not be seen in the short term.

It may be many years before they start reaping the rewards of their efforts.

Another disadvantage is that they have to hire additional staff to help launch their companies in the global markets they expand into.

Companies usually have to modify their products and packaging to suit the local culture, preferences and language of the new market.

Travel expenses are sure to increase for the administrative staff, as they will now be expected to travel all over the world to oversee their business outlets in other countries.

Also, companies need to know the regulations and tax laws in foreign countries, which take time and money, and they may need to hire professionals in those countries to help with legal and financial issues.

 http://www.ehow.com/info_8172773_global-business-advantages-disadvantages.html#ixzz1rSKmMkGe

2.9 Benefits of Global Supply Chain:

1. As opposed to a poorly organized supply chain a global supply is extremely competitive and so you can obtain a really good price for supplies that will all be produced to excellent standards, without even having to search widely. Excellent products completed to the highest standard of quality controls can be sourced quickly and efficiently.

2. A global supply chain therefore brings with it benefits in terms of companies who are involved in a global supply chain being able to shave their costs right down and therefore ensure the economic viability of their business. Global supply chains are often one of the first methods used for Supply chain cost reduction activities

3. The global supply chain means that businesses within countries which traditionally did not operate to high standards have had to ‘up their game’. Companies that operate within developing countries or those such as India and China know that if they do not come up with the goods, there are a myriad of other businesses that will. This means that there is a real incentive to get things right, first time and all the time!

4. If you have sufficient contacts and suppliers internationally, then you can really reduce the amount of stock that you have to retain, which means that you will save costs in terms of storage/thefts/transporting goods etc. These costs can add up, so this certainly helps sharpen the competitive edge that comes with a global supply chain.

5. The global supply chain also makes the securing of almost any item easy, since somewhere in the world it is probably being produced or manufactured. Historically any item that was not a standard item, from a standard range could take ages to produce. Now it can simply be bought from the country where it has been made.

6. The global supply chain really does operate on a 24/7 basis, simply because of the time differences in different countries. So there is a sense that the chain never sleeps; it is constantly on the go and people are working to meet the supply chain requirements on different continents and at different times.

7. Operating a global supply chain also brings with it new opportunities for the markets. If you are sourcing items from China, then it is feasible that you may wish to look at other markets that you may be able to tap in to since you have already established sources in China. It is almost as if once a company has taken the first step to source supplies globally, new markets and opportunities follow.

8. One of the most interesting factors of the global supply chain is that we can learn from others! Business is done differently in different parts of the world and we are able to learn new ways of doing business, new production methods and new distribution methods, if we keep an open mind and have a willingness to learn.

9. A global supply chain has to be flexible or it will simply implode, but given that any supply chain has to be flexible, with a global supply chain the flexibility is always given a higher priority and as such, flexibility within the chain is maximized, allowing for the chain to be as effective as possible.

10. The final benefit of a global supply chain is that if you are within this kind of framework then you have a chance of success and being able to even grow during the economic downturn. If you are not part of it, then your chances of survival are lower. So being in it is almost not a choice and the benefit (of survival) is a difficult thorn to grasp, but if your company is not operating within a global supply chain framework, you are well behind those who are!

http://supplychain-mechanic.com/?p=144

2.10 PROCESS:

Process means a practice, a series of actions, done for a specific purpose, such as satisfying customers. Customers demand and expect more from their suppliers; that is a fact regardless your size or industry. And supply chain management is critical to that customer satisfaction.Supply chain process is a flow of activities with the goal of meeting the requirements of a customer. It includes all internal functions, logistics, distribution, sourcing, customer

service, sales, manufacturing and accounting. It includes external companies. The series flows backward--from delivering each customer order each order as demanded back through the performance of suppliers to provide needed finished products, components, parts and assemblies.Process has structure.

http://www.ltdmgmt.com/072503.asp

How to improve collaborative processes for the global supply   chain?

In today’s world, more and more companies need to collaborate globally. In the supply

chain, this is a result of companies wanting to optimize their operations and having more

suppliers involved in all processes of their activities. There are many solutions that

companies are using for the global supply chain. With the current development of online

tools, internet, and services, most of these tools have established online spaces where you

can share and exchange information and transmit messages.

 But there is unhappy feeling about these tools and spaces. The worse is that most of them

create their own eco-system. There will be a significant improvement if we are able to

connect these solutions to organizational processes. But this is not always possible

because companies today do not share their processes. In most of the cases, they use

different tools to implement business process management in their organization. 

http://plmtwine.com/2009/03/17/how-to-improve-collaborative-processes-for-the-global-supply-chain/

2.11 Global Supply Chain Challenges:

Geopolitical risk, for example:

- Global conflict stimulated by shortage/control of resources (increasingly water rather than oil)

- National controls in reaction to changing circumstances, e.g. regulatory advice regarding off-shoring, protectionism

Creeping climate change related impact upon logistics and sources of supply

Impact of increasing energy prices and volatility caused by supply uncertainty (2005 hurricane season effect on oil prices, Russian control of natural gas upon which much of Europe depends)

‘Good’ business ethics driven by consumers and the Media (responsible sourcing)

Increasing dependence upon technology, which is fine until it fails

Reduction of buffer stock

Concentration of risk through constant drive to reduce cost and increase efficiency

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2.12 Managing a Global Supply Chain

Managing the Unknown-Unknown

• Invest in redundancy

- Respond to unforeseen events by careful analysis of supply chain trade-offs

• Increase velocity in sensing and responding

- Speed in sensing and responding can help the firm overcome unexpected supply problems

- Failure to sense could lead to:

- Failure to respond to changes in supply chain

- Can force a company to exit a specific market

• Create an adaptive supply chain community

- It is the most difficult risk management method to implement effectively.

- Requires all supply chain elements to share the same culture, work towards the same objectives and benefit from financial gains.

- Need a community of supply chain partners that reorganize to better react to sudden crisis

- Single sourcing is risky

• Achieves economies of scale

• High quality parts at a low cost

- JIT mode of operation builds a culture of:

• Working with low inventories

• Ability to identify and fix problem quickly

• Entire supply chain was stopped once the fire occurred

• Prompted every company in the chain to react to the challenge

MANAGING KNOWN-UNKNOWN

• Speculative Strategies : A company bets on a single scenario, with often spectacular results if the scenario is realized, and dismal ones if it is not.

• Hedge Strategies : A company designs the supply chain in such a way that any losses in part of the supply chain will be offset by gains in another part.

- Multiple plants in different countries, where, Certain plants more profitable at times than others

- Move production between plants to be successful overall.

• Flexible Strategies

Requires a flexible supply chain

• multiple suppliers

• flexible facilities

• excess capacity

• various distribution channels

Can be expensive to implement

• coordination mechanisms

• capital investments

• loss of economies of scale

Full Team Ahead

"If you've got the guys working on operations on the first floor and on the second floor you've got the CFO and treasurer looking at the books, shocked that they are paying 'x' million dollars on duty costs, that's a failure," says Jim Tompkins, CEO and founder of supply chain consulting firm, Tompkins Associates. "First step is to get these two groups together so that you are getting the whole picture."  

Tompkins adds that managing a global supply chain affects not one or two departments, but the whole company. 

Go to the Experts First

From the beginning, managing the supply chain requires retaining someone with expertise in the international locations.

This means finding local, reputable producers that can consistently deliver for the arrangements.

"This is by far the biggest challenge," he says. "We need a partner that is a master in that market, because it's very important to have someone that can help further develop the brand. We say no to a lot of deals, but I'm okay with that. It's about quality."

For other small businesses, find a business consultant that specializes in that location, who can help you navigate everything from cost-saving transit options to taxes. 

"Find someone who is very familiar with the location, someone who spends most of their time in that country, "This person should be well versed in the local business world, know companies and contractors, and know how to vet them."

Need more convincing on just how significant a good consultant can be to your company? 

"Say you have a factory in China and Poland, and you sell your product in the U.K.," says Tompkins. "How you transfer the product from Poland to the U.K. could have a 25 percent difference from your bottom line just because of something like taxes. The right consultant knows how to avoid those extra costs."

Timing affects everything

To successfully manage your supply chain, timing is an all important element. 

A company makes and sells speakers. It sources all the parts and manufactures the speakers domestically, and U.S customer orders 1,000 of them, a two-week delivery is within the realm of possibility.

"If you switch the sourcing to China, you have no chance of making that two-week delivery here in the U.S. It would be more like two months,"

And managing timing goes hand in hand with the next tip...

Good Sales Forecasting Is Principal 

Because of the timing issue, sales forecasting becomes a huge part of successfully managing your supply chain and keeping costs down. 

It boils down to this: Because moving the goods will take longer in an international scale, a company has to have a pretty spot on idea of how much of that bulk inventory is going to sell—otherwise, you're stuck with products you can't move. 

"For example, take a goods company in San Diego that sources from China “They have to carry a very large inventory in the U.S. to meet the delivery times the customers' demand. But for the owner, there's suddenly a bunch of costs: inventory carrying costs or maybe you need a bigger warehouse."

Don't Assume Too Much

One of the biggest mistakes seen in small businesses considering international expansion make is, well, too much guessing. 

"Assume that the culture and operations of another culture are similar to the one here in the U.S. and that is not always the case,"

Things like electrical power or internet access, which developed country businesses have easy access to, might not be so easily accessed in another country. 

Organizations actually have to go to the locations where they have to make sure that their partners can sustain the business.

Emerging issues in global supply chain design

To aid managers in solving these problems, the research community has developed numerous global supply chain design models. The business environment that surrounds the global supply chain problem is continually changing, however, as new issues in supply chain management and globalization surface.

First, firms are increasingly outsourcing to both domestic and global locations. Second, many firms that had viewed their sourcing problems myopically as an enterprise-level concern now strive to integrate decision processes across tiers in the supply chain.A third issue is the broadened definition of supply chain performance, as mission, strategy and objectives can vary considerably based on the value of the product offered to the customer (Keeney, 1994).

Outsourcing manufacturing to offshore supplier locations is a practice that has grown in recent years such that managers find themselves increasingly designing supply chains that include not M.J. Meixell, V.B. Gargeya / Transportation Research Part E 41 (2005) 531–550 533 only corporate but also supplier facilities. Supplier selection decisions change the global supply chain design problem in fundamental ways, in part because they are based on more broadly defined criteria. Suppliers are typically selected based on the buyer’s perception of the supplier’s ability to meet quality, quantity, delivery, price and service needs of the firm (Leenders et al., 2002).

In some cases, purchasing managers consider an even broader set of criteria as defined by the total cost of ownership to include the cost of carrying inventory, repair, training, disposal, etc. (Ellram,1995; Degraeve and Roodhooft, 1999; Burt et al., 2003).

Ultimately, purchasing managers summarize these factors so that candidate suppliers may be ranked for selection. Supplier contracts also influence the design problem structure with additional factors such as minimum order quantities, restrictions on the number of vendors, geographic preferences, and limitations on supplier capacities (Pan, 1989).

A second emerging issue—the integration of decisions across the supply chain—also influences global supply chain design. Integrating business processes is a best practice in supply chain management that involves coordinating decisions across multiple facilities and tiers. In practice, firms engaged in Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting, and Replenishment (CPFR) integrate replenishment planning between enterprises by sharing sales and promotion information (Sherman, 1998; Lewis, 1999).

Similarly, firms that implement Advanced Planning Systems (APS) may integrate production decisions across the supply chain by including supplier inventory and capacity constraints into their scheduling function, striving to avert supply problems before they occur (Rohde, 2000; Bowersox et al., 2002).

These integration practices also affect global supply chain design. Several authors (Dornier et al., 1998; Brush et al.1999; Trent and Monczka, 2003) discuss the value and need for integration between facilities in the global supply chain. An integrated, well-coordinated global supply chain is difficult to duplicate and so plays an important role in competitive strategy.