introduction to global supply chain tei, larissa 2012

Introduction to

Global Supply Chain

TEI, Larissa 2012

Global Supply ChainDecision framework

Outsourcing

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

Product lifecycle

When outsource?

?

?

?

?

Outsourcing

Where to outsource

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

Where to outsource

Clients place Onshore Near-shore Off-shore

Drivers and logistics implication of

internationalisation

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


• 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


Consequences:

-InventoryInventory holding costs high and low value products

-Handling Implementing best practice

-Transport Cope with differences in infrastructure across

countries


Dimensions of different internationalism strategies


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


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


The global consolidations

Risks– Geopolitical

• Political risksWars - Boycotts

• DiseasesBirds Influenza – SARS – etc.

– Transportation breakdowns• Strikes• Natural disasters

The tendency towards internationalisation


Focused factories


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


Focused factories

Inventory centralisation against logistics costs and service dimensions


Delivery strategies in a global network

The challenges of international logistics

and location

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


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



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

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 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!


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


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%


Lead time:


Improve return on new products

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


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.

Delivery service

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


JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

26883000

10000700950

500068009000

230240

15000800

25002700

10000690600

450063009000

190180

15000700

9390

10098639092

1008375

10088


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

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

introduction to global supply chain tei, larissa 2012

Documents

outsourcing slide

shore slide

outsourcing access

transport cost

lower cost savings

low cost base

minimal cost savings

transport technology