Global Supply Chain Decision Making

Decision Trees and Global Supply Chain Design

• Decision trees help managers make optimal decisions by considering all possible outcomes and their associated risks.
• Payoffs refer to the expected value of each decision path.

Evaluating Global Supply Chain Design Decisions

• Offshoring can reduce labor and production costs, but increases risks related to transportation, lead times, and geopolitical factors.
• Key considerations include:
  • Total Landed Cost: all costs from production to delivery.
  • Risk Mitigation: strategies like flexible capacity and inventory buffers can offset some risks.
  • Economic Volatility: exchange rates and commodity prices can significantly impact the cost-effectiveness of offshoring.

Making Global Supply Chain Design Decisions Under Uncertainty

• Practical considerations include:
  • Integrated Planning: combining strategic and financial planning.
  • Multiple Metrics: using various metrics such as profits, customer service levels, and response times.
  • Sensitivity Analysis: assessing how changes in input assumptions affect outcomes.

Risk Management in Global Supply Chains

• Global supply chains face more risks compared to localized supply chains, including:
  • Supply disruptions.
  • Demand fluctuations.
  • Price volatility.
  • Exchange rate fluctuations.
• Risk Mitigation Strategies:
  • Multiple Suppliers.
  • Flexible Capacity.
  • Inventory Buffers.
  • Hedging: financial strategies to manage currency and fuel price fluctuations.

Discounted Cash Flows

• Evaluating global supply chain design decisions requires considering future cash flows and their present value.
• Discounted cash flow (DCF) analysis helps compare the financial viability of different supply chain options.
• Key Concepts:
  • Net Present Value (NPV): the present value of future cash flows minus the initial investment.
  • Discount Rate: the rate of return used to discount future cash flows to their present value.

Global Supply Chain Networks

• Globalization offers companies the opportunity to increase revenues and decrease costs, but also introduces significant risks and uncertainties.
• Global supply chains benefit from cost reductions through economies of scale and the consolidation of production in low-cost countries.
• However, these advantages come with risks, such as supply chain disruptions and demand fluctuations.

The Offshoring Decision

• Offshoring involves moving production to low-cost countries to reduce costs.
• Key factors to consider include:
  • Supplier Price.
  • Transportation Costs.
  • Inventory Costs.
  • Risk Factors: natural disasters, geopolitical risks, and economic volatility.

Risk Management in Global Supply Chains

• Global supply chains face more risks, including supply disruptions, demand fluctuations, price volatility, and exchange rate fluctuations.
• Effective risk management involves identifying these risks and implementing mitigation strategies.
• Risk mitigation strategies include:
  • Multiple suppliers to reduce the risk of supply disruption
  • Flexible capacity to adjust production levels to match demand fluctuations
  • Inventory buffers to mitigate delays but increase the risk of obsolescence
  • Hedging to manage currency and fuel price fluctuations

Discounted Cash Flows

• Evaluating global supply chain design decisions requires considering future cash flows and their present value.
• Discounted cash flow (DCF) analysis helps compare the financial viability of different supply chain options.
• Key concepts:
  • Net Present Value (NPV): The present value of future cash flows minus the initial investment
  • Discount Rate: The rate of return used to discount future cash flows to their present value

Evaluating Network Design Decisions Using Decision Trees

• Decision trees are used to evaluate supply chain design decisions under uncertainty by mapping out possible scenarios and their associated probabilities.
• Decision tree components:
  • Nodes: Represent decision points or uncertain events
  • Branches: Represent possible outcomes and their probabilities

The Impact of Globalization on Supply Chain Networks

• Globalization offers companies the opportunity to increase revenues and decrease costs.
• However, it also introduces significant risks and uncertainties, such as fluctuations in exchange rates, volatile fuel prices, and geopolitical uncertainties.
• Examples:
  • Procter & Gamble (P&G) reported substantial sales growth from developing markets with comparable profit margins to developed markets
  • Samsung: 86% of Samsung's sales were outside Korea, highlighting its effective penetration into emerging markets like China and India

The Offshoring Decision: Total Cost

• Offshoring involves moving production to low-cost countries to reduce costs.
• Key factors to consider:
  • Supplier Price: Direct and indirect labor, materials, overhead, local taxes, and regulatory compliance costs
  • Transportation Costs: Include freight costs and the impact of distance on logistics
  • Inventory Costs: Higher due to longer lead times and increased safety stock requirements
  • Risk Factors: Natural disasters, geopolitical risks, and economic volatility can impact cost-effectiveness

To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under Uncertainty

• Evaluating the decision to onshore or offshore involves considering both costs and risks.
• Considerations:
  • Total Landed Cost: Includes all costs from production to delivery
  • Risk Mitigation: Strategies like flexible capacity and inventory buffers can offset some risks
  • Economic Volatility: Exchange rates and commodity prices can significantly impact the cost-effectiveness of offshoring

Making Global Supply Chain Design Decisions Under Uncertainty in Practice

• Practical considerations for global supply chain design include:
  • Integrated Planning: Combine strategic and financial planning to evaluate supply chain options under uncertainty
  • Multiple Metrics: Use various metrics such as profits, customer service levels, and response times to evaluate decisions
  • Sensitivity Analysis: Assess how changes in input assumptions affect outcomes to identify key variables