Global Supply Chain Management Lecture 8

Global Supply Chain Management

• Lecture 8, MS3124
• Instructor: Dr. Fan Sai Kit

Agenda

• Global supply chain definition and examples
• Global economies & supply chain integration
• Global international strategies
• Global sourcing decisions
• Major global supply chain issues
• Third-party logistics

What is a Supply Chain?

• A network of facilities and activities that performs functions like product development, material procurement from suppliers, material movement between facilities, manufacturing of products, distribution of finished goods to customers, and after-market support.
• (Mabert and Venkataraman 1998)

What is a Global Supply Chain?

• A global supply chain is made up of interconnected organizations, resources, and processes located in different countries to create and deliver products and services to consumers.

Global Supply Chain Network

• A diagram showing the interconnectedness of suppliers, manufacturers, warehouses/distribution centers, and customers.
• Includes various costs associated with transportation, material, manufacturing, and inventory.

Example: Boeing 787

• Various components manufactured in the UK, France, Sweden, Japan, Canada, and elsewhere before assembly in the United States.
• The graphic shows the locations from different countries around the world.

Example: Ford

• A map showing different Ford component production locations worldwide.
• Components are manufactured in various locations from various countries, before being finally assembled.

More Examples

• A list of companies including National Grid, Grainger, Rockwell Automation, Bank of America, etc.

Global Economies

• Most firms today are impacted by global economies.
• Global sourcing of materials or products
• Global customers who want to purchase.
• Common objectives are to:
  • Increase revenue through access to new markets
  • Increase production capacity
  • Reduce direct cost using cheaper resources and labor

Hong Kong Trading Partners (2023)

• Data provided in the form of tables detailing total trade and import values, and percentage shares for various countries and territories.
• Comprehensive rankings of trade partners for Hong Kong.

Major Reasons for Globalization

• Objective: Increase revenue.
  • Rationale: Open up more markets, expand beyond competitors, obtain accessibility to markets for lower labor rates, and take advantage of available production capacity.
• Objective: Achieve economies of scale.
  • Rationale: Reduce energy requirements, take advantage of lower transportation modes, and obtain access to advanced technology that might not be in current location.
• Objective: Reduce direct cost.
  • Rationale: Take advantage of differences in production requirements, obtain access to specialized expertise, obtain local or regional tax benefits, and source products from locations that have fewer security constraints.
• Objective: Advance technology
  • Rationale: Obtain accessibility to markets that limit access without local operations
• Objective: Reduce firm's global tax liability.
  • Rationale: Obtain local or regional tax benefits.
• Objective: Reduce market access uncertainty
  • Rationale: Source from a location that involves less transportation uncertainty and less security constraints
• Objective: Enhance sustainability
  • Rationale: Source from a location that ongoing availability of necessary resources, such as, energy or trained workers.

Global Logistics - Complex Operating Characteristics

• Increased uncertainty:

  • Greater distances
  • Longer lead times
  • Decreased market knowledge

• Increased variability:

  • Unique customer requirements
  • Unique documentation requirements
  • Shifting political environments

• Decreased control:

  • Extensive use of international service firms
  • Potential customs requirements and trade restrictions by governments

• Decreased visibility -Longer transit times

  • Longer holding times -Less ability to track shipment locations

Global Supply Chain Integration

• Setting the firm on a path through the stages of international development:
  • Export/Import
  • Local presence
  • Globally integrated enterprise

Global International Strategies

• Four main international strategies:
  • No International strategy
  • Multi-domestic strategy
  • Global strategy
  • Transnational strategy

International Strategies

• A visual representation (Figure 11.1) of the different international strategies, positioned on a matrix based on global integration and local responsiveness.

No International Strategy

• Minimal pressure to adapt to local needs while keeping global integration in check
• Focus on standardization for each local market
• Limited growth in local markets, difficult adapting to changing global demands
• Import/export or license existing products (e.g., US steel, Harley Davidson)

Multi-Domestic Strategy

• High pressure to meet local demands, limited emphasis on global integration
• Develop customized products for differing local markets
• Sacrifices efficiency to respond to localized requirements
• Use franchise, joint ventures (e.g., Heinz, MTV).

Global Strategy

• Minimizes local adaptation in pursuit of global efficiency and standardization
• Focus on economies of scale and cost reductions
• Standardized products and services for local markets with minor adjustments.
• Examples include Microsoft and P&G

Transnational Strategy

• High global integration and local responsiveness.
• Low cost and differentiated product strategies with high local responsiveness.
• Balance efficiency with local preferences (e.g., Coca-Cola, Nestle)

More Examples

• A graphic illustrating the different strategies (Global/Multidomestic) and their associated supply chain characteristics (e.g., Heinz, Nestlé, Coca-Cola).

Global Sourcing Decisions

• Global sourcing options for durable goods industries:
  • Asia
  • Eastern Europe
  • Latin America
  • Africa
• Sourcing in low-cost countries:
  • Rationale
  • Challenges
  • Guidelines

Rationale for Global Sourcing

• Low-wage rates reduce manufacturing costs.
• Increases choices of suppliers and keeps competitive pressure on domestic producers.
• Exposure to state-of-the-art technology in products and processes.
• Establishment of a local presence in international countries

Challenges in Global Sourcing

• Identifying varied production sources.
• Protecting intellectual property.
• Import/export compliance.
• Effective communication with suppliers
• Transportation issues (time zones, languages)
• Risk of obsolescence to inventory.
• Understanding the difference between unit and total cost.

Guidelines for Global Sourcing

• Realistic assessment of total and performance implications.
• Use the criteria in Table 12.5 to structure the decision analysis

Sourcing Guidelines (Table 12.5)

• A table providing criteria for decision analysis in domestic versus low-cost-country sourcing, considering factors like product life cycle, labor/intellectual property content, transportation, and security/constraints.

Major Issues on Global Supply Chain

• Lack of supply chain flexibility and internal competency to manage external partners.

Bullwhip Effect

• Small fluctuations in demand at the customer level get magnified as orders move upstream through the supply chain.
• Information distortion creates varying demand estimates in different stages of the supply chain.
• Causes higher costs and inefficiencies.

Impact of Bullwhip Effect

• Excess inventory.
• Increased inventory costs.
• High transport costs.
• Increased shipping/receiving labor costs.
• Reduced product availability
• Increased lead times delays
• Weakened relationships in the supply chain
• Decreased customer service
• Reduced profitability

How to Avoid the Bullwhip Effect

• Reduce supply chain uncertainty.
• Share information openly.
• Establish long-term contracts with suppliers.
• Improve operational efficiency.
• Strategic partnerships (VMI, CPFR)

Challenges in Managing Supply Chain Relationships

• Developing and implementing supply chain relationships
• Collaborating partners in achieving objectives
• Value creation by 3PL

Third-Party Logistics (3PL)

• External suppliers that perform all or part of a company's logistics functions.
• Synonyms: contract logistics and outsourcing

Types of 3PL Providers

• Transportation-based (asset-based or non-asset-based)
• Information-based (Internet-based, B2B, electronic markets)
• Warehouse/Distribution-based
• Financial-based

Fourth-Party Logistics (4PL)

• Integrators that accumulate resources and technology to handle complete supply chain solutions.
• Manages all facets of supply chains versus 3PL focused on individual functions.
• Examples: DHL, UPS, Accenture

Key Takeaway

• Global supply chain integration
• Characteristics of global logistics and services
• Global international strategies
• Global sourcing decisions
• Rationale
• Challenges
• Guidelines
• Major global supply chain issues
• 3PL vs 4PL

Appendix

(no details provided)

This quiz covers key concepts from Lecture 8 of the Global Supply Chain Management course. Topics include definitions, integration, international strategies, sourcing decisions, and major issues in global supply chains. Test your understanding of these essential elements and their impact on global business practices.