Lecture 8-Global SCM PDF

MS3124 GLOBAL SUPPLY CHAIN MANAGEMENT LECTURE 8: GLOBAL SUPPLY CHAIN DR. FAN SAI KIT 1  AGENDA Global supply chain definition and examples Global economies & supply chain integration Global international strategies Global sourcing decision...

MS3124 GLOBAL SUPPLY CHAIN MANAGEMENT LECTURE 8: GLOBAL SUPPLY CHAIN DR. FAN SAI KIT 1  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 supply chain is: “a network of facilities and activities that performs the functions of product development, procurement of materials from suppliers, movement of materials between facilities, manufacturing of products, distribution of finished goods to customers, and after-market support” (Mabert and Venkataraman 1998) 3  WHAT IS A GLOBAL SUPPLY CHAIN? A global supply chain is made up of the interrelated organizations, resources, and processes Located at different countries to create and deliver products and services to end consumers. 4 GLOBAL SUPPLY CHAIN NETWORK 5  EXAMPLE: BOEING 787 Various components manufactured in the UK, France, Sweden, Japan, Canada, and elsewhere before being assembled in the United States. 6 EXAMPLE: FORD 7 MORE EXAMPLES 8  GLOBAL ECONOMIES Most firms today are impacted by global economies Global sourcing of materials or products Global customers who want to purchase Common objectives Increasing revenue through access to new markets Increasing production capacity Reducing direct cost using cheaper resources and labor 9 HONG KONG TRADING PARTNERS IN 2023 https://www.tid.gov.hk/english/trade_relations/mainland/trade.html 10 HONG KONG TRADING PARTNERS IN 2023 https://www.tid.gov.hk/english/trade_relations/mainland/trade.html 11  MAJOR REASONS FOR GLOBALIZATION Table 11.1 - Rationale for Globalization 12  GLOBAL LOGISTICS - COMPLEX OPERATING CHARACTERISTICS 1. Increased uncertainty: Greater distances Longer lead times Decreased market knowledge 2. Increased variability: Unique customer requirements Unique documentation requirements Shifting political environments 13  GLOBAL LOGISTICS - COMPLEX OPERATING CHARACTERISTICS 3. Decreased control Extensive use of international service firms Potential customs requirements and trade restrictions by governments 4. Decreased visibility Longer transit times Longer holding times Less ability to track shipment locations 14  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  GLOBAL INTERNATIONAL STRATEGIES Four main international strategies available: 1. No International 2. Multi-domestic 3. Global 4. Transnational Each strategy involves a different approach: (i) build global efficiency across nations and / or (ii) response to variations in customer preferences and market conditions 17 INTERNATIONAL STRATEGIES High 3. Global Strategy 4. Transnational Strategy Global integration Low 1. No International 2. Multi-domestic Strategy Strategy Low High Local Responsiveness Figure 11.1 Generic International Strategies 18  NO INTERNATIONAL STRATEGY Low pressure for local responsiveness and global integration Standardize product for local market Single & simple financial systems Growth limited to local markets and difficult to respond to global customers No economies of scale Use Import / export or license existing product Examples: US steel, Harley Davidson. 19  MULTI-DOMESTIC STRATEGY High pressure for local responsiveness & low global integration Sacrifices efficiency in favor of emphasizing responsiveness to local requirements within each of its markets. Extensively customize the product offering Use franchise, joint venture Example 1: Heinz adapts its products to match local preferences. Some Indians will not eat garlic and onion. Heinz offers them a version of its signature ketchup that does not include these two ingredients. Example 2: MTV customizes programmes that is shown on its channels for various countries (including New Zealand, Portugal, Pakistan, and India) rather than trying to force all of its American-made shows on viewers around the globe. Other examples: Body Shop, Hard Rock Cafe 20  GLOBAL STRATEGY Sacrifices responsiveness to local requirements within each of its markets in favor of emphasizing efficiency. Standardized product (with some minor modifications to products and services made in various markets) to gain economies of scale and cross-cultural learning Increase profitability through benefits of cost reduction Example 1: Microsoft offers the same software programs around the world but adjusts the programs to match local languages. Example 2: Procter & Gamble attempts to gain efficiency by creating global brands whenever possible. Example 3: Intel (the silicon chip maker) - variance in local preferences is not very important. Other examples: Texas instruments, Caterpillar, Otis Elevator 21  TRANSNATIONAL STRATEGY High global integration & local responsiveness Use low cost & product differentiation strategy Operate globally while maintaining high level of local responsiveness Move material, people, ideas, across national boundaries Balance efficiency with the need to adjust to local preferences within various countries. Examples: McDonald’s and KFC rely on the same brand names and the same core menu items around the world. These firms make some concessions to local tastes too. In France, for example, wine can be purchased at McDonald’s. This approach makes sense for McDonald’s because wine is a central element of French diets. Other examples: Coca-Cola and Nestle 22 MORE EXAMPLES 23 GLOBAL SOURCING DECISIONS  GLOBAL SOURCING Global sourcing options for durable goods industries in: Asia (e.g. China and Malaysia) Eastern Europe Latin America Africa Sourcing in low-cost countries: (see next slides for details) Rationale Challenges Guidelines 25  RATIONALE Low-wage rate reduces manufacturing cost Increase more possible sources to keep competitive pressure on domestic suppliers Increase exposure to state-of-the-art product and process technologies Establish local presence to facilitate sales in the international countries 26  CHALLENGES Identification of various sources capable of production for order fulfilment. Protection of a firm’s intellectual property Understanding import/export compliance issues e.g. “Made in the USA” requires 95% of the material to be domestic Communication with suppliers and transportation companies Differences in time zones, language and technology Guarantee the product’s security while in transit Obsolescence risk to inventory due to extended transit times Understanding the difference between piece price and total cost 27  GUIDELINES Realistic assessments of: Total cost Performance implications Use the criteria in Table 12.5 to structure the decision analysis for domestic or global sourcing 28 SOURCING GUIDELINES Table 12.5 Sourcing Guidelines 29  MAJOR ISSUES ON GLOBAL SUPPLY CHAIN 30  GLOBAL SUPPLY CHAIN ISSUES Lack of supply chain flexibility and internal competency to manage partners are major barriers to globalization 31  BULLWHIP EFFECT Small fluctuations in demand at the customer level are amplified as orders travel through the supply chain from downstream to upstream. Distorts demand information within the supply chain, where different stages have very different estimates of what demand looks like. A major cause of higher costs and inefficiencies in supply chains. 32 BULLWHIP EFFECT ILLUSTRATION 33  BULLWHIP EFFECT Slight demand changes at the customer level are amplified and result in high fluctuations to the upstream suppliers.  IMPACT OF BULLWHIP EFFECT Excess Inventory Inventory cost ↑ Transportation cost ↑ Labor cost for shipping and receiving ↑ Level of product availability ↓ Lead time ↑ Relationships across the supply chain ↓ Customer service ↓ Profitability ↓ 35  HOW TO AVOID BULLWHIP EFFECT Reduce uncertainty in supply chain Share information Establish long term contracts with suppliers Improve operational efficiency Eliminate through strategic partnerships VMI, CPFR 36  CHALLENGES IN MANAGING SUPPLY CHAIN RELATIONSHIPS High priorities for: developing and implementing successful supply chain relationships collaborating partners to achieve supply chain objectives value created by third-party logistics 37  THIRD-PARTY LOGISTICS (3PL): 3PLs are external suppliers that perform all or part of a company’s logistics functions Terms contract logistics and outsourcing are sometimes used in place of 3PL. 38  TYPES OF 3PL PROVIDERS Transportation-Based Asset-based - use their own trucks, warehouse and personnel to operate their business. (e.g. UPS or FedEx) Non Asset-based - do not own their own trucks or warehouse space. (e.g. PLS logistics) User benefits: shorter cycle time, lower freight cost and higher visibility of inventory Information-Based Internet-based, B2B, electronic markets for transportation and logistics services Significant growth and development (e.g.Transplace) User benefits: expand business into new areas through electronic platforms 39  TYPES OF 3PL PROVIDERS Warehouse/Distribution-Based Have warehouse and/or distribution experience Functions include labor and supervision, receiving, storage and shipping. (e.g. Kerry Logistics and DB Schenker) User benefits: lower capital investment and lower fixed/variable cost ratio Financial-Based Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. (e.g. GE Information Services) User benefits: reduce capital investment and improve cash flow 40  FOURTH-PARTY LOGISTICS (4PL) An integrator that accumulates resources, capabilities and technologies to run complete supply chain solution. 3PL targets a single function, whereas the 4PL manages the entire process. 4PLs manage and direct the activities of multiple 3PLs, serving as an integrator. e.g. DHL, UPS, Accenture 41  KEY TAKE AWAY Global supply chain integration Characteristics of global logistics and services Global International Strategies No international Multi-domestic Global Transnational Global sourcing decisions Rationale Challenges Guidelines Major global supply chain issues 3PL vs 4PL APPENDIX 43  CHARACTERISTICS OF GLOBAL SERVICES Development Service Marketing Delivery Management Human Resource Stages Focus Strategy Strategy Strategy Development No Standard Single Direct to customer Single & simple Operated by product for strategy financials entrepreneur with international local market focused on limited specialization strategy local market Multi-domestic Domestic Domestic Collaboration Transaction Management with marketing customers driven with “home country” focus strategy and delivery integrated financials Global strategy Local market Focused Subsidiaries with Decentralized Limited top customization specific local presence operations with management with market areas local profit international which may responsibility experience cross international boundaries Transnational Global Global Worldwide flow of Centralized International training branding and customers key resources planning in global and experience strategy integrated sites operations Table 11.3 Differential Characteristics of Global Services