Summary: Considerations for End-to-End Supply Chain PDF

**Summary: Considerations for End-to-End Supply Chain** **Make-or-Buy Decision** - The first and second layers of the **Bill of Materials (BOM)** are always part of the end-to-end supply chain. - **Make parts:** Items making up **80% of the product\'s weight** require full process map...

**Summary: Considerations for End-to-End Supply Chain** **Make-or-Buy Decision** - The first and second layers of the **Bill of Materials (BOM)** are always part of the end-to-end supply chain. - **Make parts:** Items making up **80% of the product\'s weight** require full process mapping down to raw material extraction (e.g., mining/harvesting). - **Buy parts:** The remaining **20%** are sourced externally without detailed production mapping. **Example: T-Shirt Production Process** - Includes steps from **R&D and cotton harvesting** to **fabric processing, sewing, packaging, warehousing, and retail distribution**. - Logistics include **regional and local distribution centers (RDCs & LDCs), warehouses, and e-commerce storage**. **Converting a BOM to a Supply Chain Map** 1. **Supply Chain Mapping** - Identify **production processes, sourcing locations,** and **transportation routes**. - Consider **distribution hubs, ports, and terminals** for efficient consolidation. - Calculate **distances, transit times, transport costs, and handling fees**. - Add these elements to the **Global Supply Chain Map**. 2. **Distribution Network Mapping** - Define **RDCs and LDCs** but exclude stores. - Outline transport **modes and consolidation points**. - Incorporate logistics data into the **Global Supply Chain Map**. **Monthly Review Report (MRR) Example** - **Front Section:** - Event description, impact, proposed supply chain changes, visual updates, KPI dashboard. - **Back Section:** - **Current supply chain visualization** with **sourcing, production, assembly locations, transport details, hubs, costs, and distribution centers**. This approach ensures **efficient supply chain management**, cost control, and **logistical optimization**. **Summary: End-to-End Supply Chain & Cross-Border Trade** **End-to-End Supply Chain Considerations** - **Make or Buy Decision**: - First and second layers of the BOM (Bill of Materials) are always included. - Parts making up 80% of the product's weight are considered **make parts** and require detailed mapping of processes (e.g., from raw material extraction). - The remaining 20% are **buy items**, sourced directly from suppliers without further breakdown. - **Converting a BOM to a Supply Chain Map**: - **Supply Part**: Identify production processes, sources, transport modes, routes, costs, and consolidation hubs. - **Distribution Part**: Define distribution centers (RDCs & LDCs), transport methods, and logistics routes. - **Example (T-shirt Production)**: Covers all steps from cotton harvesting to delivery in retail stores or e-commerce platforms. - **Monthly Review Report (MRR)**: Documents supply chain events, impacts, proposed changes, and performance KPIs. **Cross-Border Supply Chains & Trade** - **International Trade & Globalization**: - Driven by cost differences, production shifts overseas, and phases of internationalization. - Companies expand for market growth, risk diversification, and to follow customers. - **Trade Policies & Organizations**: - **Free Trade vs. Protectionism**: WTO, IMF, and GATT promote trade, but some countries impose **import duties, quotas, and non-tariff barriers**. - **New Protectionism**: Includes subsidies, controlled markets (e.g., China, Cuba), and managed trade (e.g., Airbus vs. Boeing). - **Import & Export Management**: - **Types**: Direct/indirect export, re-importation, transit, and B2B/B2C imports. - **Advantages**: Lower production costs, market expansion, profit growth. - **Disadvantages**: Regulatory challenges, foreign exchange risks, logistics complexity. - **Payment Methods**: Ranges from **cash in advance** to **open account**, **letters of credit**, and **documentary collections**. - **Import & Export Duties**: - EU applies **Common Customs Tariff (CCT)** and taxes like **VAT, excise duty, and anti-dumping levies**. - **Incoterms**: International trade rules defining buyer/seller responsibilities. - **Distribution & Transport**: - **Modes**: Intermodal/multimodal transport tailored to corporate strategies and sustainability goals. - **Strategies**: Intensive, selective, or exclusive distribution. - **Perlmutter\'s Internationalization Model**: - **Etnocentric (domestic focus)** → **Polycentric (country-specific strategies)** → **Regional (standardized within regions)** → **Geocentric (global integration)**. - **Current Events**: - EU's largest trade deal with **Mercosur (Brazil, Argentina, Paraguay, Uruguay)**, facing opposition due to environmental concerns and competition issues. **1. Israel\'s Port and Logistics Post-Hamas Attack** - **Current Status**: Transportation through Israel has mostly normalized but with increased costs due to war risk surcharges. - **Port-Specific Impacts**: - **Ashkelon**: Limited cargo unloading post-attack. - **Ashdod and Haifa**: Operating normally but with delays at Ashdod due to workforce reduction (10% of staff moved to reserves). - **Cargo Security**: Heightened measures for dangerous cargo, and carriers may redirect shipments to Haifa under force majeure. - **Global Impact**: Minimal due to Israel\'s 0.4% contribution to global container traffic. **2. U.S. & European Supply Chain Risks from Russia and Ukraine** - **Exposure**: - Over 2,100 U.S. firms and 1,200 European firms have tier-1 suppliers in Russia. - Tier-2 and tier-3 dependencies increase significantly (190,000+ U.S. and 109,000 European firms rely on Russian/Ukrainian suppliers). - **Key Sectors**: Software, IT services (13%), consumer services (7%), trading, industrial machinery, and commodities (oil, gas, metals). - **Action Needed**: Companies should assess dependence on Russian/Ukrainian suppliers to mitigate risk. **3. Port Logistics and Operations** - **Port as Key Nodes**: Ports are critical for transshipment, storage, and as hubs in supply chains. - **Efficiency Focus**: - Port operations rely on smooth berthing, unloading/loading, and minimizing vessel stay times. - Rising global competition drives ports to enhance services. - **Port Structures**: Include land areas, roadsteads, access channels, and facilities like wharfs, quays, and piers. - **Stakeholders**: - Port authorities, shipping companies, ship brokers, agents, marine terminal operators, pilotage, towage, mooring, bunkering, and other service providers. - **Key Services**: Pilotage, towage, mooring, and bunkering ensure operational safety and efficiency. **4. Learning Goals in Port Management** - **Understanding**: General overview of port operations, challenges, and economic issues. - **Application**: Manage ship port calls, estimate costs, and evaluate port strategies. - **Creation**: Design efficient port layouts for improved operations. **Key Concepts:** **Liner Trade:** - Operates on **fixed schedules** and routes. - Specializes in **general cargo** or **containerized cargo**. - Agencies are responsible for finding customers and managing cargo bookings. - Contracts include **Booking Notes** and **Bill of Lading**. **Tramp Shipping:** - Operates based on **supply and demand** without fixed schedules or routes. - Specializes in **bulk cargo**. - Uses a **broker network** to find cargo. - Contracts include **Charter Party** and **Bill of Lading**. **Operational Needs for Shipping Lines:** 1. Reliable vessel scheduling advice. 2. Adequate berthing resources at ports. 3. Available berth at container terminals. 4. Efficient performance by terminal operators. **Ocean Freight Rates:** - **Base Rate**: Depends on container size (20', 40', 45') and type (refrigerated or non-refrigerated). - **Terminal Handling Charge (THC)**: Fee for loading/discharging containers at ports. - **Demurrage**: Charged when containers remain in the terminal beyond free days. - **Detention**: Charged when empty containers are returned late to the depot. - **Free Days**: - **Line Free Days**: Allowed days for unpacking and returning containers. - **Port Free Days**: Allowed days for storing containers at the port. **Assignment 1: Shipping Markets (Liner vs. Tramp Basis)** **Market** **Tramp Basis** **Liner Basis** ------------------------------- ----------------- ----------------- **Tanker Market** ✅ **Dry Bulk Market** ✅ **Container Market** ✅ **General Cargo Market** ✅ ✅ **Heavy Lift/Project Market** ✅ **Reefer Market** ✅ **RORO Market** ✅ **Car and Pure Truck Market** ✅ **Cruise Market** ✅ **Yachting Market** ✅ **Shortsea Market** ✅ **LNG/LPG Market** ✅ **Offshore Market** ✅ **Livestock Market** ✅ **Assignment 2: Demurrage, Detention, and Port Storage Calculation** **Scenario:** - Container discharged: **2nd July**. - Cargo taken from port: **12th July**. - Empty container returned: **19th July**. - **Demurrage free days**: 7 (till **8th July**). - **Detention free days**: 10 (till **21st July**). - **Port free days**: 3 (till **4th July**). **Calculations:** 1. **Demurrage**: - Total time in port: 11 days (2nd July to 12th July). - Free days: 7 days (till 8th July). - Chargeable days: **4 days (9th to 12th July)**. 2. **Detention**: - Container taken out on 12th July. - Free days: 10 days (till 21st July). - Empty returned on 19th July (within free days). - **No detention charges**. 3. **Port Storage**: - Total storage time: 11 days (2nd July to 12th July). - Free days: 3 days (till 4th July). - Chargeable days: **8 days (5th to 12th July)**. **Summary:** - **Demurrage**: 4 days (9th to 12th July) -- Payable to the shipping line. - **Detention**: 0 days -- No charge. - **Port Storage**: 8 days (5th to 12th July) -- Payable to the port. **Types of Partnerships in Shipping:** 1. **Slot Purchase Agreements (SCA)**: - Predefined slot allocation. - Costs based on slot demand and bunker prices. 2. **Vessel Sharing Agreements (VSA)**: - Joint vessel operation with shared slots. - Allocations depend on the number of vessels contributed. **Lecture 4: Physical Distribution -- Cross-Border Supply Chains** **Instructor**: Ron van der Wegen \| **Date**: January 2025 **Learning Goals** 1. Understand key concepts in physical distribution. 2. Grasp complexities in international supply chains. 3. Learn basics of distribution network design in a global context. **Recommended Literature** - *The Handbook of Logistics and Distribution Management* (7th ed.), Rushton et al., 2022. - *The Geography of Transport Systems*, Rodrigue, 2024. - *A Practical Guide to Logistics*, Rudd, 2024. - *Distribution Network Design*, Mangiaracina et al., 2015. **Key Topics** **1. Elements of Physical Distribution** - **Warehousing & Distribution Centers**: Start and intermediary points for inventory. - **Transportation**: Modes (land, air, water, intermodal), terminals, and load units (e.g., pallets, containers). - **Customs & Trade Compliance**: Ensures legal import/export operations. **Physical Distribution Areas** **Transportation** - **Vehicles**: Trucks, trains, airplanes, ships, drones. - **Economics**: Driven by distance, volume, density, liability, and costs. - **Administration**: Includes scheduling, routing, tracing, and auditing. - **Documents**: Bill of lading, freight bills, shipment manifests. **Warehousing & Equipment** - Benefits: Consolidation, sorting, cross-docking, seasonal storage. - Equipment: Lift trucks, automated guided vehicles (AGVs), and conveyors. **Customs & Trade Compliance** - Regimes: Manufacturing (Brazil, Turkey), Consumption (UK, Russia), Trading (Singapore, Netherlands). **21st-Century Supply Chain Trends** 1. Demand-driven and customer-centric. 2. Integrated, responsive, and financially optimized. 3. Globally connected and sustainable. **Distribution Network Design (DND)** - **Goal**: Minimize costs, maximize service, and profit. - **Factors**: - **Demand**: Affects transportation modes and facility location. - **Response Time**: Balances inventory levels with facility count. - **Location**: Use clusters for economies of scale and service optimization. **Critical Takeaways** - A firm's distribution network directly impacts operational performance, cost efficiency, and customer responsiveness. - Successful DND integrates global trends, aligns with corporate strategy, and adapts to local/regional factors. **Questions?**\ Focus on practical application through assignments and monthly reporting exercises. **Summary: Cross-Cultural Communication Session** **Objectives:** - Enhance English proficiency and cross-cultural communication skills. - Develop strategies to navigate intercultural differences in behavior and communication. - Introduce cultural frameworks to interpret intercultural scenarios effectively. **Key Themes:** 1. **Intercultural Competence Framework**: - **Mindset**: Cultural self-awareness and knowledge of cultural frameworks. - **Skillset**: Effective communication (verbal and non-verbal) and empathy. - **Heartset**: Curiosity and openness. 2. **Cultural Frameworks**: - **Hofstede's Dimensions**: Power distance, uncertainty avoidance, individualism vs. collectivism, achievement vs. ascription, long-term orientation, indulgence. - **Trompenaars' Dimensions**: Universalism vs. particularism, emotional expression, time perception (sequential vs. synchronous), and relationship dynamics. - **Erin Meyer's 8 Scales**: High/low-context communication, feedback styles, decision-making, trust, scheduling, and disagreement approaches. 3. **Practical Application**: - Self-assess cultural values (e.g., via "What's Your Cultural Profile?"). - Compare results in group settings to create a cultural map and bridge gaps. 4. **Bridging Cultural Gaps**: - Communication: Use clear, low-context processes while explaining intent to high-context peers. - Feedback: Adapt styles based on cultural preferences (direct vs. indirect). - Trust: Build relationships through shared interests and transparent communication. - Scheduling: Discuss expectations upfront to align cultural differences in time perception. **Development Opportunities:** - Semester activities include group work, international field trips, internships, and virtual exchanges. - Gradual improvement tracked via reflection portfolios and assessments. **Evaluation and Feedback:** - Students are encouraged to provide constructive feedback during and after courses. Anonymous evaluations are analyzed to improve future content and delivery. **Key Takeaways:** - Intercultural competence requires awareness, adaptability, and proactive communication. - Understanding cultural frameworks enables effective collaboration in multicultural teams. - Continuous feedback and self-reflection help refine cross-cultural skills. **Common Ethical Dilemmas in Business** 1. **Supporting Other Businesses When Money Is Tight:** Balancing financial constraints while helping business partners or local enterprises. 2. **Compromising on Product Quality:** Facing pressures to reduce costs that could affect product reliability or safety. 3. **Offshoring Manufacturing:** Weighing cost savings against ethical concerns like labor standards in other countries. 4. **Letting Toxic but Lucrative Clients Go:** Choosing between maintaining revenue streams and preserving company values. 5. **Responding to Employee Social Media Behavior:** Balancing freedom of expression with brand reputation. 6. **Keeping Employees Due to Seniority:** Evaluating fairness versus loyalty to long-serving employees. 7. **Accepting Job Applicants from Competitors:** Navigating ethical concerns about intellectual property or insider knowledge. 8. **Creating Honest Marketing:** Avoiding misleading advertisements or overstated product claims. **Examples of Ethical Dilemmas** - **Academic Cheating:** Balancing loyalty to peers with integrity in education. - **Whistleblowing:** Deciding whether to expose organizational misconduct, prioritizing truth over loyalty. - **Child Labor:** Addressing exploitation in supply chains or overseas operations. - **Maternity Leave:** Handling policies that support both business productivity and employee rights. **Common Ethical Issues in Business** - **Discrimination and Harassment:** Promoting equality and protecting human rights. - **Workplace Health and Safety:** Ensuring employees\' well-being. - **Whistleblowing or Social Media Rants:** Managing conflicts between transparency and loyalty. - **Ethics in Accounting Practices:** Upholding honesty in financial reporting. - **Technology and Privacy Practices:** Protecting data and avoiding surveillance misuse. - **Nepotism or Favoritism:** Encouraging merit-based practices. - **Environmental Responsibility:** Reducing the ecological footprint. **Issues in International Business** - **Bribery:** Avoiding corrupt practices while conducting global trade. - **Child Labor:** Ensuring ethical practices in foreign supply chains. - **Glass Ceiling Effect:** Combating gender discrimination. - **Cheap Labor Force:** Balancing cost efficiency with fair wages. - **Fair Contracting:** Maintaining equitable agreements across borders. **Ethical Decision-Making Process** 1. **Data Gathering and Arrangement:** Collect relevant and accurate information. 2. **Interpreting the Data:** Understand the implications of the information collected. 3. **Defining the Issue:** Clearly identify the ethical dilemma or problem. 4. **Classical Approach to Decision-Making (Adair, 2007):** - Define the objective. - Collect relevant information. - Generate feasible options. - Make the decision. - Implement and evaluate. **Sustainability and Ethical Business: Triple Bottom Line** - Focus on balancing social, environmental, and financial outcomes. **Research Challenges** - Sorting reliable information from a mix of facts and fiction. - Encouraging further investigation, discussion, and delayed decision-making when necessary. **Summary: Cargo Damage and the 7 Questions** 1. **Legal Framework** - Transport law in Dutch Civil Code and AVC conditions governs cargo damage in the Netherlands. 2. **Question 1: Is the Carrier Liable?** - Liability is assessed based on the actions or omissions of the carrier or its subordinates. 3. **Question 2: Contractual Exclusion of Liability** - Clauses like the "before and after" clause exclude liability for damage occurring outside the loading/unloading phases. - Fairness and reasonableness principles apply (e.g., *Ireco v. Nedlloyd*). 4. **Question 3: Force Majeure** - Carriers must demonstrate they took all reasonable measures to prevent damage under challenging circumstances. 5. **Question 4: Compensation** - Determination of the amount to be compensated for the damage. 6. **Question 5: Liability Limits** - Specific conventions (e.g., CMR, Hague-Visby Rules, Montreal Convention) impose limits on liability. - Example: Montreal Convention limits liability to 19 Special Drawing Rights (SDR) per kilogram (€23.17/kg). 7. **Question 6: Exceptions to Liability Limits** - Certain exceptions may override the standard liability limits. This framework helps determine liability, compensation, and applicable limitations in cargo damage cases. **1. Currency Forward Contract** - A binding agreement to exchange currencies at a fixed rate on a future date. - The exchange rate (forward rate) is set in advance and differs from the spot rate. - Example: A U.S. company hedges against euro depreciation by locking in a 1.10 USD/EUR rate for a future exchange. **2. Currency Options** - A contract granting the right (but not obligation) to buy/sell a currency at a set exchange rate before a specific date. - Requires payment of a premium. - Example: A European company hedges a \$1.9M payment using call or put options with a strike price of \$1.16. **3. Hedging Strategies** - A company needing to pay 300 million Crowns in 3 months can hedge using: 1. Buying Crowns in the futures market. 2. Selling Crowns in the futures market. 3. Buying call options on Euros. 4. Buying put options on Euros. **4. Hedging in Practice** - Example 1: An importer hedges a \$2M payment in 9 months at €0.8876/USD, avoiding loss from a lower spot rate (€0.8695). - Example 2: A company purchases a put option for a machine worth \$1.9M. The option isn\'t exercised when the spot rate rises to \$1.18. - **Total expenditure using the option:** €1,650,069.49 - **Total expenditure using a forward contract at 1.16:** €1,637,931.03 This overview highlights the importance of choosing the right hedging method based on market conditions and risk exposure. **1. Discount Analysis** - Customers of **Company X** pay invoices on average **after 42 days**. - **Cost of capital:** **12% annually**. - A **1% discount** is introduced for payments **within 8 days**. **Findings:** - Effective **interest rate for supplier credit (1%)**: **10.6% per year**. - **Not beneficial**, as the company's capital cost is **higher (12%)**. - **At 2% discount**, the effective **interest rate is 21.2%**. - **More attractive** as it exceeds the company's capital cost. **2. Supply Chain Finance (SCF)** - **SCF optimizes cash flow** across the supply chain by allowing suppliers to receive early payments at a lower interest rate. - **Reverse factoring** leverages the strong credit rating of large buyers to help smaller suppliers access lower financing costs. **How Reverse Factoring Works:** 1. **Supplier issues invoice; buyer confirms it (within 7 days).** 2. **Invoices are uploaded to a platform (e.g., Flinqer, Taulia).** 3. **Buyer pays on the agreed date.** 4. **Supplier can collect payment early at a discount (e.g., 0.4%), using the buyer's low interest rate.** This method **reduces financial strain on suppliers** and **improves liquidity across the supply chain**. **Summary: Trade Law & Agreements** **1. Multilateral Trade Agreements** - **Most effective** in opening global trade but **difficult to negotiate**. - Involves **three or more parties** (e.g., **GATT** with over **100 countries**). - Govern **97% of world trade** in goods and services. **2. GATT (General Agreement on Tariffs and Trade)** - Framework under the **World Trade Organization (WTO)** for regulating international trade. - Aims to **reduce trade barriers** and **promote free trade**. **3. Bilateral Trade Agreements** - **Example:** **India & Sri Lanka (1998)** -- phased tariff reduction over **3 to 8 years**. - **More effective than unilateral measures, but less than multilateral agreements**. - **Easier to negotiate** than multilateral deals but still **complex**. - Example: **EU-Canada trade agreement**. **4. Unilateral Trade Measures** - **Less effective** and often **protectionist**. - **Example:** **Japan-USA Auto Dispute (1995)** -- the **USA proposed a 100% import tariff on luxury Japanese cars**. - Raises **questions on fairness and legality under WTO rules**. **Summary: Cross Border Supply Chains -- Lesson 2** **Learning Objectives:** - Apply transport, commercial, and contract law to advise an import organization on changes in Incoterms. - Understand trade law in both strict and broad senses, including sales contracts, Incoterms, and contracts of carriage. **Key Topics Covered:** 1. **Introduction to Trade Law** - Defines trade law and its impact on international trade regulations. - Differentiates trade law in strict (contract-focused) and broad (economic policies) senses. 2. **Trade Law Principles:** - **Most-Favored-Nation (MFN) Principle:** Prevents discrimination among WTO members. - **National Treatment Principle:** Imported goods must not be treated worse than domestic products after customs clearance. 3. **Trade Law Levels:** - **Multilateral Agreements (e.g., GATT, WTO):** Govern global trade regulations, ensuring non-discriminatory practices. - **Bilateral Agreements:** Trade deals between two nations, such as the India-Sri Lanka Free Trade Agreement. - **Unilateral Measures:** Individual countries imposing trade restrictions, e.g., U.S. tariffs on Japanese automobiles. 4. **Trade Law in Action:** - Case studies on tariffs, anti-dumping policies, and WTO rules. - Examples of trade disputes (e.g., EU tariffs on Brazilian oranges, U.S.-Japan auto dispute).