Week 2 International Logistics and SCM (Apple Case) - PDF

WEEK 2 INTERNATIONAL LOGISTICS AND SUPPLY CHAIN MANAGEMENT Logistics - Military Terminology Without Supplies no army is brave - King Frederick of Prussia (1712-1786) Victory is the beautiful, bright- coloured flower. Logistics is the stem without which it could never have blossomed. - Winston Church...

WEEK 2 INTERNATIONAL LOGISTICS AND SUPPLY CHAIN MANAGEMENT Logistics - Military Terminology Without Supplies no army is brave - King Frederick of Prussia (1712-1786) Victory is the beautiful, bright- coloured flower. Logistics is the stem without which it could never have blossomed. - Winston Churchill (1875-1965) Probably one of the most important and difficult phases of operations is actually getting the force to the line of departure. If this can be achieved satisfactorily, then the prospect of operational success is high. - Sir Mike Jackson (Commander, The Allied Rapid Reaction Corps, 1944~) Logistics § Definition The process that plans, implements, and controls the efficient and effective forward and reverse flow, as well as the storage of goods, services, and rela ted information between the point of origin and the point of consumption. § Scope Logistics is an internal function that ensures the efficient flow of goods with in a company or organization. § Primary activities Logistics primarily involves the physical aspects of transportation, warehou sing, order fulfillment, and packaging. § Goal To meet customer requirements Logistics § The 7 Rs of logistics The Chartered Institute of Logistics & Transport UK (2019) defines The 7 Rs of logistics “Getting the Right product, in the Right quantity, in the Right condition, at t he Right place, at the Right time, to the Right customer, at the Right price.” 7R explains the function of logistics, getting things moved in a synchronized fashion to meet a specific criteria such as timeliness, condition and the corr ect place Supply Chain Management § Definition Introduced by consultants in 1980s. The broader set of activities that involve planning and managing the entire network, from the procurement of raw materials to the delive ry of the final product to the end consumer. § Scope SCM encompasses logistics but goes beyond it. It involves the strateg ic coordination and integration of various functions within an organiz ation and with external partners to optimize the entire supply chain. § Primary activities Strategy and Coordination (SCM sets the strategy and directs daily lo gistical activities in factories, warehouses, and shipping centers). Supply Chain Management § Goal To ensure a smooth, efficient flow of goods, enhance customer expe rience, and drive business success. § Differentiating points from logistics Involves Partners: SCM coordinates activities across various entities involve d in the supply chain. So involves collaboration with external partners, such as suppliers and distributors, to achieve overall supply chain efficiency. Timeframe: Takes a long-term view, emphasizing strategic planning and opt imization of the entire supply chain. Customer: SCM focuses on enhancing the overall customer experience by managing the entire supply chain effectively while logistics aim at meeting i mmediate customer needs related to product movement and delivery Supply Chain Management § History Before the 1960s, business activities like purchasing, warehousing, and transportation were m anaged separately. Over time, they integrated into materials management, logistics in the 1990s, and eventually e volved into supply chain management in the 2000s with the inclusion of information technolog y, marketing, and sales. Supply Chain Management § A simple shape of a supply chain Upstream downstream A simple shape of a supply chain Distinguishing Logistics and SCM § Supply chain management involves integrating outside organizations and focuses on the end customer. § In many cases, supply chain management is somewhat larger than logistics. § We have four perspectives on the difference between logistics and SCM. § They are Traditionalist: regards SCM as a subset of logistics re-labeling view: logistics that has been re-labelled by the more recent term SCM Unionist view: logistics is seen as part of a wider entity Intersectional view: it suggest that there is overlap between parts of both logistics and SCM and also that each has parts that are separate and distinct. Distinguishing Logistics and SCM Key factors led logistics to SCM § Transport cost sensitivity of freight (compare to bulky material trade era) Traditional international trade was dominated by bulky raw materials (Iron ore, coals, rice etc.) Internatonal trade changed logistics that moves expensive in-process and finished goods - e.g Consumer electronic products. Ready to cook food. Higher value product can ‘absorb’ transport cost § Falling product prices (in contemporary age) Increased competition forced firms to reduce costs. This forces firms to focus on other areas where further savings can be made. Key factors led logistics to SCM § Deregulation of transport Transport markets in many countries have been deregulated by the governments. In theory the effect of deregulation is that markets become more contestable and prices come down and services improve. - Fedex has one of the world largest aircraft freight fleet. - In fact, the US market was deregulated in 1970s so Fedex was able to grow since 1980s. § Productivity improvements Containerized transport increased efficiency in transshipment, workforce uses. It reduced the cost of transporting freight and improved efficiency. Alliances were formed between combination of companies. Key factors led logistics to SCM § Inventory management There is a shift of management and financial attention into where an organization’s funds are tied up. Firms are now realizes that significant fund are tied up in unnecessary inventory. Integrated and focused inventory management can a source of cost savings and efficiency gains. § Changes in company structure Many firms have become integrated and more specialized. Functional and silo based thinking hinder the overall performance of the firm Competition based on time has become a key success factors in many markets so integration is much more important - Silo thinking: viewing the various departments within the firm as separate and non overlapping entities. Key factors led logistics to SCM § Globalization With the globalization of markets, supply chains expanded globally, necessi tating a more comprehensive and integrated approach. § Technology Advancements The advent of advanced technologies, like RFID, GPS, and sophisticated soft ware, enabled real-time tracking, end-to-end visibility, collaboration and op timization across the entire supply chain. § Customer Expectations SCM evolved to meet customer demands for faster, more reliable, and tran sparent supply chain processes, necessitating a holistic approach. § Market Dynamics Logistics addressed immediate needs in the movement of goods. SCM is required to changing market dynamics by integrating various functio ns, including procurement, production, and distribution, to adapt to market demands. Global supply chain management § In essence, supply chain is a system of connected networks between the original vendor and the ultimate final consumer. § This extended enterprise or boundary spanning perspective of supply chain management represents a logical extension of the logistics concept § It provides an opportunity to view the total system of interrelated companies and their impact on the final product in the marketplace in terms of its price-value relationship. International logistics The evolution of supply chain management has been characterized by an increasing degree of integration of separate tasks. This is a trend that was underlined in the 1960s as a key area for future productivity improvements since the system was highly fragmented. With the implementation of modern information and communication technologies a more complete integration became possible with the emergence of supply chain management. International logistics from SCM § The diagram shows that the activities that involve transportation and shipment of good s (and all related matters, such as paperwork, insurance, payments, and so on) betwee n domestic suppliers and customers are part of logistics. § When they involve foreign suppliers and customers, they are part of international logist ics. § Activities that involve deeper relationships with suppliers and customers (such as qualit y control, inventory management, and engineering exchanges) are regrouped under su pply chain management, especially when they involve these suppliers' suppliers (called second-tier suppliers), or customers' customers. Domestic Customers Domestic Suppliers Logistics Company International Logistics Foreign Suppliers Foreign Customers Supply Chain Management International logistics § The environment in which international logisticians operate is quite different from the domestic environment. The number of intermediaries involved in an international transaction is greater The inherent risks and hazards of international transportation are much greater. International insurance is much more complex. Terms of trade are more challenging. The crossing of borders represents specific challenges in documentation and requir ements. Warehousing decisions involve more variables. The transportation of time & temperature sensitive goods over long distances invol ves more careful planning. Globalization § What is globalization? a complex series of economic, social, technological, cultural and political changes. Geographically, it continues to take place throughout the world. The phenomenon that different cultures and economic systems around the world are becoming connected and similar to each other because of the influence of large multinational companies and of improved communication 19 Globalization Levitt suggested that companies must learn to operate as if the world were one large market. So firms need to ignore the regional and national differences. This is representing the “global market” which highlight the role of global consumers Falling trade barriers make it easier to sell globally Consumers’ tastes and preferences are converging on some global norm Firms promote the trend by offering the same basic products worldwide 20 Globalization § The three main flows in globalization process Trade Migration Flows of physical goods (mainly asymmetrical) Flows of people (mainly symmetrical) Flows of information (mainly asymmetrical) Raw materials, energy, food, parts and consumption goods Permanent, temporary (migrant workers), tourism, business transactions Communication, text and infomration exchanges Freight transport modes (maritime, rail, trucking) Passengers transport modes (vehicles, air, rail) Ports as main hubs Airports as main hubs Telecommunications Telecommunication systems (postal, internet, telephone, radio) Global cities as main hubs 21 The development of globalization – product focused view § First phase International trade concerned a range of specific products which are not available in regional economies. Due to regulations and transportation costs, trade remained limited and delayed In this context, trade was an activity to deal with scarcity than to promote economic efficiency. Bulk point to point trade was common 22 The development of globalization – product focused view § Second phase From the 1970s to the 1990s Regional trade agreements emerged, and the global trade framework was strengthened with inter-governmetnal institutions such as WTO (World Trade Organisation) Containerization provided the capabilities to support long-distance trade flows 23 The development of globalization – product focused view § Third phase – global supply chain From the 1990s to the 2010s The priority is now shifting to the geographical and functional integration of production, distribution, and consumption Complex networks involving flows of information, commodities, parts and finished goods Powerful actors have emerged which are not directly involved in the function of production, but taking the responsibility of managing the web of flows such as Apple Global supply chains 24 Case study: APPLE GSCM § The iPhone supply chain involves Apple's product development t eam in the US, numerous suppliers, assembly operations in China , distribution channels, and retail outlets, all coordinated in real-ti me. Let’s have a look. 25 Case study: APPLE GSCM § New product involvement Apple follows a one-year produc t lifecycle, requiring coordination among internal and external stak eholders. The product development proce ss is centralized, with responsibil ity for design and engineering in California. Creative design and engineering responsibilities, including the de velopment of new technologies and acquisition of intellectual pr operty rights, market research, c ost analysis resided in California. Consumers have limited options for configuring their iPhones, all owing Apple to streamline its su pply chain. EXHIBIT 7: IPHONE MODELS AND INTRODUCTION DATES Case study: APPLE GSCM § Procurement Apple's global supply chain consists of 200 suppliers in 43 countries, with over 800 prod uction locations, accounting for 98% of expenditures for materials, manufacturing, and product assembly. Apple focused on minimizing costs and enforcing delivery deadlines by rotating staff me mbers and preventing personal relationships with suppliers. Apple had significant influence over suppliers due to its large iPhone volumes and relian ce on a few key components In September 2019, Apple gave $250 million to Corning to help create high-quality glass for iPhones, Apple Watches, and iPads through its Advanced Manufacturing Fund. EXHIBIT 10: IPHONE 11 PRO MAX KEY SUPPLIERS Case study: APPLE GSCM § Product Assembly More than 90% of Apple products, were assembled in China, with Foxconn handling the majority of the volume. From 2001 Foxconn became the largest private-sector employer in China, d epending on Apple for about 50% of its revenues. Zhengzhou, China, known as "iPhone City," employed over 300,000 people and produced 500,000 iPhones per day. The iPhone assembly process involved about 400 manual steps, including s oldering, drilling, and fitting tiny screws (not similar to SAMSUNG). Manufacturing processes are closely monitored by the engineers from HQs. Demand for workers surged before the introduction of new iPhone models, and the government helped funnel migrant workers to Foxconn plants thro ugh online postings Case study: APPLE GSCM § Logistics and distribution Apple allowed customers to pre-order iPhones prior to launch to forecast d emand. UPS is a major carrier involved in the launch, and is delivering new products to stores, distribution centers and customers in more than 20 countries. UPS has worked for weeks to ensure that pre- ordered devices on the launch day (October, 2020) for the Apple product (new iPhone and iPad). UPS Worldport ran a special delivery, dedicated solely to sorting iPhone and iPad Air shipments. Logistics for iPhone launches were carefully coordinated, with iPhones sent to sorting facilities for on-time delivery to Apple Stores and customers' hom es. Case study: APPLE GSCM § Retail network Apple had a global retail network with 510 stores in 25 countries, inc luding 271 stores in the US, offering a luxury shopping experience an d technical support. Apple Stores generated high sales per square foot, giving Apple lever age to negotiate favorable lease rates with mall owners. Apple also had authorized resellers and service providers like Walma rt, Target, and Best Buy, who sold and repaired Apple products, with access to Apple resources and training. In 2018, Apple partnered with Amazon to become an authorized res eller, leading to the removal of non-authorized third-party sellers fro m Amazon's platform Case study: APPLE GSCM § Challenges Apple's iPhone revenues saw a significant increase in the first quarte r of fiscal year 2020, driven by strong sales of the new iPhone 11. Despite focusing on other businesses like services and wearables, th e iPhone remains crucial for Apple's long-term success. Apple's centralized iPhone production in China poses risks due to tra de tensions and rising labor costs. The company aims to reduce its dependence on third-party technolo gies and suppliers to lower costs. Expanding into other regions is challenging due to the unique advant ages offered by China's business environment and skilled labor force Case study: APPLE GSCM § Review Apple’s supply chain for its iPhone product. Wha t differences set it apart from its competitors?