Global Supply Management PDF

Purchasing & Supply Chain Management...

Purchasing & Supply Chain Management 7th edition LO3 GLOBAL SUPPLY MANAGEMENT ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Impact of Globalization ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2  Impact of Globalization  Transition economies recorded a particularly vigorous increase in exports (24 %) and imports (21 %).  In the developing economies of Africa and America, the upswing in world trade manifested itself mainly on the export side.  African exports (16 %) increased at double the rate of imports.  In the developing economies of Asia and Oceania, imports increased faster than exports.  In developed economies, exports and imports rose comparatively moderately, each by around 9 % ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  Technology accelerates globalization  Cost savings opportunities on supply side  Opportunities for new markets on demand side  Issue of trade balances and currency fluctuations ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  Outsourcing Involves contracting with independent suppliers outside the organization to provide products or services that were performed inside the organization Common Sourcing Strategies related to Outsourcing: Off shoring / Far shoring Reshoring / Inshoring / Onshoring Nearshoring Friendshoring ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Offshoring Contracting with independent suppliers located outside geographic boundaries Reshoring The practice of bringing back functions previously outsourced overseas (offshored). Nearshoring Offshoring to a nearby country, for example US offshoring to Mexico Friendshoring Offshoring or outsourcing that prioritizes countries with which a company's home nation shares positive diplomatic, economic, or trade relations. 8 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  Sourcing Location Criteria High shipping cost to Low shipping cost to value ratio value ratio High product variety Standard product Forecast instability Stable forecast Safety concerns Labor intense Premium price items Competes on price Re-shore or Offshore Nearshore 9 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  Reasons for Emergence in Reshoring  Reduction in the wage gap between developed and developing economies.  A desire to have more control over product quality and supply chain risks.  To improve quality  To cut lead times  To strengthen the supply chain  Cut labor costs 10 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 Reasons for Sourcing Worldwide Meeting Competitor Buying Patterns Cost/Price Availability Competition to Access to Domestic Technology Sources Presence in Quality Foreign Market ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  Common Cost/Price Benefits  Lower labor rates  Different productivity levels  Possible willingness to accept a lower profit margin  Exchange rate differences  Lower-cost materials and inputs  Government subsidies 12 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 Barriers to Worldwide Sourcing Inc Lack of t se r e a skills s is su d R e nc e pp a ris ly to g k an h c e r r e Cu cy Lo n tu r le nge c tim ad flu ons Customs, es ati language, and culture 13 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 Lack of Knowledge and Skills  Ignorance of the mechanism of global sourcing  How to identify potential sources of supply  Documentation issues Resistance to Change  Established, routine sourcing patterns  Shifting from longstanding suppliers  Domestic market nationalism 14 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14 Longer Lead Times  Extended material pipelines, Forecasting over longer time horizons  Need to manage delivery dates more closely  Possibility of transit and/or customs delays Logistical Considerations  Extended distances, Additional planning and management required  Shipping delays are to be expected  Often less capable transportation infrastructure  Important role of INCOTERMS 15 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 Increased Supply Risks  Greater degree of logistical, political, and financial risks  Need for critical assessment prior to contracting  Look at more than just price  Types of risks vary between different countries  Need to be more proactive due to trade dynamics 16 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16 Currency Fluctuations  Daily or hourly fluctuations  Need to understand highly complicated financial options (Hedging)  How to price purchases 17 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  Managing Currency Risks  Purchase in U.S. dollars  Sharing currency fluctuation risk with suppliers  Currency adjustment contract clauses  Delivery-triggered vs. time-triggered  Currency Hedging  Finance department expertise  Tracking currency movements ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18  Currency Hedging A currency hedge is a strategy used to reduce the risk of loss from fluctuations in currency exchange rates. This is achieved by investing in financial instruments that protect against unfavorable movements in a specific currency. Form of risk insurance that can protect both parties, seeks risk aversion, not monetary gain  Options  Buy or sell foreign currency at certain future rate  Forward exchange contract  Agreement to pay pre-established rate for currency in future 19 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  Customs, Culture & Language Culture is “sum of all understandings that govern human interaction in a society” − Language, Religion, Values and attitudes, Customs − Social institutions, Education − Interpersonal relationships weak due to cultural differences Language - Communicating purchase requirements clearly and effectively - Not everyone speaks and understands English the same way Americans do - Message speed, Level of content 20 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Other Barriers Offshore Business Practices More difficult Negotiations Need to manage delivery and engineering changes more closely 21 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  Gathering Information about Worldwide Sources Gather and evaluate information on potential suppliers after identifying your items to purchase.  Worldwide sourcing directories PIB (Principal International Businesses) Taiwan China Products Online Zycon Industrial Directory..etc  Trade shows (IMTS, SIAL) ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  Critical Role of IPOs  Manage Technical and Commercial concerns  Represent the buyer to suppliers, Negotiation  Import & Export facilitation  Expedite & Trace Shipments  Resolving Quality & Delivery Issues  Measuring Supplier Performance, Visits / Audits Core Issues:  Expensive to Operate, Location to consider future demand/ expansion, Needs Logistics Expertise / infrastructure 23 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23  Costs Associated with International Purchasing  Some costs are similar to domestic sourcing Purchase price Tooling charges Transportation from supplier to buyer  International transaction costs  Additional costs over and above domestic sourcing 24 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  International Transaction Costs Base price Fees and commissions Tooling Port terminal and handling Packaging fees Customs broker fees Escalation (Estimation) Taxes Transportation Communication costs Customs duty Payment and currency fees Insurance premiums Inventory carrying costs Payment terms Purchasing & Supply Chain Management, 6e ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  Documentation Requirements Letters of credit Inspection certificates Multiple bills of lading Certificates of insurance Dock receipts coverage Packing lists Import licenses Commercial invoices Certificates of origin 26 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26  Letters of Credit Assure supplier that it will be paid for shipment  Issued by the buyer’s bank to supplier’s bank when LOC terms are fulfilled  Paid when accurate and appropriate documents are presented to buyer’s bank Revocable vs. Irrevocable 27 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27  Countertrade Arrangements Refers to all international trade where there is full or partial exchange of goods for goods, purchasing is often responsible for negotiating and managing countertrade agreements Reasons for Countertrade:  Some countries lack hard currency to purchase goods  Countertrade provides a means to sell products in that market  Typically involve large dollar amounts  Found in countries with economy dependent on perceived low or non-differentiated (commodity-like) goods ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28  Types of Countertrade Counter- Barter Offset purchase Switch Buy-back trading Purchasing & Supply Chain Management, 6e 29 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  Switch Trading Switch trading involves a minimum of three parties. It enables one party to sell its obligation or assurance to another party to a third party.  For example, country A exports its product to country B. Country B will ship other products to another country C, known as switch trader. Country C, in turn, provides or exports the product needed by country A. 30 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30  Counter Purchase Requires selling firm to purchase specified amount of goods from country that purchased its products  Generally, percentage of original sale, Involves products unrelated to company’s primary business  Issue of disposition of goods in most cases, less flexible 31 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31  Offset The agreements usually describe an exporter manufacturer agreeing to the importer's terms like marketing their products, final assembly of exported items in the importer's country, and buying other goods and services from the importer's country. Two types Direct offset and Indirect offset Direct offset is related to the product or service involved in the trade, and the agreement involves coproduction or subcontracts. Indirect offset agreements are not related to the main product, but the exporter may be obliged to buy goods or services from the importing country. 32 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32  Buy-Back (Compensation Trading) Buyback occurs when one party provides the inputs like technology and equipment to another party and, in return, receives a certain amount of finished goods made using those facilities as a part of compensation  Building a plant in third world country or  Providing services, equipment, or technology to support a plant  Builder agrees to buy back some or all of plant’s output as payment 33 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33  Foreign Trade Zones (FTZ) A Canadian Foreign Trade Zone (FTZ) is a designated area where the purchase or import of raw materials, components, or finished products is eligible for exemption from tariffs and taxes. The FTZ program in Canada is administered by the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA) Use of FTZs in Canada Allows importing company to delay, eliminate, or decrease its duty payment on foreign-produced goods that enter the zone site General-purpose zone vs. subzone 34 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34  Advantages of FTZs Duty exemption - No duties or quota charges will be placed on goods that are re-exported from the FTZ Duty deferral - Allows the importer to improve cash flow by postponing payment of duties and tariffs until the imported goods are withdrawn from the FTZ Inverted tariff - Occurs when goods produced in a FTZ have a lower duty rate than the duty rates on the imported components that comprise the finished goods upon withdrawal from the FTZ Streamlined Customs procedures - Weekly reporting & ease of trade Reduced State/ Local Inventory Taxes & Fees - Special grants, Tax reliefs, reduced costs 35 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Moving to a Global Sourcing Philosophy Domestic Purchasing Only  Level I – No foreign purchases International Purchasing as Needed  Level II – Foreign purchases as needed (reactive and uncoordinated)  Level III – part of strategic sourcing Global sourcing  Level IV – integration and coordination of global sourcing strategies across worldwide business units  Level V – integration and coordination of global sourcing strategies with other functional groups 36 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36  Global Sourcing Success Factors Centrally Decentralized Real-time Information coordinated/led operational communication sharing with decision making activities methods suppliers Critical Sourcing and International resources contracting purchasing office available systems support 37 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37  Future Trends in Global Sourcing  Artificial intelligence (AI) and machine learning (ML) reinventing procurement as new solutions are developed continuously.  Emphasis on sustainable sourcing techniques  Reshoring and nearshoring production  Shift from component sourcing to subsystems, systems, and services sourcing  Continued cost reduction pressures & seeking suppliers with global capabilities  Advanced risk management practices increasingly essential to navigate the complexities  More suppliers in low-cost, emerging markets 38 ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38 End of LO3 Questions & Answers… ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39