Global Supply Chain Management Tomas Hult Director, International Business Center (MSU-CIBER)Associate Professor of Marketing and Supply Chain Management Michigan State University Email: email@example.com
It’s All About Leverage• Consider how to turn an aircraft. Aircrafts are steered through the use of a system of ailerons on the wings and the rudder at the tail of the aircraft. In comparison to the aircraft, the ailerons and the rudder are very small; however, leverage allows them to turn the large aircraft. In other words, putting the right combination of a little leverage on the right places allows incredible maneuvering.
What is a Supply Chain?• Supply chains are linkages of partially discrete, yet interdependent entities that collectively transform raw materials into finished products.• Supply chains connect the functions of inbound activities (such as purchasing) with outbound activities (such as logistics and “place” activities). A. . . . . . . . . . . . . . . End Customer
Formal Definition of a Supply Chain• A supply chain is a “network of facilities and activities that performs the functions of product development, procurement of material from suppliers, the movement of materials between facilities, the manufacturing of products, the distribution of finished goods to customers, and after-market support for sustainment” (Mabert and Venkataraman 1998).
Network of Relationships Finland Sweden Germany Denmark Norway Netherlands Iceland
Ford Example Enfield Basildon Belfast Instruments, fuel Radiators, water Carburetors and and water gauges, pump assembly, distributors plugs engine components Treforest Genk Spark plug Body panels, insulators road wheelsLeamington WülfrathFoundry production Transmission of engine parts, engine components components Dagenham Cologne Final assembly Die-cast transaxle casings, gear and engine components Bordeaux Transmissions Valencia Saarlouis Final assembly Final assembly
Types of International Sourcing Strategy S o u r c in g In tr a -F ir m S o u r c in g O u ts o u r c in g D o m e s tic In te r n a tio n a l D o m e s tic In te r n a tio n a lD o m e s tic In -H o u s e S o u r c in g O ffs h o r e S u b s id ia r y S o u r c in g D o m e s tic P u r c h a s in g A r r a n g e m e n t O ffs h o r e O u ts o u r c in g A company procures A company procures A company buys major A company buys major major components in- major components from components from components fromhouse by procuring them its foreign subsidiary independent suppliers at independent suppliers domestically home internationally Source: Kotabe (2000)
Global Supply Chain Organization• A supply chain organization uses resources from international participants to accomplish shared and independent goals of its members.
National Competitive Advantage The conditions in the nation governing how companies are created, Firm Strategy, organized, and managed Structure, and and the nature of domestic rivalry. Rivalry The nature of Factor Demand home demand for Endowments Conditions the industry’s product or service.A nation’s position infactors of productionsuch as skilled labor or Related and The presence or absence in athe infrastructure Supporting nation of supplier industriesnecessary to compete ina given industry. Industries and related industries that are internationally competitive. Source: Porter 1990
The Value Chain• Michael Porter, professor at Harvard Business School, uses the value chain as a systematic means of displaying and categorizing business activities.• The term value chain means that at each stage of the order-to-delivery system, value is added to the product or service.
Porter’s Value Chain Firm InfrastructureSupport Activities Human Resource Management M Technology Development ar gi n PROCUREMENT Information Technology OUTBOUND LOGISTICS INBOUND LOGISTICS Marketing & Sales Operations Service n gi ar Primary Activities M Source: Porter 1985
Primary Activities• Primary activities are the five basic functions needed to physically produce a product or service, deliver and market it to buyers, and support it after the sale. Each contributes value in specific ways. – Inbound logistics refers to activities/actions required before physical production of a product can begin or before service can be performed (inputs such as materials handling, warehousing, inventory control, vehicle scheduling and returns to suppliers). – Outbound logistics refers to all activities from the point of a finished product to its delivery to the market or customer or those activities that follow the completion of a service (such as distribution, delivery vehicle operations, order processing, and scheduling).
Support Activities• Support Activities provide inputs or infrastructure in support of primary activities. These supporting activities stretch across the entire value chain since they impact each primary activity. – Procurement is obtaining purchased inputs, such as raw material, parts, equipment, etc.
From the Value Chain…• Five continuous and interactive steps are involved in developing a global supply chain strategy along the value chain: 1. Identify the separable links (R&D, manufacturing, and marketing) in the company’s global value chain. 3. In the context of those links, determine the global location of the company’s competitive advantages, considering both economies of scale and scope. 5. Ascertain the level of transaction costs (e.g., cost of negotiation, cost of monitoring activities, and uncertainty resulting from contracts) between links in the global value chain, both internal and external, and select the lowest cost mode that provides the most value. Source: Kotabe and Helsen 2001
From the value chain…1. Determine the comparative advantages of countries (including the company’s home country) relative to each link in the value chain and to relevant transaction costs.1. Develop adequate flexibility in corporate decision making and organizational design so as to permit the company to respond to changes in both its competitive advantages and the comparative advantages of countries. Source: Kotabe and Helsen 2001
Competencies Needed for Efficient Global SCMPositioning The selection of strategic and structural approaches to guide global operationsIntegration The establishment of what to do and how to do it creativelyAgility The achievement and retention of global competitiveness and global customer successMeasurement The internal and external monitoring of global operations Source: Michigan State University (1995)
Global SCM Factors• Costs – Local labor rates – International freight tariffs – Currency exchange rates• Customs Duty – Duty rates differ by commodity and level of assembly – Impact of GATT/WTO: Changes over time Source: Global Supply Chain Associates (GSCA) 1999
Global SCM Factors Continued• Export Regulations • Denied parties list • Export licenses• Time • Lead time • Cycle time • Transit time • Export license approval cycle • Customs clearance
Global SCM Factors Continued• Taxes on Corporate Income – Different markups by country – Tax havens and not havens – Make vs. buy effect• Offset Trade and Local Content – Local content requirement for government purchases – Content for preferential duty rates
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