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Spina Global Scm April 14 2008


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Fashion, apparel, textile, merchandising, garments

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Spina Global Scm April 14 2008

  1. 1. Global Supply Chains April 14, 2008 Gianluca Spina – MIP, Politecnico di Milano [email_address]
  2. 2. SCM: why and what <ul><li>Extreme industry fragmentation ( outsourcing and offshoring ) </li></ul><ul><li>Internationalization and market globalization </li></ul><ul><li>Explosion of variety and volatility in customer requirements </li></ul><ul><li>New products and process technologies </li></ul><ul><li>Request for faster processes </li></ul><ul><li>Optimizing internal processes is no longer enough, </li></ul><ul><li>Need to manage processes going beyond the boundaries of the company </li></ul>
  3. 3. Scenarios <ul><li>Managing global SC is more complex and risky </li></ul><ul><li>Different standards and regulations </li></ul><ul><li>Additional costs </li></ul><ul><li>Higher risks (logistic, financial; currency exchange) </li></ul><ul><li>Diversity </li></ul><ul><li>Higher managerial skills and organizational capabilities </li></ul><ul><li>Different models of global SCM (5 archetypes) </li></ul><ul><li>Growing relevance of global sourcing </li></ul>
  4. 4. “ Pain Points” in global SC Survey in 10 top global manufacturers (Handfield e Steininger, 2006) Participants: over 100 SC senior executives (VPs and Directors) Fragmentation due to outsourcing and offshoring (LCC) 31% Lack of project mgmt and resources ( do more with less ) 12% Poor internal coordination among functions, depts, subsidiaries etc.. 10% Price fluctuations of commodities 10% LCC competition 10% Competence shortage 7% Power shift to retailers 7% Regulations & Security (post 9-11) 7% Information systems integration 5% Protection of intellectual property 2%
  5. 5. Local processes and global processes Local processes Global processes Sourcing markets Final markets Sourcing Prod/Ass Distrib. Sourcing Prod/Ass Distrib.
  6. 6. Configurations 5 configurations International growth <ul><li>2 characterized by (mainly) local sourcing </li></ul><ul><li>3 characterized by international or global sourcing </li></ul>
  7. 7. 1 – “Cloners” <ul><li>Replications of multi-country operations </li></ul><ul><li>Short reach, enough scale even at a local theatre </li></ul><ul><li>E.g.: cement, beverages, metalworking, etc. </li></ul><ul><li>Supply Chain: low complexity, lean thinking </li></ul><ul><li>Critical issue: knowledge transfer and best practice implementation </li></ul>Sourcing Prod/Ass Distrib. Sourcing Prod/Ass Distrib. Sourcing Prod/Ass Distrib.
  8. 8. <ul><li>Strong global brands from strong local roots </li></ul><ul><li>Competitive advantage of local sourcing and manufacturing (districts, valleys) </li></ul><ul><li>Industries: </li></ul><ul><ul><li>International districts (high-end textile-apparel); </li></ul></ul><ul><ul><li>luxury goods (watch industry); </li></ul></ul><ul><ul><li>OEM and capital equipment </li></ul></ul><ul><ul><li>EU Automotive (top brand: Ferrari; Porsche; BMW till mid 90’s) </li></ul></ul><ul><li>Difficult to maintain as delivery and cost pressures increase (e.g Hitachi) </li></ul>2 - “Barons” Distrib. Sourcing Prod/Ass
  9. 9. Globalization strategy in the automotive industry
  10. 10. Porsche and BMW: both compete globally
  11. 11. … but through different manufacturing and supply strategies
  12. 12. <ul><li>Etching equipment to make semiconductors </li></ul><ul><li>Global market dominated by giants (Intel, NEC, Motorola, STM …) </li></ul><ul><li>Hitachi’s production concentrated in one single Japanese plant close to R&D; local supply base </li></ul><ul><li>Spare parts logistics as a major competitive issue (increasing in importance) </li></ul><ul><li>New central customer care in Texas </li></ul><ul><li>Stock of parts and subsystems and quick assembly on demand of spare sub-systems </li></ul>Hitachi High-Technologies
  13. 13. <ul><li>Challenges and responses </li></ul><ul><li>Increasing pressure on global services from 8 days to 4 hrs </li></ul><ul><li>60-180 days lead time of Japanese suppliers </li></ul><ul><li>Crisis of the “baron model” for such a sophisticated equipment because of the service operations </li></ul><ul><li>Opportunities of global scouting from Texas CCC: new potential suppliers in US and Europe </li></ul><ul><li>Resistance to unravel consolidated relationships with first-tier Japanese supplier </li></ul><ul><li>HQ allowed to switch to new suppliers only when alternative compensative businesses were found for the Japanese suppliers </li></ul>Hitachi High-Technologies
  14. 14. 3 – “Shoppers” <ul><li>Shopping around the world, downstream operations at the local theatre </li></ul><ul><li>Global commodity markets or global concentration of part suppliers </li></ul><ul><li>E.g.: papermills, sugar, transplants, high–end fashion, EMS (Electronic Manufacturing Service) </li></ul><ul><li>Supply Chain: Complex inbound </li></ul>Prod/Ass Distrib. Sourcing Prod/Ass Distrib. Prod/Ass Distrib.
  15. 15. Dell Supply Chain Global suppliers Logistic centres End customers Dell plants Local suppliers Supplier-controlled 3PL Dell-controlled Suppliers of peripherals
  16. 16. 4 – Outreachers <ul><li>Global brands, huge R&D investments paid back on a global scale only </li></ul><ul><li>International markets for sophisticated technologies and parts </li></ul><ul><li>E.g.: Aerospace, Supercomputing, Semiconductors, Integrated textile-apparel chains (Zara, etc..) </li></ul><ul><li>Sometimes evolution of the “barons” </li></ul>Sourcing Distrib. Prod/Ass
  17. 17. 5 - Full players <ul><li>Large scale producers, global branding, large scale suppliers </li></ul><ul><li>E.G.: Consumer electronics, Chemical, Food (partially), Pharma (partially) </li></ul><ul><li>Complex SCM, cross-country flows </li></ul>Sourcing Distrib. Prod/Ass
  18. 18. International vs. Global Sourcing <ul><li>Purchasing locally </li></ul><ul><li>(2 types) </li></ul>Purchasing abroad (3 types) International or Global? <ul><li>Sourcing abroad in LCC does not equal global sourcing </li></ul><ul><li>Global sourcing entails structures, processes and technologies deployed on a global basis </li></ul><ul><li>Trade off benefits and costs </li></ul>
  19. 19. <ul><li>Global sourcing vs. International sourcing: </li></ul><ul><li>evidence and trade-offs </li></ul>
  20. 20. International Sourcing <ul><li>Knowledge of the international supply markets </li></ul><ul><li>Competencies </li></ul><ul><ul><li>Commercial </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Regulations </li></ul></ul><ul><ul><li>Negotiation </li></ul></ul><ul><ul><li>Local cultures </li></ul></ul><ul><li>Sourcing from a hub or even through a network but deploying independent strategies and processes </li></ul>
  21. 21. Global Sourcing <ul><li>Corporate-driven strategic process </li></ul><ul><ul><li>Top Management Commitment: cross-functional leaders; steering committee </li></ul></ul><ul><ul><li>Dedicated financial resources and staff </li></ul></ul><ul><ul><li>Project management </li></ul></ul><ul><li>Organization and business processes </li></ul><ul><ul><li>HQ-subsidiary coordination </li></ul></ul><ul><ul><li>Rigorous and well-defined processes with clear distinction between strategic sourcing and operational reordering </li></ul></ul><ul><ul><li>Lessons learnt approach and knowledge sharing </li></ul></ul><ul><ul><li>Supportive organizational design and ability to reconfigure </li></ul></ul><ul><li>Integration through information technology </li></ul><ul><ul><li>Global data warehouses </li></ul></ul><ul><ul><li>Companywide intranet to provide access to documents, templates, guidelines </li></ul></ul><ul><li>Methodologies for measuring savings </li></ul><ul><ul><li>Metrics and validation (involvement of financial staff) </li></ul></ul><ul><ul><li>Cross-country benchmarking </li></ul></ul>
  22. 22. International vs. Global Sourcing <ul><li>Research on a sample of 169 large US MNCs (Trent e Monczka, 2005) </li></ul>Domestic purchasing only 13,4% International purchasing only as needed 21,3% International purchasing as a part of a sourcing strategy 31,0% Global Sourcing strategies integrated across worlwide locations 18,1% Global Sourcing strategies integrated across worlwide locations and functions (multy country and cross-functional teams) 16,1% Only 1/3 goes global 2/3 stay international / domestic
  23. 23. Global sourcing in broader context <ul><li>International sourcing </li></ul><ul><ul><li>tactical </li></ul></ul><ul><ul><li>functional </li></ul></ul><ul><li>Global sourcing </li></ul><ul><ul><li>strategic </li></ul></ul><ul><ul><li>linked to long-term make or buy decisions (outsourcing) </li></ul></ul><ul><ul><li>linked to off-shoring (re-location) </li></ul></ul>Global Sourcing Outsourcing Off-shoring
  24. 24. Sourcing in LCC <ul><li>Total cost of ownership revisited </li></ul><ul><li>Static </li></ul><ul><ul><li>Price ex works </li></ul></ul><ul><ul><li>Transportation cost (standard) </li></ul></ul><ul><ul><li>Customs and duty </li></ul></ul><ul><li>Dynamic </li></ul><ul><ul><li>Increasing pipeline stock </li></ul></ul><ul><ul><li>Increasing safety stock due to demand and supply uncertainty </li></ul></ul><ul><ul><li>Obsolescence costs </li></ul></ul><ul><ul><li>Quality costs (warranty, inspection) </li></ul></ul><ul><ul><li>Expediting shipments (air freight etc..) </li></ul></ul><ul><ul><li>Currency fluctuations </li></ul></ul><ul><ul><li>Lost sales and stockouts </li></ul></ul><ul><li>Hidden </li></ul><ul><ul><li>Underestimated overhead remaining at the HQ </li></ul></ul><ul><ul><li>Adaptation and responsibility </li></ul></ul><ul><ul><li>Loss of Intellectual Property </li></ul></ul><ul><ul><li>Geopolitical instability </li></ul></ul>
  25. 25. Case: Enel – Power generation (*) Financial, Insurance Total Cost of Ownership: additional task to manage: travel, translation, consulting, expats, additional inspections 20 3 40 40 10 6 30 8 Current price Price from global sourcing Labor Materials Variable costs Overhead + Margin 100 57 Transport Customs Inventory Others* 5 2 1 2 67 Totale cost from global sourcing Real Saving o: 33 ? Hidden costs?
  26. 26. Global sourcing in China <ul><li>Three-step process of increasing investment and commitment </li></ul><ul><li>International sourcing </li></ul><ul><ul><li>Minimum Direct Investment </li></ul></ul><ul><ul><li>Cultural barriers, poor knowledge, risk and difficulties </li></ul></ul><ul><li>Global sourcing and local operations </li></ul><ul><ul><li>Significant DI, sometimes customer-driven </li></ul></ul><ul><ul><li>Limited benefits in moving established automated lines from EU or US </li></ul></ul><ul><ul><li>Turning point in exploiting the potential benefits </li></ul></ul><ul><ul><li>Increasing availability of local managers and engineers </li></ul></ul><ul><li>Market penetration </li></ul><ul><ul><li>Further DI in R&D and integrated cross-functional management at the local theatre </li></ul></ul><ul><ul><li>From Western customers in China to Chinese customers </li></ul></ul><ul><ul><li>Growing role of the local managers, necessity of adaptation </li></ul></ul><ul><ul><li>Local R&D to develop the local supply base </li></ul></ul><ul><ul><li>Critical issue: IP protection (the J antecedent) </li></ul></ul>
  27. 27. Case: ABB in China <ul><li>For ABB, China ranks behind the United States and Germany in terms of sales. CEO said he believes China will be the company’s number one market in five years. </li></ul><ul><li>“ The ABB Group has a clear, well-defined five-point strategy to help us meet our ambitious targets here”. </li></ul><ul><li>Organic growth . ABB has historically achieved double-digit growth rates in China, and expects to grow 20 percent per year until at least 2008 </li></ul><ul><li>New investments . More than $600 million in China. Plans to invest at least $100 million starting new product lines and factories in China in the run-up to 2008 in all major businesses </li></ul><ul><li>Cost migration . Special team to buy materials locally. ABB strategy is to build complete product lines, rather than importing certain components from Europe as it has often done in the past. </li></ul><ul><li>New research and development center in Beijing. Will drive local innovation levels higher and allow ABB to better meet Chinese customer needs. </li></ul><ul><li>Developing local talent . An important part in ABB’s five-point plan, it involves hiring an additional 5,000 employees – highly talented and well educated – in the run-up to 2008. </li></ul>