The document discusses global supply chain management and key factors to consider when developing an international sourcing strategy. It covers Porter's value chain model and how identifying competitive advantages across different links in the value chain can help multinational companies determine the most cost-effective global supply chain configuration. Competencies around positioning, integration, agility, and performance measurement are also important for efficiently managing global supply chains.

1. Global Supply Chain
Management
Tomas Hult
Director, International Business Center (MSU-CIBER)
Associate Professor of Marketing and Supply Chain Management
Michigan State University
Email: hult@msu.edu

2. 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.

3. 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

4. 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).

5. Network of Relationships
Finland
Sweden Germany
Denmark
Norway Netherlands
Iceland

6. 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 wheels
Leamington Wülfrath
Foundry 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

7. 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 l
D 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 from
house by procuring them its foreign subsidiary independent suppliers at independent suppliers
domestically home internationally
Source: Kotabe (2000)

8. Global Supply
Chain Organization
• A supply chain organization uses
resources from international
participants to accomplish shared
and independent goals of its
members.

9. 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 in
factors of production
such as skilled labor or Related and The presence or absence in a
the infrastructure Supporting nation of supplier industries
necessary to compete in
a given industry. Industries and related industries that are
internationally competitive.
Source: Porter 1990

10. 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.

11. Porter’s Value Chain
Firm Infrastructure
Support 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

12. 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).

13. 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.

14. 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

15. 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

16. Competencies Needed for
Efficient Global SCM
Positioning The selection of strategic and
structural approaches to guide
global operations
Integration The establishment of what to do
and how to do it creatively
Agility The achievement and retention of
global competitiveness and global
customer success
Measurement The internal and external
monitoring of global operations
Source: Michigan State University (1995)

17. 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

18. Global SCM
Factors Continued
• Export Regulations
• Denied parties list
• Export licenses
• Time
• Lead time
• Cycle time
• Transit time
• Export license approval cycle
• Customs clearance

19. 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