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Global supply chain management
Global supply chain management involves coordinating activities across countries. A global supply chain connects organizations worldwide to source materials and produce goods for customers. Managing such a complex network introduces challenges like long distances, currency fluctuations, and differing business environments. However, companies also benefit from expanded markets, lower costs, and competitive advantages. To operate efficiently, firms must integrate worldwide operations and have the agility to respond to various global factors. For example, a large computer company redesigned its supply chain from 33 plants across many countries to 12 plants within 3 regional zones, reducing costs and improving profits.
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Global supply chain management
- 1. Global supply chainmanagement Presented by : A Raj Shravanthi
- 2. What is aSupply 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).
- 3. What is GlobalSupply Chain? • A global supply chain is made up of the interrelated organizations, resources, and processes that create and deliver products and services to end customers. In the instance of global supply chains, it is extended around the world • Any company that uses parts and services from another factory overseas faces issues with global supply chain management
- 4. Belfast Carburetors and distributors Treforest Spark plug insulators Leamington Foundryproduction of engine components Dagenham Final assembly Bordeaux Transmissions Enfield Instruments, fuel and water gauges, plugs Basildon Radiators, water pump assembly, engine components Genk Body panels, road wheels Wülfrath Transmission parts, engine components Saarlouis Final assembly Cologne Die-cast transaxle casings, gear and engine components Valencia Final assembly Ford Example
- 5. Forces Driving Globalization •Global Market Forces • Technological Forces • Global Cost Forces • Political and Economic Forces
- 6. Global Market Forces •Foreign competition in local markets • Growth in foreign demand – Domestic consumption from 40% to <30% of world consumption since 1970 – Foreign sales fuel growth • Global presence as a defensive tool – Nestle’s and Kellogg’s • Presence in state-of-the-art markets – Japan -- consumer electronics – Germany -- machine tools – US: Sport Utility Vehicle’s
- 7. Technological Forces • Diffusionof knowledge – Many high tech components developed overseas – Need close relationships with foreign suppliers – For example, Canon has 80% of laser engines • Technology sharing/collaborations – Access to technology/markets • Global location of R&D facilities – Close to production (as cycles get shorter) – Close to expertise (Indian programmers?)
- 8. Global Cost Forces •Low labor cost – Diminishing importance (Costs underestimated, benefits overestimated) • Other cost priorities – Integrated supplier infrastructure (as suppliers become more involved in design) – Skilled labor • Capital intensive facilities – tax breaks – joint ventures – price breaks – cost sharing
- 9. Political and EconomicForces • Exchange rate fluctuations and operating flexibility • Regional trade agreements (Europe, North America, Pacific Rim) – Value of being in a country in one of these regions – Implications for supply network design – Reevaluation of foreign facilities (Production processes designed to avoid tariffs)
- 10. Political and EconomicForces • Trade protection mechanisms – Tariffs – Quotas – Voluntary export restrictions • Japanese automakers in US – Local content requirements • TI/Intel factories in Europe • Japanese automakers in the EU – Health/environmental regulations • Japanese refused to import US skis for many years (different snow) – Government procurement policies • Up to 50% advantage for American companies on US Defense contracts
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- 12. Global Supply Chain Inventory management Physical distribution transportatio n Order placement CorporationSuppliersCustomers Order processing transpo rtation storage Materials management Inventory management Physical distribution Storage Forward and reverse flows of information, products and funds
- 13. Global Supply ChainSystem Components International distribution systems : – Manufacturing(domestically), Distribution (overseas) International suppliers : – Raw materials and Components(foreign suppliers), Final assembly/ Manufacturing(domestically) Offshore manufacturing : – Product is sourced & manufactured in a single foreign location, – Shipped back to domestic warehouses for sale and distribution. Fully integrated global supply chain : – Products are supplied, manufactured and distributed from factories located throughout the world – In a truly global supply chain, it may appear that the supply chain was designed without regard to national boundaries. – The true value of a global supply chain is realized by taking advantage of these national boundaries
- 14. Types of International SourcingStrategy Domestic In-House Sourcing Domestic Offshore Subsidiary Sourcing International Intra-Firm Sourcing Domestic Purchasing Arrangement Domestic Offshore Outsourcing International Outsourcing Sourcing A company procures major components in- house by procuring them domestically A company procures major components from its foreign subsidiary A company buys major components from independent suppliers at home A company buys major components from independent suppliers internationally Source: Kotabe (2000)
- 15. Competencies Needed forEfficient 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)
- 16. 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
- 17. Global SCM Factors Continued •Export Regulations • Denied parties list • Export licenses • Time • Lead time • Cycle time • Transit time • Export license approval cycle • Customs clearance
- 18. Global SCM Factors Continued •Taxes on Corporate Income – Different markups by country – Make vs. buy effect • Offset Trade and Local Content – Local content requirement for government purchases – Content for preferential duty rates
- 19. 1. Substantial geographicaldistances 2. Forecasting problems/difficulties in foreign markets 3. Fluctuations in exchange rates for different currencies 4. Demand for great variety of products 5. Inadequate infrastructures such as labor skills, availability of supply Supplier quality Lack of local process equipments and technologies Inadequate transportation facilities and Inadequate telecommunication facilities Areas to be considered while moving from domestic to International supply chain
- 20. Advantages • The mainreason for any business to exist is to increase sales and profits. • When you go global, then the likelihood of increasing sales goes up as you open up your market to consumers all over the world. • This allows businesses to reduce dependence on their local and national economies. • With the number of Internet users on the rise, global businesses are able to do business at all hours of the day with consumers from every point on the globe. • The potential for expansion for businesses increase as they enter into more markets. • Lower supply chain costs , reduced cycle time & Enhance speed and efficiency • Competitive advantage • Untapped markets
- 21. Disadvantages • Heavy investmentof time, money, and resources needed to implement and overlook the supply chain. • Inefficient and undersized transportation and distribution systems • Market instability • Integrating the supply chain and choosing the correct suppliers is much more difficult than one can imagine. • Not only do companies have to strongly consider price and quality, but they also have to make sure that all the organizations are willing to cooperate to benefit the group. • Managerial styles, objectives, and goals must have a strategic fit between all companies involved and power must be evenly distributed throughout the supply chain.
- 22. • When enteringthe global market, businesses need to be aware that the gains may not be seen in the short term. • It may be many years before they start reaping the rewards of their efforts. • Hire additional staff to help launch their companies in the global markets they expand into. • Companies usually have to modify their products and packaging to suit the local culture, preferences and language of the new market. • Travel expenses are sure to increase for the administrative staff, as (travel all over the world to oversee their business outlets)
- 23. Global SCM Example: Large Computer Company • Goals – Reduce cost – Improve ROA – Simplify the worldwide supply chain Source: Global Supply Chain Associates (GSCA) 1999
- 24. Objectives • Redesign theentire worldwide supply chain • Determine how many plants and where they should be located • Determine what process technologies should be in each plant • Specify the loading on each plant and the service area
- 25. Global Supply ChainStructure Before Reorganization Source: Global Supply Chain Associates (GSCA) 1999
- 26. Redesigned Global Supply Chain •Recommended plant closings and re-tooling • Reduced number of facilities from 33 plants to 12 plants • Created three relatively self-contained customer-oriented supply zones: Americas, Europe, Pacific Rim • Estimated benefits: – Reduced manufacturing / logistics cost by $375 Mil. annually – Improved Corporate ROA by 3.2 points Source: Global Supply Chain Associates (GSCA) 1999
- 27. Global Supply ChainStructure After Reorganization Source: Global Supply Chain Associates (GSCA) 1999
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