Copyright 2011 John Wiley & Sons, Inc. Chapter 12 Global Supply Chain Management 12-1.

Copyright 2011 John Wiley & Sons, Inc.

Chapter 12

Global Supply

Chain Management

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Lecture Outline

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• Global Supply Chain Management

• Global Market Challenges

• Global Infrastructure Design

• Cost Considerations

• Political and Economic Factors

Copyright 2011 John Wiley & Sons, Inc.

The Global Environment

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Rapid growth of globalization and international trade are a result of:

• Advances in Transportation

• Advances in Technology

• Rise in Personal Income

Increased Globalization

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The global trend impacts:

• Consumers:– greater access to a variety of goods– competitive prices

• Supply Chain Companies– accelerated competition requires:

• strategy to compete in new markets

• another strategy to protect local market from foreign competition

Environmental Factors

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Global Supply Chain Opportunities

• Large market

• Economies of scale in production and distribution

• Lower select costs – labor– supply

• Better ability to target markets

• Leverage good ideas quickly and efficiently

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Global Supply Chain Barriers

• Longer and more varied lead time

• Political risk and instability

• Overall cost – transportation– tariffs

• Infrastructure access– facilities– transportation

• Exchange rate risks12-7Copyright 2011 John Wiley & Sons, Inc.

Factors Impacting Global Supply Chains

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Factors Impacting Global Supply Chains Continued

• Market and Competition– customer preferences may be unique– consider competition

• Cost– often reason for going global– consider added logistical and transportation

costs, differential productivity, costs of quality• Infrastructure

– lack of infrastructure in developing countries

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Factors Impacting Global Supply Chains Continued

• Technology– enables global communication– bar codes, GPS, EDI, RFID

• Politics and Economy– currency fluctuations– government regulation & political instability– trade agreements

• Culture– consider varying beliefs and behaviors

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Global Market Challenges

Global markets pose a number of challenges:

• Global Consumer• Global vs. Local Marketing• Cultural Challenge

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Global Consumer

• Identify diverse customer preferences• Customers increasingly want customization

– supply chains moving from standardization to customization

– explodes number product combinations– requires moving through design,

production, and distribution quicker– requires lean and flexible systems

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Global vs. Local Marketing

Two marketing approaches:• Global

– focus on bringing standardization to global market• Local

– focus on micro-segmentation of customers and products

Product Postponement– one strategy to help merge global and local

marketing approaches

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Cultural Challenge

• Marketing strategies may need to be modified for different cultures

• Culture is a critical element of communication

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Five Dimensions of Culture

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Five Dimensions Continued

• Small vs. Large Power Distance– extent to which there is a strong separation

of individuals based on rank

• Individualism vs. Collectivism– extent of belief in individual responsibility

and reward, vs. reward of the group

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Five Dimensions Continued

• Masculinity vs. Femininity

– masculine cultures value competitiveness, assertiveness, ambition, accumulation of wealth

– feminine cultures value relationships, harmony, environment, and quality of life

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Five Dimensions Continued

• Weak vs. Strong Uncertainty Avoidance

– extent to which a culture prefers situations with clear rules over ambiguous situations

• High vs. Low Context Cultures

– reliance on high vs. low context communications

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Global Infrastructure Challenges

There are significant challenges developing and managing the physical supply network in diverse global environments

Consider:• Labor

• Transportation

• Suppliers

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Labor Infrastructure Challenges

• Significant productivity differences– speed of work

– precision and quality

– acceptable work hours

– skills and capabilities

• Technology– increasing technology can substitute

for skilled labor

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Transportation Infrastructure Challenges

Access to roads and transportation can be poor in developing countries

– increases length and variability of lead times

– products can change hands many times

– higher distribution costs

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Supplier Infrastructure Challenges

• Easier to manage few suppliers

– creates high dependence risk

– less flexible for higher capacity needs

• Lack of available quality suppliers

– supply shortages

– irregular schedules

– uncertainty causes higher levels of inventory

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Role of Technology

• Information Technology– broken down distance barrier– internet, bar codes, RFID– developing countries may require investment

• Manufacturing Technology– provides flexibility for mass customization

• Equipment Technology– distributes products

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Cost Considerations

Firms seek lower labor costs globally

– gained popularity in U.S. in 1980s

– made sense with short product life cycles

Need to Consider:

• Hidden Costs

• Non-Cost Considerations

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Hidden Costs

• Labor often small % overall costs

• Locations of cheap labor shift

• Unexpected costs– additional training

– increased lead times

– poor transportation

– poor quality

– bureaucratic government

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Non-Cost Considerations

More than 60% U.S. overseas manufacturing investment is in developed countries

• Need:– skilled workers– quality suppliers

• Total Quality Management (TQM)– focus on total cost of quality

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Political & Economic Factors

Consider:

• Exchange Rate Fluctuations

• Regional Trade Agreements

• Impact of Non-Tariff Barriers

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Exchange Rate Fluctuations

Currency devaluations in markets where a company has operations can increase costs

Strategy:

• Diversify Production Geographically

– can shift production to areas of lower cost

– minimizes exchange rate fluctuation risks

– effective when firm has global facility networks

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Regional Trade Agreements

Global supply chains should be aware of the opportunities & restrictions of trade agreements

Agreements encourage trade by giving preference to members of the agreement and minimizing:

– tariffs

– quotas

– other trade barriers

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Non-Tariff Barriers

• Reduced Tariffs– General Agreement on Tariffs and Trade (GATT)

– became World Trade Organization (WTO)

– industrial goods between developed countries

• Non-Tariff Barriers– Import Quotas

– Local Content Requirements

– Technical Standards

– Health Regulations12-30Copyright 2011 John Wiley & Sons, Inc.

Review

1. Globalization growth is a result of advances in transportation and information technology, and a rise in personal income.

2. Six forces that impact global supply chains are: market and competition, cost, infrastructure, technology, political and economic environment, and culture.

3. Global marketing concerns bringing standardization to the global market. Local marketing stresses localized differentiation.

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Review Continued

4. The availability of infrastructure is important to going global.

5. Technology enables global supply chains. Three types: information, manufacturing, & equipment.

6. Cost is a significant global supply chain factor. There are numerous hidden costs and non-cost considerations: quality & proximity to customers.

7. Political & economic factors such as regulations & tariffs impact the global supply chain.

12-32Copyright 2011 John Wiley & Sons, Inc.

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