Global Supply Chain Management

Global Supply Chain Management

Mohsen tabatabaie85125073

Global Supply Chain[7]

• Definition :An integrated process where several business entities such as suppliers, manufacturers, distributors, and retailers work together to plan, coordinate and control materials, parts, and finished goods from suppliers to customers. One or more of these business entities operate in different countries.

Practicality and Usefulness

• Help companies compete all over the world• Expand business operations• Offer new services and applications to meet global

customers needs• Give company a competitive advantage• Falling International Trade Barriers Mean Rising

Profits

Goal of the Global Supply Chain

• Prompt and reliable delivery of high-quality products and services at the least cost

• To effectively meet rising customer expectations

Recent changes effecting the global supply chain

• Internet and technological change• Proliferation of trade agreements• Falling Trade Barriers• Increase in international trade groups• New Markets

Advantages of Global Supply Chains[7]

• Reduced total costs• Inventory reduction• Improved fulfillment cycle time• Reduce cycle time• Increased forecast accuracy• Productivity increase• Improved capacity• Expand international connections• Increase intellectual assets• Delivery improvement• Diversified business and trading• Competitive advantage• Untapped markets• Enhance speed and efficiency

Potential Global Supply Chain Obstacles[7]

• Member nations VS. Non member nations• Inefficient transportation and distribution systems• Market instability• Different languages• Differences in Currencies• Differences in Measurement Systems (metric versus decimal)• Different Customs, beliefs and cultures• Political turmoil• Trade imbalances• Export surges and recessions• Greater distance• Tax Policies• Operational Threats• Strategic Challenges• Technological capabilities

Combating Obstacles[7]

• Duty specialists and trade specialists• Join nation groups• Banding together • Form consortiums• Vertically integrate• Be innovative & Be flexible• Research• New technology• Infrastructure improvements• Reduce the number of “stops” in the chain

Global Supply Chains Entail Additional Considerations[11]

• 1. SECURITY:• When your supply extends beyond domestic borders, a whole new level of

security comes into play.

• 2. PORT ISSUES:• If you are shipping by ocean, you absolutely need to consider capacity

issues and route your goods accordingly.

• 3. TAX AND TARIFF ISSUES:• Make sure that manufacturing or sourcing overseas is as low cost as you

think it is. Tax and tariff regulations differ according to country. Something as basic as the way a product is packaged can change its entire tariff structure. Be sure to do your homework.

• 4. PARTNERSHIPS WITH LOCAL EXPERTS: • Extending your supply chain into another country requires in-depth

knowledge of how that country operates. Partners, either through 3PLs or directly, are often critical to success.

• 5. CULTURAL DIFFERENCES: • To Americans this may seem like a small thing, but misunderstanding the

culture can wreak havoc on your planning.• 6. TECHNOLOGY ABILITIES AND CAPABILITIES: • A global supply chain often requires an even greater investment in

technology to improve visibility.• 7. RISK MANAGEMENT: • With a global supply chain, the possibility of things going wrong is greater

and often more costly to fix. Knowing what the risks are and planning for them in advance is critical.

Global Supply Chains Entail Additional Considerations[11]

What are some reasons for extending your business globally?

• Cost, Access to raw-material• Increase sales, New Markets• Satisfy shareholders• Falling tariffs• Increase in International Trade, Multi-Point

Communication• Increase in internet use throughout the world.

Issues/considerations when designing a global supply chain

• Strategic plan or Objective goals• Uncertainty• Communication and information flow• Types and numbers of facilities and location

Global operation[2]

Components of a supply chain[8]

• Structures– Supplier– Distributor– Logistics Requirements

• Processes• Linkages of activities

– Buying– Making– Moving

MAJOR ENTITIES[8]

Supplier Manufacturer DistributorRetail Outlets

Customer

Capacity, inventory levels, delivery schedule, payment terms

Orders, return requests, repair and service requests, payments

global operations management

• Supply Base Design / Vendor Consolidation• Outsourcing & global sourcing• New Product Pipeline Design• Manufacturing Strategy• International logistics• International transportation• International Inventory Issues• International Packaging Issues• Spare Parts Logistics• Global business & Export Documentation

Supply Base Design / Vendor Consolidation [12]

• How do I simultaneously perform supplier selection for all the parts in the same commodity group?

• How many suppliers is best and which suppliers should send which parts to which plants?

• Am I missing opportunities by sourcing one part at a time?

• Supplier Relations :How much should be the degree of involvement with your suppliers?

13.4%7.8%

-42.0%

16.1%54.2%

+239.0%

18.1%15.6%

-14.0%

31.0%14.3%

-54.0%

21.3%7.8%

-63.0%Future plans

Five level of sourcing[12]

Domestic PurchasingOnly

InternationalPurchasing Only As needed

Percent of companies operating or expecting to operate at a particular level (N=169)

Expected change

InternationalPurchasing As port of Sourcingstrategy

Global Sourcingstrategies Integrated AcrossWorldwide locations

Global Sourcingstrategies Integrated AcrossWorldwide Locations and functional Groups

International Purchasing Global Sourcing

Level I Level II Level III Level IV Level V

Currently

Characteristics of global sourcing excellence[12]

• Executive commitment to global sourcing• Rigorous and well-defined processes• Availability of needed resources• Integration through information technology• Supportive organization design• Structured approaches to communication• Methodologies for measuring saving

Outsourcing[12]

• What is outsourcing?• What parts of my supply chain should I keep "in-house" and what parts to

outsource? • What if a third party has a higher variable cost but a lower fixed cost than in-

house production?

• Advantages– Focus on core competencies – target your resources at what you do best– Reduce costs – a third-party provider may have greater economies of scale

than you– Access the third-party provider’s expertise

• What can you outsource?– Transportation and related services– Sales and marketing in target market

Outsourcing Configurations[12]

• Vertical Integration• Arm’s-length purchases from outside suppliers• Japanese keiretsu relationships with suppliers

• What should the supply chain look like for a new product?

• How should I fit the new product into my current supply chain?

• Should I single or double source this product? • How much do my fixed costs affect this decision? • What is the cross-over point to open up a second and

third source of supply?

New Product Pipeline Design[9,10]

Manufacturing Strategy[4,8]

• How many plants do I need? • Where should each plant be located? • What products should each make in each plant? • What demand regions should each plant serve?• What process technologies should each have and how

much of each process is needed? • What part of the world should each plant serve?

Global Manufacturing Strategies[4,8]

• What is manufacturing compatibility?• Manufacturing Configuration

– Should manufacturing be centralized in one country or should we have manufacturing facilities in specific zones to service those zones or should we go multidomestic with a facility in each country

– When should we have a centralized location? – When should we go for multidomestic location?

• Coordination and Control– Linking or integrating activities into a unified system is called COORDINATION– Defining organizational structure and reporting systems to ensure timely implementation

of policies is termed as CONTROL

Global Manufacturing Strategies[4,8]

• Plant Location Strategies– Transportation costs, duties, proximity to customers and suppliers, foreign exchange

rate risk, economies of scale in the production process, government incentives, climate, technological requirements of the manufacturing process.

• Plant Layout Planning Strategies– physical arrangement of economic activity centers within a manufacturing facility– Every manufacturing facility cannot have the same type layout—local conditions

such as cost of labor, cost of land, local culture must be considered in deciding about the plant layout

• Multi-agent systems (MAS) enhance overall system performance, in particular along such dimensions as computational efficiency, reliability, extensibility, responsiveness, reuse, maintainability, and flexibility.

Overview of a global manufacturing supply chain network[4,8]

global manufacturing[4,8]

International Logistics[9,10]

• Definition – designing and managing a system to control the flow of materials into, through, and out of a company

• Two phases of the movement of materials:– Materials management – the timely movement of

materials, parts, and supplies– Physical distribution – movement of the company’s

physical product to customers-- transport, warehousing and order processing

Logistics Flow : Participants in the Value Chain

Importer

Retailer

Warehousing/Wholesale

CustomsCarriers

Shipping Lines

WCOEU National Governments

Manufacturer/Exporter

Warehousing/Wholesale

Terminal Operators

Customs

Port Operators

Adapted from SIEMENS

Logistic Chain

Authorised Economicoperator

Prenotification

24 hour Advanced rule

C.S.I.

AuthorisedEconomicoperator

Consolidation/distribution

center

Port of discharge

VesselTransit

portFactory

Road/rail

transport

Consolidation/distribution

center

VesselPort of loadingRoad/rail

transport

Road/rail

transport

IntelligenceFunction

PaperlessCustoms

DOE/Megaports InitiativeISPS

International Logistics [9,10]

• Cost-saving programs that can be part of international logistics– Just-in-time (JIT) purchasing and manufacturing– Electronic data interchange (EDI)– Early supplier involvement (ESI)

• Before or early in the design phase of a project

Classical Logistic Issues[9,10]

• Facility Locations• Sourcing• Distribution

Facility location[6]

Physical Distribution[9,10]

• The act and functions of physically distributing goods and services including the elements of transport, warehousing and order processing

• Physical distribution is 10-25% of the total cost of an international order

• Distribution is a key to winning and keeping international customers– Why?

Distribution Strategy[9,10]

• Should we ship direct from the plants or use warehouses? • How many warehouses and where located? • What service areas for each distribution center? • What modes of transportation to use? • How best to use in-transit merge to fulfill orders? • Should I outsource logistics? Which functions? • What spare parts and returns network design?

Buyer Supplier

Freight Forwarder Freight Forwarder

Terminal at Origin

Surface Carriers

Ocean Carrier

BankBank

Air Freight

Terminal atDestination

Terminalat Origin

1. Request for Quote

2. Quotation

3. Purchase Order

4. P. O. Confirmation

5. Shipper Order/Instr+ Invoice+ Packing List

6. Ship Order/ Instr.

11. Pre-alert/Arrival Notice

7b. Shipping Order Cycle (S/O, BoL)7a. Ship Instr. Cycle

8. Gate-out/Gate-in

10. Bay Plan

13. Payment Order14. Remittance

15. Import Documents

16. Proof ofDelivery

9. Bay Plan

Capture Gate Movement

(Gate-out/in)

Capture Gate Movement

12. Export Documents

8. Gate-in/ Gate-out

5. Shipper Order/Instr. +

Invoice

7a. Manifest

7a. Manifest 7a. Manifest

Terminal atDestination

Distribution Complexity

International Transportation [9,10]

• Usually greater distances than with domestic transportation– Longer lead times (more planning needed)– More chances for things to go wrong

• Potential for delays at port or border

Modes of Transportation [9,10]

• Rail and truck– NAFTA countries– Europe

• Ocean freight– Conventional cargo vessels– Container ships

• Air freight• pipeline

Selecting a Mode of Transportation [9,10]

• Transit time– Important for highly perishable products– Important when product is needed ASAP

• Predictability of delivery by a specific date– Important when buyer needs product by specified date

• Cost of shipping per dollar of product value– Important to economize on costs with bulky

commodities

International Inventory Issues [9,10]

• Inventories tie up a major portion of corporate funds, therefore proper inventory policies should be a major concern to the international logistician

• Just-in-time inventory policies minimize the volume of inventory by making it available only when needed

• The goals of inventory systems are to– Maintain product movement in the delivery pipeline– Have a cushion to absorb demand fluctuations

How Much Inventory? [9,10]

• Factors that determine the level of inventory– Order cycle time– Desired customer service levels– Use of inventories as a strategic tool

• Outsourcing from around the world and its impact on inventory management

• issues of distance, time, and uncertainty in foreign environment

Storage Facilities [9,10]

• A stationary period is involved when merchandise becomes inventory stored in warehouses

• The location decision addresses how many distribution centers to have and where to locate them

• Storage facilities abroad can differ in availability and quality– Refrigerated facilities

• The logistician should analyze international product sales and then rank order products according to warehousing needs

Special Trade Zones[10]

• Foreign trade zones are areas where foreign goods may be held or processed and then re-exported without incurring duties

• Trade zones can be useful as transshipment points to reduce logistics cost and redesign marketing approaches

Export Processing Zones [9,10]

• In export processing zones, special rules apply that are different in other regions of the country

• These zones usually provide tax-free and duty-free treatment for production facilities whose output is destined abroad

• The maquiladoras of Mexico are one example of a program that permits firms to take advantage of sharp differentials in labor costs

International Packaging Issues [9,10]

• Packaging is instrumental in getting merchandise to the destination in a safe, presentable condition– Food safety regulations

• Because of the added stress of international shipping, packaging that is OK for domestic purposes may be not be adequate for international shipping

• One solution to the packaging problem has been the development of inter-modal containers

Spare Parts Logistics [9,10]

•How many echelons of repair and stocking is best? •How many repair shops are needed, where should they

be located, what products should each handle, and what geographic area should each serve?

•How do the drivers of product value, weight, complexity, and frequency of repair affect this

decision?

Les 3 niveaux de “Global Supply Chain”

Government

Transaction

Logistics

Oversight LayerU.S. Coast Guard

U.S. Customsand Border Protection

Int’l Maritime Org WorldCustomsOrg

Federal Trade Commission

Logistics Layer

U.S. Port OceanCarrier Foreign PortRail Carrier

Truck Carrier Truck Carrier

Transaction Layer RetailerConsolidator

NVOCC Foreign Supplier

Import/Export Bank Foreign Supplier

Customer

An Oversight System Implements and EnforcesRules of Behavior Within and Across Layers

• In the global economy, the classical logistics issues of facility locations, sourcing and distribution are greatly influenced by such political and economic factors as taxes on corporate income, customs duty, local content and offset trade.

• International Factors :• Costs• Customs Duty• Taxes on Corporate Income• Offset Trade and Local Content• Export Regulations• Time• The Payment Contract• freight forwarding

Global Business Issues[13]

Costs [13]

• Local labor rates• Local space costs• International freight tariffs• Currency exchange rates

Customs Duty [13]

• Duty rates differ by commodity and level of assembly • Duty drawback • Impact of GATT: Changes over time • Transfer pricing • Duty suspension

Taxes on Corporate Income [13]

• Different markups by country • Tax havens and not havens • Make vs. buy effect

Offset Trade and Local Content [13]

• Local content requirement for government purchases • Content for preferential duty rates • Offset trade requirements

Export Regulations [13]

• Export licenses • Denied parties list

• Lead time• Cycle time• Transit time• Export license approval cycle• Customs clearance

Time [13]

• If the duty rates come down according to GATT, how should I change my supply chain design?

• Does it make sense to locate production inside the new ASEAN, MERCOSUR, and AFTA trading blocks?

• What is the best use of the tax havens (Singapore, Puerto Rico, Ireland)?

Impact of Duty / Drawback, Taxes, Local Content & Offset Trade [9,10]

The Payment Contract [9,10]

• What language should the contract be in?– If in two languages, which version is the official one in

a case a dispute arises?• Which country’s law governs the contract?• How should the seller be paid?

– Payment on collection – buyer pays seller when the transaction takes place

– Documentary letter of credit – buyer borrows from bank, and bank pays seller

Freight Forwarders [9,10]

• Act as an agent for exporter in arranging transportation and related services, handling paperwork

• Why use a freight forwarder?– Expertise with entire exporting process –

documentation, regulations, transportation, export financing, etc.

– Access to discounted shipping rates• Cost: 1-5% of value of shipment

Export Documentation [8,9,10]

• Both exporting country and importing country have paperwork requirements

• Shippers, distributors, and others in supply chain also have documentation requirements

• Average international shipment requires 46 separate documents

• Typically outsourced to a third party

Common Export Documents

Shows cargo is insuredInsurance companyInsurance certificate

Contract between exporter and carrier for transport of cargo

a. Airlineb. Ocean carrierc. Truck or rail carrier

a. Air waybillb. Bill of ladingc. Carrier’s receipt

Required by U.S. law for some products

U.S. governmentExport license

Required by U.S. lawU.S. governmentShipper’s export declaration

Confirms all details of transactionSeller or buyerSales contract

Quotation to buyer, used to obtain import license & financing

SellerPro forma invoice

PurposeIssued byDocument

Common Export Documents

Confirms to financing bank, buyer and importing country that cargo meets specs and health/sanitary requirements

Inspection companyInspection certificate

Often required by importing countryExporter or Chamber of Commerce

Certificate of origin

Used by many countries to control imports and identify goods, consular fee usually required

Consul of importing country

Consular invoice

Actual invoice for goodsSellerCommercial invoice

Required by shipping company and foreign buyer

SellerPacking lists

PurposeIssued byDocument

Export Management Company (EMC)

• Serves as the export department for a company –does everything a freight forwarder does plus sales and marketing

• Advantages of an EMC– Expertise with entire exporting process– Export sales come more quickly – sales and distribution

network already established– Up-front costs are lower– Opportunity to learn from a professional

EMCs (continued)

• Drawbacks of an EMC– Most are small, limited financial resources– They look for sure profits – may see your product as

too risky– Most EMCs don’t cover Canada

• Cost: 10-15% of value of shipment

Four marketing strategy challenges[16]

• 1. Customer value learning in global supply chains• 2. Understanding customer value change in global

supply chains• 3. Delivering value in a world of uncertainty• 4. The customer value process challenge in global

supply chain

IT use in the Supply chain management systems [8]

• E-Commerce• Internet• Intranets• Extranets• Supply chain management software

Supply Chains and the Internet [8]

• Because of the Internet, firms are able to conduct many more global comparisons among suppliers and select from a wider variety of choices

• When customers around the world have the ability to access a company through the Internet, a company must be prepared for 24-hour order-taking and customer service

Telecomm Networks [8]

• Extra-nets and the Internet link buyers and suppliers.• Intranets link company warehouses, production facilities,

and the point-of-sale.

Virtual Reality [8]

• Inter-company TV broadcasts allow buying by “telephone” (computer orders)

• Videoconferencing to coordinate the work of dispersed groups.

Databases [8]

• Data warehouses keep records of all company transactions and provide instant memory.

• Groupware (e.g., Lotus Notes) creates a shared repository of the combined knowledge and data of organization members.

Organizational Intelligence [8]

• Data mining allows profiling of customers.• Intelligent information systems evaluate buyer

behavior, forecast future demand and manage inventory.

Role of Information Systems and Technology [8]

• Key to successful global supply chain management• coordinate, schedule, and control

– procurement, – production, – inventory management, and – delivery of products and services

ROLE OF INFORMATION SYSTEMS [8]

• Integrate • demand planning, • production forecasting, • materials requisition, • order processing, • inventory allocation, • order fulfillment,• transportation services, • receiving, invoicing, and payment.

Example [17]

Example

Enterprise System

Sales Representative (Brussels) Factory (Hong Kong)

Warehouse

Customer ServiceRepresentative

Accounting

Balance SheetsAccounts Receivables/ Payables Payroll

Available Cash

Cost Centers

Customer Order

Shipment DateStock of Parts

Track

Production

online

replenishes

Corporate Headquarter(London)

Information management [11]

• Technology, visibility and flexibility are basic ingredients that need to be incorporated seamlessly in order for a supply chain to function efficiently

• Technology, visibility and flexibility are all tied to information and this leads to an area increasingly important in supply chain management :

• the need for upgraded information management.

Logistics and Security[15]

• After the terrorist attacks of 2001, companies have to deal with the fact that the pace of international transactions has slowed down and that formerly routine steps now take longer

• Logistics systems and modern transportation systems are often the targets of attacks

• New safeguards for international shipments affect the ability of firms to efficiently plan their international shipments

Future Challenges: Security in the Supply Chain

• Pre 9/11 major concern was theft• Post 9/11 concern is security and prevention of terrorism • Security enhancements are needed

– Governments and industry must work together– Society should not have to sacrifice the efficiencies that have been built into the

system– i.e., security and efficiency are mutually reinforcing

• Opportunities for enhanced trade efficiencies– Harmonized and Transparent Customs Procedures– Automation

• Must ensure changes support further trade in IT

Supply Chain Security is Non-Traditional

• Traditional Security– “Conflict of nations”– Resolved through diplomacy,

engagement, and military force

• Non-Traditional Security– No political borders– Does not conflict with

sovereignty– Countered rather than

resolved– Requires broad international

cooperation

Supply Chain Efficiency and Security Capabilities Are Distinct but Interconnected

• Supply chain is designed to provide inexpensive transport

1. Efficiency

2. Shipment reliability

• Combating smuggling now includes combating terrorism

3. Shipment transparency

• Supply chain systems exhibit network properties

4. Fault tolerance

5. Resilience

RAND Volker Initiative Workshop Brought Together Key Leaders from Industry

• Key insights from participants– A policy window to address freight transport capacity will open when

consumers feel “pain”– Security will be a significant motivator– DOT National Freight Policy and North American Security and Prosperity

Partnership are good starts– No unified view of freight transport system – In the short term, promote effective use of resources– Capital for public and private infrastructure improvements is needed

Trends in Freight Transportation Offer Opportunities

Transport shortageIncreased costs

Labor

HarmonizationNew technology

Increased delaysCompliance costs

Security

New technologyMode shifting

Increased costsFuel Costs

New technologyMode shifting

Operating restrictionsEnvironment

Community involvement

Operating restrictionsExternalities

Niche transportLess flexibilityConsolidation

InfrastructureReduced efficiencyPerformance

OpportunitiesConsequencesTrend

Conclusions

• The supply chain is complex, globally integrated and extends beyond the enterprise to third parties.

• Changes to the supply chain are being driven by company efforts to deliver better customer value, reduce costs, increase responsiveness and resiliency.

• IT duties and customs barriers are factors in internal business optimization and location decisions.

• New challenges are on the horizon as governments develop strategies to address security concerns.

• Security and efficiency are mutually reinforcing.• Supply Chain complexities make government-industry partnership essential.• Traditional trade facilitation issues and platforms provide an opportunity to

expand global IT trade and also address new security concerns.

Use of TQM [15]

risk analysis in global Supply chain network environment [14]

Supply chain risk management [3]

• two types of risks :1-internal : supply risk, demand risk, and trade credit risk2-external

• example• the firm’s objective is to maximize its global after-tax profit subject to capacity constraints in each plant

and demand requirements in each market.• to make an open/shut decision of plants and shipment quantities from such plants to targeted markets• uncertainties in market demand, volatility in exchange rates, differing country tax rates, and varying

import tariffs at different ports of call even within a country

Supply chain risk management [3]

the Bridging Role Typology [5]

the Bridging Role Typology [5]

Global supply chain design models[6]

Global supply chain design models[6]

Decision models in global supply chain management [18]

• strategic, tactical, and operational SCM decisions• Five illustrative models

managing buyer–supplier behaviorsourcingintegrated operationsmarketing logistics

different modeling approaches [18]

• (a) investment implications of innovation-based competition between buyer and supplier

• (b) bidding by a prospective supplier of a product• (c) bid evaluation and supplier selection by a buyer

dealing in multiple products• (d) integrated operations in a supply chain• (e) market integrated distribution

Selecting a global supply chain model.

Different Types of Global Supply Chain Models

• Own and manage your own infrastructure• Use strategic alliances• Partner with an asset-based third-party• Partnership with a global integrator of logistics

services

Own and Manage Your Own Infrastructure

Pro• Maximum control

Con• Heavy costs

Use Strategic Alliances

Pro• Convenience• Large areas covered

Con• Unreliable alliance-prone

Partner With An Asset-Based Third-Party

Pro• Operational standards• Uniform identity and

marketing strength• Dedicated mgmt structure

Con• Ignorance of complex

customs regulations• Lack of connections• Local economic downturns

Partnership With a Global Integrator of Logistics

Pro• Customer friendly• In-country knowledge• True information systems

integration• Uniform standards

Con• Limited use• Less control

A Real World Example

• Stanford Global Supply Chain Management Forum

• Global Supply Chain Associates

Supply Chain Overview:Factory and Distribution Locations

Locations• 8 Fabs• 6 High-Volume

Assembly/Test locations• 11 major logistics sites

Supply Chain Organizations• Materials

– Indirect / Direct Materials– Subcontractor

• Customer Fulfillment, Planning, and Logistics

New Mexico

NetherlandsBPSM

MalaysiaBPSM

Philippines

Japan

China

Israel

Costa Rica

Arizona

Santa Clara

Folsom

OregonBPSM

WashingtonBPSM

Massachusetts

Europe AsiaAmericas

Taiwan

England

Ireland

Colorado

MalaysiaDNS

NetherlandsX-Dock

MiamiX-Dock

SFO X-DockLAX X-Dock

Korea

New Mexico

NetherlandsBPSM

MalaysiaBPSM

Philippines

Japan

China

Israel

Costa Rica

Arizona

Santa Clara

FolsomFolsom

OregonBPSM

WashingtonBPSM

WashingtonBPSM

MassachusettsMassachusetts

Europe AsiaAmericas

Taiwan

England

Ireland

Colorado

MalaysiaDNS

NetherlandsX-Dock

MiamiX-DockMiami

X-Dock

SFO X-DockLAX X-Dock

Korea

1-Worldwide Manufacturing and Distribution Supply Chain Design for a Large Computer Hardware

Company[13]• Goals• Reduce cost • Improve ROA • Simplify the worldwide supply chain • Objectives• Redesign the entire worldwide manufacturing and distribution 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 for each plant • Results:• Recommended plant closings, re-chartering 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

• Recommendations have been implemented and benefits have been captured

Global supply chain structure before study [13]

Global supply chain structure after implementation

2-Global Spare Parts Network [13]

• Global Spare Parts Repair and Distribution Networks for a Hardware Manufacturer • Goals• Reduce Cost • Improve ROA • Objectives• Redesign the entire global spare parts repair and distribution networks • Determine how many parts distribution centers are needed, where located and what service

areas • Determine how many repair centers are needed, where located, repair menu and service areas • Results• Recommended a mix of decentralized fast repair (menu) and complex central repair • Recommended new stocking strategy • Reduced the number of sites from 34 to 17 worldwide • Benefits estimated / now being captured:

– Reduced spare parts repair and distribution costs by $81 Mil. annually – Reduced spare parts inventory by $74 Mil. – Improved Services ROA by 7.1 points

Picture of closed-loop service parts repair and distribution flow [13]

3-Latin and South America Manufacturing and Distribution Strategy for a Manufacturer of Commercial Fluids [13]

• Goals• Reduce Cost • Improve ROA • Issues• Existing plants make full product line • Existing plants are autonomous and serve only their local market• Markets are growing dramatically • Trade is becoming freer • Questions• Should each plant specialize on fewer products and then serve a wider geographic area? • Can you get there from here? • Results• Identified the opportunity to save $8 Mil. on $100 Mil. annual supply chain expenditure • Defined the manufacturing locations where capacity should be expanded • Identified one uncompetitive plant (Market can be supplied more cost effectively from other sources) • Highlighted two plants of marginal competitiveness and defined the areas and magnitude of cost

improvement necessary to make them more competitive • As a result of the study, significant cost reduction opportunities are actively being pursued at several plants • The GSCM® model will be used again shortly to re-calibrate the entire supply chain with updated cost,

capacity and international trade information

Map showing Americas supply chain locations [13]

4-Single Product Supply Chain [13]

• New Product Global Pipeline Design• Questions:• How should this new product fit into the existing

supply chain? • What is the impact on capacity and fixed cost? • At what point (demand) should a second source be

added? Where? • At what point (demand) should a third source be

added?

Schematic of a typical new product bill of material structure with associated material flows showing candidate locations: [13]

• Laptops are made in China• Sales through Internet and Telephone in local sales

offices in Europe• Inventory in Shanghai• Orders are placed to Warehouse by Customer’s head

office in Hamburg untill 18.00 hours.• Orders contain:

– Main type– Software requirement– Accessory requirement

The Laptop to Europe Case

• Warehouse starts operating at 0600 local time.– Orders are translated into pick orders and software loading orders– Routing through warehouse is Main machine and Software loading

stations and Accessory route.– Orders are joined and undergo quality control– The cartons are labeled

• Ship out and arrival– Shanghai – Frankfurt– Labeling for Carrier delivery– Delivery to carriers

• Delivery to customers

The Laptop to Europe Case

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