lscm.ppt

Global Supply Chain Management

Its All About LeverageConsider 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.

A. . . . . . . . . . . . . . . End CustomerWhat 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).

Formal Definitionof a Supply ChainA 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).

Supply Chain UtilitiesTIMEPLACEPOSSESSION

Network of RelationshipsSwedenDenmarkGermanyFinlandNorwayNetherlandsIceland

Belfast Carburetors and distributorsTreforest Spark plug insulatorsLeamington Foundry production of engine componentsDagenham Final assemblyBordeaux TransmissionsEnfield Instruments, fuel and water gauges, plugsBasildon Radiators, water pump assembly, engine componentsGenk Body panels, road wheelsWlfrath Transmission parts, engine componentsSaarlouis Final assemblyCologne Die-cast transaxle casings, gear and engine componentsValencia Final assemblyFord Example

Types of InternationalSourcing StrategyA company procures major components in-house by procuring them domesticallyA company procures major components from its foreign subsidiaryA company buys major components from independent suppliers at homeA company buys major components from independent suppliers internationallySource: Kotabe (2000)

International SupplyChain OrganizationA supply chain organization is a relatively enduring interfirm cooperative that uses resources from international participants to accomplish shared and independent goals of its members.

International SCM TheoryActor BondsResource TiesActivity Links

FactorEndowmentsDemandConditionsFirm Strategy,Structure, andRivalryRelated andSupportingIndustriesA nations position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry.The nature of home demand for the industrys product or service.The presence or absence in a nation of supplier industries and related industries that are internationally competitive.The conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.

NationalCompetitiveAdvantageSource: Porter 1990

The Value ChainMichael 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.

Porters Value ChainFirm InfrastructureHuman Resource ManagementTechnology DevelopmentPROCUREMENTInformation TechnologyINBOUND LOGISTICSOperationsOUTBOUND LOGISTICSMarketing & SalesServiceMarginMarginPrimary Activities Source: Porter 1985 Support Activities

Primary ActivitiesPrimary 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).

Support ActivitiesSupport 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.

From the Value ChainFive continuous and interactive steps are involved in developing a global supply chain strategy along the value chain:

Identify the separable links (R&D, manufacturing, and marketing) in the companys global value chain.

In the context of those links, determine the global location of the companys competitive advantages, considering both economies of scale and scope.

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

From the value chainDetermine the comparative advantages of countries (including the companys home country) relative to each link in the value chain and to relevant transaction costs.

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

Competencies Needed for Efficient Global SCMSource: Michigan State University (1995)

PositioningThe selection of strategic and structural approaches to guide global operationsIntegrationThe establishment of what to do and how to do it creativelyAgilityThe achievement and retention of global competitiveness and global customer successMeasurementThe internal and external monitoring of global operations

Global SCM FactorsCostsLocal labor rates International freight tariffs Currency exchange rates

Customs DutyDuty rates differ by commodity and level of assembly Impact of GATT/WTO: Changes over time

Source: Global Supply Chain Associates (GSCA) 1999

Global SCMFactors Continued

Export RegulationsDenied parties list Export licenses

TimeLead time Cycle time Transit time Export license approval cycle Customs clearance

Global SCMFactors ContinuedTaxes on Corporate IncomeDifferent markups by country Tax havens and not havens Make vs. buy effect

Offset Trade and Local ContentLocal content requirement for government purchases Content for preferential duty rates

Questions to AnswerManufacturing Strategy:How many plants do I need? Where should each plant be located? What products should each make? What process technologies should each have and how much of each process is needed? What part of the world should each plant serve?

Source: Global Supply Chain Associates (GSCA) 1999

Questions to Answer ContinuedSupply Base Design / Vendor Consolidation: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?

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?

Questions to Answer ContinuedImpact of Duty / Drawback, Taxes, Local Content & Offset Trade:If the duty rates come down according to GATT/WTO, how should I change my supply chain design? Does it make sense to still locate production inside the Triad areas or what trading block areas should we consider? What is the best use of the tax havens (Singapore, Puerto Rico, Ireland)?

Spare Parts Logistics: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?

Questions to Answer ContinuedNew Product Pipeline Design: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?

Auto Parts Examplein JapanAutomobile makers affiliated parts makersIndependent parts makersRepair parts makersAutomobile makersWholesalersSpecial agentsDealersSub-dealersCooperative sales companies2nd-level wholesalersRetailersLarge usersGasoline stationsAutomobiles repair shopsEnd usersSource: McKinsey Industry Studies

Auto Parts Examplein the U.S.Manufac-turerWarehouse distributorJobber buy-ing groupsJobberMass merchandiserRepair specialist51%10%18%Primary channelSecondary channelSource: McKinsey Industry StudiesInstallerCustomer21%

Global SCM Example 1:Large Computer CompanyGoals

Reduce cost Improve ROA Simplify the worldwide supply chain

Source: Global Supply Chain Associates (GSCA) 1999

ObjectivesRedesign the entire 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

Global Supply Chain Structure Before Reorganization Source: Global Supply Chain Associates (GSCA) 1999

RedesignedGlobal Supply ChainRecommended 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

Global Supply Chain Structure After ReorganizationSource: Global Supply Chain Associates (GSCA) 1999

READINGSMichigan State Universitys Global Logistics Research Team (1995), World Class Logistics: The Challenge of Managing Continuous Change, Oak Brook, IL: Council of Logistics Management (Sponsored by the Council of Logistics Management).

Locke, Dick (1996), Global Supply Management, Boston, MA: McGraw Hill (Sponsored by the National Association of Purchasing Management).

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