globalsupplychain.doc

7/25/2019 globalsupplychain.doc

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Chapter 2: global supply chain

TABLE OF CONTENTS

2.1 HISTORYOFTHEGLOBALSUPPLYCHAIN2.2 DEFINITIONSOFTHEGLOBALSUPPLYCHAIN2.3 WHYDOWENEEDGLOBALSUPPLYCHAINMANAGEMENT

(GSCM)?2.4 GLOBALSUPPLYCHAINSYSTEMCOMPONENTS2.5 GSCM FACTORS2.6 OBECTI!ESOFGLOBALSUPPLYCHAIN2." AD!ANTAGESOFGLOBALSUPPLYCHAIN2.# DISAD!ANTAGESOFGLOBALSUPPLYCHAIN2.$ BENEFITSOFGLOBALSUPPLYCHAIN

2.1% GLOBALSUPPLYCHAINPROCESS2.11 CHALLENGESOF GLOBALSUPPLYCHAIN2.12 MANAGINGTHEGLOBALSUPPLYCHAIN

2.1 History


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Global supply chain management is directly linked to the rise of globalization.

Pinpointing an exact date in history as the advent of global supply chain management

isn't possible because its origin varies by company.

As companies began looking overseas for inexpensive parts and labor, managers

were hired to orchestrate these complex operations.

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Global supply chain management trend is evolving as new technologies emerge.

-nstead of vendors mailing their products and assuring its delivery, companies are nowable to track the product's exact location through GP) tracking devices. +hese devices are

imperative for global supply chains. +he farther the goods are from the final destination,

the riskier its arrival. efore /0-1 scans, supply chain managers took inventory weeklyor monthly to track sales and supplies. 2ow, many companies like 3al4art track their

products with /0-1 technology. +he moment a product is purchased5 inventory levels are

updated to reflect the sale. A third trend affecting global supply chain management is the

lowered barriers of economic trade. +he General Agreement on +ariffs and +rade 6GA++7enabled companies to buy products from other countries for lower costs.

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2.2 Definitions of gloal s!pply "hain #anage#ent:

6Any company that uses parts and services from another factory overseas faces issues

with global supply chain management. 1ouglas ;.


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2.$ %hy &o 'e nee& (SC) *(LOBAL S+,,L- CHAN

)ANA(E)ENT/0

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Q +ariffs, Huotas, *oluntary export restrictions,


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+he potential for expansion for businesses increase as they enter into more

markets.

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1iversified business and trading


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3hen entering the global market, businesses need to be aware that the gains may

not be seen in the short term.

-t may be many years before they start reaping the rewards of their efforts.

Another disadvantage is that they have to hire additional staff to help launch their

companies in the global markets they expand into.

;ompanies usually have to modify their products and packaging to suit the local

culture, preferences and language of the new market.

+ravel expenses are sure to increase for the administrative staff, as they will now

be expected to travel all over the world to oversee their business outlets in other

countries.

Also, companies need to know the regulations and tax laws in foreign countries,

which take time and money, and they may need to hire professionals in those

countries to help with legal and financial issues.

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2.9 Benefits of (loal S!pply Chain:

&. As opposed to apoorly organized supply chaina global supply is extremely

competitive and so you can obtain a really good price for supplies that will all beproduced to excellent standards, without even having to search widely. xcellent

products completed to the highest standard of Duality controls can be sourced

Duickly and efficiently.?. A global supply chain therefore brings with it benefits in terms of companies who

are involved in a global supply chain being able to shave their costs right down

and therefore ensure the economic viability of their business. Global supply

chains are often one of the first methods used for )upply chain cost reductionactivities

J. +he global supply chain means that businesses within countries which

traditionally did not operate to high standards have had to Sup their gameT.;ompanies that operate within developing countries or those such as -ndia and

;hina know that if they do not come up with the goods, there are a myriad ofother businesses that will. +his means that there is a real incentive to get things

right, first time and all the timeU

%. -f you have sufficient contacts and suppliers internationally, then you can really

reduce the amount of stock that you have to retain, which means that you will
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save costs in terms of storage!thefts!transporting goods etc. +hese costs can add

up, so this certainly helps sharpen the competitive edge that comes with a global

supply chain.>. +he global supply chain also makes the securing of almost any item easy, since

somewhere in the world it is probably being produced or manufactured.

:istorically any item that was not a standard item, from a standard range couldtake ages to produce. 2ow it can simply be bought from the country where it has

been made.

#. +he global supply chain really does operate on a ?%!L basis, simply because of the

time differences in different countries. )o there is a sense that the chain neversleeps5 it is constantly on the go and people are working to meet the supply chain

reDuirements on different continents and at different times.

L. Nperating a global supply chain also brings with it new opportunities for the

markets. -f you are sourcing items from ;hina, then it is feasible that you may

wish to look at other markets that you may be able to tap in to since you havealready established sources in ;hina. -t is almost as if once a company has taken

the first step to source supplies globally, new markets and opportunities follow.

. Nne of the most interesting factors of the global supply chain is that we can learnfrom othersU usiness is done differently in different parts of the world and we are

able to learn new ways of doing business, new production methods and new

distribution methods, if we keep an open mind and have a willingness to learn.

$. A global supply chain has to be flexible or it will simply implode, but given that

any supply chain has to be flexible, with a global supply chain the flexibility is

always given a higher priority and as such, flexibility within the chain ismaximized, allowing for the chain to be as effective as possible.

&F. +he final benefit of a global supply chain is that if you are within this kind of

framework then you have a chance of success and being able to even grow during

the economic downturn. -f you are not part of it, then your chances of survival are

lower. )o being in it is almost not a choice and the benefit 6of survival7 is adifficult thorn to grasp, but if your company is not operating within a global

supply chain framework, you are well behind those who areU

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2.1 ,;OCESS:

Process means a practice, a series of actions, done for a specific purpose, such as

satisfying customers. ;ustomers demand and expect more from their suppliers5 that is a

fact regardless your size or industry. And supply chain management is critical to that


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customer satisfaction.

)upply chain process is a flow of activities with the goal of meeting the reDuirements of a

customer. -t includes all internal functions, logistics, distribution, sourcing, customer

service, sales, manufacturing and accounting. -t includes external companies. +he series

flows backwardfrom delivering each customer order each order as demanded back

through the performance of suppliers to provide needed finished products, components,

parts and assemblies.

Process has structure.

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Ho' to i#pro7e "ollaorati7e pro"esses for the gloal s!pply "hain0

-n todayTs world, more and more companies need to collaborate globally. -n the supply

chain, this is a result of companies wanting to optimize their operations and having moresuppliers involved in all processes of their activities. +here are many solutions that

companies are using for theglobal supply chain. 3ith the current development of online

tools, internet, and services, most of these tools have established online spaces where you

can share and exchange information and transmit messages.

ut there is unhappy feeling about these tools and spaces. +he worse is that most of them

create their own ecosystem. +here will be a significant improvement if we are able to

connect these solutions to organizational processes. ut this is not always possible

because companies today do not share their processes. -n most of the cases, they use

different tools to implementbusiness process managementin their organization.

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supplychain!
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2.11 (loal S!pply Chain Challenges:

Geopolitical risk, for example

- Global conflict stimulated by shortage!control of resources 6increasingly

water rather than oil7

- 2ational controls in reaction to changing circumstances, e.g. regulatory

advice regarding offshoring, protectionism

;reeping climate change related impact upon logistics and sources of supply

-mpact of increasing energy prices and volatility caused by supply uncertainty

6?FF> hurricane season effect on oil prices, /ussian control of natural gas upon

which much of urope depends7

SGoodT business ethics driven by consumers and the 4edia 6responsible sourcing7

-ncreasing dependence upon technology, which is fine until it fails

/eduction of buffer stock

;oncentration of risk through constant drive to reduce cost and increase efficiency

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2.12 )anaging a (loal S!pply Chain
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)anaging the +n


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/eDuires all supply chain elements to share the same culture, work

towards the same obCectives and benefit from financial gains.

2eed a community of supply chain partners that reorganize to better react

to sudden crisis

)ingle sourcing is risky

Q Achieves economies of scale

Q :igh Duality parts at a low cost

O-+ mode of operation builds a culture of

Q 3orking with low inventories

Q Ability to identify and fix problem Duickly

Q ntire supply chain was stopped once the fire occurred

Q Prompted every company in the chain to react to the challenge

)ANA(N( >NO%N=+N>NO%N

Q )peculative )trategies A company bets on a single scenario, with often

spectacular results if the scenario is realized, and dismal ones if it is not.

Q :edge )trategies A company designs the supply chain in such a way that any

losses in part of the supply chain will be offset by gains in another part.

4ultiple plants in different countries, where, ;ertain plants more

profitable at times than others

4ove production between plants to be successful overall.

Q 0lexible )trategies

/eDuires a flexible supply chain

Q multiple suppliers

Q flexible facilities


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Q excess capacity

Q various distribution channels

;an be expensive to implement

Q coordination mechanisms

Q capital investments

Q loss of economies of scale

F!ll Tea# Ahea&

=-f you've got the guys working on operations on the first floor and on the second floor

you've got the ;0N and treasurer looking at the books, shocked that they are paying 'x'

million dollars on duty costs, that's a failure,= says Oim +ompkins, ;N and founder ofsupply chain consulting firm, +ompkins Associates. =0irst step is to get these two groups

together so that you are getting the whole picture.=

+ompkins adds that managing a global supply chain affects not one or two departments,

but the whole company.

(o to the E?perts First

0rom the beginning, managing the supply chain reDuires retaining someone with

expertise in the international locations.

+his means finding local, reputable producers that can consistently deliver for the

arrangements.

=+his is by far the biggest challenge,= he says. =3e need a partner that is a master in that

market, because it's very important to have someone that can help further develop the

brand. 3e say no to a lot of deals, but -'m okay with that. -t's about Duality.=

0or other small businesses, find a business consultant that specializes in that location,

who can help you navigate everything from costsaving transit options to taxes.


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=0ind someone who is very familiar with the location, someone who spends most of their

time in that country, =+his person should be well versed in the local business world, know

companies and contractors, and know how to vet them.=

2eed more convincing on Cust how significant a good consultant can be to your

company@

=)ay you have a factory in ;hina and Poland, and you sell your product in the 9.K.,=

says +ompkins. =:ow you transfer the product from Poland to the 9.K. could have a ?>

percent difference from your bottom line Cust because of something like taxes. +he right

consultant knows how to avoid those extra costs.=

Ti#ing affe"ts e7erything

+o successfully manage your supply chain, timing is an all important element.

A company makes and sells speakers. -t sources all the parts and manufactures the

speakers domestically, and 9.) customer orders &,FFF of them, a twoweek delivery is

within the realm of possibility.

=-f you switch the sourcing to ;hina, you have no chance of making that twoweek

delivery here in the 9.). -t would be more like two months,=

And managing timing goes hand in hand with the next tip...

(oo& Sales Fore"asting s ,rin"ipal

ecause of the timing issue, sales forecasting becomes a huge part of successfully

managing your supply chain and keeping costs down.

-t boils down to this ecause moving the goods will take longer in an international scale,a company has to have a pretty spot on idea of how much of that bulk inventory is going

to sellRotherwise, you're stuck with products you can't move.

=0or example, take a goods company in )an 1iego that sources from ;hina W+hey have

to carry a very large inventory in the 9.). to meet the delivery times the customers'

demand. ut for the owner, there's suddenly a bunch of costs inventory carrying costs or


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maybe you need a bigger warehouse.=

Don@t Ass!#e Too )!"h

Nne of the biggest mistakes seen in small businesses considering international expansion

make is, well, too much guessing.

=Assume that the culture and operations of another culture are similar to the one here in

the 9.). and that is not always the case,=

+hings like electrical power or internet access, which developed country businesses have

easy access to, might not be so easily accessed in another country.

Nrganizations actually have to go to the locations where they have to make sure that their

partners can sustain the business.


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E#erging iss!es in gloal s!pply "hain &esign

+o aid managers in solving these problems, the research community has developed

numerous global supply chain design models. +he business environment that surrounds

the global supply chain problem is continually changing, however, as new issues in

supply chain management and globalization surface.

0irst, firms are increasingly outsourcing to both domestic and global locations.

)econd, many firms that had viewed their sourcing problems myopically as an enterpriselevel concern now strive to integrate decision processes across tiers in the supply chain.

A third issue is the broadened definition of supply chain performance, as mission,

strategy and obCectives can vary considerably based on the value of the product offered tothe customer 6Keeney, &$$%7.

Nutsourcing manufacturing to offshore supplier locations is a practice that has grown in

recent years such that managers find themselves increasingly designing supply chains

that include not 4.O. 4eixell, *.. Gargeya ! +ransportation /esearch Part %& 6?FF>7>J&>>F >JJ only corporate but also supplier facilities. )upplier selection decisions

change the global supply chain design problem in fundamental ways, in part because theyare based on more broadly defined criteria. )uppliers are typically selected based on the

buyerTs perception of the supplierTs ability to meet Duality, Duantity, delivery, price and

service needs of the firm 65 1egraeve and /oodhooft, &$$$5 urt et al., ?FFJ7.

9ltimately, purchasing managers summarize these factors so that candidate suppliers maybe ranked for selection. )upplier contracts also influence the design problem structurewith additional factors such as minimum order Duantities, restrictions on the number of

vendors, geographic preferences, and limitations on supplier capacities 6Pan, &$$7.

A second emerging issueRthe integration of decisions across the supply chainRalso

influences global supply chain design. -ntegrating business processes is a best practice in

supply chain management that involves coordinating decisions across multiple facilitiesand tiers. -n practice, firms engaged in *endor 4anaged -nventory 6*4-7 and

;ollaborative Planning, 0orecasting, and /eplenishment 6;P0/7 integrate replenishment

planning between enterprises by sharing sales and promotion information 6)herman,

&$$5


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+hese integration practices also affect global supply chain design. )everal authors

61ornier et al., &$$5 rush et al.&$$$5 +rent and 4onczka, ?FFJ7 discuss the value and

need for integration between facilities in the global supply chain. An integrated, wellcoordinated global supply chain is difficult to duplicate and so plays an important role in

competitive strategy.

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