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Supply Chain Logistics/ International Operations Lecture 14, 21 January 2009 Dr Michael...
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Transcript of Supply Chain Logistics/ International Operations Lecture 14, 21 January 2009 Dr Michael...
Supply Chain Logistics/ International Operations
Lecture 14, 21 January 2009Dr Michael Wynn-Williams [email protected]
1
Supply chain: a simplistic term for complex activities
It describes the system of resources and processes from raw materials to the market
The value chain describes a similar internal perspective for a single company adding value
The value chain concerns the exploitation of value, supply chain concerns management of the supply system
Supply chain management – Coordination of materials, information, and funds from the initial raw material supplier to the ultimate customer
Logistics (materials management) is part of the supply chain process
The value chain links the value-creating activities involved in designing and bringing a product to market
Source: Download Route
Value chain analysis also takes in upstream and downstream activities
Source: Download Route
Buyers/ Customers
Suppliers
The Firm
Forward integrationBackward integration
Multiple distribution channels
Multiplevendors
Should all firms be fully vertically integrated?
Buyers/ Customers
Suppliers
The Firm
Forward integrationBackward integration
Multiple distribution channels
Walkers Crisps
Flavourings
Farmers
Packaging Manufacturers
TESCO
WH Smiths
Should Walkers be a vertically integrated firm ?
Should a firm make or buy the component parts that go into their final product?
The decision is based on Transaction Cost Analysis (O E Williamson)
“Bounded rationality” means that knowledge is limited – opportunism occurs when new information emerges or there is specificity
Costly contracts control opportunism
Access to market pricing Access to economies of scale Strategic flexibility in sourcing
components Open to new developments Reduces coordination costs Strategic alliances with suppliers give
benefits of vertical integration without the associated organizational problems
“Bounded rationality” – perfect market is impossible
Avoids “friction” of transactionsSearch costsContracting costsCoordination costs
Williamson gave three dimensions of transaction costsFrequencyUncertaintySpecificity
Vertical integration reduces risk by internalising the employment contracts
Walkers Crisps is a famous Leicester manufacturer of crisps
Suppliers include raw potatoes, flavourings and packaging
Walkers supplies supermarkets, pubs and local shops
You have been appointedas the manager of verticalintegration
What opportunitiesare there for vertical integration?
Role of just-in time inventory (JIT) Economize on inventory holding costs Speeds inventory turnover Difficult to achieve over international distances Drawback: no buffer stock
Role of organization Organizational linkages more numerous and complex Require a separate functional department
Role of IT and the internet Track components across globe to an assembly plant Electronic data interchange (EDI)
Lower costsDisperse manufacturing to efficient
locations Accommodate local demands
Decentralize production Respond to shifts on customer
demandTime-based competition extremely
important
Concentrated manufacturin
g favoured
Decentralized manufacturing
favouredCountry factors
Differences in politics, eco., cultureTrade barriersLocation externalitiesExchange rates
SubstantialSubstantialImportant in
industryStable
FewFew
Not important in industryVolatile
Technological factorsFixed costsMinimum efficient scaleFlexible manufacturing technology
HighHigh
Available
LowLow
Not available
Product factorsValue-to-weight ratioServes universal needs
HighYes
LowNo
Optimum PEST conditions
ExternalitiesSkilled labor poolsSupporting industries
Formal and informal trade barriers
Exchange rate
Fixed costs Minimum efficient
scale Flexible
manufacturing (lean production)
Flexible machine cells
Two product features affect decisionsValue to weight ratio (Cement)Product serves universal needs (Screws, Bolts)
Two basic strategiesConcentrating in a centralized location and
serving the world market (Coke, Microsoft)Decentralizing them in various regional or
national locations close to major markets (Nike)
Initially, established where labour costs low
Later, important centers for design and final assembly – Dispersed centers of excellence are consistent with a Transnational Strategy
Upward migration caused by pressures to: Improve cost structure Customize product to meet customer demand An increasing abundance of advanced factors of
production
Describe different dimensions of global manufacturing strategy
Discuss factors important for making manufacturing location strategies
Examine issues related to global supply chain management
Explain how inventory management is a key dimension of the global supply chain
Examine the international supply chain for the following groups of industriesSteelSports wearBankingScotch whiskey
You are expected to come prepared with some background reading of these industries.
• Download Route <http://www.downloadroute.com/VALUE-CHAIN-ANALYSIS-MEGA-SOFTWARE-sqaki-com-16-VALUE-CHAIN-ANALYSIS-MEGA/image.html>
• Williamson O E (1981) The economics of organization: the transaction cost approach in The American Journal of Sociology 87, 3, November 1981 pp548-577
• Wynn-Williams M S (2009) Surfing the Global Tide. London: Palgrave Macmillan