Chapter 2: global supply chain

TABLE OF CONTENTS
2.1 HISTORY OF THE GLOBAL SUPPLY CHAIN
2.2 DEFINITIONS OF THE GLOBAL SUPPLY CHAIN
2.3 WHY DO WE NEED GLOBAL SUPPLY CHAIN MANAGEMENT
(GSCM)?
2.4 GLOBAL SUPPLY CHAIN SYSTEM COMPONENTS
2.5 GSCM F ACTORS
2.6 O BJECTIVES OF GLOBAL SUPPLY CHAIN
2.7 A DVANTAGES OF GLOBAL SUPPLY CHAIN
2.8 DISADVANTAGES OF GLOBAL SUPPLY CHAIN
2.9 BENEFITS OF GLOBAL SUPPLY CHAIN
2.10 GLOBAL SUPPLY CHAIN PROCESS
2.11 CHALLENGES OF GLOBAL SUPPLY CHAIN
2.12 MANAGING THE GLOBAL SUPPLY CHAIN

2.1 History

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.
http://www.ehow.com/about_6666941_global-supply-chainmanagement_.html#ixzz1rS6VgAT8

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

Instead of vendors mailing their products and assuring its delivery, companies are now
able to track the product's exact location through GPS tracking devices. These devices are
imperative for global supply chains. The farther the goods are from the final destination,
the riskier its arrival. Before RFID scans, supply chain managers took inventory weekly
or monthly to track sales and supplies. Now, many companies like Wal-Mart track their
products with RFID technology. The moment a product is purchased; inventory levels are
updated to reflect the sale. A third trend affecting global supply chain management is the
lowered barriers of economic trade. The General Agreement on Tariffs and Trade (GATT)
enabled companies to buy products from other countries for lower costs.
http://www.ehow.com/about_6666941_global-supply-chainmanagement_.html#ixzz1rS6gYUzH

2.2 Definitions of global supply chain management:

(Any company that uses parts and services from another factory overseas faces issues
with global supply chain management. Douglas C. Long "International Logistics: Global
Supply Chain Management" when he explains every business operation incorporates
logistics from shipping food to assembling cars. As such, he explains that logistics affects
everyone and in his words, can be a matter of life and death).
http://www.ehow.com/about_6666941_global-supply-chainmanagement_.html#ixzz1rS6N5D2u

(The facilities, functions, and activities involved in producing and delivering a

product or service, from suppliers to customers).

(A global supply chain is made up of the interrelated organizations, resources, and

processes that create and deliver products and services to end customers. In the
instance of global supply chains, it is extended around the world).

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2.3 Why do we need GSCM (GLOBAL SUPPLY CHAIN

MANAGEMENT)?

2.3.1 GLOBAL MARKET FORCES

Foreign competition in local markets

Growth in foreign demand

Global presence as a defensive tool

Companies forced to develop and enhance leading-edge technologies and

products.

2.3.2 TECHNOLOGICAL FORCES

Knowledge diffusion across national boundaries, hence need for

technology sharing to be competitive

Global location of R&D facilities

Close to production (as product cycles get shorter)

Close to expertise (Indian programmers?)

2.3.3 GLOBAL COST FACTORS

Availability of skilled/unskilled labor at lower cost

Integrated supplier infrastructure (as suppliers become more involved in

design)

Capital intensive facilities like tax breaks, price breaks etc.

2.3.4 POLITICAL AND ECONOMIC FACTORS

Trade protection mechanisms:

Tariffs, Quotas, Voluntary export restrictions, Local content

requirements, Environmental regulations, Government
procurement policies (discount for local)

Exchange rate fluctuations and operating flexibility

2.4 Global Supply Chain System Components:

International distribution systems :
-

Manufacturing(domestically), Distribution (overseas)

International suppliers :
-

Raw materials and Components(foreign suppliers), Final

assembly/ Manufacturing(domestically)

Offshore manufacturing :
-

Product is sourced & manufactured in a single foreign

location,
Shipped back to domestic warehouses for sale and distribution.

Fully integrated global supply chain :

-

Products are supplied, manufactured and distributed from factories

located throughout the world
In a truly global supply chain, it may appear that the supply chain
was designed without regard to national boundaries.
The true value of a global supply chain is realized by taking
advantage of these national boundaries

2.5 GSCM Factors

Costs

Local labor rates / International freight tariffs

Currency exchange rates

Customs Duty
-

Duty rates differ by commodity and level of assembly

Impact of GATT/WTO: Changes over time

Export Regulations & Local Content

-

Denied parties list / Export licenses

Local content requirement for government purchases

Time
-

2.6

Lead time /Cycle time /Transit time /Customs clearance

Taxes on Corporate Income

-

Tax havens and not havens

Make vs. buy effect

OBJECTIVES OF GLOBAL SUPPLY CHAIN

International manufacturing sourceswhether company-owned or external suppliers

have in recent years been sought out by managers because of reduced cost, increased
revenues, and improved reliability. Manufacturers typically set up foreign factories to
benefit from tariff and trade concessions, low cost direct labor, capital subsidies, and
reduced logistics costs in foreign markets (Ferdows, 1997).

2.7 Advantages:

The main reason for any business to exist is to increase sales and profits.

When you go global, then the likelihood of increasing sales goes up as you open
up your market to consumers all over the world.

This allows businesses to reduce dependence on their local and national

economies.

With the number of Internet users on the rise, global businesses are able to do
business at all hours of the day with consumers from every point on the globe.

The potential for expansion for businesses increase as they enter into more
markets.
http://www.ehow.com/info_8172773_global-business-advantagesdisadvantages.html#ixzz1rSKACywU

Diversified business and trading

Lower supply chain costs

Reduced cycle time

Competitive advantage

Untapped markets

Enhance speed and efficiency

2.8 Disadvantages:

The biggest disadvantage of global supply chain management is the heavy

investment of time, money, and resources needed to implement and overlook the
supply chain.

The decision to outsource a production facility or call center lowers the cost of
doing business for a company using global supply chain management, but the
decision to outsource or not can lead to consumer backlash.
http://www.ehow.com/about_5122848_disadvantages-global-supply-chainmanagement.html#ixzz1rS8yrI00

Inefficient and undersized transportation and distribution systems

Market instability

Integrating the supply chain and choosing the correct suppliers is much more
difficult than one can imagine.

Not only do companies have to strongly consider price and quality, but they also
have to make sure that all the organizations are willing to cooperate to benefit the
group.

Managerial styles, objectives, and goals must have a strategic fit between all
companies involved and power must be evenly distributed throughout the supply
chain or the businesses will not benefit from the advantages of global supply
chain management.

http://www.ehow.com/about_5122848_disadvantages-global-supply-chainmanagement.html#ixzz1rS9PCUdn

When entering the global market, businesses need to be aware that the gains may
not be seen in the short term.

It 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.

Companies usually have to modify their products and packaging to suit the local
culture, preferences and language of the new market.

Travel 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.
http://www.ehow.com/info_8172773_global-business-advantagesdisadvantages.html#ixzz1rSKmMkGe

2.9 Benefits of Global Supply Chain:

1. As opposed to a poorly organized supply chain a global supply is extremely
competitive and so you can obtain a really good price for supplies that will all be
produced to excellent standards, without even having to search widely. Excellent
products completed to the highest standard of quality controls can be sourced
quickly and efficiently.
2. 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 Supply chain cost reduction
activities
3. The global supply chain means that businesses within countries which
traditionally did not operate to high standards have had to up their game.
Companies that operate within developing countries or those such as India and
China know that if they do not come up with the goods, there are a myriad of
other businesses that will. This means that there is a real incentive to get things
right, first time and all the time!

4. If 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

save costs in terms of storage/thefts/transporting goods etc. These costs can add
up, so this certainly helps sharpen the competitive edge that comes with a global
supply chain.
5. The global supply chain also makes the securing of almost any item easy, since
somewhere in the world it is probably being produced or manufactured.
Historically any item that was not a standard item, from a standard range could
take ages to produce. Now it can simply be bought from the country where it has
been made.
6. The global supply chain really does operate on a 24/7 basis, simply because of the
time differences in different countries. So there is a sense that the chain never
sleeps; it is constantly on the go and people are working to meet the supply chain
requirements on different continents and at different times.
7. Operating a global supply chain also brings with it new opportunities for the
markets. If you are sourcing items from China, then it is feasible that you may
wish to look at other markets that you may be able to tap in to since you have
already established sources in China. It is almost as if once a company has taken
the first step to source supplies globally, new markets and opportunities follow.
8. One of the most interesting factors of the global supply chain is that we can learn
from others! Business 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.
9. 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 is
maximized, allowing for the chain to be as effective as possible.
10. The 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. If you are not part of it, then your chances of survival are
lower. So being in it is almost not a choice and the benefit (of survival) is a
difficult thorn to grasp, but if your company is not operating within a global
supply chain framework, you are well behind those who are!
http://supplychain-mechanic.com/?p=144

2.10 PROCESS:
Process means a practice, a series of actions, done for a specific purpose, such as
satisfying customers. Customers demand and expect more from their suppliers; that is a
fact regardless your size or industry. And supply chain management is critical to that

customer satisfaction.
Supply chain process is a flow of activities with the goal of meeting the requirements of a
customer. It includes all internal functions, logistics, distribution, sourcing, customer
service, sales, manufacturing and accounting. It includes external companies. The series
flows backward--from 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.
http://www.ltdmgmt.com/072503.asp
How to improve collaborative processes for the global supply chain?
In todays world, more and more companies need to collaborate globally. In the supply
chain, this is a result of companies wanting to optimize their operations and having more
suppliers involved in all processes of their activities. There are many solutions that
companies are using for the global supply chain. With 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.
But there is unhappy feeling about these tools and spaces. The worse is that most of them
create their own eco-system. There will be a significant improvement if we are able to
connect these solutions to organizational processes. But this is not always possible
because companies today do not share their processes. In most of the cases, they use
different tools to implement business process management in their organization.

http://plmtwine.com/2009/03/17/how-to-improve-collaborative-processes-for-the-globalsupply-chain/

2.11 Global Supply Chain Challenges:

Geopolitical risk, for example:

-

Global conflict stimulated by shortage/control of resources (increasingly

water rather than oil)

National controls in reaction to changing circumstances, e.g. regulatory

advice regarding off-shoring, protectionism

Creeping climate change related impact upon logistics and sources of supply

Impact of increasing energy prices and volatility caused by supply uncertainty

(2005 hurricane season effect on oil prices, Russian control of natural gas upon
which much of Europe depends)

Good business ethics driven by consumers and the Media (responsible sourcing)

Increasing dependence upon technology, which is fine until it fails

Reduction of buffer stock

Concentration of risk through constant drive to reduce cost and increase efficiency

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2.12 Managing a Global Supply Chain

Managing the Unknown-Unknown

Invest in redundancy
-

Respond to unforeseen events by careful analysis of supply chain tradeoffs

Increase velocity in sensing and responding

-

Speed in sensing and responding can help the firm overcome unexpected
supply problems

Failure to sense could lead to:

Failure to respond to changes in supply chain

Can force a company to exit a specific market

Create an adaptive supply chain community

-

It is the most difficult risk management method to implement effectively.

Requires all supply chain elements to share the same culture, work
towards the same objectives and benefit from financial gains.

Need a community of supply chain partners that reorganize to better react

to sudden crisis

Single sourcing is risky

Achieves economies of scale

High quality parts at a low cost

JIT mode of operation builds a culture of:

Working with low inventories

Ability to identify and fix problem quickly

Entire supply chain was stopped once the fire occurred

Prompted every company in the chain to react to the challenge

MANAGING KNOWN-UNKNOWN

Speculative Strategies : A company bets on a single scenario, with often

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

Hedge Strategies : 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.

Multiple plants in different countries, where, Certain plants more

profitable at times than others

Move production between plants to be successful overall.

Flexible Strategies
Requires a flexible supply chain

multiple suppliers

flexible facilities

excess capacity

various distribution channels

Can be expensive to implement

coordination mechanisms

capital investments

loss of economies of scale

Full Team Ahead

"If you've got the guys working on operations on the first floor and on the second floor
you've got the CFO and treasurer looking at the books, shocked that they are paying 'x'
million dollars on duty costs, that's a failure," says Jim Tompkins, CEO and founder of
supply chain consulting firm, Tompkins Associates. "First step is to get these two groups
together so that you are getting the whole picture."
Tompkins adds that managing a global supply chain affects not one or two departments,
but the whole company.

Go to the Experts First

From the beginning, managing the supply chain requires retaining someone with
expertise in the international locations.
This means finding local, reputable producers that can consistently deliver for the
arrangements.
"This is by far the biggest challenge," he says. "We 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. We say no to a lot of deals, but I'm okay with that. It's about quality."
For other small businesses, find a business consultant that specializes in that location,
who can help you navigate everything from cost-saving transit options to taxes.

"Find someone who is very familiar with the location, someone who spends most of their
time in that country, "This person should be well versed in the local business world, know
companies and contractors, and know how to vet them."
Need more convincing on just how significant a good consultant can be to your
company?
"Say you have a factory in China and Poland, and you sell your product in the U.K.,"
says Tompkins. "How you transfer the product from Poland to the U.K. could have a 25
percent difference from your bottom line just because of something like taxes. The right
consultant knows how to avoid those extra costs."

Timing affects everything

To successfully manage your supply chain, timing is an all important element.
A company makes and sells speakers. It sources all the parts and manufactures the
speakers domestically, and U.S customer orders 1,000 of them, a two-week delivery is
within the realm of possibility.
"If you switch the sourcing to China, you have no chance of making that two-week
delivery here in the U.S. It would be more like two months,"
And managing timing goes hand in hand with the next tip...

Good Sales Forecasting Is Principal

Because of the timing issue, sales forecasting becomes a huge part of successfully
managing your supply chain and keeping costs down.
It boils down to this: Because 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 sellotherwise, you're stuck with products you can't move.
"For example, take a goods company in San Diego that sources from China They have
to carry a very large inventory in the U.S. to meet the delivery times the customers'
demand. But for the owner, there's suddenly a bunch of costs: inventory carrying costs or

maybe you need a bigger warehouse."

Don't Assume Too Much
One 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 U.S. and that is not always the case,"
Things like electrical power or internet access, which developed country businesses have
easy access to, might not be so easily accessed in another country.
Organizations actually have to go to the locations where they have to make sure that their
partners can sustain the business.

Emerging issues in global supply chain design

To aid managers in solving these problems, the research community has developed
numerous global supply chain design models. The business environment that surrounds
the global supply chain problem is continually changing, however, as new issues in
supply chain management and globalization surface.
First, firms are increasingly outsourcing to both domestic and global locations.
Second, 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 objectives can vary considerably based on the value of the product offered to
the customer (Keeney, 1994).
Outsourcing 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 M.J. Meixell, V.B. Gargeya / Transportation Research Part E 41 (2005)
531550 533 only corporate but also supplier facilities. Supplier selection decisions
change the global supply chain design problem in fundamental ways, in part because they
are based on more broadly defined criteria. Suppliers are typically selected based on the
buyers perception of the suppliers ability to meet quality, quantity, delivery, price and
service needs of the firm (Leenders et al., 2002).
In some cases, purchasing managers consider an even broader set of criteria as defined by
the total cost of ownership to include the cost of carrying inventory, repair, training,
disposal, etc. (Ellram,1995; Degraeve and Roodhooft, 1999; Burt et al., 2003).
Ultimately, purchasing managers summarize these factors so that candidate suppliers may
be ranked for selection. Supplier contracts also influence the design problem structure
with additional factors such as minimum order quantities, restrictions on the number of
vendors, geographic preferences, and limitations on supplier capacities (Pan, 1989).
A second emerging issuethe integration of decisions across the supply chainalso
influences global supply chain design. Integrating business processes is a best practice in
supply chain management that involves coordinating decisions across multiple facilities
and tiers. In practice, firms engaged in Vendor Managed Inventory (VMI) and
Collaborative Planning, Forecasting, and Replenishment (CPFR) integrate replenishment
planning between enterprises by sharing sales and promotion information (Sherman,
1998; Lewis, 1999).
Similarly, firms that implement Advanced Planning Systems (APS) may integrate
production decisions across the supply chain by including supplier inventory and capacity
constraints into their scheduling function, striving to avert supply problems before they
occur (Rohde, 2000; Bowersox et al., 2002).

These integration practices also affect global supply chain design. Several authors
(Dornier et al., 1998; Brush et al.1999; Trent and Monczka, 2003) 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.