Supply Chain Management:

From Vision to Implementation

Chapter 6: Scanning and Global Supply Chain

Design
Chapter 6: Learning Objectives
1. Discuss the emergence of SCM as a strategic
response to a changing competitive environment.

2. Explain the transition from ownership (vertical) to

relationship (virtual) integration strategies.

3. Discuss how managers can use scanning and

planning processes to define the rules of
competition.

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Chapter 6: Learning Objectives
4. Describe the forces driving change in today’s
market and their effect on decision-making.

5. Identify the issues driving globalization. Explain

how globalization has changed the rules of
competition.

6. Discuss the critical issues involved in designing a

global supply chain network.

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As the economy changes, as competition
becomes more global, it’s no longer company
versus company but supply chain versus supply
chain.

-Harold Sirkin, Boston Consulting Group

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SCM – A Strategic Weapon
 SCM enables winning business models by helping
companies to:
 Meet the demanding needs of customers worldwide
 Build unique competencies to fend off fierce rivals
 Acquire the best resources globally
 Do it efficiently

 To deliver unsurpassed customer value, companies

must develop unique competencies, relying
increasingly on capable supply chain partners.
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Vertical Integration
 Henry Ford viewed the vertically integrated
organization as the ideal business model.
 Acquired critical production resources
 Hayes and Wheelwright identify the
following rationale:
1. Desire to reduce cost
2. Desire to increase control
 Lack of focus actually contributed to
decreased competitiveness

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Relationship Integration
 Kieretsu provided Japanese companies with a
competitive advantage
 Toyota and Honda rely on suppliers for
approximately 80% of a car’s value
 Compared with 30% for American manufacturers
 Japanese model resulted in superior quality
and a $2,000 per vehicle cost advantage
 Relationship integration via collaboration

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A Changing SC World
All advantage is temporary. No capability is
unassailable, no lead is uncatchable, no kingdom
is unbreachable. Indeed, the faster the
clockspeed, the shorter the reign. Sustainable
advantage is a slow-clockspeed concept;
temporary advantage is a fast-clockspeed
concept. And, clockspeeds are increasing almost
everywhere.
- Charles Fine, Professor at MIT

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Environmental Scanning
 Proactive companies use insight gained from internal and external scanning
to avoid surprises, identify opportunities and threats, and improve both
tactical and strategic decision-making.
 Identifies a firm’s strengths and weaknesses vis-à-vis competitor
capabilities and customer expectations.
 Scanning attempts to:
1. Detect important cultural, economic, legal, political, social, and
technological events and trends.
2. Help managers accurately and objectively understand the company’s
strengths and weaknesses.
3. Identify and define potential opportunities and threats implied by
identified events and trends.
4. Provide a common and correct perception for tactical and strategic
planning.
5. Promote an adaptable, forward-looking mindset among managers and
employees.
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The Scanning Process

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SWOT Analysis

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Environmental Scanning - Failures
Manager should seek to avoid the following common pitfalls of
environmental scanning:
 Failure to involve people who can act on the insight
 Failure to incorporate diverse sources of information
 Failure to use multiple methods of gathering information
 Failure to look at information from diverse viewpoints
 Failure to consider both internal and external issues and
perspectives
 Failure to understand interaction among environmental trends
 Superficial analysis
 Study to narrowly focused

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Forces of Change
Many industry-specific forces affect companies;
however, ten generic forces are helping to shape how
business is now conducted.
1. Competitive Pressure 6. Global Capacity
2. Corporate Social 7. Globalization
Responsibility 8. Mergers and
3. Customer Expectations Acquisitions
4. Role Shifting 9. Technology Innovation
5. Financial Pressure 10. Time Compression

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 Forces of Change
Issue Competitive Imperatives
Competitive Pressure Must reduce costs relentlessly
Must seek innovation and non-imitable products/processes
Must create switching costs via relationships
Corporate Social Must understand how customers define “good” or ethical business practice
Responsibility Must understand global social norms and track working conditions in SC
Must develop, implement, and communicate company codes of conduct
Customer Expectations Must get into the mind of downstream customers
Must realize that the best way to adapt to the future is to create it
Must build learning organization that thrives on continuous improvement
Role Shifting Must establish valued core competency to avoid dis-intermediation
Must make supply chain visible
Must actively & formally evaluate role-shifting opportunities
Financial Pressure Must recognize that stock markets are not always right
Must establish viable long-term strategy & stick to it
Must create incentives that will not lead to short-term decision making

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 Forces of Change
Issue Competitive Imperatives

Global Capacity Must reduce costs relentlessly

Must seek innovation and non-imitable products/processes

Globalization Must establish global reach—physically & via alliances

Must establish seamless outstanding performance
Must compete in rivals home country/region

Mergers & Acquisitions Must realize that mergers & acquisitions are hard to do successfully
Must formally evaluate soft issues—culture, processes, policies, people

Technological Innovation Must monitor technological developments closely

Must establish technology policy to guide adoption

Time Compression Must enhance internal & inter-organizational cooperation

Must measure time explicitly

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Globalization of Markets
 Technology has overcome much of the
distance created by geography and culture.
 The pace of globalization depends on:
1. Advances in information and communication
technology
2. Availability of reliable transportation
3. Reduction of protectionist trade policies

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Globalization’s Implications
Business knows no national boundaries. Capital
and work - your work! - can go anywhere on
earth. The consequence of all this is painfully
simple: If the world operates as one big market,
every employee will compete with every person
in the world who is capable of doing the same
job. There are a lot of them, and many of them
are very hungry.
- Andrew Grove, former CEO at Intel

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Importance of Global Markets
 95% the world’s population lives outside the U.S.
 80% of the world’s gross domestic product is
produced outside the U.S.
 50%+ of the population is under 20 years old in
many countries
 Educational background and disposable income are
prime factors motivating consumption decisions
 US companies earned $315 billion profits overseas
in 2004, up 78% over the past decade
 This pace far outstrips domestic profit growth

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Importance of Global Markets
$3,000,000
$2,891,500
$2,500,000

$2,000,000
$ in millions

$1,820,641

$1,500,000
$1,493,400

$1,000,000
$771,994
$575,204
$387,401
$500,000
$299,490
$147,832 $219,183
$-
1990 1995 2000
Years

Global Sales of U.S. Foreign Affiliates U.S. Exports - Goods U.S. Exports - Services

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GDP in Industrialized Economies

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GDP in Emerging Economies

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Global Business is Different
Managers must consider four differences between
Global and domestic operations.
1. Politics –political stability and undercurrents that
might jeopardize global business strategies.
2. Legalities – requires competent legal counsel
3. Finance – exchange rate risk and hedging; taxation
issues
4. Culture –must adapt to local views on time, personal
space, worker/manager relations, individual
accountability, etc.

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Six Globalization Imperatives
Six imperatives are shaping the global
competitive landscape:
1. Establish a Triadic Presence – companies
need to operate in the three major world
markets – U.S., E.U. and Asia
2. Utilized Beachheads – use operations in
industrialized countries as bridges into
emerging markets

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Six Globalization Imperatives
3. Achieve Seamless Performance Across
Markets – deliver the same high quality
product with the same excellent service
everywhere
4. Extend Reach Through Alliances – alliance
partners can provide market knowledge,
technological expertise, operational know-
how, and/or financial resources.

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Six Globalization Imperatives
5. Compete in Competitors Home Market –
competition prevents cross profit
subsidization
6. Coordinate Global Activities – cross-
pollination of ideas creates synergy while
reducing redundancy

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Designing a Global Network
 To insure access to customers and worldwide
resources, companies are increasingly
creating worldwide supply chain networks.

 Resources within the supply chain need not be

owned by a single entity.

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Designing a Global Network
To insure supply chains are properly designed four
criteria should be considered:
1. Compatibility – need to align network design
decisions with company’s overall strategy
2. Configuration – need to identify and consider issues
that will affect network performance when deciding
where to locate value added activities
3. Coordination – need to direct and integrate
geographically dispersed activities
4. Control – need for consistent and proper day-to-day
decision-making at local value added facilities

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 A Return to the Opening Story
Based on what you have now read and discussed:
1. Does Doug have all the right people on the task force? What
changes would you make?

2. What do you think of Charlene’s idea? Can an environmental

scan create a sense of urgency across Olympus? What other
benefits might an environmental scan provide?

3. What role do each of the following play in helping overcome a

culture of complacency? A SWOT analysis? A Significant
Emotional Event? A successful pilot project?

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Supply Chain Management:
From Vision to Implementation

Supplement F: Facility Location

Basic Center-of-Gravity Approach
 Helps managers locate the geographic center of
a group of locations
 Determined by calculating the average North-
South coordinate and the average East-West
coordinate

 Example: Managers are trying to locate a new

store based on five existing competitor
locations; where should the new store be
placed?
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Retail Locations

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Coordinate Locations
Distance North Store1  Distance North Store 2  Distance North Store 3  Distance North Store 4  Distance North Store 5
Total Number of Stores

5  4  3  2 1
3
5

Distance East Store1  Distance East Store 2  Distance East Store 3  Distance East Store 4  Distance East Store 5
Total Number of Stores

3 1 4 1 2
 2.2
5

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Central Location

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Unequal Shipment Size or Frequency
 To minimize transportation costs, facility should be located
closer to locations that require more frequent shipments.

Example: Assuming the data below, where should new facility be

located?

Location East-West Coordinate North-South Coordinate Annual Tons

Store 1 3 5 200
Store 2 1 4 600
Store 3 4 3 400
Store 4 1 2 100
Store 5 2 1 300
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 Coordinate Locations

 EastWest(w eight) C NorthSouth 

 NorthSouth (weight)
C EastWest 
 (weight)  (weight)
5100
C EastWest 
3500
 2.1875 C NorthSouth   3.1875
1600 1600

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Unequal Shipment Size or Frequency
 To minimize total distribution costs, facility should be located
closer to locations that have higher transportation costs.

Example: Assuming the data below, where should new facility be

located?

East-West North-South Rate$/

Location Annual Tons
Coordinate Coordinate Ton-Mile

Store 1 3 5 200 $1.55

Store 2 1 4 600 $1.27
Store 3 4 3 400 $1.42
Store 4 1 2 100 $1.75
Store 5 2 1 300 $1.48
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 Coordinate Locations

 EastWest(w eight)(rat e) C NorthSouth 

 NorthSouth (weight) (rate)
C EastWest 
 (weight)(r ate)  (weight) (rate)

7096
C EastWest 
5027
 2.23 C NorthSouth   3.14
2259 2259

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Facility Location – Other Issues
 Proximity to major  State and local tax rates
highways and airports  Proximity to competition
 Proximity to labor force  Proximity to similar
 Education level of labor industries
force  Topography
 Degree of unionization  Environmental issues
 Cost of land  Availability of shippers or
 Construction costs carriers
 Weather  Management preferences
 Quality of life  Population characteristics
 Employment rates  Security

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