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 Politechnika Częstochowska
Wydział Zarządzania

Principles of Global
Supply Chain Management

KOT SEBASTIAN

Częstochowa 2014
 THE FACULTY OF MANAGEMENT
CZESTOCHOWA UNIVERSITY OF TECHNOLOGY

PRINCIPLES OF GLOBAL
SUPPLY CHAIN MANAGEMENT
Students textbook

SEBASTIAN KOT

Częstochowa 2014
Author

Sebastian Kot, university professor,

The Management Faculty,
Częstochowa University of Technology
Armii Krajowej 19 B
42-200 Częstochowa
sebacat@zim.pcz.czest.pl

Reviewed by:
Prof. Mariana Man, Ph.D.
University of Petrosani, Romania
Prof. Renáta Pitoňáková, Ph.D.
Comenius University, Slovakia
Prof. Beata Ślusarczyk, Ph.D.
Czestochowa University of Technology, Poland

ISBN 978-83-63500-81-8

© Copyright by Sekcja Wydawnictwa

Wydziału Zarządzania Politechniki Częstochowskiej
Częstochowa 2014

All rights reserved.

Reproduction or translation of any part of this work without the permission of the copyright
owner is unlawful. Request for permission or further information should be addressed
to the Faculty of Management, Czestochowa University of Technology.

Sekcja Wydawnictwa Wydziału Zarządzania Politechniki Częstochowskiej

42-200 Częstochowa, al. Armii Krajowej 36 B, tel. (0 34) 32 50 480, 32 50 859
The first edition
Contents:

Introduction ……………………………………………………………..…. 5
1 Principles of Global Supply Chain Management ……………............. 7
1.1 Defining Global Supply Chain Management………………..…. 7
1.2 Factors and Conditions of Global Supply Chains Development. 15
1.3 Global Supply Chains Operations Effectiveness and Flexibility. 22
1.4 Strategic Approaches for Global Supply Chain Management…. 26
1.5 Advantages and Risks of Global Supply Chains Performance… 31
2 Development and Strategies of Global Supply Chain Management…. 44
2.1 Global Supply Chains Emergence and Structures …………...... 44
2.2 Relations of Global Supply Chains and International Trade and
Economic Policies……………………………………….......…………. 48
2.3 Managerial Issues in Global Supply Chains…………………… 52
2.4 Small and Medium Sized Enterprises in Global Supply Chains.. 69
2.5 European Logistics Centers as the Factor Accelerating Global
Supply Chains Performance……………………………………………. 72
3 Green Supply Chain Management………………………………...….. 83
3.1 Environmental Aspects in Global Supply Management……….. 83
3.2 Green Issues in Supply Chain Management…………………… 89
4 Value Management in Global Supply Chains………………………... 98
4.1 Idea of Global Value Chains…………………………………… 98
4.2 The Governance of Global Value Chains……………………… 105
4.3 Comparison of Global Value Chains and Global Supply Chains 110
5 Measurement of Supply Chain Performance in Global Scale….……. 115
5.1 Principles of the Supply Chain Performance Measurement…... 115
5.2 Supply Chain Analysis Through Service Level Agreements
(SLAs)………………………………………………………………… 124
5.3 The Supply-Chain Operations Reference Model in Supply
Chain Performance Analysis ………………………….......................... 131
Introduction

Changes in global competition between business entities cause that more

and more frequently enterprises are looking for solutions that allow them for
competitive advantage. At present, it is hard to achieve competitive advantage
through supplying cheaper materials, semi-products, labour or usage of new
technology without threat of copying. The organization of the enterprise and its
linkages with supplier, customers, service providers and final clients all over the
world are difficult tasks for imitation.
Supply chain management is promising concept of organization of the
enterprise and the connections with little treat for copying and using by competing
enterprises however supply chain management in global scale seems to be a great
challenge for enterprises, those small and medium especially.
Supply chain management is a fundamentally different philosophy of
business organization and is based upon the idea of partnership in the marketing
channel and a high degree of linkage between entities in that channel. Traditional
models of business organization were based upon the notion that the interests of
individual firms are best served by maximizing their revenues and minimizing their
costs. If these goals were achieved by disadvantaging another entity in the channel,
then that was the way it was. Global supply chain management model the goal is to
maximize profit through enhanced competitiveness in the final world markets – a
competitiveness that is achieved by a lower cost to serve, achieved in the shortest
time-frame possible. Such goals are only attainable if the supply chain as a whole
is closely coordinated in order that total channel inventory is minimized,
bottlenecks are eliminated, time-frames compressed and quality problems
eliminated.
This new model of global competition suggests that individual companies
compete not as company against company, but rather as supply chain against
supply chain. Thus, the successful companies will be those whose supply chains
are more effective in cost, time and quality areas than those of their competitors.
Last years, the globalisation processes has accelerated and the uncertainty
about how markets will evolve has made it increasingly important for companies to
be aware of the supply chains they participate in and to understand the roles that
they play. Those companies that learn how to build and participate in strong global
supply chains will have a substantial competitive advantage in their markets.
The problems arising from complexity of Global Supply Chain
Management as well as various areas of development makes the topic difficult for
understanding and researches. Therefore there is a need for extended elaboration of
the GSCM aspect for students participating in economic and management courses.
The Author considers five crucial elements necessary to analyse in order to
knowledge the basics of GSCM. The issues relating to the GSCM crucial elements
are included in following chapters:
Chapter one provides an executive overview of the principles of GSCM
and development factors and conditions those drive supply chain performance in
global scale. This chapter also consists of theories of global supply chains
operations and strategic scope of view on management of supply chain in global
scale. Analyses of advantages and risks in global supply chains are also the part of
the chapter. Chapter two presents genesis of the GSCM concept and its
development considering macroeconomic scale. The important part of this chapter
is discussion on management of GSCM with special emphasis on small and
medium enterprises role in global supply chains. Chapter three provides an
overview of green supply chain management concept by examining environmental
aspects of GSC performance and “green” elements introducing to management of
supply chains in global context. Chapter four addresses the key elements of value
management in supply chains. Opening part explores idea of global value chain,
and then Author discusses governance of global value chains and considers
differences between value chain and supply chain in global scale. Problems
connected with measurement of supply chain performance are topic of the fifth
chapter. Author discusses traditional approach for performance measurement as
well as methods tailored especially for analysis of supply chain performance as
Service Level Agreement and Supply Chain Operation Reference Model those are
used for analysis of SC performance in global scale.
The book will appeal to everyone with interest in the concept of global
supply chain management as well as business international collaboration. This
includes students and academics and professionals who want an appreciation of
principles of global supply chain management.
The content of the book contains ideas from different sources I have tried
to acknowledge the origin of these sources. My heartfelt thanks go to the reviewers
who read the book carefully and made comments and criticism. I would like to
thanks all the people who encourage me and support during the book elaboration.

Czestochowa, July 2014

Sebastian Kot
1 Principles of Global Supply Chain Management

1.1 Defining Global Supply Chain Management

The emergence of the global marketplace necessitates that supply chain

management (SCM) must be refocused into a global or network context.1 The
globalization process that is underway is viewed as a network of contemporaneous
events, options, and constraints, which requires the development of a systemic
concept of supply chain strategy development and implementation2. It is anticipated
that globalization will be an enduring phenomena due to the reduction of entry
barriers into industries, technological advancement, increased
information/knowledge transfer, and emerging markets becoming a viable alternative
for rejuvenating mature products and industries.
Dornier et al.3 identified the following forces that collectively drive the
trend toward globalization:
• Global market forces,
• Technological forces,
• Global cost forces,
• Political and economic forces.
Global market forces involve the pressures created by foreign competitors, as
well as the opportunities created by foreign customers. Even if companies do not
do business overseas, the presence of foreign competitors in home markets can
affect their business significantly. To defend domestic markets successfully,
companies may find it necessary to move into foreign markets.
Technological forces are related to the products themselves. Various
subcomponents and technologies are available in different regions and locations
around the world, and many successful firms need to have the ability to use these
resources quickly and effectively. To achieve this, it may be necessary for firms to
locate research, design, and production facilities close to these regions. To gain

1
Harvey M.G., Richey R.G., Global supply chain management The selection of globally competent
managers Journal of International Management No. 7, 2001.
2
see: Cooper M.C., Ellram L.M., Gardner S.T., Hanks A.M., Meshing multiple alliances, J. Bus.
Logistics 18, 1997.
Galunic, D., Rodan, S., Resource recombinations in the firm: knowledge structures and the potential
for Schumpetarian innovation. Strategic Manage. J. 19. 1998.
3
Dornier P., Ernst R., Fender M., Kouvelis P.: Global operations and Logistics: Text and Cases. New
York, John Wiley. 1998.
Kogut B., Designing Global Strategies: Profiting from Operational Flexibility. Sloan Management
Review 27, 1985.
access to markets or technology, companies in different regions frequently
collaborate, resulting in the location of joint facilities close to one of the partners.
Along similar lines, global location of research and development facilities is
becoming more common primarily for two reasons. First, as product cycles become
shorter and time more important, companies have discovered how useful it is to
locate research facilities close to manufacturing facilities. This helps transfer
technology from research facilities to manufacturing facilities and speeds up the
resolution of problems that inevitably arise during this transfer. In addition,
specific technical expertise may be available in certain areas or regions.
Cost forces often dictate global location decisions. In the past, the low cost of
unskilled labor was a decisive factor in determining factory location. Recently,
studies have found that in many cases the costs of cheaper unskilled labor were
more than offset by the increase in other costs associated with operating facilities
in remote locations. In some cases, of course, cheaper labor is sufficient
justification for overseas manufacturing.
The capital costs of building a new facility often dominate labor costs. Many
governments are willing to provide tax breaks or cost-sharing arrangements to
lower the cost of the new facility. In addition, supplier price breaks and cost-
sharing joint ventures may dictate these types of decisions.
Political and economic forces may greatly affect the drive toward globalization.
There are also several other political and economic factors. For example, regional
trade agreements may drive companies to expand into one of the countries in the
regional group. It may be to a company's advantage to obtain raw materials from or
to manufacture within European, Pacific Rim, or North American trading blocks.
In some cases production processes may even be redesigned to avoid tariffs; for
example, almost-finished goods may be shipped into a trading block to avoid tariffs
on finished goods.
Similarly, various trade protection mechanisms can affect international supply
chain decisions. Tariffs and quotas affect what can be imported and may lead
a company to decide to manufacture within the market country or region. More
subtle regulations, including local content requirements, affect supply chains.
Global market features
Global market has been identified by the following characteristics those should be
taken into consideration: capacity and dynamism4, munificence and complexity5,

4
Achrol R.S., Stern L.W., Environmental Determinants of Decision making Uncertainty in Marketing
Channels, Journal of Marketing Research, 25 (February) 1988.
5
Dess G.G., Beard D.W., Dimension of Organization Task Environments, Administrative Science
Quarterly, 29 (1), 1984.
regulatory changes to specific industries6, and degree of segmentation7.
The concept of munificence in the global environment is similar to that of capacity,
in that it addresses the extent to which the environment can sustain growth within
the organization or global supply chain. However, munificence refers more
specifically to complex external social relationships with institutional gatekeepers
(e.g., local governments and thought leaders) who ensure flows of resources and
opportunities. Current examples include political economies that provide capital,
labor, and information flows across borders. The complexity, or heterogeneity, of
the environment refers to the number and diversity of competing global supply
chains with which the organization must interact in its competitive efforts.
Forte et al.8 indicate that dynamic industry regulations influence organizational
forms. Extrapolating from this finding, it is clear that changing or incongruent
regulations across borders influence global supply chain characteristics and
designs. Regulations addressing both the tangible (i.e., components and finished
products) and the service (e.g., logistics) offerings within global supply chains
change consistently and are often driven by protectionist measures of local
markets. As a result, global supply chain designs are influenced by local content
and labor requirements, import and export regulations, and safety provisions,
which often dictate the location of specific global supply chain activities and
increase the difficulty in standardizing global supply chain efforts across multiple
markets.
Finally, markets are segmented relative to customer preferences influences global
supply chains. For example, business-to-business provisions of products and
services may need to be specialized for buyers in a single market (vertical
segments) or can often be standardized across multiple markets. This is due to
similarities in buyer preferences (horizontal segments), enabling cost efficiencies at
multiple points within the global supply chain.
It is also important for a firm to identify the mission or strategic role of each
facility when designing its global network9. K. Ferdows suggests the following
classification of possible strategic roles for various facilities in a global supply

6
Forte M., Hoffman J.J., Lamont B., Brockmann E.N., Organizational Form and Environment: An
analysis of Between-Form and Within-Form Responses to Environmental Change, Strategic
Management Journal 21 (7), 2000.
7
Choi J., Rajan M., A Join Test of Market segmentation and Exchange Risk Factor in International
Capital Markets, Journal of International Business Studies 28 (1, ) 1997.
8
Forte M., Hoffman J.J., Lamont B., Brockmann E.N., Organizational … op. cit.
9
Chopra S., Meindl P., Supply Chain Management. Strategy, Planning, and Operation. Prentice Hall,
New Jersey 2001.
chain network10:
1. Offshore facility—low-cost facility for export production. An offshore
facility serves the role of being a low-cost supply source for markets located
outside the country where the facility is located. The location selected for an
offshore facility should have low labor and other costs to facilitate low-cost
production. Given that many Asian developing countries waive import tariffs
if all the output from a factory is exported, they are preferred sites for
offshore manufacturing facilities.
2. Source facility—low-cost facility for global production. A source facility
also has low cost as its primary objective, but its strategic role is broader
than that of an offshore facility. A source facility is often a primary source of
product for the entire global network. Source facilities tend to be located in
places where production costs are relatively low, infrastructure is well-
developed, and a skilled workforce is available. Good offshore facilities
evolve over time into source facilities. A good example is Nike's plants in
Korea and Taiwan. Plants in both countries started out as offshore facilities
because of low labor costs. Over time, however, these plants have become
more involved with new product development and manufacture some
products for sale all over the world.
3. Server facility—regional production facility. A server facility's objective is
to supply the market where it is located. A server facility is built because of
tax incentives. local content requirement, tariff barriers, or high logistics cost
to supply the region from elsewhere. In the late 1970s, Suzuki partnered with
the Indian government to set up Maruti Udyog. initially, Maruti was set up
as a server facility and only produced cars for the Indian market. The Maruti
facility allowed Suzuki to overcome the high tariffs for imported cars in
India.
4. Contributor facility—regional production facility with development skills.
A contributor facility serves the market where it is located but also assumes
responsibility for product customization, process improvements, product
modifications, or product development. Most well-managed server facilities
become contributor facilities over time. The Maruti facility in India today
develops many new products for both the Indian and the overseas markets
and has moved from being a server to a contributor facility in the Suzuki
network.
5. Outpost facility—regional production facility built to gain local skills.

10
Ferdows K., Making the most foreign Factories. Harvard Business Review (March-April) 1997.
For the full version contact the author:

Sebastian Kot, university professor,

The Management Faculty,
Częstochowa University of Technology
Armii Krajowej 19 B
42-200 Częstochowa
sebacat@zim.pcz.czest.pl
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Sebastian Kot is currently Associate Professor in management and supply chain management and Vice
Director of the Institute of Logistics and International Management at Faculty of Management, Czestochowa
University of Technology, Czestochowa, Poland. Prof. Sebastian Kot has over 16 years of teaching, research
and managerial experience in higher education. He holds a PhD, the Master of Management Science, both from
Faculty of Management, Czestochowa University of Technology. He defended his habilitation thesis at the
Faculty of Management, University of Prešov in Prešov, Slovakia. Prof. Kot has published widely, and his
publications include books, book chapters, refereed journals’ papers, conference proceedings. He is a Founder
and Co-editor of Polish Journal of Management Studies. He is a Member of Scientific Boards of the journals:
Advanced Logistics Systems; Supply Chain Management Journal; Journal of Applied Management and
Investments.

Contents formulated by the author, consisting problem of global supply chain

management background, GSCM development, strategy, and performance
measurement seems to be very important and useful for various readers with
students of economic and managerial courses, especially.

Prof. Mariana Man, University of Petrosani

The publication “Principles of Global Supply Chain Management” is a very useful

book for students in the field of Supply Chain Management studying in English and
for all others showing interest in supply chain management and relating fields.

Prof. Renáta Pitoňáková, Comenius University

The handbook is written using understandable language in accordance with

academic standards, contains the correct structure and logical sequence of
presented information. Certainly, it is an important source of knowledge in the area
of supply chain management in a global perspective for students of globalization,
international logistics and supply chain management courses.

Prof. Beata Ślusarczyk, Czestochowa University of Technology

ISBN 978-83-63500-81-8

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