Chapter 3

GLOBAL
DIMENSIONS OF
SUPPLY CHAINS
 Learning Objectives
After reading this chapter, you should be able to do the following:

● Describe the complexity of a company’s

global supply chain network and
understand what questions need to be
addressed for the supply chain to be
competitive.
● Understand the three major phases of
globalization and understand the
underlying economic and political forces
driving each phase.
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 Learning Objectives, continued

● Appreciate the complexity and magnitude

of the operations of successful global
companies and why global expansion is
important to their growth and financial
viability.
● Explain how technology and service
specialists can help companies, especially
small- to medium-size firms, penetrate the
global marketplace and contribute to their
competitive success.

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part.
 Learning Objectives, continued

● Appreciate the importance and

contributions of the trading partner
countries of the United States and how
they support our global prosperity.
● Understand the complexity of global
markets and how competitive strategy can
help mitigate complexity.

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part.
 Learning Objectives, continued

● Explain the need for global security

measures and the flexibility necessary to
ensure that such security measures do not
impede trade but rather enhance the flow
of goods and services.
● Discuss global transportation options and
strategic intermediaries and their role in
global in supply chains.

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part.
 Introduction
● Three eras of globalization
• The first era was initially driven by countries (1400–
1800) seeking materials and goods not available in
their own land.
• The second era of globalization (1800–2000) was
driven by companies seeking goods and materials,
labor, economies of scale, and markets.
• In the third era of globalization, said to have begun
around the year 2000, the significant characteristic is
that it is being powered by individuals and smaller
organizations

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part.
 Supply Chains in a Global Economy

● Economies and companies could improve

their “wealth” by allowing specialization of
tasks.
● The advantage is true as long as you can
sell the increased volume that is produced.
It is an important role of logistics to help
extend the market area of countries or
companies through improved efficiency to
lower the “landed cost” in new market
areas.
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part.
 The Scope and Magnitude of Global
Business
● The ability to connect to individuals and
companies across the globe and to connect
computer information systems on a 24/7 basis
has provided unparalleled opportunity for
collaboration horizontally and vertically in supply
chains.

● The trade volume with China was 18.2 percent

of the total of the top 10 for 2006, and it
increased its trade volume by 20 percent from
2005 to 2006. In 2000, China was number 4
following Canada, Mexico, and Japan.
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 Table 3.1
Top U.S. Trading Partners
COUNTRY 2008 2009 2010
Canada 601 431 525
China 408 366 457
Mexico 367 306 393
Japan 204 147 181
Germany 152 115 131
United Kingdom 112 93 98
South Korea 83 68 88
France 73 61 66
Taiwan 61 47 62
Brazil 63 46 59
Total $2,124 $1,679 $2,059
VALUE OF TRADE ($ BILLIONS)

Source: TradestatsTM Express, International Trade Administration, U.S. Department of Commerce,

2011
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part.
 Global Markets and Strategy

● The global business environment has

changed significantly and become much
more conducive to business activity
between and among different countries.

● Success in the global market place

requires developing a cohesive strategy,
including product development,
technology, marketing, manufacturing, and
supply chains.

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part.
 Global Markets and Strategy, continued

● Global markets and strategy have four

important characteristics:
• standardization reduces complexity
• global competition reduces the product life cycle
• traditional organizational structures and business
models frequently change
• globalization introduces more volatility

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part.
 Supply Chain Security: A Balancing Act

● Given the importance of global trade to the

United States, a delicate balance exists between
security and the efficient flow of global
commerce.
● More cargo inspections, much more paperwork,
and a longer time to clear U.S. borders are now
a reality.
● C-TPAT is a cooperative effort to secure the
global supply chain and to facilitate legitimate
cargo and conveyance.

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 Ports

● Ports are a critical part of global supply

chains and also a major focus for global
security.
● America’s ports are a vital part of its global
commerce. Over $2 trillion in trade value
per year passes through U.S. ports, and
over $18 billion is collected in industry fees
and taxes.

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part.
 North American Free Trade Agreement

● NAFTA establishes free trade between

these three countries and provides the
way the agreement is to be interpreted.
● Even though the U.S./Canada Free Trade
Agreement has been in effect for some
time, certain trade barriers still remain.
● The supply chain constraints will
eventually be eliminated as NAFTA
experience grows.
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 Figure 3.1
Typical Truck Shipment Into Mexico

Source: Edward J. Bardi, Ph.D. Used with permission

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part.
 Maquiladora Operations

● A U.S. Manufacturer operates or

subcontracts with a facility in Mexico to
manufacture, process, or assemble
products to capture labor savings.

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 Asian Emergence

● The most significant trend in the past 25

years is that of the rise of pacific rim
countries as important players in the
global economy.
• Many countries are now the worlds’ preferred
sources for raw material and components

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 Figure 3.2
Hourly Compensation in Manufacturing

Source: Bureau of Labor Statistics, Foreign Labor Statistics (2011)

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part.
 New Directions

● Locating factories and logistics facilities in

countries that use or consume the
products.
● Focused production
• A plant produces only one or two products

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 Global Transportation Options
● Ocean
• The most pervasive and important global shipment
method, accounting for two-thirds of all international
movements. Major advantages are low rates and the
ability to transport a wide variety of products and
shipment size.
○ Three major categories:
 Liner service
 Charter vessels
 Private carriers

● Air
• Fast transit times
○ An advantage in packaging
○ Disadvantage of air carriage is high rates
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 Global Transportation Options, continued

● Motor
• standardization reduces complexity
• Use motor transport when shipping goods to between
the United States and Mexico or Canada
• It is very common in Europe
• Motor also plays a large part in intermodal shipments
● Rail
• International railroad use is also highly similar to
domestic rail use
• Intermodal container shipments by rail are increasing
• Maritime bridge concepts
○ Land bridge

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 Global Intermediaries
● Foreign Freight Forwarders
• Supplies expertise to international shippers
• Consolidate small shipments into more economical
sizes
• Derives income from fees for service
● Airfreight Forwarders
• Same services as surface forwarders but only for air
shipments
● Non-Vessel-Operating Common Carriers
• Consolidates and dispenses containers at inland
points
• Uses the shipping expertise that NVOCCs possess
• Ocean carrier gains from the increased market area
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 Global Intermediaries, continued

● Export Management Companies

• EMCs act as agents for domestic firms in the
international arena
• Obtain orders, selecting appropriate markets,
distribution channels, and promotional campaigns
● Export Trading Companies
• ETC exports goods and services to overseas buyers
and handles most of the export arrangement
• ETC allows small- to medium-size firms to engage in
foreign trade

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part.
 Global Intermediaries, continued

● Customs House Brokers

• Oversee the movement of goods through customs
and ensure that the documentation accompanying a
shipment is complete and accurate for entry into the
country
• Operate under power of attorney from the shipper to
pay all import duties due on the shipment
• The importer is ultimately liable for any unpaid duties
• Keeps abreast of the latest import regulations and
specific requirements of individual products

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part.
 Storage Facilities and Packaging
● Storage Facilities
• Transit sheds provide temporary storage while the
goods await the next portion of the journey.
• Carrier provided hold-on-dock storage free of charge
until the vessel’s next departure date.
• Public warehouses are available for extended storage
periods.
• Bonded warehouses operate under customs agency’s
supervision and are used to store, repack, sort, or
clean imported merchandise entered for warehousing
without paying import duties while the goods are in
storage.
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 Storage Facilities and Packaging, continued

● Packaging
• Export shipments moving by ocean transportation
require more stringent packaging than domestic
shipments normally do.
• The shipper may find settling liability claims for
damage to export goods very difficult. Usually, the
freight handling involves many firms, and these firms
are located in different countries.

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part.
 Summary
● Global companies are usually faced with more complex and longer
supply chains which bring challenges in ensuring efficiency,
effectiveness, and execution.
● There have been three phases of globalization: the first was driven
by countries, the second by large companies, and the third by
individuals and small organizations. The political and economic
environment was different during these three eras.
● Successful global companies have transformed their supply chains
on a continuing basis as economic and political circumstances have
changed to enable them to deliver best cost and value to the
ultimate customer.

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 Summary, continued

● The rate of change has been driven by a set of external forces

including but not limited to globalization, technology, organizational•
The scope and magnitude of trade flows between the United States
and other countries have grown considerably in the last several
decades. One important development has been the growth in the
volume of trade with China and several other Asian countries. China
has become the second most important country as a global trading
partner to the United States
● Success in the global marketplace requires ongoing development of
a cohesive set of strategies including customer service, product
development, business model, and supply chain management.
Supply chains have become increasingly more important during the
21st century.
● Supply chain security has taken on increased importance since
September 11, 2001. Companies individually, jointly, and in
cooperation with the various levels of government are actively
involved. The federal government, in particular, has expanded the
scope of its regulations and policies for global security.
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part.
 Summary, continued

● U.S. ports play a critical role in global supply chains since over 90
percent of global trade passes through them. Ports are also an
important focus for security. The US needs to focus more attention
on port infrastructure.
● Canada and Mexico are ranked number 1 and 3, respectively, on
the list of most important trading partners with the United States.
That relationship is enhanced by the North American Free Trade
Agreement ratified by Congress in 1994. While the treaty had lofty
goals, it still is experiencing problems with full implementation of its
objectives. Nevertheless, it has fostered trade in North America.
● Global supply chains have a number of transportation and related
service options available to managers. Each of the options has
advantages and disadvantages that need to be analyzed.

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