GLOBAL SUPPLY CHAIN

MANAGEMENT

TOPIC ONE: INTRODUCTION TO

SUPPLY CHAIN MANAGEMENT

1
 Supply Chain Management
• A supply chain is a set of organizations directly linked by one
or more of the upstream and downstream flows of products,
services, finances, and information from a source to a
customer. Managing a supply chain is 'supply chain
management'
• Supply chain management (SCM) is the management of a
network of interconnected businesses involved in the ultimate
provision of product and service packages required by end
customers. Supply chain management spans all movement
and storage of raw materials, work-in-process inventory,
and finished goods from point of origin to point of
consumption (supply chain).

2
 Historical developments in supply
chain management
• Six major movements can be observed in the
evolution of supply chain management
studies: Creation, Integration, and
Globalization, Specialization Phases One and
Two, and SCM 2.0.

3
 Historical developments in supply
chain management
Creation era
• The term supply chain management was first
coined by a U.S. industry consultant in the
early 1980s. However, the concept of a supply
chain in management was of great importance
long before, in the early 20th century,
especially with the creation of the assembly
line. The characteristics of this era of supply
chain management include:

4
Historical developments in supply
chain management
– The need for large-scale changes,
– Re-engineering,
– Downsizing driven by cost reduction programs,
and
– Widespread attention to the Japanese practice of
management

5
 Historical developments in supply
chain management
Integration era
• This era of supply chain management studies was
highlighted with the development of Electronic Data
Interchange (EDI) systems in the 1960s and developed
through the 1990s by the introduction of Enterprise
Resource Planning (ERP) systems. This era has
continued to develop into the 21st century with the
expansion of internet-based collaborative systems.
This era of supply chain evolution is characterized by
both increasing value-adding and cost reductions
through integration.

6
 Historical developments in supply
chain management
Globalization era
• The third movement of supply chain management
development, the globalization era, can be
characterized by the attention given to global systems
of supplier relationships and the expansion of supply
chains over national boundaries and into other
continents. Although the use of global sources in the
supply chain of organizations can be traced back
several decades (e.g., in the oil industry), it was not
until the late 1980s that a considerable number of
organizations started to integrate global sources into
their core business.

7
 Historical developments in supply
chain management
• This era is characterized by the globalization
of supply chain management in organizations
with the goal of increasing their competitive
advantage, value-adding, and reducing costs
through global sourcing.

8
 Historical developments in supply
chain management
Specialization era—phase one: outsourced
manufacturing and distribution

• In the 1990s, industries began to focus on “core

competencies” and adopted a specialization model.
Companies abandoned vertical integration, sold off
non-core operations, and outsourced those functions
to other companies. This changed management
requirements by extending the supply chain well
beyond company walls and distributing management
across specialized supply chain partnerships.

9
 Historical developments in supply
chain management
• This transition also re-focused the fundamental
perspectives of each respective organization. The
specialization model creates manufacturing and
distribution networks composed of multiple,
individual supply chains specific to products,
suppliers, and customers who work together to
design, manufacture, distribute, market, sell, and
service a product. The set of partners may
change according to a given market, region, or
channel, resulting in a proliferation of trading
partner environments, each with its own unique
characteristics and demands.
10
 Historical developments in supply
chain management
Specialization era—phase two: supply chain management as a service

• Specialization within the supply chain began in the 1980s with the
inception of transportation brokerages, warehouse management, and
non-asset-based carriers and has matured beyond transportation and
logistics into aspects of supply planning, collaboration, execution and
performance management.
• At any given moment, market forces could demand changes from
suppliers, logistics providers, locations and customers, and from any
number of these specialized participants as components of supply chain
networks. This variability has significant effects on the supply chain
infrastructure, from the foundation layers of establishing and managing
the electronic communication between the trading partners to more
complex requirements including the configuration of the processes and
work flows that are essential to the management of the network itself.

11
 Historical developments in supply
chain management
•  Supply chain specialization enables companies to
improve their overall competencies in the same way
that outsourced manufacturing and distribution has
done; it allows them to focus on their core
competencies and assemble networks of specific,
best-in-class partners to contribute to the overall
value chain itself, thereby increasing overall
performance and efficiency. The ability to quickly
obtain and deploy this domain-specific supply chain
expertise without developing and maintaining an
entirely unique and complex competency in house is
the leading reason why supply chain specialization is
gaining popularity.

12
 Historical developments in supply
chain management
Supply chain management 2.0 (SCM 2.0)
• Building on globalization and specialization,
the term SCM 2.0 has been coined to describe
both the changes within the supply chain itself
as well as the evolution of the processes,
methods and tools that manage it in this new
"era".

13
 Historical developments in supply
chain management
• Web 2.0 is defined as a trend in the use of the World Wide
Web that is meant to increase creativity, information sharing,
and collaboration among users. At its core, the common
attribute that Web 2.0 brings is to help navigate the vast
amount of information available on the Web in order to find
what is being sought. It is the notion of a usable pathway.
SCM 2.0 follows this notion into supply chain operations. It is
the pathway to SCM results, a combination of the processes,
methodologies, tools and delivery options to guide companies
to their results quickly as the complexity and speed of the
supply chain increase due to the effects of global competition,
rapid price fluctuations, surging oil prices, short product life
cycles, expanded specialization, near-/far- and off-shoring,
and talent scarcity.
14
 Interest in supply chains cont….
 It becomes critical for companies to manage the
entire network of supply to optimize overall
performance
 due to a realization by most companies that
maximizing performance of one department or
functions may lead to less than optimal
performance for the whole company.
 E.g. Purchasing may negotiate at lower price on a
component and receive a favorable purchase
price variance, but the cost to produce the
finished product may go up due to inefficiencies
in the plant.
15
 Interest in supply chains
 The supply chain has become a very prominent
concern for both large and small organizations as
they strive for better quality and higher customer
satisfaction (Chopra and Meindle 2001).
 The increasing demand for reduced costs,
increased quality, improved customer service and
continuity of supply have significantly elevated
supply chain management’s stature within
organizations.
 Companies have become more specialized and
search for suppliers who can provide low cost,
quality materials rather than own their source of
supply. 16
 Interest in supply chains cont...
 increased national and international competition.
Customers have multiple sources from which to
choose to satisfy demand; locating product
throughout the chain. However, the dynamic
nature of the marketplace make holding
inventories a risky and potentially unprofitable.
 Supply chain has therefore become a key
element in any organizational corporate strategy.

17
 The Need for Supply Chain Management

 The need to improve operations.

 Increasing levels of outsourcing.
 Increasing transportation costs.
 Competitive pressures.
 Increasing importance of e-commerce.
 The need to manage inventories

18
 What the supply chain is not
 The definitions described and developed
earlier and recent industry collaborative
activities indicate that supply chain
management is not a standalone process.
Many supply chain efforts have fallen short of
the potential advantages because the term is
often viewed as only relating to the supply
side of the business or to the purchasing
function. As indicated above, supply chain
management is much more that just
procurement.
19
 Among the misunderstanding evidenced,
SCM is not:
 Inventory management;
 Logistics management;
 Supplier partnerships;
 Driven from the supply side;
 A shipping strategy;
 Distribution management;
 The logistics pipeline;
 Procurement
 A computer system- MRP I / MRP II - ERP

20
 Reasons for the slow growth of integrated SCM
include the following:
 Lack of guidelines for creating alliances with
supply chain partners.
 Failure to develop measures for monitoring
alliances.
 Inability to broaden the supply chain vision
beyond procurement or product distribution
to encompass larger business processes.
 Inability to integrate the company internal
procedures.
21
 Reasons cont…….
 Lack of trust inside and outside a company.

 Organizational resistance to the concept.

 Lack of buyin-by top managers.

 Lack of integrated information systems and

electronic commerce linking firms.

22
 Elements of SCM
 Supply chain management involves coordinating
activities across the supply chain central to these
corresponding activities at each level of the supply
chain.
Elements Typical Issues
 Customers - Determining what products and/or
services customers want
 Forecasting - Predicting the quantity and timing
of customer demand.

23
 Elements of SCM Cont…….
 Inventory - Meeting demand requirements
while managing the costs of holding
inventory

 Purchasing - Evaluating potential suppliers,

supporting the needs of operations
on purchased goods and services

24
 Elements……..
 Suppliers - Monitoring supplier quality, on-time
delivery, and flexibility maintaining
supplier relations

 Location - Determining the location of facilities

 Logistics - Deciding how to best move information

and materials

25
 Elements cont…..
 Capacity Planning - Matching supply and demand

 Processing - Controlling quality, scheduling

work

26
TOPIC TWO: OVERVIEW OF
GLOBAL SUPPLY CHAIN

27
 INTRODUCTION
• International business - engages in cross-border
transactions
• Multinational Corporation - has extensive
involvement in international business, owning or
controlling facilities in more than one country
• Global company - integrates operations from
different countries, and views world as a single
marketplace
• Transnational company - seeks to combine the
benefits of global-scale efficiencies with the
benefits of local responsiveness
28
 Some Global Strategies
– International Strategy: uses exports and licenses to
penetrate the global area
– Multidomestic Strategy: uses decentralized authority
with substantial autonomy at each business
– Global Strategy: Uses a high degree of centralization,
with headquarters coordinating to seek
standardization and learning between plants
– Transnational Strategy: Exploits economies of scale
and learning, as well as pressure for responsiveness,
by recognizing that core competencies reside
everywhere in the organization
29
 INTRODUCTION
• Global competition is transforming the way products are
produced and moved around the world.
• A new structure namely global supply chain has evolved
which is able to take advantage of the unique competitive
advantages in different countries.
• This structure needs to be properly tied with the
procurement, processing, and distribution activities of a
multinational firm.
• Given the reduced trade barriers, it’s now possible to
garner the competitive advantage that differing countries
have to offer.
• The various value adding activities of the supply chain can
be strategically dispersed among various countries and
coordinated to produce competitive advantage.
 INTRODUCTION CONT….
• Global trade is the backbone of our modern,
commercial world, as producers in various nations try
to profit from an expanded market, rather than be
limited to selling within their own borders.
• There are many reasons that trade across national
borders occurs, including lower production costs in
one region versus another, specialized industries,
lack or surplus of natural resources and consumer
tastes.
 Global Trade
• This is exchange of capital, goods, and services across
international borders or territories.
• In most countries, it represents a significant share of gross
domestic product (GDP).
• While international trade has been present throughout
much of history, economic, social, and political importance
has been on the rise in recent times .
• Industrialization, advanced transportation, globalization,
multinational corporations, and outsourcing are all having a
major impact on the global trade system.
• Without global trade, nations would be limited to the goods
and services produced within their own borders
 Global Supply Chain
• The supply chain incorporates all aspects of moving material
from the vendor through the manufacturing process to the
final customer.
• The supply chain focuses on vendors, manufacturers,
intermediaries, logistical services and the customer.
• The supply chain is no longer contained within countries
borders, but encompasses all nations, whether they are
vendors, manufacturers or customers.
• Economists predict that the some of the current developing
nations will be some of the most important economic powers
in the next decade.
• As the global supply chain becomes more complex with
every passing year, companies must adapt to this change
and incorporate them into their supply chain strategies.
• This change could mean using vendors from developing
nations or exporting goods to new markets.
• Companies that have traditionally operated within national
or regional trading groups may feel ill-equipped to extend
their global supply chain.
• Businesses have to understand that cultural difference play a
deciding role in the success or failure of a venture in a new
global region.
 Supply Chain Defined:-

• The facilities, functions, and

activities involved in producing and
delivering a product or service,
from suppliers to customers.
 Global Supply Chain Defined:-
• An integrated process where several business entities
such as supplies, manufacturers, distributors and
retailers work together to plan, coordinate and control
material, parts and finished goods from suppliers to
customers. One or more of these business entities
operate in different countries.
 What is a Global Supply Chain
• The global supply chain is made up of the
interrelated organizations, resources,
and processes that create and deliver
products and services to end consumers.
• In the instance of global supply, the
chain is extended to many different
countries around the world.
 Formal Definition
of a Supply Chain
• A supply chain is a “network of facilities and activities that
performs the functions of product development,
procurement of material from suppliers, the movement of
materials between facilities, the manufacturing of
products, the distribution of finished goods to customers,
and after-market support for sustainment” (Mabert and
Venkataraman 1998).
 Supply Chain Utilities

TIME PLACE POSSESSION

Network of Relationships

Finland

Sweden Germany

Denmark

Norway Netherlands

Iceland
 Ford Example
Enfield Basildon
Belfast Instruments, Radiators, water
Carburetors fuel and water pump assembly,
and gauges, plugs engine
distributors components
Treforest Genk Body
Spark plug panels,
insulators road wheels

Leamington Wülfrath
Foundry Transmissio
production of n parts,
engine engine
components components
Dagenham Cologne Die-
Final cast transaxle
assembly casings, gear and
engine components
Bordeaux
Transmissions
Valencia Saarlouis
Final Final
assembly assembly
 Types of International
Sourcing Strategy
S o u r c in g

In tr a - F ir m S o u r c in g O u t s o u r c in g

D o m e s tic In t e r n a t i o n a l D o m e s t ic I n t e r n a t io n a l

D o m e s t ic In - H o u s e S o u r c i n g O f f s h o r e S u b s id ia r y S o u r c in g D o m e s t i c P u r c h a s in g A r r a n g e m e n t O f f s h o r e O u t s o u r c in g

A company procures A company buys major

major components in- A company procures A company buys major
major components from components from components from
house by procuring independent suppliers
them domestically its foreign subsidiary independent suppliers
at home internationally
 International Supply
Chain Organization
• A supply chain organization is a relatively
enduring interfirm cooperative that uses
resources from international participants to
accomplish shared and independent goals of its
members.
International SCM Theory

Actor Bonds

Activity Links
Resource Ties
 Practicality and Usefulness
• Help companies compete all over the world.
• Expand business operations.
• Offer new services and applications to meet global
customers needs.
• Give company a competitive advantage.
• Falling International Trade Barriers Mean Rising Profits.
 Goal of the Global Supply Chain

• Prompt and reliable delivery of high-quality products

and services at the least cost.

• To effectively meet rising customer expectations

 Recent changes effecting the global
supply chain
• Internet and technological change
• Proliferation of trade agreements
• Falling Trade Barriers
• Increase in international trade
groups
• New Markets
 Advantages of global supply chain
• Reduced total costs
• Inventory reduction
• Improved fulfillment cycle time
• Reduce cycle time
• Increased forecast accuracy
• Productivity increase
• Improved capacity
• Expand international connections
• Increase intellectual assets
• Delivery improvement
• Diversified business and trading
• Competitive advantage
• Untapped markets
• Enhance speed and efficiency
 Potential Global Supply Chain
Obstacles
• Member nations VS. Non member nations
• Inefficient transportation and distribution systems
• Market instability
• Different languages
• Differences in Currencies
• Differences in Measurement Systems (metric versus decimal)
• Different Customs, beliefs and cultures
• Political turmoil
• Trade imbalances
• Export surges and recessions
• Greater distance
• Tax Policies
• Operational Threats
• Strategic Challenges
• Technological capabilities
 Combating Obstacles
• Duty specialists and trade specialists
• Join nation groups
• Banding together
• Form consortiums
• Vertically integrate
• Be innovative & Be flexible
• Research
• New technology
• Infrastructure improvements
• Reduce the number of “stops” in the chain
 Components of a supply chain
• Structures

• Processes

• Linkages
 Issues/considerations when designing a
global supply chain
• Strategic plan or Objective
goals
• Uncertainty
• Communication and information flow
• Types and numbers of facilities and location
 The Value Chain
• Michael Porter, professor at Harvard Business School, uses
the value chain as a systematic means of displaying and
categorizing business activities.

• The term value chain means that at each stage of the

order-to-delivery system, value is added to the product or
service.
 Porter’s Value Chain
Firm Infrastructure
Support Activities

Human Resource Management

M
Technology Development

ar
gi
n
PROCUREMENT

Information Technology
OUTBOUND LOGISTICS
INBOUND LOGISTICS

Marketing & Sales

Operations

Service

n
gi
ar
Primary Activities M
 Primary Activities
• Primary activities are the five basic functions needed
to physically produce a product or service, deliver
and market it to buyers, and support it after the sale.
Each contributes value in specific ways.

– Inbound logistics refers to activities/actions required before physical

production of a product can begin or before service can be performed
(inputs such as materials handling, warehousing, inventory control,
vehicle scheduling and returns to suppliers).

– Outbound logistics refers to all activities from the point of a finished

product to its delivery to the market or customer or those activities
that follow the completion of a service (such as distribution, delivery
vehicle operations, order processing, and scheduling).
 Support Activities
• Support Activities provide inputs or infrastructure in
support of primary activities. These supporting
activities stretch across the entire value chain since
they impact each primary activity.

– Procurement is obtaining purchased inputs, such as raw

material, parts, equipment, etc.
 From the Value Chain…
• Five continuous and interactive steps are involved in
developing a global supply chain strategy along the value
chain:

1. Identify the separable links (R&D, manufacturing, and marketing) in

the company’s global value chain.

2. In the context of those links, determine the global location of the

company’s competitive advantages, considering both economies of
scale and scope.

3. Ascertain the level of transaction costs (e.g., cost of negotiation, cost

of monitoring activities, and uncertainty resulting from contracts)
between links in the global value chain, both internal and external,
and select the lowest cost mode that provides the most value.
Source: Kotabe and Helsen 2001
 From the value chain…
4. Determine the comparative advantages of countries (including
the company’s home country) relative to each link in the value
chain and to relevant transaction costs.

5. Develop adequate flexibility in corporate decision making and

organizational design so as to permit the company to respond
to changes in both its competitive advantages and the
comparative advantages of countries.

Source: Kotabe and Helsen 2001

Positioning The selection of strategic and
structural approaches to guide
global operations

Integration The establishment of what to do and

how to do it creatively

Agility The achievement and retention of

global competitiveness and global
customer success

Measurement The internal and external

monitoring of global operations
 Global SCM 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

Source: Global Supply Chain Associates (GSCA)

1999
 Global SCM
Factors Continued
• Export Regulations
• Denied parties list
• Export licenses

• Time
• Lead time
• Cycle time
• Transit time
• Export license approval cycle
• Customs clearance
 Global SCM
Factors Continued
• Taxes on Corporate Income
– Different markups by country
– Tax havens and not havens
– Make vs. buy effect

• Offset Trade and Local Content

– Local content requirement for government purchases
– Content for preferential duty rates
 Questions to Answer

• Manufacturing Strategy:
– How many plants do I need?
– Where should each plant be located?
– What products should each make?
– What process technologies should each have
and how much of each process is needed?
– What part of the world should each plant serve?

Source: Global Supply Chain Associates (GSCA)

1999
 Questions to Answer Continued

• Supply Base Design / Vendor Consolidation:

– How do I simultaneously perform supplier selection for all the
parts in the same commodity group?
– How many suppliers is best and which suppliers should send
which parts to which plants?
• Am I missing opportunities by sourcing one part at a time?

• Outsourcing:
– What parts of my supply chain should I keep "in-house" and what
parts to outsource?
– What if a third party has a higher variable cost but a lower fixed
cost than in-house production?
 Questions to Answer Continued
• Impact of Duty / Drawback, Taxes, Local Content & Offset Trade:
– If the duty rates come down according to GATT/WTO, how should I change my
supply chain design?
– Does it make sense to still locate production inside the Triad areas or what
trading block areas should we consider?
– What is the best use of the tax havens (Singapore, Puerto Rico, Ireland)?

• Spare Parts Logistics:

– How many echelons of repair and stocking is best?
– How many repair shops are needed, where should they be located, what
products should each handle, and what geographic area should each serve?
– How do the drivers of product value, weight, complexity, and frequency of
repair affect this decision?
TOPIC THREE: GLOBALL
VALUE CHAIN
MANAGEMENT

66
 SUPPLY CHAIN MANAGEMENT

• Value Chain
• Supply side- raw materials, inbound logistics
and production processes
• Demand side- outbound logistics, marketing
and sales.
 WHAT IS SUPPLY CHAIN MANAGEMENT

" Is the strategic management of activities involved in

the acquisition and conversion of materials to finished
products delivered to the customer"

Supplier Material Flow Customer

Management Management
Information Flow

Schedule / Stock
Conversion Delivery
Resources Deployment

Leads to Business Process Integration

• Supply chain is the system by which
organizations source, make and deliver their
products or services according to market
demand.
• Supply chain management operations and
decisions are ultimately triggered by demand
signals at the ultimate consumer level.
• Supply chain as defined by experienced
practitioners extends from suppliers’
suppliers to customers’ customers.
• SUPPLY CHAIN INCLUDES :

– MATERIAL FLOWS

– INFORMATION FLOWS

– FINANCIAL FLOWS
• SUPPLY CHAIN MANAGEMENT IS FACILITATED
BY :
– PROCESSES

– STRUCTURE

– TECHNOLOGY
• Supply chain serves two functions:

– Physical

– Market mediation
• Supply chain objectives may differ from
situation to situation.
• For functional products, cost efficiency is the
critical factor.
• For innovative products, responsiveness is the
important factor.
• Leanness + Agility together make up Leagility
 Supply Chain Structure

SUPPLIER FACTORY DC RDC RETAILER

Raw Materials
Finished Goods

Information Flow
 Supply Chain and Demand Chain

• Demand chain is defined as the system by which

organizations manage sales and distribution of
products and services to end users.
• Conceptually incorrect to look at demand chain
separately

• Look at the pipe as a whole.

• But is there a pipe at all?
– More a network
– Not necessarily linear

• Value chain orchestration rather than controlling

the flow through the pipe

• A network of independent and interdependent

organizations mutually and cooperatively working
together to control, manage and improve the
flow of materials and information from suppliers
to end users
 SUPPLY CHAIN DRIVERS

Not new. Value system of Michael Porter

• Why sudden interest?
– Demanding customers
– Shrinking product life cycles
– Proliferating product offerings
– Growing retailer power in some cases
– Doctrine of core competency
– Emergence of specialized logistics providers
– Globalization
– Information technology
 SUPPLY CHAIN ELEMENTS
• Supply Chain Design
Strategic • Resource Acquisition
• Long Term Planning (1 Year ++)

• Production/ Distribution Planning

• Resource Allocation
Tactical
• Medium Term Planning (Qtrly,Monthly)

• Shipment Scheduling
Operational • Resource Scheduling
• Short Term Planning (Weekly,Daily)
 • Supply Chain Goals

Efficient supply chain management must

result in tangible business improvements. It
is characterized by a sharp focus on
– Revenue growth
– Better asset utilization
– Cost reduction.
 Supply Chain
Management
Underlying Principles

Compression (Planning/Manufacturing/Supply)
Conformance (Forecasts/Plans/Distribution)
Co-operation (Cross -Functional)
Communication (Real Time Data)

Reduce Overall Cycle Time : Improve Response

 Changing Paradigm

• Functional vs Process
• Products vs Customers
• Revenues vs Performance
• Inventory vs Information
• Transactions vs Relationships
 Critical Success Factors today

• Cross functional management and planning

skills
• Ability to define, measure and manage
service requirements by market segment
• Information systems
• Relationship management and win win
orientation
 PUTTING IN PLACE A WELL OILED SUPPLY CHAIN

• Supply chain as an efficient customer satisfying

process
• Effectiveness of the whole supply chain is more
important than the efficiency of each individual
department.
 .
The steps involved

• Step1- Designing the supply chain

– Determine the supply chain network
– Identify the levels of service required
Step 2 - Optimizing the supply chain
• Determine pathways from suppliers to the end
customer
– Customer markets to Distribution centers
– Distribution centers to production plants
– Raw material sources to production plants
– Identify constraints at vendors, plants and
distribution centers
– Get the big picture
– Plan the procurement, production and distribution
of product groups rather than individual products
in large time periods- quarters or years
Step 3- Material flow planning

• Determine the exact flow and timing of materials

• Arrive at decisions by working back from the
projected demand through the supply chain to the
raw material resources
• Techniques
• ERP
Step 4 - Transaction processing and
short term scheduling

• Customer orders arrive at random

• This is a day to day accounting system which tracks
and schedules every order to meet customer demand
• Order entry, order fulfillment and physical
replenishment
 Information flows in Supply Chain Management

• Information is overriding element

• Need for databases
• Master files: Information about customers, products,
materials, suppliers, transportation, production and
distribution data- do not require frequent processing
• Status files- heart of transaction processing- track orders
and infrastructure status- updated daily.
• Essentially using the same information to make all plans
right from structuring the network to processing every
day supply chain tasks.
 THE VIRTUAL VALUE CHAIN

• The value chain connects a company’s supply

side with its demand side.
• Traditionally information has been a
supporting function.
• Information however can be managed far
more creatively.
• There are various stages of using value added
information processes.
• Visibility : See physical operations more
effectively through information. Information can
be used for effective coordination of value chain
activities.
• Mirroring capability : In this stage, virtual
activities are substituted for physical ones. A
parallel value chain is created.
• New customer relationships : The company can
draw on the flow of information in the virtual
value chain to deliver value to customers in new
ways.
 Dealer Management

Conventional functions

• Inventory ownership and management

• Sales and technical support
• Order handling
• Credit
 Contemporary Trends

• Channels being divided into two- Fulfillment and

Franchised agent

• Fulfillment channel- responsible for getting the

manufacturer’s product from the plant to the
end user through a highly efficient logistics and
inventory management system
 Contemporary Trends

• Fulfillment channel may not take ownership of

the product but may perform these functions on
a per box fee structure
• Franchised agents responsible for sales and sales
support but will not write the order or supply
the product
 Issues in customer management

• Penetration vs Spread
• Concentration is necessary to commit the
necessary resources for true customer
integration
• Depth of customer contact
– R&D - sharing information vs developing new
products together
– Logistics - Pros and cons of methods of transportation
vs reengineering the logistics process
Implementation: Points to keep in mind

• Recognize the difficulty of change.

• Prepare a blueprint for change that maps linkages
among initiatives.
• Assess the entire supply chain from supplier
relationships to internal operations to the market
place, including customers, competitors and industry
as a whole.
 IS THE SUPPLY CHAIN WORKING?
• Does our manufacturing strategy increase product line
flexibility while continuing to drive down overall
production costs?
• When was the last time we measured lost sales to end
customers?
• Do we have an efficient system to get POS data from
retailers?
• Are we testing our products with end customers? Do
we use the resulting data to adjust our forecasting and
supply positions?
• Is the ratio of returned orders to sales increasing?
 The New Model of Relationships

• Hard bargaining vs shared destiny

• Exit vs Voice
• Arms length relations vs Involving dealers and
suppliers in product development
• Piling up vs Replenishing dealer inventory more
frequently
• In short working together as partners to cut costs,
boost efficiencies, innovate and share value
• Adversarial vs partnerships
• Short term vs long term contracts
• Large vs small order quantity
• Full truck load vs small parcels
• Inspection vs no inspection
• Written order vs understanding
• Many vs few suppliers
• Design and then invite quote from vendor
vs involving vendor in development
• Bargaining, holding cards close to chest vs
Shared destiny, transparency
Summary
• Segmentation of customers based on service needs
• Customization of logistics network
• Listen to signals of market demand and plan
accordingly.
• Differentiate product close to the customer
• Source strategically
• Develop a supply chain wide technology strategy
• Accept channel spanning performance measures
• The Bullwhip Phenomenon

• Volatility amplification along the network

• Increase in demand variability as we move upstream
away from the market
• Mainly because of lack of communication and
coordination
• Delays in information and material flows
• Bullwhip effect occurs because of various reasons:
• Order Batching - Accumulate orders
• Shortage gaming- Ask for more than what is needed
• Demand forecast updating
 Important points to keep in mind

• Segment customers based on service needs.

• Modify the supply chain to meet these service
requirements profitably.
• Customize the logistics network.
• Develop forecasts collaboratively involving every link
of the supply chain.
• Locate the leverage point where the product is
unalterably configured to meet a single requirement
• Delay product differentiation till the last possible
moment.
• Assess options such as modularized design or
modification of manufacturing processes that can
increase flexibility.
• Cultivate warm relationships with suppliers.
• Efficient supply chain management has to be
accompanied by a technology strategy.
ITALIAN CLOTHING MANUFACTURE
• Warehousing and transportation 6
• Inventory 5
• Late delivery returns 2
• Obsolescence 20
• Lost sales 60

• Need to minimize obsolescence costs

• Minimize product range flexibility
• Reduce product development cycle
 Dell’s Direct Business Model of Virtual
Integration
• Advantages of a tightly coordinated supply chain
traditionally facilitated by vertical integration.
• Combined with focus and specialization.
• Leveraging on investments others have made and
focusing on delivering solutions and systems to
customers
• Fewer things to manage - fewer things go wrong
• Suppliers’ engineers part of Dell’s Design team
• Have only a few partners
 Dell’s Direct Business Model of Virtual
Integration
• Share information with partners in Real time fashion.
• Stitch together a business with partners that are treated
as if they are inside the company.
• Change focus from how much inventory there is to how
fast it is moving
• Assets collect risks around them one way or the other.
• Limited or no testing - Eg. Sony Monitors
 Dell’s Direct Business Model of
Virtual Integration
• Only three Manufacturing centers - Austin, Ireland and
Malaysia.
• Inventory levels and replenishment needs sometimes
conveyed to vendors on hourly basis.
• Substitute information for inventory and ship only
when we have real demand from real end customers
• Clever segmentation - Focus on institutional markets -
70% to very large customers with annual purchases
exceeding $1 million.
 Dell’s Direct Business Model of Virtual
Integration
• Exit from retail business after wrong entry in 1989.
• Segmentation - closeness to customers and access to
valuable information.
• Demand forecasting as a critical sales skill
• Help global customers, manage their total purchase of
PCs by selling them a standard product
• Dell server loads software on customers’ computers
• Meet customers’ needs faster and more efficiently
than any other model.
 Li and Fung, Hong Kong

• Founded in 1906
• Today 35 offices in 20 countries
• 1997 revenues of $ 1.7 billion
• Largest export trading company in Hong Kong
• Customers- American and European retailers
• Sources clothing and other consumer goods
ranging from toys to fashion accessories to
luggage
• Order from Europe
• Buy yarn from Korea
• Weave and dye in Taiwan
• Buy Japanese zippers made in China
• Make the garments in Thailand in five different
factories
• Pulling apart the value chain and optimizing at each
step
• Victor Fung
“ Today, assembly is the easy part. The hard part is managing
your suppliers and the flow of parts.“ Good supply chain
management strips away time and cost from product
delivery cycles. Our customers have become more fashion
driven, working with six or seven seasons a year instead of
just two or three. Once you move to shorter life cycles, the
problem of obsolete inventory increases dramatically. With
customer tastes changing rapidly and markets segmenting
into narrow niches, it’s not just fashion products that are
becoming increasingly time sensitive.”
• Endorsement by Stan Shih, CEO, Acer
• Buying right things
• Reaching into suppliers to ensure that certain things
happen on time and at the right quality level.
• Buyer informs five weeks before delivery.
• Reserve undyed yarn from yarn supplier.
• Lock up capacity in weaving and dyeing mills.
• Outsourcing not same as leaving suppliers to do the
worrying.
• Single factories are too small to have much buying power
and to demand faster deliveries from suppliers.
• To shorten delivery cycle, need to go upstream to
organize production.
• Li & Fung able to delay commitment to a particular
fashion trend.
• Integrated logistics management
• Elimination of consolidators in container shipments
• Smokeless factory
– Design
– Procurement
– Inspection of raw materials
– Production planning
– Line balancing
– Inspection of finished goods
– No worker ownership
– No labour management
“ If we don’t own factories, can we say we are in
manufacturing? Absolutely, because of the 15 steps in
the manufacturing value chain, we probably do 10.”
• Basic operating unit is the division.
• Divisions focused on serving single customers or
groups of small customers.
• Less emphasis on geographic grouping
• Merchandising decisions decentralized
• Financial controls and operating procedures tightly
centralized.
• Strong focus on inventory and working capital
management.
• “As far as I am concerned, inventory is the root of all
evil. At a minimum, it increases the complexity of
managing any business. So it’s a word we don’t
tolerate around here.”
• Need for sophisticated information systems. Li & Fung
working to create a database to systematically track all
supplier relationships.
• “ Someone might steal our database but when they call
up a supplier, they don’t have the long relationship
with the supplier that Li & Fung has. It makes a
difference to suppliers when they know that you are
dedicated to the business, that you have been honoring
your commitments for 90 years.”
• Broadening the middle
• Better prices and better margins for customers
• Tackling the soft $3 in the cost structure. $3
represents the inefficiency in the supply chain for a
consumer product priced at $4. Look at costs
throughout distribution channels than just in factory
 Topic 3:
Global Supply Chain Planning and
Outsourcing
 What is Supply Chain Planning ?

Supply Chain is a set of activities (e.g. purchasing,

manufacturing, logistics, distribution, marketing) that
perform the function of delivering value to end customer

Traditionally, all the business units along a supply chain

have their own objectives and these are often conflicting

There is no single plan to carry out supply chain activities

 What is Supply Chain Planning ?

There is need for a mechanism through which the

execution of various business activities along a supply
chain can be planned in an integrated fashion.

The supply chain planning is an effort to achieve the

primary goal of “producing and distributing the
merchandise at the right quantity, to the right
locations, and at the right time with minimum system
wide cost” in the presence of conflicting goals of various
business units
 Supply Chain Planning Processes
Demand Forecasting
Material Requirement Planning Demand Planning

Component Production
Requirement Plan

Supplier Plant Warehouse Logistics Retailer

Order Management
 Supply Chain Planning Decisions

STRATEGIC

TACTICAL

OPERATIONAL

Procurement Manufacturing Distribution Logistics

 Supply Chain Planning Decisions
• Supplier •Location, Number,
Selection Capacity of Plants • Mode of
•Location, Number,
•Allocation of •What Products to Shipment
Size of Warehouses
Suppliers to the Produce
Plants •Which Plants to • Port Selection
Produce them
•Warehouse
Allocation
• Customer • Vehicle Routing
• Procurement • Inventory
Allocation
Policy Decisions
• Distribution Policy • Fleet Size
• Manufacturing
Policy
• Production
Schedule
•Scheduling on • Finished Goods
• Vehicle Routing
Machines Inventory
• Workload
Balancing
 Conclusions

 Supply Chain Planning: A critical factor in the

success and profitability of a company

 Short Product Life Cycle: Improper planning can

take the company out of business

 Bad News: Planning is an hard problem to formulate

as well as solve

 Good News: Plethora of Commercially available

software for supply chain planning
 Strategic global sourcing
• The coordination and integration of procurement
requirements across worldwide business unit looking at
common items, processes, technologies and suppliers.
• Sourcing no longer equates to instant cost gratification, but
is now defined as a strategic component used to drive
maximum competitive advantage.
• Strategic sourcing is itself a benchmark. It relates to getting
the best products and services at the best value.
• It is designed to segment external spend and ensure that
procurement resources are focused on the most important
categories.
• What sets strategic sourcing apart is its continuous
attention to improving and re-evaluating the purchasing
activities of a company, thus enabling organizations to
adapt to changing market forces.
 Strategic global sourcing
• Global sourcing is a sense of competativeness
• It can cover the cost of Raw materials and
enhance quantity
• It offers a company an ******* to quickly enter
new markets and new products
 Strategic global sourcing
• Any organization most therefore determine an
appropriate enter selecting suppliers for its SC to
remain steady and Robost
• Global sourcing therefore provides an opportunity to
foster a relationship with antoehr supplier, to build
bridges in other countries where both companies are
stakeholders is the success or trade of profits
• Consistence in production, lower SC costs, health
quality goods and motivation to staff is a SC are thus
they objectives and decision areas in SCM.
• The total cost of ownership is also key when selecting
suppliers
 Strategic global sourcing
• The question that must be utilized when making
sourcing decisions in GSCs includes;
•  
• (i) What is the process of selecting a high quality
global supplier
• (ii) How do we balance between the total cost of
ownership and the selection criteria
• (iii) What are the steps in building a costing
relationship with global suppliers
• (iv) What is the sensitivity of the inputs in the SC
• (v) What is the total cost of ownership in the global
sourcing
•  
 Strategic global sourcing
• Supplier selection process
• Choosing the right global supplier in cruised in the success
of global sourcing
• Developing a process flow for the supplier selection
process lays an important role in determining low to select
a high quality suppliers.
• The process must be determined by benchmarking against
companies that have been successful is global sourcing for
a period of time
• Domestically, its easier to identify, negotiate and
communicate with the lowest unit cost supplier
•  
• While in global sourcing is more complex and compromise
need to be made
 Strategic global sourcing
• There are many factors to be analyzed during the
supplier selection process
• Availability of the technological pace to produce
the required material / service
• Availability of selected labor force necessary to
produce / provide service / goods
• A requisite standard quality / quantity
programmes
 Strategic global sourcing
• The technical support for maintaining the
components / service ******* flexibility to
management different hot sizes
• Effectiveness in protecting the management from
proprietary
• Reliability of transportation company between
the supplier location and that of the management
• The lower country risks especially the political
power national / mass made disasters and cover
commodity risk.
 Strategic global sourcing
•  
• The actual steps involved in selecting a supplier in global SCS involved
– Pre selection of two global suppliers – utilize the in country consultants to help
identify suppliers that have the capacity to produce / provide tax goods / services
• Any supplier is considered a potential candidate
• The size of the company can be considered length of time in the industry and
capacity
•  
– Prepare a request for quote (RFQ ) – Ac RFQ is critical to the decision making
process as it ensures fair and accurate companies across suppliers
• It is ****** of a questionnaire used to borrow the number of suppliers that but
the general criteria
• RFQ, allows the supplier to be innovative and give them room to offer act
structure that could further reduce costs
•  
• Contents of RFQ
• Back good information
• Evaluation criteria
• Lost of key contacts
• Confidentiality and conditions agreement
 Strategic global sourcing
• RFQ instructions
• Technical specification
• Material handling instructions
• - The information requested from supplier
company include;
• The company information
• The technological support
• Customer service
• Quality control
 Strategic global sourcing
• Cost sheets
•  
• (iii) Analyze RFQ response
• After all the RFQ response have been received
they must be checked for commissions and
consistency
 Strategic global sourcing
• Estimate the overall costs and benefits including
the strengths and weaknesses
• It should be done with experienced and unbiased
view points
• Strategic considerations can be made with
recommendations on cost benefit analysis.
 GLOBAL SOURCING
• Global sourcing is a strategic sourcing strategy that
effectively broadens the scope of the procurement
process to include companies that operate in other
countries.
• The use of global sourcing has been the driving force
behind the development and expansion of the global
economy.
• Including suppliers from around the world in the bidding
process for large contracts reduces prices and increases
competition.
• The creation of this type of infrastructure allows firms to
create subsidiary offices in locations around the world.
• There are three main industries that are ideal for global
souring: manufacturing, skilled services and telephone call
centers
 Motives of buying overseas: -
1. Changes in business environment e.g.: -
– Intense international competition.
– Pressure to reduce costs.
– Need for manufacturing flexibility .
– Need for shorter product development cycle.
– Stringent quality standards.
– Ever changing technology.
2. Factors relating to the needs and competitiveness of the
enterprise e.g.:-
– Unavailability of raw materials locally.
– Insufficient domestic capacity to meet demand \insurance
reasons such as buying abroad to ensure continuity of supplies
when domestic sources are threatened by shortages or strikes.
– Competitiveness of oversee sources, including lower prices,
improved delivery and better quality.
– Reciprocal trading and countertrade resulting from policy
reasons or government pressure due to balance of payment
considerations.
– Access to worldwide technology.
– To obtain a penetration of growth market.
 Benefits of international sourcing: -
1) Access to lower priced goods.
2) Enhanced competitive position.
3) Access to high quality goods.
4) Access to world wide technology.
5) Better delivery performance.
6) Better customer service .
7) Increased number of suppliers.
8) Helps meet countertrade obligations.
 Challenges on international souring:

1) JIT sourcing requirements.

2) Finding qualified foreign sources.
3) Logistics support for longer supply links.
4) Culture and language differences.
5) Duty and customs.
142
 TOPIC

Information Technology
and the Global Supply Chain
 Role of Information Technology
in a Supply Chain
• Information is the driver that serves as the “glue”
to create a coordinated supply chain
• Information must have the following
characteristics to be useful:
– Accurate
– Accessible in a timely manner
– Information must be of the right kind
Role of Information Technology
in a Supply Chain
• Information technology (IT)
– Hardware and software used throughout the
supply chain to gather and analyze information
– Captures and delivers information needed to
make good decisions
• Effective use of IT in the supply chain can
have a significant impact on supply chain
performance
 The Importance of Information
in a Supply Chain
• Relevant information available throughout
the supply chain allows managers to make
decisions that take into account all stages
of the supply chain
• Allows performance to be optimized for
the entire supply chain, not just for one
stage – leads to higher performance for
each individual firm in the supply chain
Characteristics of Useful Supply Chain
Information

• Accurate
• Accessible in a timely manner
• The right kind
• Provides supply chain visibility
Use of Information in a Supply Chain
• Information used at all phases of decision
making: strategic, planning, operational
• Examples:
– Strategic: location decisions
– Operational: what products will be produced
during today’s production run
Use of Information in a Supply Chain
• Inventory: demand patterns, carrying costs,
stockout costs, ordering costs
• Transportation: costs, customer locations,
shipment sizes
• Facility: location, capacity, schedules of a
facility; need information about trade-offs
between flexibility and efficiency, demand,
exchange rates, taxes, etc.
 The Supply Chain IT Framework
• The Supply Chain Processes
– Customer Relationship Management (CRM)
– Internal Supply Chain Management (ISCM)
– Supplier Relationship Management (SRM)
– Plus: Transaction Management Foundation
 Supply Chain IT Framework

Supplier Internal Customer

Relationship Supply Chain Relationship
Management Management Management
(SRM) (ISCM) (CRM)

Transaction Management
Foundation (TFM)
Customer Relationship Management

• The processes that take place between an

enterprise and its customers downstream in the
supply chain
• Key processes:
– Marketing
– Selling
– Order management
– Call/Service center
Internal Supply Chain Management
• Includes all processes involved in planning for and
fulfilling a customer order
• Eg
– Demand Planning
– Supply Planning
– Fulfillment
– Field Service
• There must be strong integration between the
ISCM and CRM macro processes
Supplier Relationship Management
• Those processes focused on the interaction
between the enterprise and suppliers that are
upstream in the supply chain
• eg
– Design Collaboration
– Source
– Negotiate
– Buy
– Supply Collaboration
 The Transaction Management
Foundation
• Known as Enterprise software systems (ERP)
• Earlier systems focused on automation of
simple transactions and the creation of an
integrated method of storing and viewing data
across the enterprise
• TMF enables integration across the three
macro processes
 Implementing Supply Chain
Information Technology Systems
• Select an IT system that addresses the company’s
key success factors
• Take incremental steps and measure value
• Align the level of sophistication with the need for
sophistication
• Use IT systems to support decision making, not to
make decisions
• Think about the future