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DPS 406 Global Supply Chain Management Notes 2011
DPS 406 Global Supply Chain Management Notes 2011
MANAGEMENT
1
Bibliiography
Clarkson University. “Global Supply Chain Management.” www.clarkson.edu May
7, 2002.
Global Supply Chain Associates homepage. www.gsca.com May 7, 2002.
Macaulay Institute. “Why have these global supply chains developed.”
www.mluri.sari.ad.uk/ May 8, 2002.
Russell, Roberta and Taylor,
Bernard. Operations Management. New Jersey: Prentce Hall, Inc. 2000.
pp 373-86.
The Forum. “The Stanford Global Supply Chain Management Forum.”
www.stanford.edu/group/scforum/ May 8, 2002.
• Michigan State University’s Global Logistics Research Team (1995), World Class
Logistics: The Challenge of Managing Continuous Change,” Oak Brook, IL: Council of
Logistics Management (Sponsored by the Council of Logistics Management).
• Locke, Dick (1996), Global Supply Management, Boston, MA: McGraw Hill
(Sponsored by the National Association of Purchasing Management).
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).
3
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.
4
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:
5
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
6
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.
7
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.
8
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.
9
Historical developments in supply
chain management
Specialization era—phase one: outsourced
manufacturing and distribution
10
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.
11
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.
12
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.
13
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".
14
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.
15
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.
16
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. 17
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.
18
The Need for Supply Chain Management
19
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.
20
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
21
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.
22
Reasons cont…….
Lack of trust inside and outside a company.
23
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.
24
Elements of SCM Cont…….
Inventory - Meeting demand requirements
while managing the
costs of holding inventory
25
Elements……..
Suppliers - Monitoring supplier quality, on-time delivery,
and flexibility maintaining supplier relations
26
Elements cont…..
Capacity Planning - Matching supply and demand
27
TOPIC TWO: OVERVIEW OF
GLOBAL SUPPLY CHAIN
28
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
29
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
30
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:-
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
Sourcing
Dom estic In-House Sourcing Offshore Subsidiary Sourcing Dom estic Purchasing Arrangem ent Offshore Outsourcing
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
• 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.
M
Technology Development
ar
gi
n
PROCUREMENT
Information Technology
OUTBOUND LOGISTICS
INBOUND LOGISTICS
Service
n
gi
ar
Primary Activities M
Source: Porter 1985
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.
– 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.
• Customs Duty
– Duty rates differ by commodity and level of assembly
– Impact of GATT/WTO: Changes over time
• 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
• 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?
• 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)?
71
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
Schedule / Stock
Conversion Delivery
Resources Deployment
– 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
Raw Materials
Finished Goods
Information Flow
Supply Chain and Demand Chain
• Shipment Scheduling
Operational • Resource Scheduling
• Short Term Planning (Weekly,Daily)
• Supply Chain Goals
Compression (Planning/Manufacturing/Supply)
Conformance (Forecasts/Plans/Distribution)
Co-operation (Cross -Functional)
Communication (Real Time Data)
• Functional vs Process
• Products vs Customers
• Revenues vs Performance
• Inventory vs Information
• Transactions vs Relationships
Critical Success Factors today
Conventional functions
• 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
• 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
124
Topic 3:
Global Supply Chain Planning and
Outsourcing
What is Supply Chain Planning ?
Component Production
Requirement Plan
Order Management
Supply Chain Planning Decisions
STRATEGIC
TACTICAL
OPERATIONAL
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
Transaction Management
Foundation (TFM)
Customer Relationship Management
Distribution
Consumer
171
Issues in Global trade and Supply Chain
4) Export Packers
– The export packing company provides a service to companies
unfamiliar with exporting.
– Some countries require specific packaging specifications and the
export packer’s knowledge in these matters are invaluable to the
novice exporter.
– In addition the export packer can advise companies on appropriate
design and materials for the packaging of their items.
– Packing companies can also assist companies in minimizing
packaging so that they can maximize the number of items to be
shipped and reduce shipping costs.
5) Customs Brokers
– The customs broker helps companies to avoid the pitfalls
involved with customs regulations and dealing with the
complete customs process.
– The customs requirements of many countries can be difficult
to understand for the novice exporter and the knowledge and
experience of the customs broker is vital.
– Many countries have specific laws and documentation
requirements for importing items that are not always obvious
to the exporter.
– The customs broker can offer a company a complete package
of services that are essential when a company is exporting to
a large number of countries.
Thank you ! !