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Supply Chain Management: International Issues in SCM

Supply Chain Management: International Issues in SCM 33
Supply Chain Management: International Issues in SCM Donglei Du (dduunb.edu) Faculty of Business Administration, University of New Brunswick, NB Canada Fredericton E3B 9Y2 Donglei Du (UNB) SCM 1 / 32Table of contents I 1 Introduction 2 Forces Driving Globalization Global Market Forces Technological Forces Global Cost Forces Political and Economic Forces 3 Risks of international supply chains and how to address them 4 Flexible strategies Implementation 5 Additional issues in international supply chain management 6 Case Donglei Du (UNB) SCM 2 / 32Outline of this lecture I We introduce the opportunities and challenges in International Supply Chain Management. Donglei Du (UNB) SCM 3 / 32Section 1 Introduction Donglei Du (UNB) SCM 4 / 32International Supply Chain Management I International Supply Chain management is the same as domestic supply chain management spread over a larger geographic area. Although it seems that global supply chains are designed without regard to national boundaries, but the true value of a global supply chain can only be realized by taking advantage of these national boundaries. It is readily apparent that global operations and supply chains are becoming increasingly signi cantthis can be seen from some statistics below: 1/5 of output of US rms produced abroad US Companies hold 500 Billion in foreign asset stocks (7 annual growth) 1/4 of US imports between foreign aliates and US parent companies Donglei Du (UNB) SCM 5 / 32International Supply Chain Management II Over half of US companies increased the number of countries in which they operate (late 80s to early 90s) However, opportunities and challenges coexist Donglei Du (UNB) SCM 6 / 32Taxonomy of International Supply Chains I International Supply Chains range from a primarily domestic business with some international suppliers to a truly integrated global supply chain. International distribution: manufacturing occurs domestically, but distribution and marketing take place overseas. International suppliers: raw materials and components are furnished by foreign suppliers, but assembled domestically (probably shipped back to foreign countries for consumption). O shore manufacturing: nished product is sourced and manufactured overseas and then shipped back to domestic warehouses for sale and distribution. Fully integrated global supply chain: products are supplied, manufactured, and distributed from variable facilities located throughout the world. Donglei Du (UNB) SCM 7 / 32Section 2 Forces Driving Globalization Donglei Du (UNB) SCM 8 / 32Forces Driving Globalization I Global Market Forces Technological Forces Global Cost Forces Political and Economic Forces Donglei Du (UNB) SCM 9 / 32Subsection 1 Global Market Forces Donglei Du (UNB) SCM 10 / 32Global Market Forces I Foreign competition in local markets Growth in foreign demand Domestic consumption from 40 to less than 30 of world consumption since 1970 One cause of the increasing demand throughout the world is the global proliferation of information. "People have became global citizens and so must companies that want to sell them things." Companies have to compete globally with universal products and the opportunity to hire talented employees worldwide. For example, you have to compete with Japanese consumer electronics, and Germany's machine tools and US's SUV'S worldwide. Donglei Du (UNB) SCM 11 / 32Subsection 2 Technological Forces Donglei Du (UNB) SCM 12 / 32Technological Forces I Di usion of knowledge Many high tech components developed overseas Need close relationships with foreign suppliers Technology sharing/collaborations Access to technology/markets Global location of RD facilities Close to production (as cycles get shorter) Close to expertise (Indian programmers) Donglei Du (UNB) SCM 13 / 32Subsection 3 Global Cost Forces Donglei Du (UNB) SCM 14 / 32Global Cost Forces I Low (unskilled) labor cost has been the decisive factor in determining factory location However recent studies show that the cost of cheaper unskilled labor were more than o set by the increase in other costs associate with operating facilities in foreign countries (Costs underestimated, bene ts overestimated). So we should also take into consideration of other cost priorities Integrated supplier infrastructure (as suppliers become more involved in design) Cheaper Skilled labor Capital intensive facilities costs often dominate other costs. Many governments are willing to provide incentives to attract business via tax breaks Donglei Du (UNB) SCM 15 / 32Global Cost Forces II joint ventures price breaks cost sharing Donglei Du (UNB) SCM 16 / 32Subsection 4 Political and Economic Forces Donglei Du (UNB) SCM 17 / 32Political and Economic Forces I Exchange rate uctuations and operating exibility On one hand, there are regional trade agreements (Europe, North America, Paci c Rim) to ease the globalization. On the other hand, there are trade protection mechanisms that a ect international supply chain decisions. Tari s and Quotas a ect importation, which may lead a company to stay domestically. Voluntary export restrictions can also a ect supply chain: For example, Japanese automakers were only to manufacturing more expensive cars only after they agree voluntarily to limit exports to US market. Local content requirements forces companies, like TI/Intel to manufacture microprocessors in Europe and Japanese automakers produce cars in the EU Donglei Du (UNB) SCM 18 / 32Political and Economic Forces II Government procurement policies: Up to 50 advantage for American companies on US Defense contracts Donglei Du (UNB) SCM 19 / 32Section 3 Risks of international supply chains and how to address them Donglei Du (UNB) SCM 20 / 32Risks of international supply chains and how to address them I The major risk is the uctuating exchange rates, a double razor, which can turn a particular product selling at a particular price from being extremely pro table to a total loss and vice versa. There are three ways a global supply chain can be employed to address global risks. Speculative strategies: Company bet on a single scenario, with often spectacular results if the senario is realized, and dismal one if it is not. Donglei Du (UNB) SCM 21 / 32Risks of international supply chains and how to address them II For example, in the late 1970s and 1980s, the Japanese automakers won the bet on manufacturing in Japan because they believe rising domestic labor costs can be o set by exchange rate bene ts. However, this did not last long because the US government intervenes to force the Japanese government to raise the value of Japanese Yen (similar thing is happening now between US and China). Hedge strategies: A SC is designed in such a way that any losses in part of the chain will be o set by gains in another part. For example, Volkswagen are operating plants in US, Brazil, Mexico, and Germany. Flexible strategies: A SC is designed with multiple suppliers and and excess manufacturing capacity in di erent countries so that products can be moved at minimal cost from region to region as economic conditions demand. Donglei Du (UNB) SCM 22 / 32Risks of international supply chains and how to address them III We will discuss more on the last strategy, which is the most popular one right now. Donglei Du (UNB) SCM 23 / 32Section 4 Flexible strategies Implementation Donglei Du (UNB) SCM 24 / 32Flexible strategies Implementation I First we need to consider whether it is possible implement such a strategy. 1 Is there enough variability in the system to justify the use 2 Do the bene ts of spreading production over various facilities justify the costs 3 Does the company have the appropriate coordination and management mechanisms in place If the answer to the questions is yes, and a SC is appropriately designed, then several approaches can be utilized to implement a exible strategies e ectively. Product shifting: As exchange rates, labor cost and so on change, manufacturing can be relocated. Information sharing: Availability of information increases with presence over many regions and markets, which in turn can be used to create new opportunities. Donglei Du (UNB) SCM 25 / 32Flexible strategies Implementation II Global coordination: Having multiple facilities worldwide provides a rm with some market leverage that it might otherwise lack. For example, if one rm attacks one of your markets, you can attack back. Political leverage: The implicit threat of movement is sucient to prevent local politicians from taking unfavorable actions. Donglei Du (UNB) SCM 26 / 32Requirements for global strategy implementation I NO company is immediately ready for integrated global supply chain management on this scale. So important developments to set the stage is critical: Product development: Design product that can easily modi ed for major markets and can be manufactured in various facilities. Purchasing: A management team responsible for worldwide purchasing from many vendors is extremely important. Production: Production worldwide must be coordinated based on e ective information sharingso a centralized control may be appropriate. Demand management: How to integrate local demand forecasts is a complicated job, which again heavily depends on e ective communication system and centralized control. Order ful llment: Again e ective communication system and centralized control are critical. Donglei Du (UNB) SCM 27 / 32Section 5 Additional issues in international supply chain management Donglei Du (UNB) SCM 28 / 32Additional issues in international supply chain management I International vs. regional products: Automobile designs are often regionspeci c. Cocacola and McDonald are essentially true global. Local autonomy vs. central control: Regional cultural di erent: such as language, beliefs and customs. Regional infrastructure di erent: First world: advanced Emerging nations: fair and in rapid deployment Third world: insucient Regional performance expectation and evaluation: First world: standardized Donglei Du (UNB) SCM 29 / 32Additional issues in international supply chain management II Emerging nations: vary greatly Third world: insucient Information system availability: First world: advanced Emerging nations: fair and in rapid deployment Third world: insucient Human resource First world: available but expensive Emerging nations: vary greatly but usually cheap Third world: insucient Donglei Du (UNB) SCM 30 / 32Section 6 Case Donglei Du (UNB) SCM 31 / 32A Case: WalMart in South America I Why is WalMart not as successful in Latin America as they are in the US What mistakes did WalMart make Product di erences Are there global products What is the balance between local tastes, global products Dealing with established competition, aggressive competitors Developing market knowledge Lack of critical mass Di erent infrastructure/ business environment distribution problems di erent equipment standards cultural di erences postdated checks Issues with foreign governments Deep pockets for success Donglei Du (UNB) SCM 32 / 32
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