Issues in International supply chain

y International supply chain is the same as domestic

supply chain management spread over a larger geographic area. y International supply chain network can provide a wealth of additional opportunities if they are managed effectively. y At the same time there are many additional potential problems and pitfalls to be aware of. y International supply chains can run the gamut from a primarily domestic business with some international suppliers to a truly integrated global supply chain.

Advantages :
y International distribution systems:

y local manufacturing but distribution and marketing takes place

overseas.

International Suppliers:
y Raw materials and Components furnished by foreign suppliers , but

final assembly is performed domestically, in some case, the final product is shipped to foreign markets
y Offshore manufacturing:

y Product is typically sourced and manufactured in a single foreign

location, and then shipped back to domestic warehouses for sale and distribution
y Fully integrated global supply chain:

y Products are supplied, manufactured and distributed from factories

located throughout the world y Supply chain is designed without regard to national boundaries.

Factors leading to Globalization

y Global market forces y Technological forces. y Global cost forces. y Political and economic forces.

Global Market Forces

y Involve the pressures created by foreign competitors as well

as the opportunities created by foreign customers y As in the dry breakfast cereal business, dominated by Kellogg Co. in US and Nestle in Europe
y Their failed attempts in the past to penetrate each others home markets,

combined with the threat of retaliation, are enough to maintain the status quo

y Overflow of information can be one reason of global demand y Ex) Television, E-mail, Internet

Technological Forces
Related to the product themselves y Various subcomponents and technologies are available in different regions and locations around the world
y Global location of research-and-development facilities is

becoming more common y product cycles become shorter and time more important, companies have discovered how useful it is to located research facilities close to manufacturing facilities y Specific technical expertise may be available in certain areas or regions
y Ex) Microsoft recently opened a research lab in Cambridge, England to take

advantage of the expertise available in Europe

Global Cost Forces

y Global location decisions y In the past the low cost of unskilled labor was decisive factor in

determining factory location y Recently, other global cost forces have become more significant
y Many of the analyses and programs that US consulting firms undertook to address

the Year 2000 problem were done in India, where programming skills are much cheaper y Capital cost of building a new facility often dominate labor cost

Political and Economic Forces

y Affect the drive toward globalization y Regional trade agreements drive companies to expand into one of the

countries in the regional group

y A companys advantage to obtain raw materials from or to manufacture within

European, Pacific Rim, or North America trading block

y Various trade protection mechanisms can affect international

supply chain decisions. y Tariffs and quotas affect what can be imported, and lead a company to decide to manufacture within the market country or region

RISK AND ADVANTAGES OF INTERNATIONAL SUPPLY CHAINS

y Cost can be lowered with greater potential for raw material,

labor, and outsourcing sources and a greater number of potential manufacturing sites.
y Management understand the different demand characteristics and cost

advantages of different regions

y The global supply chain can provide a firm with the

flexibility to address in the international markets y Flexibility can be used to counteract the inherent risks from various factor that are relevant to global companies

Risks
y Fluctuating exchange rates y Change relative value of production and profit y Operating exposure y Customer reactions y How a firm adjusts prices in various market y Competitor reactions y Competitors relative cost decrease more, a firm can be underpriced in the market y Government reactions y Intervene to stabilize currencies or even directly support endangered

firms by providing subsidies or tariffs

Addressing Global Risks

y Speculative Strategies y A company bets on a single scenario, with often spectacular results if

the scenario is realized, and dismal ones if it is not y Hedge Strategies y A company designs the supply chain in such a way that any losses in part of the supply chain will be offset by gains in another part y Flexible Strategies y Enable a company to take advantage of different scenarios y Typically, flexible supply chains are designed with multiple suppliers and excess manufacturing capacity in different countries y Factories are designed to be flexible, so that products can be moved at minimal cost from region to region as economic conditions demand

y Production shifting y Flexible factories and excess capacity and suppliers can be used to shift

Addressing Global Risks

production from region to region to take advantage of current circumstances y Information sharing y Information can be used to anticipate market changes and find new opportunities y Global coordination y Having multiple facilities worldwide provides a firm with a certain amount of market leverage that it might otherwise lack. y Political leverage y The opportunity to move operations rapidly gives firms a measure of political leverage in overseas operations

Requirements for Global Strategy Implementation

y Product development y It is important to design products that can be modified easily for

major markets, and which can be manufactured in various facilities y Purchasing y A company will find it useful to have management teams responsible for the purchase of important materials from many vendors around the world
y easier to ensure that the quality and delivery options from various suppliers are

compatible

y Production y Excess capacity and plants in several regions are essential if firms are

to take full advantage of the global supply chain by shifting production as conditions warrant
y Centralized management are essential in this case

Requirements for Global Strategy Implementation

y Demand management y It involves setting marketing and sales plans based on projected demand

and available product, is carried out on a regional basis

y Order fulfillment y To successfully implement a truly flexible supply chain management

system, a centralized system must be in place so that regional customers can receive deliveries from the global supply chain with the same efficiency as they do from local or regionally based supply chain

ISSUES IN INTERATIONAL SUPPLY CHAIN MANAGEMENT

y Region-specific products y Some products have to be designed and manufactured specifically for

certain regions
y For example, automobile designs are often Region specific y Ex) Honda Accord has 2 type of body

y True global products y These products are truly global, in the sense that no modification is

necessary for global sales y Ex) Coca-Cola, Levis jeans and McDonalds burgers

Local Autonomy versus Central Control

y Centralized control can be important in taking advantage of

some of the strategies y But in many cases it makes sense to allow local autonomy in the supply chain y Regional operation have proven to be successful y Regional business depending on the characteristics of the region
y Japan, German, U.S

Miscellaneous Dangers
y Exchange rate fluctuation y Offshore facilities y Cheap labor y Expensive training y Local collaboration y Dangers related to foreign governments y Ex) To deal with China and gain access to that countrys huge markets,

many companies are handing over critical manufacturing and engineering expertise to the Chinese government or to Chinese partners y protectionism

REGIONAL DIFFERENCES IN LOGISTICS

y Cultural Differences y Cultural differences can critically affect the way international

subsidiaries interpret the goals and pronouncements of management

y Language - expression, gestures, context y Belief - differ widely from culture to culture y Customs - differ widely from culture to culture

REGIONAL DIFFERENCES IN LOGISTICS

y Infrastructure
First World
Infrastructure Highly developed

Emerging
Under developed

Third World
Insufficient to support advanced logistics

y First World, relative economic conditions have affected the mix of

logistics and supply chain components y Emerging nations, the supply chain infrastructure is usually not fully in place. logistics as a necessary expense and not a strategic advantage. y Third World, the infrastructure is generally insufficient to support advanced logistics operations

REGIONAL DIFFERENCES IN LOGISTICS

y Performance Expectation and Evaluation y First World, operating standards are generally uniform and high y Emerging nations, operating standards typically vary greatly y Ex) contract appointment y In the Third World, traditional performance measures have no

meaning
y Shortages are common y Customer service measure have no meaning

REGIONAL DIFFERENCES IN LOGISTICS

y Information System Availability y First World, computer technology has increased at same rate across

different nations
y POS, EDI

y Emerging nations, Support systems may not be in place to implement

efficient information systems

y Communication network incomplete and not reliable

y Third World, Advanced information technology is simply not available y Inefficient communication system

REGIONAL DIFFERENCES IN LOGISTICS

y Human Resources y First World, technically and managerially competent workers are

available
y Unskilled labor is relatively expensive

y Emerging nations, skilled managerial and technical personnel are

frequently not available y Third World, Although it may be possible to find employees that are appropriate to the available technology level
y Difficult to find Trained logistics professionals and managers familiar with

modern management techniques