1. International Issues in Supply Chain Management
Designing & Managing the Supply Chain
Chapter 8
Yun-Ho Song

2. Outline CASE : Wal-Mart Changes Tactics to Meet International Tastes
INTRODUCTION
RISK AND ADVANTAGES OF INTERANTIONAL SUPPLY CHAINS
ISSUES IN INTERATIONAL SUPPLY CHAIN ANAGEMENT
REGIONAL DIFFERENCES IN LOGISTICS
SUMMARY

3. Wal-Mart Changes Tactics to Meet International Tastes
Wal-Mart Stores is finding out that what plays in Peoria isn’t necessarily a hit in suburban Sao Paulo
Tanks of live trout are out; sushi is in
American footballs have been replaced by soccer balls
American-style jeans price at $19.99 have been dropped in favor of $9.99 knock-offs
Adapting to local tastes may have been the easy part
Three years after embarking on a blitz to bring “everyday low price” to the emerging market of Brazil and Argentina
Wal-Mart is finding the going tougher than expected
However Wal-mart produced red ink
Brutal competition
Don’t achieve efficiency through economies of scale
Own mistakes

4. DEEP POCKET
Wal-Mart has revised its merchandising in Brazil and Argentina and made other changes
4 newest stores are smaller than the initial outlets in San Paulo and Buenos Aires
It located at Mid size cities where competition isn’t so force
8 stores are planned to open in both Argentina and Brazil next year, doubling the number now in each country
Wal-Mart’s global expansion drive, which is targeting not only South America but also China Indonesia
The markets of China and Indonesia are promising and pitfalls
The growth is dwindling in America

5. A SMALL OPERATION SO FAR
The six-year-old international operation is relatively tiny
It accounted for only 4.8 percent of Wal-Mart’s 1996 sales
Most of the company’s international revenue comes from Canada
Mr. Glass expects international growth to account for a 1/3 of War-Mart’s annual increase in sales and profits within three to five years

6. LOSSES FORECAST
SA, expect Wal-Mart to lose $20 million to $30 million in Brazil this year, on top of an estimated $48 million in losses since starting up in South America in 1995
Some store in Buenos Aires, a few shoppers are in the store during peak hours one Sunday
Little difference between the goods at Wal-Mart and those at near by Carrefour
Competitor’s chain supermarket supply fresh meat
Carrefour drives Hard bargains with its suppliers, can afford to play low-ball because it has the critical mass that War-Mart lacks here
Carrefour holds down overhead by stocking far-narrow selection of merchandise
Ex) Carrefour in La Plata, Argentina, stocks 22,000 items, while the Wal-Mart next door carries 58,000 items

7. DISTRIBUTION PROBLEMS
Wal-Mart’s effort to stock such a wide variety of merchandise is hurting it
Squeezing out costs in the supply chain is crucial to it’s EDL pricing formula
Bumper-to-bumper traffic of San Paulo
The biggest issue Wal-Mart is shipping product on time and getting on the shelf
Wal-Mart recently built a warehouse in Argentina and Brazil to reduce distribution problem

8. VARIOUS MISTAKES
Wal-Mart’s troubles in South America stem partly from its own mistakes
Some goods are useless in San Paulo
Ex) Live trout, American footballs, Cordless tools
Wal-Mart brought in stock-handling equipment that didn’t work with standardized local pallets
Installed a computerized bookkeeping system that failed to take into account Brazil’s wildly complicated tax system

9. PROBLEMS CALLED TEMPORARY
Wal-Mart’s Mr. Glass characterized the missteps are regarded as temporary problems and inevitable in entering a new market.

10. INTRODUCTION Important of Global operation and Supply chain
Dornier’s statistics
About 1/5 of the output of U.S. firms is produced overseas
1/4 of U.S. imports are between foreign affiliates and U.S. parent companies
Since the late 1980s, over half of U.S. companies increased the number of countries in which they operate

11. INTRODUCTION International distribution systems
Manufacturing occur domestically, but distribution and typically some marketing take place overseas
International suppliers
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
Offshore manufacturing
Product is typically sourced and manufactured in a single foreign location, and then shipped back to domestic warehouses for sale and distribution
Fully integrated global supply chain
Products are supplied, manufactured and distributed from factories located throughout the world

12. Global Market Forces
Involve the pressures created by foreign competitors as well as the opportunities created by foreign customers
As in the dry breakfast cereal business, dominated by Kellogg Co. in US and Nestle in Europe
They failed attempts in the past to penetrate each other’s home markets, combined with the threat of retaliation, are enough to maintain the status quo
Overflow of information can be one reason of global demand
Ex) Television, , Internet

13. Technological Forces Related to the product themselves
Various subcomponents and technologies are available in different regions and locations around the world
Global location of research-and-development facilities is becoming more common
product cycles become shorter and time more important, companies have discovered how useful it is to located research facilities close to manufacturing facilities
Specific technical expertise may be available in certain areas or regions
Ex) Microsoft recently opened a research lab in Cambridge, England to take advantage of the expertise available in Europe

14. Global Cost Forces Global location decisions
In the past the low cost of unskilled labor was decisive factor in determining factory location
Recently, other global cost forces have become more significant
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
Capital cost of building a new facility often dominate labor cost

15. Political and Economic Forces
Affect the drive toward globalization
Regional trade agreements drive companies to expand into one of the countries in the regional group
A company’s advantage to obtain raw materials from or to manufacture within European, Pacific Rim, or North America trading block
Various trade protection mechanisms can affect international supply chain decisions.
Tariffs and quotas affect what can be imported, and lead a company to decide to manufacture within the market country or region
Ex) Local content

16. RISK AND ADVANTAGES OF INTERANTIONAL SUPPLY CHAINS
Cost can be lowered with greater potential raw material, labor, and outsourcing sources and a greater number of potential manufacturing sites.
Management understand the different demand characteristics and cost advantages of different regions
The global supply chain can provide a firm with the flexibility to address the in international markets
Flexibility can ne used to counteract the inherent risks from various factor that are relevant to global companies

17. Risks Fluctuating exchange rates Operating exposure
Change relative value of production and profit
Operating exposure
Customer reactions
How a firm adjusts prices in various market
Competitor reactions
Competitor’s relative cost decrease more, a firm can be underpriced in the market
Government reactions
Intervene to stabilize currencies or even directly support endangered firms by providing subsidies or tariffs

18. Addressing Global Risks
Speculative Strategies
A company bets on a single scenario, with often spectacular results if the scenario is realized, and dismal ones if it is not
Hedge Strategies
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
Flexible Strategies(1/2)
Enable a company to take advantage of different scenarios
Typically, flexible supply chains are designed with multiple suppliers and excess manufacturing capacity in different countries
Factories are designed to be flexible, so that products can be moved at minimal cost from region to region as economic conditions demand

19. Addressing Global Risks
Flexible Strategies(2/2)
several approaches
Is there enough variability in the system to justify the use of flexible strategies?
Do the benefits of spreading production over various facilities justify the cost?
Does the company have the appropriate coordination and management mechanisms in place to take rapid advantage of flexible strategies?

20. Addressing Global Risks
Production shifting
Flexible factories and excess capacity and suppliers can be used to shift production from region to region to take advantage of current circumstances
Information sharing
Information can be used to anticipate market changes and find new opportunities
Global coordination
Having multiple facilities worldwide provides a firm with a certain amount of market leverage that it might otherwise lack(Ex p)
Political leverage
The opportunity to move operations rapidly gives firms a measure of political leverage in overseas operations
governments are lax in enforcing contracts or international law, or present expensive tax alternatives, firms can move their operations

21. Requirements for Global Strategy Implementation
Product development
It is important to design products that can be modified easily for major markets, and which can be manufactured in various facilities
Purchasing
A company will find it useful to have management teams responsible for the purchase of important materials from many vendors around the world
easier to ensure that the quality and delivery options from various suppliers are compatible
Production
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
Centralized management are essential in this case

22. Requirements for Global Strategy Implementation
Demand management
It involves setting marketing and sales plans based on projected demand and available product, is carried out on a regional basis
Order fulfillment
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

23. Review the last part Following Forces are lead the Globalization
Global market forces - opportunity
Technological forces - product
Global cost forces- location, labor, Y2k
Political and economic forces – local contents
Addressing global risk
Speculative Strategies – set one scenario
Hedge Strategies – one part loss, but other part get income
Flexible Strategies – typically contract many supplier and design the surplus produce capacity
Production shifting
Information sharing
Global coordination – market leverage

24. ISSUES IN INTERATIONAL SUPPLY CHAIN MANAGEMENT
Region-specific products
Some products have to be designed and manufactured specifically for certain regions
For example, automobile designs are often Region specific
Ex) Honda Accord has 2 type of body
Ex p
True global products
These products are truly global, in the sense that no modification is necessary for global sales
Ex) Coca-Cola, Levi’s jeans and McDonald’s burgers
Consider carefully which of the 2 product type is more appropriate for a particular situation

25. Local Autonomy versus Central Control
Centralized control can be important in taking advantage of some of the strategies
But in many cases it makes sense to allow local autonomy in the supply chain
Regional operation have proven to be successful
Regional business depending on the characteristics of the region
Japan, German, U.S
Ex 8-4 p 256

26. Miscellaneous Dangers
Exchange rate fluctuation
Offshore facilities
Cheap labor
Expensive training
Local collaboration (Ex p)
Dangers related to foreign governments
Ex) To deal with China and gain access to that country’s huge markets, many companies are handing over critical manufacturing and engineering expertise to the Chinese government or to Chinese partners
protectionism (Ex p)

27. REGIONAL DIFFERENCES IN LOGISTICS
Cultural Differences
Cultural differences can critically affect the way international subsidiaries interpret the goals and pronouncements of management
Language - expression, gestures, context
Belief - differ widely from culture to culture
Customs - differ widely from culture to culture

28. REGIONAL DIFFERENCES IN LOGISTICS
Infrastructure
First World, relative economic conditions have affected the mix of logistics and supply chain components
Emerging nations, the supply chain infrastructure is usually not fully in place. logistics as a necessary expense and not a strategic advantage, so they limit investments in logistics infrastructure
Third World, the infrastructure is generally insufficient to support advanced logistics operations
First World
Emerging
Third World
Infrastructure
Highly developed
Under developed
Insufficient to support
advanced logistics

29. REGIONAL DIFFERENCES IN LOGISTICS
Performance Expectation and Evaluation
First World, operating standards are generally uniform and high
emerging nations, operating standards typically vary greatly
Ex) contract, appointment
In the Third World, traditional performance measures have no meaning
Shortages are common
Customer service measure have no meaning

30. REGIONAL DIFFERENCES IN LOGISTICS
Information System Availability
First World, computer technology has increased at same rate across different nations
POS, EDI
Emerging nations, Support systems may not be in place to implement efficient information systems
Communication network incomplete and not reliable
Third World, Advanced information technology is simply not available
Inefficient communication system

31. REGIONAL DIFFERENCES IN LOGISTICS
Human Resources
First World, technically and managerially competent workers are available
Unskilled labor is relatively expensive
Emerging nations, skilled managerial and technical personnel are frequently not available
Third World, Although it may be possible to find employees that are appropriate to the available technology level
Difficult to find Trained logistics professionals and managers familiar with modern management techniques