1. Chapter 14 Global Supply ©McGraw-Hill Education. All rights reserved.

2. Key Questions Addressed in Chapter 14 How do we select and manage offshore suppliers? How do we assure value from our global supply network?

3. Reasons for Global Purchasing Unavailability of items domestically Price and total cost – labor costs, exchange rates, equipment and processes, product and pricing focus Government pressures and trade regulations Quality Faster delivery and continuity of supply Better technical service Technology Marketing tool Tie-in with offshore subsidiaries Competitive clout or leverage ©McGraw-Hill Education. All rights reserved. 3

4. Potential Problem Areas in Global Purchasing ©McGraw-Hill Education. All rights reserved. 4 Source location and evaluation Lead/delivery time Expediting Political, labor and security problems Hidden costs Currency fluctuations Payment methods Quality Warranties and claims Tariffs and duties Administration costs Legal issues Logistics and transportation Language Communications Cultural and social customs Ethics and social responsibility

5. Potential Hidden Costs ©McGraw-Hill Education. All rights reserved. 5 Foreign exchange premiums Commissions to customs brokers Terms of payment costs and finance charges: letter of credit fee, translation costs, exchange rate differentials Foreign taxes imposed Import tariffs Extra safety stock/buffer and transit inventory; inventory carrying costs due to longer lead times Extra labor for special handling Obsolescence, deterioration, pilferage, and spoilage Additional administrative expenses Packaging and container costs Business travel Fees for freight forwarders, consultants, or inspectors Marine insurance premium Customs documentation charges Transportation costs, including from manufacturer to port, ocean freight, from port to company plant, freight forwarder’s charges, port handling charges, warehouse Additional security measures

6. Incoterms Developed by the International Chamber of Commerce Updated: Incoterms 2010 Internationally recognized standard definitions; describe the responsibilities of a buyer and seller in a transaction – May vary across regions and among carriers 11 standard Incoterms in 2 groups: – Rules for Any Form of Transport – Rules for Sea and Inland Waterway Transport Only Each term must be followed by a geographic location, such as a port or city ©McGraw-Hill Education. All rights reserved. 6

7. Regional Trade Agreements Efforts to eliminate trade barriers result in bilateral, regional, and global trade agreements Implications for supply managers: – know the major trading partners with their countries – know what trade agreements are in place – know what opportunities exist in emerging markets Data on trading patterns of countries and regional trading blocks available from the World Trade Organization (wto.org)

8. Emerging Markets Countries undergoing a high growth rate and rapid economic liberalization – MSCI Emerging Markets Index (msci.com) – Early 2014, emerging markets by region The Americas (Brazil, Chile, Columbia, Mexico, and Peru) Europe, the Middle East, and Africa (Czech Republic, Egypt, Greece, Hungary, Poland, Russia, South Africa, Qatar, Turkey, and the United Arab Emirates) Asia (China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand)