Chapter 12 Global Supply Chain Management

Objectives After reading the chapter and reviewing the materials presented the students will be able to: Explain market and cultural challenges that impact global supply chains Describe global infrastructure challenges and the role of technology Identify key considerations in managing global supply chains Explain political factors and barriers that impact global supply chain management

Global Supply Chain Management According to McKinsey and Co., Asia currently accounts for 40% of the global GDP, and will account for over 50% by It is not uncommon for a company to develop a product in the United States, manufacture it in Asia, and sell it in Europe. It requires a well planned, designed, and managed supply chain network.

Opportunities and Barriers Global reach is critical to a firm’s survival. Being global provides opportunities to tap into huge and growing markets, capitalize on new economic trends, and utilize technological innovations in other parts of the globe. Movements across borders adds numerous additional costs such as tariffs and extends the length and variability of lead time. Companies often overlook the cultural impact and traditions, as well as the legal and political differences. There are also significant risks that include political instability as well as currency fluctuations.

Factors Impacting Global Supply Chains 1. Market and competition are all factors involved in marketing and selling to global markets, including considering customer preferences and competition. 2. Cost is often the most cited reason by companies for going global. 3. Infrastructure includes access to roads and transportation, equipment and communication networks, distribution systems, and skilled labor. 4. Technology includes availability of bar code technology, GPS, and RFID that enable global product tracking and communication. 5. Politics and economy include government regulations, political stability, trade agreements, and currency fluctuations. 6. Culture refers to acceptable behaviors, beliefs and norms characteristic of a particular country.

The Global Consumer Firms must get their products to market faster to gain competitive advantage. This requires logistics, operations, and distribution to be organized to get the products to consumers quickly. The system must also maintain flexibility in order to be able to produce different types of products with varying quantities.

Global Versus Local Marketing The global marketing approach assumes that there are consumers across the globe with identical needs, resulting in product standardization. The local marketing approach focuses on segmentation of customers and products. Product postponement is a strategy where the product is kept in its generic form as long as possible in the distribution process. The differentiation can take place closer to the customer.

Cultural Challenge Differences in verbal communication and the use of humor make direct translation of communication between cultures impossible. 1. Small versus Large Power Distance: Northern Europe and United States have cultures with small power distance. Latin American, Arab, and Asian countries have a high power distance where relationships are formal and based on hierarchical positions. 2. Individualism versus Collectivism: Individualist cultures include United States, U.K, and the Netherlands. Collectivist cultures include Indonesia and West Africa. 3. Masculinity versus Femininity: Japan is considered a more masculine culture, whereas Netherlands is a more feminine culture. United States is in the middle. 4. Weak versus Strong Uncertainty Avoidance: Japan and India are more tolerant of risk. U.K., and United States tolerate less risk. 5. High versus Low Context Cultures: In Japan facial expression and what is not said provide clues to what is actually meant. In Asia saving face - where no one openly loses or gets embarrassed – is important. In U.S. and Europe agreements are precise and contractual in nature.

Infrastructure Challenges Labor: Access to low cost labor has been a primary draw for companies setting up global operations. Transportation: Access to roadways and transportation can often be poor in developing countries. For example, in Russia, the primary cause of food shortages is poor distribution. Suppliers: It is not uncommon to receive a lower bid without comparable quality from suppliers in developing countries.

Role of Technology The use of the Internet, bar codes, and RFID technology have enhanced the speed and accuracy of information sharing. Innovative and flexible manufacturing technology help produce large product varieties needed to compete in diverse global markets that change rapidly. Transportation technologies have enabled companies to deliver large product varieties efficiently to global markets.

Cost Considerations U.S. manufacturing firms began to outsource manufacture of goods to sites with low cost labor in order to compete with low priced imports. Seeking low cost labor has made sense in situations where product life cycles are short and building expensive assembly plants may not be justified. Lack of worker skills, inadequate transportation and communication infrastructure and low quality supply are ultimately extremely costly for the implementation of a global supply chain.

Political and Economic Factors Political instability and hostility toward foreign businesses is a serious consideration. Currency rate fluctuations can help or hurt global operations and require careful analysis. Regional trade agreements such as NAFTA and trade protection mechanisms such as tariffs influence decisions to globalize operations. Countries come up with many barriers to protect domestic business. Despite these efforts, global trade is flourishing.

Summary Being global provides opportunities to tap into huge and growing markets, capitalize on new economic trends, and utilize technological innovations in other parts of the globe. There are also significant risks that include political instability as well as currency fluctuations. There are six significant factors that companies must monitor throughout the process of managing their global supply chains. They are: market and competition, cost, infrastructure, technology, political and economic environment, and culture. Cost is often the most cited reason by companies for going global. The global marketing approach assumes that there are consumers across the globe with identical needs, resulting in product standardization. The local marketing approach focuses on segmentation of customers and products. Product postponement is a strategy where the product is kept in its generic form as long as possible in the distribution process. High versus Low Context Cultures: In Japan facial expression and what is not said provide clues to what is actually meant. In Asia saving face - where no one openly loses or gets embarrassed – is important. In U.S. and Europe agreements are precise and contractual in nature. U.S. manufacturing firms began to outsource manufacture of goods to sites with low cost labor in order to compete with low priced imports. Seeking low cost labor has made sense in situations where product life cycles are short and building expensive assembly plants may not be justified. Regional trade agreements such as NAFTA and trade protection mechanisms such as tariffs influence decisions to globalize operations.

Home Work 1. What are some opportunities and risks of being global? 2. What is product postponement? 3. Why did U.S. manufacturing firms begin to outsource?