Copyright 2011 John Wiley & Sons, Inc. Chapter 12 Global Supply Chain Management 12-1

Lecture Outline 12-2 Global Supply Chain Management Global Market Challenges Global Infrastructure Design Cost Considerations Political and Economic Factors Copyright 2011 John Wiley & Sons, Inc.

The Global Environment 12-3 Copyright 2011 John Wiley & Sons, Inc. Rapid growth of globalization and international trade are a result of: Advances in Transportation Advances in Technology Rise in Personal Income

Increased Globalization 12-4 Copyright 2011 John Wiley & Sons, Inc. The global trend impacts: Consumers: –greater access to a variety of goods –competitive prices Supply Chain Companies –accelerated competition requires: strategy to compete in new markets another strategy to protect local market from foreign competition

Environmental Factors 12-5 Copyright 2011 John Wiley & Sons, Inc.

Global Supply Chain Opportunities Large market Economies of scale in production and distribution Lower select costs –labor –supply Better ability to target markets Leverage good ideas quickly and efficiently 12-6 Copyright 2011 John Wiley & Sons, Inc.

Global Supply Chain Barriers Longer and more varied lead time Political risk and instability Overall cost –transportation –tariffs Infrastructure access –facilities –transportation Exchange rate risks 12-7 Copyright 2011 John Wiley & Sons, Inc.

Factors Impacting Global Supply Chains 12-8 Copyright 2011 John Wiley & Sons, Inc.

Factors Impacting Global Supply Chains Continued Market and Competition –customer preferences may be unique –consider competition Cost –often reason for going global –consider added logistical and transportation costs, differential productivity, costs of quality Infrastructure –lack of infrastructure in developing countries 12-9 Copyright 2011 John Wiley & Sons, Inc.

Factors Impacting Global Supply Chains Continued Technology –enables global communication –bar codes, GPS, EDI, RFID Politics and Economy –currency fluctuations –government regulation & political instability –trade agreements Culture –consider varying beliefs and behaviors Copyright 2011 John Wiley & Sons, Inc.

Global Market Challenges Global markets pose a number of challenges: Global Consumer Global vs. Local Marketing Cultural Challenge Copyright 2011 John Wiley & Sons, Inc.

Global Consumer Identify diverse customer preferences Customers increasingly want customization –supply chains moving from standardization to customization –explodes number product combinations –requires moving through design, production, and distribution quicker –requires lean and flexible systems Copyright 2011 John Wiley & Sons, Inc.

Global vs. Local Marketing Two marketing approaches: Global –focus on bringing standardization to global market Local –focus on micro-segmentation of customers and products Product Postponement –one strategy to help merge global and local marketing approaches Copyright 2011 John Wiley & Sons, Inc.

Cultural Challenge Marketing strategies may need to be modified for different cultures Culture is a critical element of communication Copyright 2011 John Wiley & Sons, Inc.

Five Dimensions of Culture Copyright 2011 John Wiley & Sons, Inc.

Five Dimensions Continued Small vs. Large Power Distance –extent to which there is a strong separation of individuals based on rank Individualism vs. Collectivism –extent of belief in individual responsibility and reward, vs. reward of the group Copyright 2011 John Wiley & Sons, Inc.

Five Dimensions Continued Masculinity vs. Femininity –masculine cultures value competitiveness, assertiveness, ambition, accumulation of wealth –feminine cultures value relationships, harmony, environment, and quality of life Copyright 2011 John Wiley & Sons, Inc.

Five Dimensions Continued Weak vs. Strong Uncertainty Avoidance –extent to which a culture prefers situations with clear rules over ambiguous situations High vs. Low Context Cultures –reliance on high vs. low context communications Copyright 2011 John Wiley & Sons, Inc.

Global Infrastructure Challenges There are significant challenges developing and managing the physical supply network in diverse global environments Consider: Labor Transportation Suppliers Copyright 2011 John Wiley & Sons, Inc.

Labor Infrastructure Challenges Significant productivity differences –speed of work –precision and quality –acceptable work hours –skills and capabilities Technology –increasing technology can substitute for skilled labor Copyright 2011 John Wiley & Sons, Inc.

Transportation Infrastructure Challenges Access to roads and transportation can be poor in developing countries –increases length and variability of lead times –products can change hands many times –higher distribution costs Copyright 2011 John Wiley & Sons, Inc.

Supplier Infrastructure Challenges Easier to manage few suppliers –creates high dependence risk –less flexible for higher capacity needs Lack of available quality suppliers –supply shortages –irregular schedules –uncertainty causes higher levels of inventory Copyright 2011 John Wiley & Sons, Inc.

Role of Technology Information Technology –broken down distance barrier –internet, bar codes, RFID –developing countries may require investment Manufacturing Technology –provides flexibility for mass customization Equipment Technology –distributes products Copyright 2011 John Wiley & Sons, Inc.

Cost Considerations Firms seek lower labor costs globally –gained popularity in U.S. in 1980s –made sense with short product life cycles Need to Consider: Hidden Costs Non-Cost Considerations Copyright 2011 John Wiley & Sons, Inc.

Hidden Costs Labor often small % overall costs Locations of cheap labor shift Unexpected costs –additional training –increased lead times –poor transportation –poor quality –bureaucratic government Copyright 2011 John Wiley & Sons, Inc.

Non-Cost Considerations More than 60% U.S. overseas manufacturing investment is in developed countries Need: –skilled workers –quality suppliers Total Quality Management (TQM) –focus on total cost of quality Copyright 2011 John Wiley & Sons, Inc.

Political & Economic Factors Consider: Exchange Rate Fluctuations Regional Trade Agreements Impact of Non-Tariff Barriers Copyright 2011 John Wiley & Sons, Inc.

Exchange Rate Fluctuations Currency devaluations in markets where a company has operations can increase costs Strategy: Diversify Production Geographically –can shift production to areas of lower cost –minimizes exchange rate fluctuation risks –effective when firm has global facility networks Copyright 2011 John Wiley & Sons, Inc.

Regional Trade Agreements Global supply chains should be aware of the opportunities & restrictions of trade agreements Agreements encourage trade by giving preference to members of the agreement and minimizing: –tariffs –quotas –other trade barriers Copyright 2011 John Wiley & Sons, Inc.

Non-Tariff Barriers Reduced Tariffs –General Agreement on Tariffs and Trade (GATT) –became World Trade Organization (WTO) –industrial goods between developed countries Non-Tariff Barriers –Import Quotas –Local Content Requirements –Technical Standards –Health Regulations Copyright 2011 John Wiley & Sons, Inc.

Review 1.Globalization growth is a result of advances in transportation and information technology, and a rise in personal income. 2.Six forces that impact global supply chains are: market and competition, cost, infrastructure, technology, political and economic environment, and culture. 3.Global marketing concerns bringing standardization to the global market. Local marketing stresses localized differentiation Copyright 2011 John Wiley & Sons, Inc.

Review Continued 4.The availability of infrastructure is important to going global. 5.Technology enables global supply chains. Three types: information, manufacturing, & equipment. 6.Cost is a significant global supply chain factor. There are numerous hidden costs and non-cost considerations: quality & proximity to customers. 7.Political & economic factors such as regulations & tariffs impact the global supply chain Copyright 2011 John Wiley & Sons, Inc.

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