Why do we need GSCM (GLOBAL SUPPLY CHAIN MANAGEMENT)?

GLOBAL MARKET FORCES

– Foreign competition in local markets

– Growth in foreign demand

– Global presence as a defensive tool

– Companies forced to develop and enhance leading-edge technologies and products.

TECHNOLOGICAL FORCES

– Knowledge diffusion across national boundaries, hence need for technology sharing to be competitive

– Global location of R&D facilities

• Close to production (as product cycles get shorter)

• Close to expertise (Indian programmers?)

GLOBAL COST FACTORS

– Availability of skilled/unskilled labor at lower cost

– Integrated supplier infrastructure (as suppliers become more involved in design)

– Capital intensive facilities like tax breaks, price breaks etc.

POLITICAL AND ECONOMIC FACTORS

– Trade protection mechanisms:

• Tariffs, Quotas, Voluntary export restrictions, Local content requirements, Environmental regulations, Government procurement policies (discount for local)

– Exchange rate fluctuations and operating flexibility

Global SCM Factors

• Costs

- Local labor rates / International freight tariffs

- Currency exchange rates

• Customs Duty

- Duty rates differ by commodity and level of assembly

- Impact of GATT/WTO: Changes over time

• Export Regulations & Local Content

- Denied parties list / Export licenses

- Local content requirement for government purchases

• Time

- Lead time /Cycle time /Transit time /Customs clearance

• Taxes on Corporate Income

- Tax havens and not havens

- Make vs. buy effect

Global Supply Chain System Components:

International distribution systems :

- Manufacturing(domestically), Distribution (overseas)

International suppliers :

- Raw materials and Components(foreign suppliers), Final assembly/ Manufacturing(domestically)

Offshore manufacturing :

- Product is sourced & manufactured in a single foreign location,

- 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

- In a truly global supply chain, it may appear that the supply chain was designed without regard to national boundaries.

- The true value of a global supply chain is realized by taking advantage of these national boundaries

Sources of Risks and Crisis:

Managing the Unknown-Unknown

• Invest in redundancy

- Respond to unforeseen events by careful analysis of supply chain trade-offs

• Increase velocity in sensing and responding

- Speed in sensing and responding can help the firm overcome unexpected supply problems

- Failure to sense could lead to:

- Failure to respond to changes in supply chain

- Can force a company to exit a specific market

• Create an adaptive supply chain community

- It is the most difficult risk management method to implement effectively.

- Requires all supply chain elements to share the same culture, work towards the same objectives and benefit from financial gains.

- Need a community of supply chain partners that reorganize to better react to sudden crisis

- Single sourcing is risky

• Achieves economies of scale

• High quality parts at a low cost

- JIT mode of operation builds a culture of:

• Working with low inventories

• Ability to identify and fix problem quickly

• Entire supply chain was stopped once the fire occurred

• Prompted every company in the chain to react to the challenge

MANAGING KNOWN-UNKNOWN

• 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.

- Multiple plants in different countries, where, Certain plants more profitable at times than others

- Move production between plants to be successful overall.

• Flexible Strategies

Requires a flexible supply chain

• multiple suppliers

• flexible facilities

• excess capacity

• various distribution channels

Can be expensive to implement

• coordination mechanisms

• capital investments

• loss of economies of scale

Approaches to Flexible Strategy

• Production shifting : Flexible factories, excess capacity and suppliers 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.

• Political leverage : The opportunity to move operations rapidly gives firms a measure of political leverage in overseas operations. For example, if governments are lax in enforcing contracts or international law, or present expensive tax alternatives, firms can move their operations.

Requirements for Global Strategy Implementation

• Product development : It’s 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. In this way, it is much 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.

• 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 SCM 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.

Other Issues in GSCM

Region-specific products Vs True global products

Local Autonomy vs Central Control

Exchange rate fluctuation

Local collaboration may become competitors

To access new market may require handing over critical manufacturing and engineering expertise

At any time the threat of protectionism might appear.