topic 5.7 international supply chain

8/12/2019 Topic 5.7 International Supply Chain

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Topic 5.7: Supply Chain Logistics/International Operations

Dr Michael [email protected]

1


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Supply chain: describes the system of resourcesand processes from raw materials to the market

The value chain describes a similar internalperspective for a single company adding value

The value chain concerns the maximisation of

value Supply chain concerns management of the supply

system costs

Supply chain management Coordination of

materials, information, and funds from the initialraw material supplier to the ultimate customer


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The value chain links the value-creatingactivities involved in designing and bringing aproduct to market

Source: Download Route


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Value chain analysis also takes in upstream anddownstream activities

Source: Download Route


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Buyers/ CustomersSuppliers The Firm

Forward integrationBackward integration

Multipledistributionchannels

Multiplevendors

Should all firms be fully vertically integrated?


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Buyers/ CustomersSuppliers

The Firm

Forward integrationBackward integration

Multiple distributionchannels

Walkers Crisps

Flavourings

Farmers

PackagingManufacturers

TESCO

WH Smiths

Should Walkers be a vertically integrated firm ?


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Should a firm make or buy the component

parts that go into their final product?

The decision is based on Transaction Cost

Analysis (O E Williamson)Bounded rationality means that

knowledge is limited opportunism occurs

when new information emerges or there is

specificity

Costly contracts control opportunism


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Issues toconsider:

Control

Risk

Investment

Flexibility

Strategic

control

(produce

internally)

Low Control

(buy off theshelf)

Moderate

control (specialventure or

contract

arrangement)

Degree of strategic vulnerabil i ty

High Low

Potential for

competitive

advantageHigh

Low

Source: Gri ff in and Pustay (2010:516) on Queen and H ilmer (1994)


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Access to market pricing

Access to economies of scale Strategic flexibility in sourcing components

Open to new developments

Reduces coordination costs

Strategic alliances with

suppliers give benefits of

vertical integration

without the associatedorganizational problems


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Global

Reducing costs

Improving quality Access to new technology

Offset requirements

Presence in a foreignmarket

Domestic

Avoid problems of

different: language

culture

currency

tariffs

Few concerns about qualityand safety


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Domesticpurchasing

only

Foreignbuying

based on

need

Foreignbuying aspart of a

procurementstrategy

Integration ofglobal

procurement

strategy

Assign domestic buyers for foreign purchasingUse foreign subsidiaries or business agents

Establish international purchasing offices

Assign the responsibility for global sourcing to specific

business units

Integrate and coordinate worldwide sourcing


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Continual reevaluation of implementation status, requirements, andcapabilities

Select best suppliers, establish contract terms and conditions and builddesired relationship

Request/evaluate proposals from suppliers

Determine appropriate nature of buyer-supplier relationship

Identify and evaluate potential suppliers worldwide

Define scope of international purchasing effort

Evaluate operating and competitive environments


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Role of just-in time inventory (JIT)

Economize on inventory holding costs Speeds inventory turnover

Difficult to achieve over international distances

Drawback: no buffer stock

Role of organization

Organizational linkages more numerous and complex

Require a separate functional department

Role of IT and the internet

Track components across globe to an assembly plant

Electronic data interchange (EDI)


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Bounded rationality perfect market is

impossibleAvoids friction of transactions Search costs

Contracting costs

Coordination costs

Williamson gave three

dimensions of transaction costs Frequency

Uncertainty Specificity

Vertical integration reduces

risk by internalising the

employment contracts


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Lower costs

Disperse manufacturing to efficient locations

Accommodate local demands

Decentralize production

Respond to shifts on customer demand Time-based competition extremely important


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Centralisedmanufacturing

favoured

Decentralizedmanufacturing

favouredCountry factors

Differences in politics, eco.,culture

Trade barriers

Location externalities

Exchange rates

Substantial

Substantial

Important inindustry

Stable

Few

Few

Not important inindustry

Volatile

Technological factors

Fixed costs

Minimum efficient scale

Flexible manufacturingtechnology

High

High

Available

Low

Low

Not available

Product factorsValue-to-weight ratio

Serves universal needs

High

Yes

Low

No

How to read the table: from left (factors) to the preferred cell (high/lowetc.) and up to manufacturing style (centralised/decentralised)


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Optimum PEST

conditions

Externalities

Skilled labor pools

Supporting industries

Formal and informal

trade barriersExchange rate

Fixed costs

Minimum efficientscale

Flexiblemanufacturing (leanproduction)

Flexible machinecells


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Two product features affect decisions Value to weight ratio (Cement)

Product serves universal needs (Screws, Bolts)

Two basic strategies

Concentrating in a centralized location and serving

the world market (Coke, Microsoft)

Decentralizing them in various regional or nationallocations close to major markets (Nike)


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Initially, established where labour costs low

Later, important centres for design and finalassembly Dispersed centres of excellence are

consistent with a transnational Strategy

The upgrading of production capability is known asupward migration

Upward migration caused by pressures to: Improve cost structure

Customize product to meet customer demand

An increasing abundance of advanced factors of production


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Father Christmas is a purveyor of gifts to

children Suppliers include Sony, Apple and ToysRus

Father Christmas supplies parents whopurchase on behalf of their children

You have been appointedas the chief elf for vertical

integration

What is Father Christmas

core competency?

Where are the

opportunities for

vertical integration?


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Describe different dimensions of global

manufacturing strategy

Discuss factors important for making manufacturing

location strategies

Examine issues related to global supply chain

management

Explain how inventory management is a key

dimension of the global supply chain


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Download, print and read the article onSupply Chain Management (SCM) in the

tutorial folder

Download and print the accompanying

question paper

Bring both documents to the tutorial and

be prepared to discuss the issues.


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Download Route

Hill and Hernandez-Requejo (2011) Global Business Today

Chapter 14

Williamson O E (1981) The economics of organization: the

transaction cost approach in The American Journal ofSociology 87, 3, November 1981 pp548-577

Wynn-Williams M S (2009) Surfing the Global Tide. London:

Palgrave Macmillan

topic 5.7 international supply chain

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