INTERNATIONAL SUPPLY CHAIN MANAGEMENT

Mahendrawathi ER, Ph.D

Increasing trend of globalization

Historically, the growth in World Trade exceed the growth in World Output. Previous statistics published by WTO (1998):

Between 1948 1997 real world output grow on average 3,7% per year while World Trade Growth reach around 6%.

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International aspects can be considered as a common characteristic of todays supply chains In many ways, managing an international or global supply chain is the same as managing a domestic supply chain spread over wider geographic regions. However, international supply chains have:

Great opportunities and competitive advantage, if managed properly, and Additional problems that need to be considered carefully.

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What drives companies to get involved in international supply chain?

Global cost forces: cost differences across countries or regions in the world. Global market forces: overcapacities in highly developed countries, emerging market such as China, etc. Technology: development in telecommunication and information technology, the availability of technology in a certain country or region (e.g. Silicon Valley in the US, machine tools in Germany). Politics and economic forces: breakdown of trade barrier, the emergence of large domestic market.

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Objectives of international supply chain

Lower costs Gain market access Pre-emption of competition Seeking strategic assets e.g. technology, capable suppliers, etc. Rationalization to increase efficiency

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Configuration and coordination of international supply chain

Two important aspects that differentiate international as opposed to domestic strategy: Configuration: Refers to location of activities and in how many places Range from concentrated to dispersed Involve large lump-sum and not easily reversible decisions Co-ordination: How activities conducted in different location in the world are linked and managed Range from not coordinated to highly coordinated Involves day-to-day decisions such as planning, scheduling and control of international network of factories

Companies global strategy vary depending on configuration and co-ordination strategy

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International Strategy: Configuration and Coordination

High
High foreign investment with extensive coordination Example: Xerox Strategy that focus in one country with several local units operating in a country Pure Global Strategy

Coordination

Example: Boeing, Toyota Export based strategy with decentralized marketing

Low

Example: Bank Dispersed

Example: Canon Concentrated

Configuration

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International supply chain system

International distribution systems: manufacturing is done locally, but distribution and some marketing activities are conducted abroad International suppliers: materials and components are sourced from foreign suppliers, but final assembly is conducted locally Offshore manufacturing: products are bought and produced from a certain region abroad, shipped back to domestic warehouses for sales and marketing Fully integrated global supply chain: products are sourced, produced and distributed from various facilities around the world
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Fully integrated global supply chain of leather shoes

Distribution Centre Shop Finished goods Manufacturing Facility (Thailand) Finishing Products

Materials Shop Production Plan

Shoe Uppers

Corporate Headquarters (Europe) Product development Sales & marketing Demand management

Purchase Orders

Suppliers (Europe) Provision of materials (Rawhides)

Manufacturing Facility (Indonesia) Procurement Production of shoe uppers: Tanning, cutting, sewing Quality control

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Production system in a global supply chain

Process-oriented global supply chain

Factories are organized by stages, as if products are produced in a single factory, however the stages are geographically separated. Example: European leather shoe manufacturer.

Product-oriented global supply chain

Gives complete production responsibility for a product or product family to one facility. Example: Philips.

Regional-oriented global supply chain

A product or process alignment within a specific region. Example: Nestle, Toyota, Ford, General Motors etc.

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What are the advantages and disadvantages of product-oriented, process-oriented or regional-oriented global supply chain?

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Different types of international engagement in an international supply chain

Increasing levels of foreign investment

Selling

Franchising

Contracting

Licensing

Co-production

Joint Venture

Wholly owned subsidiary

Increasing importance of operational issues

Increasing importance of co-ordination issues

Source: Bennet (2001)

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Coordinating international activities

Market-based mechanism

Do not own any foreign resources, only export or subcontracts some activities to a third party e.g. Nike subcontract production of their shoes to contract manufacturers in the Far East.

Vertical integration

Be a Multinational companies that own and control the entire activities upstream and downstream - in their global supply chain e.g. Procter & Gamble (P&G)

Strategic network

Operates like a true Multinational companies, but relies on networks of external organization e.g. McDonalds & Benetton
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Challenges in managing international supply chains (1)

International business barrier:

Tariffs barrier influence costs and profit obtained from international sales Non-tariff barrier such as quota and local content requirement influence product types and flow throughout the global pipeline

Risk in international business: exchange rate fluctuation influence value of assets and liability

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Challenges in managing international supply chains (2)

Market knowledge: different market have different needs!

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Heres another one

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Challenges (3): balancing local responsiveness and global integration

Managing a global product:

Truly global product e.g. Coca Cola, MacDonalds etc Regional product e.g. automobile

Localization of manufacturing

What steps need to be taken to achieve consistency in international manufacturing strategy? Which part of manufacturing need to be standardised across manufacturing facilities? Which element of manufacturing is local responsibilities?

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Challenges in managing international supply chains (3)

International supply and demand management

How are customer orders with international multi-plant requirements scheduled? How is interplant demand scheduled? How is the global pipeline managed? How should inconsistencies between global and local sourcing be evaluated? What are the trade-offs? What is the best approach to international procurement? What organization mechanism are used for international procurement? How to integrate activities spread across different regions in the world?

Local and global sourcing

Complexity and integration

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