Managing the supply chain: Global perspective

global supply chain operations

1. Chapter 3
GLOBAL
DIMENSIONS OF
SUPPLY CHAINS

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After reading this chapter, you should be able to do the following:
Learning Objectives
●Describe the complexity of a company’s
global supply chain network and
understand what questions need to be
addressed for the supply chain to be
competitive.
●Understand the three major phases of
globalization and understand the
underlying economic and political forces
driving each phase.
2

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●Appreciate the complexity and magnitude
of the operations of successful global
companies and why global expansion is
important to their growth and financial
viability.
●Explain how technology and service
specialists can help companies, especially
small- to medium-size firms, penetrate the
global marketplace and contribute to their
competitive success.
3
Learning Objectives, continued

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●Appreciate the importance and
contributions of the trading partner
countries of the United States and how
they support our global prosperity.
●Understand the complexity of global
markets and how competitive strategy can
help mitigate complexity.
4
Learning Objectives, continued

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●Explain the need for global security
measures and the flexibility necessary to
ensure that such security measures do not
impede trade but rather enhance the flow
of goods and services.
●Discuss global transportation options and
strategic intermediaries and their role in
global in supply chains.
5
Learning Objectives, continued

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●Three eras of globalization
1.(1400–1800)
○initially driven by countries seeking materials and
goods not available in their own land.
2.(1800–2000)
○driven by companies seeking goods and
materials, labor, economies of scale, and
markets.
3.2000- date
○the significant characteristic is that it is being
powered by individuals and smaller organizations
Introduction

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●Economies and companies could improve their
“wealth” by allowing specialization of tasks.
●The advantage is true as long as you can sell
the increased volume that is produced. It is an
important role of logistics to help extend the
market area of countries or companies through
improved efficiency to lower the “landed cost”
in new market areas.
Supply Chains in a Global Economy

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●The ability to connect to individuals and companies
across the globe and to connect computer
information systems on a 24/7 basis has provided
unparalleled opportunity for collaboration
horizontally and vertically in supply chains.
●The trade volume with China was 18.2 percent of
the total of the top 10 for 2006, and it increased its
trade volume by 20 percent from 2005 to 2006. In
2000, China was number 4 following Canada,
Mexico, and Japan.
The Scope and Magnitude of Global
Business

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Table 3.1
Top U.S. Trading Partners
9
Source: Tradestats
TM
Express, International Trade Administration, U.S. Department of Commerce, 2011
COUNTRY 200820092010
Canada 601 431 525
China 408 366 457
Mexico 367 306 393
Japan 204 147 181
Germany 152 115 131
United Kingdom 112 93 98
South Korea 83 68 88
France 73 61 66
Taiwan 61 47 62
Brazil 63 46 59
Total $2,124$1,679$2,059
VALUE OF TRADE ($ BILLIONS)

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●The global business environment has
changed significantly and become much
more conducive to business activity between
and among different countries.
●Success in the global market place requires
developing a cohesive strategy, including
product development, technology, marketing,
manufacturing, and supply chains.
Global Markets and Strategy

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●Global markets and strategy have four
important characteristics:
1.Standardization reduces complexity
2.Global competition reduces the product life
cycle
3.Traditional organizational structures and
business models frequently change
4.Globalization introduces more volatility
11
Global Markets and Strategy, continued

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●Given the importance of global trade to the United
States, a delicate balance exists between security
and the efficient flow of global commerce.
●More cargo inspections, much more paperwork,
and a longer time to clear U.S. borders are now a
reality.
●C-TPAT initiated by the Homeland Security Dept
is a cooperative effort to secure the global supply
chain and to facilitate legitimate cargo and
conveyance.
Supply Chain Security: A Balancing Act

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●Ports are a critical part of global supply chains and also a
major focus for global security.
●America’s ports are a vital part of its global commerce. Over
$2 trillion in trade value per year passes through U.S. ports,
and over $18 billion is collected in industry fees and taxes.
Ports

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●NAFTA establishes free trade between these three countries
and provides the way the agreement is to be interpreted.
●Even though the U.S./Canada Free Trade Agreement has
been in effect for some time, certain trade barriers still remain.
●The supply chain constraints will eventually be eliminated as
NAFTA experience grows.
North American Free Trade Agreement

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Figure 3.1
Typical Truck Shipment Into Mexico
15
Source: Edward J. Bardi, Ph.D. Used with permission

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●A U.S. Manufacturer operates or
subcontracts with a facility in Mexico to
manufacture, process, or assemble
products to capture labor savings.
Maquiladora Operations

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●The most significant trend in the past 25 years
is that of the rise of pacific rim countries as
important players in the global economy.
•Many countries are now the worlds’ preferred
sources for raw material and components
Asian Emergence

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Figure 3.2
Hourly Compensation in Manufacturing
18
Source: Bureau of Labor Statistics, Foreign Labor Statistics (2011)

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●Locating factories and logistics facilities in
countries that use or consume the products.
●Focused production
•A plant produces only one or two products
New Directions

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●Ocean
•The most pervasive and important global shipment method,
accounting for two-thirds of all international movements.
Major advantages are low rates and the ability to transport
a wide variety of products and shipment size.
○Three major categories:
Liner service
Charter vessels
Private carriers
●Air
•Fast transit times
○An advantage in packaging
○Disadvantage of air carriage is high rates
Global Transportation Options

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●Motor
•standardization reduces complexity
•Use motor transport when shipping goods to between
the United States and Mexico or Canada
•It is very common in Europe
•Motor also plays a large part in intermodal shipments
●Rail
•International railroad use is also highly similar to
domestic rail use
•Intermodal container shipments by rail are increasing
•Maritime bridge concepts
○Land bridge
21
Global Transportation Options, continued

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Global Intermediaries
●Foreign Freight Forwarders
•Supplies expertise to international shippers
•Consolidate small shipments into more economical
sizes
•Derives income from fees for service
●Airfreight Forwarders
•Same services as surface forwarders but only for air
shipments
●Non-Vessel-Operating Common Carriers
•They consolidates and dispenses containers at inland
points
•They use the shipping expertise to reduce empty
containers and save costs

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●Export Management Companies
•EMCs act as agents for domestic firms in the
international arena
•Obtain orders, selecting appropriate markets,
distribution channels, and promotional campaigns
●Export Trading Companies
•ETC exports goods and services to overseas buyers
and handles most of the export arrangement
•ETC allows small- to medium-size firms to engage in
foreign trade
23
Global Intermediaries, continued

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●Customs House Brokers
•Oversee the movement of goods through customs
and ensure that the documentation accompanying a
shipment is complete and accurate for entry into the
country
•Operate under power of attorney from the shipper to
pay all import duties due on the shipment
•The importer is ultimately liable for any unpaid duties
•Keeps abreast of the latest import regulations and
specific requirements of individual products
24
Global Intermediaries, continued

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●Storage Facilities
•Transit sheds provide temporary storage while the
goods await the next portion of the journey.
•Carrier provided hold-on-dock storage free of charge
until the vessel’s next departure date.
•Public warehouses are available for extended storage
periods.
•Bonded warehouses operate under customs agency’s
supervision and are used to store, repack, sort, or clean
imported merchandise entered for warehousing without
paying import duties while the goods are in storage.
Storage Facilities and Packaging

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●Packaging
•Export shipments moving by ocean transportation
require more stringent packaging than domestic
shipments normally do.
•The shipper may find settling liability claims for
damage to export goods very difficult. Usually, the
freight handling involves many firms, and these firms
are located in different countries.
26
Storage Facilities and Packaging, continued

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●Global companies are usually faced with more complex and longer
supply chains which bring challenges in ensuring efficiency,
effectiveness, and execution.
●There have been three phases of globalization: the first was driven
by countries, the second by large companies, and the third by
individuals and small organizations. The political and economic
environment was different during these three eras.
●Successful global companies have transformed their supply chains
on a continuing basis as economic and political circumstances have
changed to enable them to deliver best cost and value to the
ultimate customer.
Summary

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●The rate of change has been driven by a set of external forces such
as globalization, technology, organizational• The scope and
magnitude of trade flows between the United States and other
countries have grown considerably in the last several decades. One
important development has been the growth in the volume of trade
with China and several other Asian countries. China has become
the second most important country as a global trading partner to the
United States
●Success in the global marketplace requires ongoing development of
a cohesive set of strategies including customer service, product
development, business model, and supply chain management.
Supply chains have become increasingly more important during the
21
st
century.
●Supply chain security has taken on increased importance since
September 11, 2001. Companies individually, jointly, and in
cooperation with the various levels of government are actively
involved. The federal government, in particular, has expanded the
scope of its regulations and policies for global security.
28
Summary, continued

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●U.S. ports play a critical role in global supply chains since over 90
percent of global trade passes through them. Ports are also an
important focus for security. The US needs to focus more attention
on port infrastructure.
●Canada and Mexico are ranked number 1 and 3, respectively, on
the list of most important trading partners with the United States.
That relationship is enhanced by the North American Free Trade
Agreement ratified by Congress in 1994. While the treaty had lofty
goals, it still is experiencing problems with full implementation of its
objectives. Nevertheless, it has fostered trade in North America.
●Global supply chains have a number of transportation and related
service options available to managers. Each of the options has
advantages and disadvantages that need to be analyzed.
29
Summary, continued