Business, Operations and Supply Chain Strategy (MS 911) Global logistics and risk management

Teaching schedule, topics 7-12 TopicLecture 7Introduction to supply chain strategy 8Determining organisational boundaries: vertical integration and outsourcing 9Drivers of supply chain performance 10Dynamics of vertical supply networks: demand fluctuations and the bullwhip effect 11International issues in supply chain strategy 12Risk management in supply networks; including the design and management of sustainable supply chains 2

Required reading for this lecture Required reading for this lecture on global logistics and risk management: Simchi-Levi, Kaminsky & Simchi-Levi (2008), Designing and Managing the Supply Chain, 3 rd edition, chapter 10 3

Types of international supply chains International distribution systems Domestic manufacturing; international distribution International suppliers Domestic final assembly; international sourcing (distribution may domestic or international) Offshore manufacturing (or provision of services) International sourcing and manufacturing; domestic distribution Fully-integrated global supply chain 4

Drivers towards globalisation Global market forces Threats from foreign competitors Opportunities provided by foreign customers Technological forces Implementation of global IT links, such as the Internet (particularly important for offshore provision of services) Opportunities for global location of R&D facilities etc. Global cost forces International differences in labour costs Costs of other key resources (raw materials etc.) Political and economic forces Exchange rate movements Effects of trading blocks (e.g. EU, NAFTA) 5

Sources of risk in global supply chains Natural disasters Geopolitical risks Epidemics Terrorist attacks Volatile fuel price Currency fluctuations  Customer reactions  Competitor reactions  Supplier reactions  Government reactions Port delays Market changes Performance by suppliers Forecasting accuracy Execution problems 6 Unknown - Unknown Known - Unknown Uncontrollable Controllable

Managing the ‘unknown-unknown’ Potential strategies for managing the ‘unknown-unknown’: Invest in redundancy  Possible conflict with ‘lean’ philosophy? Sensing and responding  Role of (top) management Adaptability  Capabilities of the organisation as a whole In each case, we have to identify and manage any potential trade-offs between (and within) customer service and resource utilisation. 7

Managing global risks Speculative strategies A speculative strategy ‘bets’ on a single scenario – typically resulting in very high risk! Hedge strategies By design, a hedge strategy is simultaneously successful in some locations and unsuccessful in others. Flexible strategies A flexible strategy enables a company to take advantage of different scenarios, through:  Production shifting  Information sharing  Global coordination  Political leverage (threats of re-location) 8