Global Operations and Supply Chain Management Chapter 16 Global Operations and Supply Chain Management

Zara One of the fastest growing retailer has captured the market through supply chain management. It has 1,800 clothing stores in more than 80 countries. Zara’s annual sales exceed €8 billion. Zara headquarters get information from retail stores about which garments are selling and replacing them fastly following the preferences of the consumers. This way inventories are reduced and costs go down. The replacement time is reduced to 14 days. The other strategy is continual renewal of clothing lines providing the customers with continuous stream of new merchandise creating «grab it while you can» impetus.

Outsourcing It is hiring others to perform some of the noncore activities and decision making in a company’s value chain, rather than having the company and its employees continue to perform those activities. The management of companies search ways to lower costs while improving their products and services in order to remain competitive. Commonly, outsourcing firms provide data processing, logistics, payroll, accounting, advertising, research and development, etc.

Supply chain management It is the process of coordinating and integrating the flow of materials, information, finances, and services within and among companies in the value chain from suppliers to the ultimate consumer. Supply chain refers to the activities that are involved in producing a company’s products and services and how these activities are linked together. It involves the applications of a total systems approach to managing the overall flow of materials, information, finances, and services within and among companies in the value chain-from raw materials and components suppliers through manufacturing facilities and warehouses and on to the ultimate customer.

Supply chain network: An American laptop company Activity→Design→Component→Assembly→Warehousing→Marketing→Consumer sourcing and testing and distribution and sales ↑ (semiconductors, Technica l memory, support video cards, services disk derives, cables, LCD screens) Location→ US →South Korea→ Taiwan → US → EU → India Taiwan Ireland US US China Singapore Canada Ireland Malaysia Singapore US Australia

Global sourcing arrangements Wholly owned subsidiary: The firm establishes a unit in a low-cost labor country Overseas joint venture: The firm works with a firm which can provide products at lower costs or higher quality In-bond plant contractor: The firm sends components to the in-bond plant which produces only for exporting Overseas independent contractor: The firm contracts with foreign manufacturers to make the clothing to their specifications with their labels. Independent overseas manufacturer Intrafirm trade is the trade between a parent company and its foreign affiliates. In the US, it accounts for 30-40 percent of exports of goods and 35-45 percent of imports.

Electronic purchasing for global sourcing B2B (business-to-business) – It permits buyers and sellers to interact directly. Suppliers provide a catalog of the available products and buyers can access, review and place orders for the desired product. Benefits – The firms can organize production, cut costs, improve productivity and supply chain management and customer response.

Problems with global sourcing Added costs: International freight, insurance and packaging (10-12%) Import duties (0-50%) Customhouse broker’s fees (3-5%) Transit or pipeline inventory (5-15%) Cost of letter of credit (1%) International travel and communication costs (2-8%) Company import specialists (5%) Reworking of products out of specification (0-15) Exchange rate change risk Security

Logistics Logistics refer to managerial functions associated with the movement of materials such as raw materials, work in progress, or finished goods. Managing logistics in sourcing, manufacturing, design, engineering, and marketing has become a major function in gaining a competitive edge. Minimization of inventory and handling in supply chains, the way a product (or components of and materials that will go into a product) is designed can significantly the cost of delivering the product. For example, packaging and transportation requirements for a product can significantly influence logistics costs, and these factors should be addressed during the design as well as in other steps in the value chain.

Standardization and the management of global operations Standards are documented agreements containing technical specifications or other precise criteria that will be used consistently as guidelines, rules, or definitions of the characteristics of a product, process, or a service. Standards help ensure that materials, products, proceses and services are appropriate for certain purposess.