Global Supply Chain Devan Howe OM 345 Boise State University May 3, 2002

“We are moving toward a global economy. One way of approaching that is to pull the covers over your head. Another is to say: It may be more complicated - but that’s the world I am going to live in, I might as well be good at it.” (Phil Condit, CEO of Boeing, November 1999)

Presentation Overview Global supply chain defined Global supply chain defined Topic explanation Topic explanation Surrounding issues Surrounding issues Real world example Real world example Exercise Exercise Summary Summary

Global Supply Chain An integrated process where several business entities such as suppliers, manufacturers, distributors, and retailers work together to plan, coordinate and control materials, parts, and finished goods from suppliers to customers. One or more of these business entities operate in different countries.An integrated process where several business entities such as suppliers, manufacturers, distributors, and retailers work together to plan, coordinate and control materials, parts, and finished goods from suppliers to customers. One or more of these business entities operate in different countries.

Falling International Trade Barriers Mean…

…Rising Profits.

Brainstorming How can a global supply chain be used in your organization?

Advantages of Global Supply Chains Reduced total costsReduced total costs Inventory reductionInventory reduction Improved fulfillment cycle timeImproved fulfillment cycle time Reduce cycle timeReduce cycle time Increased forecast accuracyIncreased forecast accuracy Productivity increaseProductivity increase Improved capacityImproved capacity Expand international connectionsExpand international connections Increase intellectual assetsIncrease intellectual assets Delivery improvementDelivery improvement

Potential Global Supply Chain Obstacles Inefficient transportation and distribution systemsInefficient transportation and distribution systems Market instabilityMarket instability Language BarriersLanguage Barriers CustomsCustoms Political turmoilPolitical turmoil Trade imbalancesTrade imbalances Export surges and recessionsExport surges and recessions

Combating Obstacles Join nation groupsJoin nation groups Be innovativeBe innovative Be flexibleBe flexible ResearchResearch New technologyNew technology Vertically integrateVertically integrate Form consortiumsForm consortiums

Classical Logistic Issues Facility LocationsFacility Locations SourcingSourcing DistributionDistribution

International influences on logistic issues…

Costs Local labor ratesLocal labor rates Local space costsLocal space costs International freight tariffsInternational freight tariffs Currency exchange ratesCurrency exchange rates

Customs Duty Duty rates differ by commodity and level of assemblyDuty rates differ by commodity and level of assembly Duty drawbackDuty drawback Impact of GATT: Changes over timeImpact of GATT: Changes over time Transfer pricingTransfer pricing Duty SuspensionDuty Suspension

Taxes on Corporate Income Different markups by countryDifferent markups by country Tax havens and not havensTax havens and not havens Make vs. buy effectMake vs. buy effect

Offset Trade and Local Content Local content requirement for government purchasesLocal content requirement for government purchases Content for preferential duty ratesContent for preferential duty rates Offset trade requirementsOffset trade requirements

Export Regulations Export licensesExport licenses Denied parties listDenied parties list

Time Lead timeLead time Cycle timeCycle time Transit timeTransit time Export license approval cycleExport license approval cycle Customs clearanceCustoms clearance

Selecting a global supply chain model.

Different Types of Global Supply Chain Models Own and manage your own infrastructureOwn and manage your own infrastructure Use strategic alliancesUse strategic alliances Partner with an asset-based third-partyPartner with an asset-based third-party Partnership with a global integrator of logistics servicesPartnership with a global integrator of logistics services

Own and Manage Your Own Infrastructure Pro Maximum controlMaximum control Con Heavy costs

Use Strategic Alliances Pro ConvenienceConvenience Large areas coveredLarge areas covered Con Unreliable alliance-prone

Partner With An Asset- Based Third-Party Pro Operational standardsOperational standards Uniform identity and marketing strengthUniform identity and marketing strength Dedicated mgmt structureDedicated mgmt structure Con Ignorance of complex customs regulations Lack of connections Local economic downturns

Partnership With a Global Integrator of Logistics Pro Customer friendlyCustomer friendly In-country knowledgeIn-country knowledge True information systems integrationTrue information systems integration Uniform standardsUniform standards Con Limited use Less control

Example – Digital Equipment Corporation Implemented a global supply chain model and… Reduced plants from 33 to 12Reduced plants from 33 to 12 Manufacturing costs decreased by $500 millionManufacturing costs decreased by $500 million Logistics cost decreased by more than $300 millionLogistics cost decreased by more than $300 million Reduced service facilities from 34 to 17Reduced service facilities from 34 to 17

Annual cost reductions of more than $80 millionAnnual cost reductions of more than $80 million Physical assets reduced by $34 millionPhysical assets reduced by $34 million Inventory reduced by $74 millionInventory reduced by $74 million Increased unit reduction by 500 percentIncreased unit reduction by 500 percent Increased revenueIncreased revenue

Exercise Discuss current firm problems and how the implementation of an effective global supply chain model can help correct them.Discuss current firm problems and how the implementation of an effective global supply chain model can help correct them. What model best fits your firm? Why?What model best fits your firm? Why?

Summary of Global Supply Chains Advantages include reduced costs, delivery performance, inventory reduction, forecast accuracy, cycle- time, productivity, capacity, service, international connectionsAdvantages include reduced costs, delivery performance, inventory reduction, forecast accuracy, cycle- time, productivity, capacity, service, international connections Overcomes a variety of international obstaclesOvercomes a variety of international obstacles Selecting and implementing a global supply chain model is effective when combined with flexibilitySelecting and implementing a global supply chain model is effective when combined with flexibility

Bibliography “Coordinating Global Distribution: A Customer-Intimate Approach.” (08 May 2002) (08 May 2002) “Global Business Issues.” (08 May 2002) “A View of Globalization From the Top.” archive_series.stmlwww.theglobalist.com/nor/readlips/archive/ archive_series.stml (08 May 2002) archive_series.stml

Bibliography, cont. Russell, S. Roberta and Taylor, W. Bernard. Operations Management: Third Edition. Upper Saddle River, New Jersey: Prentice Hall, 2001.