1. Global Supply Chain Management and Uncertainty Sources: Dornier et al., GOL, 1998 Flaherty, GOM, 1996

2. Overview Supply Chain Management The Bullwhip Effect in Supply Chains Domestic vs. International Supply Chains Vertical Integration Issues in Global Supply Chains

3. Supplier European DCCustomer US DCCustomer Far East DCCustomer FAT IC Mfg PCAT Print Mech Mfg Global Supply Chain Mgt: HP DeskJet Printer (Vancouver) Definition of Supply Chain Mgt: Management of activities that transform raw materials into intermediate goods and final products, and that deliver final products to customer. Require operating a network of facilities, often scattered around the world. PCAT = Printed Circuit Assembly and Testing FAT = Final Assembly and Testing Print Mech. Mfg. = Print Mechanism Manufacturing DC = Distribution Center 1 week1 day (US) - 5 weeks

4. Global Supply Chain Management Factors to be considered when moving from (mostly) domestic chains to global ones Substantial geographic distances Foreign market forecasting difficulties Exchange rates fluctuations and other macroeconomic uncertainties Differences in infrastructure Explosion of product variety Implications?

5. Overview Supply Chain Management: The Bullwhip Effect in Supply Chains Domestic vs. International Supply Chains Vertical Integration Issues in Global Supply Chains

6. 0 200 400 600 800 Weeks Bullwhip Effect due to Seasonal Sales of Campbell Soup Order Quantity 152 Shipments from Manufacturer to Distributors Retailers’ Sales The Bullwhip Effect Recurring Theme: Orders to upstream members exhibit greater variance than actual orders at PoS (demand distortion) The variance of orders increases as one moves upstream (variance propagation)

7. 0 200 400 600 800 Weeks Bullwhip Effect due to Seasonal Sales of Campbell Soup Order Quantity 152 Shipments from Manufacturer to Distributors Retailers’ Sales The Bullwhip Effect Results: Excessive inventory Dissatisfied customers Lost revenues Ineffective production schedules Etc.

8. The Bullwhip Effect Influence: Individual decisions Isolated functions Isolated entities along the supply chain Types of incentives Shortage cost vs. inventory cost Marketing, manufacturing, distribution

9. The Bullwhip Effect Causes: Demand forecast updating Order batching Price fluctuations and special sales Rationing and shortage gaming How can we remedy the situation?

10. The Bullwhip Effect Remedial Strategies Forecast Demand Updating Access to market demand info (use POS data) Info sharing across SC links (EDI) Vendor managed inventory (VMI) Lead time reduction and JIT supply Order Batching Reduction of Processing Costs (CAO) New ways of achieving economies of scale in transportation/distribution (3PLs)

11. The Bullwhip Effect Remedial Strategies (cont.) Price Fluctuations Reduce frequency and magnitude of special trade deals and consumer promotions (EDLP) Continuous Replenishment Programs (CRP) Rationing and shortage gaming Better product allocation policies in short supply periods (based on past sales) Penalties on order cancellations

12. The Bullwhip Effect Remedial Strategies (cont.) Reduce Complexity Shorter supply chains reduce variance in response times Reducing customer options reduces response variation In-short: reduce Agility in order to decrease uncertainty and increase responsiveness

13. Overview Supply Chain Management: The Bullwhip Effect in Supply Chains Domestic vs International Supply Chains Vertical Integration Issues in Global Supply Chains

14. Distinctive characteristics of int‘l SCs Greater Geographic Distance and Time Diversity of SCs and Demand Conditions Issues more important or different Transportation and coordination more important Order-to-delivery times longer Communication and travel more difficult Adjustment is more difficult Information technology for common work Learning New issues in international supply chains Language and national culture differences Exchange rates, duty, subsidies, quotas Feeding back local ideas to headquarters Lead suppliers Working in key locations for an industry Domestic vs. International SCM

15. Distinctive characteristics of int‘l SCs Multiple National Markets Multiple Locations of Operations Issues more important or different Complex SC network Postponement and commonality in product design Competition among multiple markets Complex SC network New issues in international supply chains Hedging through operations Diff. Regulations and tastes, languages Exchange rates, gov’t policies, macro-economic effects Worldwide scanning Sharing work among many locations: 24hr workdays Exchange Rates Operational hedges Domestic vs. International SCM

16. Condition of Variable Types of variablesLowHigh Country Environment Market size and growthLSVI Labor costVILS Labor skillLSVI Local managerial capacityVILS Political riskVILS FG import controls LS(VI) VI(LS) Cultural compatibilityLSVI Competitive Situation Industry concentrationLSVI Relative competitive strengthLSVI Company characteristics Product (eg. maturity, brand identiry, line diversity, service intensity)…... Technology (eg. maturity, stability, complexity)…... Resources (eg. capital, management, previous experience)LSVI Extend of globalizationLSVI Vertical Integration (VI) vs Development of Local Suppliers (LS) Vertical Integration Issues in Global Supply Chains