1. Supply Chain Management Lecture 5 – Globalisation Alexa Kirkaldy

2. 2 Lecture 5 - Learning Objectives On completion you will be able to: Define globalization as a phenomenon Recognise the key drivers for change in the global economy Explain the evolution of multinational and international logistics strategies Recognise sources of risk from operating globally and in particular recognise the exchange rates risks that arise and identify methods to manage these risks

3. 3 Definitions of Globalization The growing integration of economies and societies around the world (Source: World Bank http://www.worldbank.org/ ) Globalisation offers companies opportunities to simultaneously grow revenues and decrease costs (Source: Chopra and Meindl) Is the convergence of trends in markets, products, consumer behaviour and society. –Tony Hines, “Supply Chain Strategies”, 2004, Elsevier, page 7 Is a trend, the destination has not been reached

4. 4 Drivers of Globalisation Growth in world trade greater than growth in GNP/GDP Liberalization of trade via WTO Development of global transport infrastructure Information technology improves global communications Global competition increases search for lower labour costs Regionalisation Triads - North America, EU, Japan/Pacific Rim Overcapacity in many industries

5. % of imports and exports vs world GDP

6. Container movements have increased rapidly since 1981 6

7. Port capacity and demand is increasing

8. … air freight volumes continue to increase In 2014, airlines transported 51.3 million metric tons of goods, representing more than 35% of global trade by value but less than 1% of world trade by volume. Equivalent to $6.8 trillion worth of goods annually, or $18.6 billion worth of goods every day.

9. and are forecast to keep doing so! http://www.airportwatch.org.ukhttp://www.airportwatch.org.uk (2015)

10. 10 Implication of International Competition LowHigh Low High Trading Industries Defence hardware Aerospace Textiles and apparel Shipbuilding Trading Industries Defence hardware Aerospace Textiles and apparel Shipbuilding Multinational Industries Investment banking Fast-food restaurants Management consulting Packaged groceries Multinational Industries Investment banking Fast-food restaurants Management consulting Packaged groceries Sheltered Industries Furniture House building Grocery retailing Domestic services Sheltered Industries Furniture House building Grocery retailing Domestic services Global Industries Automobiles Consumer electronics Petroleum Semiconductors Global Industries Automobiles Consumer electronics Petroleum Semiconductors International investment (foreign owned assets) International Trade (world export) Source: Dr Dawei Lu, MSc SCM module, WMG

11. Regionalisation 11 Source: OCR

12. Offshoring 12 Source: OCR

13. 13 Source: OCR

14. 14 Scenarios in 2020 Globalisation unbound –trade barriers progressively dismounted; accelerated technological progress; integrated financial markets Controlled globalisation –further gradual trade liberalisation constrained by security concerns and protectionist pressures Globalisation in retreat –protectionist sentiment thrives in a climate of insecurity Globalisation sunk –global markets disrupted, stagnant consumption; technical advances dwindle; restrictions on trade, migration and investment 10% 65% 20% 5% Source: Economist Intelligence Unit (2006) Foresight 2020: Economic, industry and corporate trends

15. Evolution of Logistics Strategies Sourcing Manufacturing Inventory Distribution Sales Stage 1 – Direct export Sourcing Manufacturing Inventory Distribution Sales Stage 2 – National warehouses Activities in home country Activities in Europe

16. Evolution of Logistics Strategies Sourcing Manufacturing Inventory, Distribution Sales Stage 3 – Logistics centralisation Sourcing and primary manufacturing Stage 4 – Postponed manufacturing Activities in home country Activities in Europe Inventory, Final manufacturing, Distribution Sales Harrison A. and van Hoek R. “Logistics Management and Strategy”, Pearson, 2nd edition 2005, p. 115

17. 17 Stages in Global Supply Management Stage one: International purchasing –Price and volume Stage two: Global sourcing –Supplier capabilities –Supporting market entry Stage three: Global supply management –SC optimisation –Risk management Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.276

18. 18 Companies Reasons for Global Sourcing To benefit from: Lower total cost Superior quality Better timeliness More advanced technology Broader choice of suppliers Expanded customer base Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.276-277

19. 19 Problems faced by Companies from Global Sourcing Cultural issues Long lead times Additional inventories Lower quality Social and labour problems Higher cost of doing business Higher opacity Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.277-278

20. 20 Global Pipeline – Transport Variability From point of origin to port Freight forwarding/ consolidation Transit to country of destination Customs clearance Transit to point of use Total elapsed time Maximum57155537 Average43142432 Minimum11121217 Christopher M., Logistics & Supply Chain Management, Pearson, 3 rd edition, 2005, p. 217

21. Impact of Globalization on Supply Chain Networks Risk FactorsPercentage of Supply Chains Impacted Natural disasters35 Shortage of skilled resources24 Geopolitical uncertainty20 Terrorist infiltration of cargo13 Volatility of fuel prices37 Currency fluctuation29 Port operations/custom delays23 Customer/consumer preference shifts23 Performance of supply chain partners38 Logistics capacity/complexity33 Forecasting/planning accuracy30 Supplier planning/communication issues27 Inflexible supply chain technology21 Source: Chopra and Meindl, 5 th Edition 2013, Page 156