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OMSAN LOJİSTİK. Top Management Program in Logistics & Supply Chain Management (TMPLSM). Global Logistics and International Operations 2. Strategic Management of Global Networks. Who is winning? … In what?. Source: Finlistics.

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Omsan loj st k

OMSAN LOJİSTİK


Omsan loj st k

Top Management Program in Logistics

& Supply Chain Management (TMPLSM)

Global Logistics and International Operations

2. Strategic Management of Global Networks


Who is winning in what

Who is winning? … In what?

Source: Finlistics


Financial scm connection

Supply Chain Management has the potential to improve the three key drivers of Financial performance:

Growth – Annual Growth in Revenue

Profitability – percentage of Profits after deducting from revenue total operating expenses

Capital Utilization – euros of revenue generated relative to euros invested in assets like inventory, accounts receivable, warehouse, manufacturing and others.

Financial – SCM Connection


Scm related financial metrics

SCM – Related Financial Metrics

FinListics 2004


Segmentation

Segmentation…

Family of Suppliers

Family of Customers

Suppliers

Integration

Policies

Customers

Service

Policies

6


Logistics in the business

Logistics in the Business!


And this is the way we could see the global logistics function and its processes

… and this is the way we could see the Global logistics function and its processes …

Logistics (bridge)

Consumption Point

(Factory, Store, User, Consumer)

Fulfilling your service promise, while optimizing system’s resources

Sourcing Point

(Supplier, Factory, Store, User)

Logistics


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In reality, logistics is a system which receives input (resources) and after some activities (processes) generates output…

Resource Cost

Transaction Cost

Output Cost

Logistics

System

Logistics

Resources

Logistics

Output

What the logistics output should be?


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… and logistics processes are the components of the bridge that holds the stream of materials, information and funds…


Strategies for logistics planning

Strategies for Logistics Planning

4 Elements

5 Processes

1 Strategy


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Customer Service

Warehousing &

DC Operations

Inventory

Planning

Transportation

& Distribution

Sourcing

Each logistics process has a specific role to assure the support of service levels and the optimization of resources.

Define logistics service policy

Capture demand

Fulfill orders with local inventory to meet response time requirements

Define inventory levels to fulfill demand

Optimize O-D lanes to meet response time requirements

Select optimal sourcing mix to meet inventory requirements


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Cost of Logistics Resources + Cost of Holding Logistics Assets

People & Assets

Logistics Expenses

Views by

Resource, Activity (Output), Process

Logistics financial measurements are the most common and intuitive type of KPIs. Accounting practices however may restrain the possibility to compute logistics cost accurately.

Logistics Decision Objective = Max (Corporate EVA)

Logistics Decision = Min (Operating Cost + Capital Cost + Lost Sales)


Logistics value added

Logistics Value Added


Better products value for the consumer

Better Products... Value for the Consumer?

3. How do we satisfy orders?

Collaboration with partners

Center around

Consumers

Bundling Goods and Services

1. What is our attitude towards consumers?

2. How do we differentiate what we sell?


Value disciplines

Value Disciplines

Planning

Finance

Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation

Info Systems

Technology


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Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation

Balanced Scorecard

Financial

Performance

Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation


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Financial Perspective

“If we succeed, how will we look to our shareholders?”

Customer Perspective

“To achieve my vision,how must I look to my customers?”

Internal Perspective

“To satisfy my customer, at which processes must I excel?”

Organization Learning

“To achieve my vision, how must my organization learn and improve?”

The Balanced Scorecard Provides a Framework to Translate the Vision and Strategy Into Operational Terms

The Strategy

  • Measurement is the language that gives clarity to vague concepts

  • Measurement is used to communicate, not to control

  • Strategy can be described as a series of cause and effect relationships


Building the balanced scorecard bsc

Four perspectives (why four?)

PerspectiveGeneric Measure

Return on Investment and economic value added

Financial

Satisfaction, Retention, Market, and Account Share

Customer

Internal

Quality, Response Time, Cost, New Product Introductions

Learning and Growth

Employee Satisfaction and Information Systems Availability

Building the balanced scorecard (BSC)

19


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Balanced Scorecard

Financial

Performance

Current

Operations

Effectiveness

Customer

Satisfaction

Internal

External

Future

Alignment

Deployment

Measurement

Product

& Process

Innovation


The balanced scorecard provides a framework to translate a strategy into operational terms

Financial

“To succeed financially, how should we appear to our shareholders?”

Initiatives

Objectives

Targets

Measures

Internal Business Process

Customer

“To achieve our vision, how should we appear to our customers?”

“To satisfy our shareholders and customers, what business processes must we excel at?”

Initiatives

Initiatives

Objectives

Objectives

Targets

Targets

Measures

Measures

Learning and Growth

“To achieve our vision, how will we sustain our ability to change and improve?”

Initiatives

Objectives

Targets

Measures

The balanced scorecard provides a framework to translate a strategy into operational terms

Vision

and

Strategy

21


Is this a good balanced scorecard

Is This a Good Balanced Scorecard?

Financial

Customer

  • Operating Income Growth

  • Same Store Sales Growth

  • Inventory Turns

  • Expense / Sales Growth Ratio

  • Frequency of Purchase

  • Units Per Transaction

  • Transaction Size

  • Customer Feedback

Internal

Learning & Growth

  • Category Market Share

  • Category Margin

  • Sales per square foot

  • Quality / Returns

  • Out of Stock

  • Employee Climate Survey

  • Turnover

  • Strategic Skill Coverage

  • System vs. Plan


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A Balanced Scorecard Is More Than a List of Measures….A Good Balanced Scorecard Tells the Story of Your Strategy


Customizing measures for business strategies and financial themes

Customizing Measures for Business Strategies and Financial Themes

Business Unit Strategy


Lean thinking

Five Principles:

Providing Value (How Customers perceive Value)

Creating Value Stream (for each Operation)

Generating Flow (Value Making Processes, eliminate “Silos”)

Employing Pull (follow through the entire Process)

Creating Perfection (Quality should be embedded in every activity)

Lean Thinking

James Womack and Daniel Jones: Lean Thinking


Lean thinking linked to marketing

Five Principles:

Providing Value (How Customers perceive Value) Price

Creating Value System (for each Operation) Place

Generating Flow ( … eliminate “Silos”) Promotion

Employing Pull (follow through the entire Process) Planning

Creating Perfection (Quality … embedded …) Product

Lean Thinking … linked to Marketing

James Womack and Daniel Jones: Lean Thinking


Lean thinking linked to metrics

Accounting measurements conceived at the turn of the 19th century are no longer relevant for the 21th century (e.g., manufacturing absorption!).

Two results metrics that will encourage lean behavior when taken together are Inventory Turns and Fill Rate…

Balanced Score Keeping should be the target … that involves a System view of the entire Organization

Lean Thinking … linked to Metrics


Lean thinking linked to manufacturing

Reduction of Unnecessary Waste

Overproduction

Delays (waiting time)

Transportation

Processes

Inventories

Motions

Defective Products

Defective Design

Lean Thinking … linked to Manufacturing


Classification of issues in operations

I. MANAGINGTHE INSIDE

II. MANAGING THE LINKAGES

III. MANAGINGTHE NETWORK

Classification of Issues in Operations


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Why does business need a operational model to evaluate performance?

  • Why not use just financial measurement?

  • An example:

    • Quote by Larry Brady, President of FMC (early 1990’s):

    • “As a highly diversified company, … the return-on-capital-employed (ROCE) measure was especially important to us.

    • At year-end, we rewarded division managers who delivered predictable financial performance. We had run the company tightly for the past 20 years and had been successful.

    • But it was becoming less clear where future growth would come from and where the company should look for breakthroughs into new areas.

    • We had become a high return-on-investment company but had less potential for further growth. It was also not at all clear from our financial reports what progress we were making in implementing long-term initiatives.”


The corporate challenge implementing business strategy

The Corporate Challenge:Implementing Business Strategy

“Less than 10% of strategies effectively formulated are effectively executed”

Fortune


Four barriers to strategic implementation

The Vision Barrier

Only 5% of the work force Understands the strategy

The People Barrier

The Management Barrier

Only 25% of managers have incentives linked to strategy

85% of executive teams spend less than one hour per month discussing strategy

60% of organization don’t link budgets to strategy

The Resource Barrier

Four Barriers to Strategic Implementation

9 of 10 companies fail to execute strategy

Today’s management systems were designed to meet the needs of stable industrial organizations that were changing incrementally.

You can’t manage strategy with a system designed for tactics


Clear operational objectives try to

Clear Operational Objectives try to:

  • Translate vision into execution (deployment)

  • Current & futures perspective

  • Financial & non-financial factors

  • Include non-quantitative factors

    • but quantify them whenever possible


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Suppliers

Consumers

Managing the Linkages and the Network

Crafting Your Supply Chain Strategy

Two Strategic Questions:

1. Who Controls the Supply Chain?

2. Who Should Manage Which Part?


Total factor productivity

Total Factor Productivity


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How are we doing?


Total factor productivity1

Base Profit

Profit Increase

Price

Volume

Productivity

New Profit

Total Factor Productivity


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X

=


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P

V

$


Tfp starting point

Factor Productivity

The amount of output relative to the amount of a specific input (e.g. units per labor hour)

Example: last year - 10 units of output per labor hour this year – 12 units of output per labor hour labor productivity increased by 20% (from 10 to 12)

Total Factor Productivity (TFP)

A combined measurement of the amount of output (of a product) relative to the sum of all resource inputs (the factors)

A means of measuring the overall performance of an operation

TFP Starting Point


Productivity measurement issues

Productivity Measurement Issues

  • How to combine inputs that are measured in different units?

    • Labor hours

    • Material weights

    • Energy BTUs

  • How to treat output ‘units’ that change over time

    • Standard product & options

    • Quality improvements

    • New products, line mix


  • Tfp basic approach

    Monetarize all variables

    assumes quality differentials are reflected in prices & costs

    Adjust for inflation

    Use $$$ as a surrogate (Implicit measure)

    TFP Basic Approach

    Note: Requires units & price data for all inputs and outputs … or calculable approximations


    What service level

    SCENARIO 2

    PartOrderedReceived

    A 1,000 1,000

    B 2,000 2,000

    C 4,000 0

    D 2,000 2,000

    E 1,000 1,000

    Total 10,000 6,000

    Line Fill Rate60%

    Order Fill Rate80%

    SCENARIO 1

    Part OrderedReceived

    A1,000 990

    B2,000 1,990

    C4,000 3,990

    D2,000 1,990

    E1,000 990

    Total 10,000 9,950

    Line Fill Rate99.5%

    Order Fill Rate0.0%

    What Service Level?


    Optimal inventory planning

    Q.R.

    OTHER

    Q.R.

    OTHER

    47%

    33%

    13%

    4%

    5%

    10%

    11%

    9%

    4%

    52%

    1%

    11%

    53%

    47%

    35%

    65%

    Why not make-to-order non-Q.R.“C” items?

    Optimal Inventory Planning

    Radical Stocking Alternatives

    SALES

    ITEMS

    STRATA

    TOTAL

    TOTAL

    A

    80%

    17%

    B

    15%

    20%

    C

    5%

    63%

    TOTAL

    100%

    100%


    Distribution of item types by order

    Distribution of Item types by order

    35%

    35%

    30%

    25%

    25%

    20%

    15%

    15%

    10%

    10%

    5%

    5%

    5%

    5%

    0%

    A Only

    B Only

    C Only

    A&B

    A&C

    B&C

    A,B,&C


    Inventory profile analysis ipa

    Inventory Profile Analysis (IPA)

    An aggregation technique that comparesActual toDesired(or Target Inventory) at the SKU level.

    Coverage(%)= Actual Inventory compared to Target ( 0 to 100%)

    Excess(%)= Any Quantity Above Target ( no upper limit )

    Example

    Targetis 10 apples and 10 orangesActual= 5 apples and 15 oranges

    Coverage= 75% (5 apples + 10 oranges = 15/20 x 100)

    Excess = 25% (5 oranges = 5/20 x 100)

    IPA = 75 - 25 %

    Assume Annual Demand is 120 apples and 120 oranges and the Inventory Turns Target is 12. Inventory Turns = ??

    IPA = 75 - 25 %, i.e. we risk serious stockouts and wasting a fourth of the resources!


    Profit drivers

    Maximize revenueMaximize margin

    Minimize cost

    Minimize investment =>Maximize velocity

    Profit Drivers

    (Relatively) easy individually …

    difficult in simultaneous combination


    Strategic profit positions

    O

    P

    S

    E

    F

    F

    I

    C

    I

    E

    N

    C

    Y

    H

    I

    G

    H

    L

    O

    W

    Strategic Profit Positions

    Cost Quality Flexibility Service

    Scale - scope – learning

    Matched competency

    49

    Doing the right things the right way …


    Strategic profit positions1

    MARKET EFFICIENCY

    HIGH

    LOW

    Strategic Profit Positions

    O

    P

    S

    E

    F

    F

    I

    C

    I

    E

    N

    C

    Y

    H

    I

    G

    H

    L

    O

    W

    Fragmented competition

    Rational customers

    Plentiful supply

    Full information

    50


    Strategic profit positions2

    Strategic Profit Positions

    MARKET EFFICIENCY

    HIGH

    LOW

    Leader

    Dominator

    O

    P

    S

    E

    F

    F

    I

    C

    I

    E

    N

    C

    Y

    H

    I

    G

    H

    L

    O

    W

    Loser

    Opportunist

    51


    Profit based strategy

    Goodoperations/marketing strategies serveefficientmarkets efficiently

    Great operations/marketing strategies attackinefficientmarkets efficiently

    Profit Based Strategy


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    Polaroid Europe

    Case Presentation


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    General Criteria For Choice of Country

    • Current Capabilities

    • Scope of Improvement within Subsidiary Size

    • Current Costs (Labor, Inventory, Facility)

    • Distance from Enschede

    • Customer Requirements

    • Quality of Transportation Service

    • Ability to Manage Customs Delays

    • Local Management Support

    • Ease of Implementation

    • Value as Demonstrated Project

    55


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    Growth Performance at Polaroid

    56


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    • IDSC Capabilities

    • Information Systems

    • Communication Systems

    • Material Handling Systems

    • * Pallets Quantities

    • * Case Quantities

    • Packaging

    • Carrier Capabilities

    • Presence in Many Countries

    • Customs Management

    • Information Systems

    • Communication Systems

    57


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    Inventory at Polaroid’s European Subsidiaries

    58


    Trade offs

    Trade-Offs


    Evaluation for a european logistics strategy

    Evaluation for a European logistics strategy

    • Flexibility is a winning criterion

      • Decentralized Distribution centers might be wiser

    • Congestion and environmental regulations

      • 45 people per square mile versus 11 in the US

    • Trucking remains the fastest mode

      • 85% of all intra-Europe freight travels less than 100 miles (64% of total ton-miles in Europe are by truck versus 30% in the US).

    • Outsourcing is key but be careful selecting

      • “No 3PL can handle ALL industries”

    • Customer Service requirements are NOT homogenous


    Why manufacture abroad

    Most Tangible

    Most Intangible

    Why Manufacture Abroad?

    • Reduce Direct and Indirect Costs

    • Lower Capital Costs

    • Reduce Taxes

    • Reduce Logistics Costs

    • Get Inside Tariff Barriers

    • Provide Better Customer Service

    • Spread Foreign Exchange Risks

    • Build Alternative Supply Sources

    • Preempt Potential Competitors

    • Learn from Local Suppliers

    • Learn from Foreign Customers

    • Learn from Competitors

    • Learn from Foreign Research Centers

    • Attract Talent Globally


    Forces for going or staying offshore

    Forces for Going or Staying Offshore

    * The Savings can cost a lot

    * Savings may not last

    * You may get trapped

    * Hollow the Company

    * Lose important

    friends at home

    * Operational Flexibility

    * Manage Political Risk

    * Information arbitrage

    * Global Coordination

    * Access to Financial Markets

    and Tax Minimization


    Why manufacturing firms invest abroad

    Why Manufacturing Firms Invest Abroad?

    • Reduce Production, Labor, or Material Costs

    • Take advantage of skilled labor - increase productivity

    • Source locally

    • Hedge (speculate) againstExchange Rates

    • Benefit from resultingOperating Flexibility

    • Increase Sales/Markets

    • Take advantage of Local Government offers

    • Getting around Trade Barriers

    All of which essentially implies:Profitability and Future Growth


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    BMW USA

    Case Presentation


    Bmw spartanburg plant

    BMW Spartanburg Plant

    • Plant designed to produce 300 cars a day with future expansion to 400 vehicles per day.

    • Focused on Manufacturing Flexibility: using a single assembly line, plant capable of producing different models.

    • Worldmarket Demand for Roadsters 150,000 to 160,000 units per year of which they expected to capture 20%.

    • Production cost 20% less cost than a German alternative.


    Bmw plants around the world

    BMW Plants Around the World


    Options

    Options

    1.Gear up for higher Production of both the Z3 and the 3 Series Additional Investment of $200 million.

    2. Send the 318 back to Germany’s Regensburg plant.

    3. Resist market pressure and concentrate on Quality.


    Characteristics of different entry modes

    Characteristics Of Different Entry Modes

    • DISSEMINATION RISK

      • Low

      • Low

      • Medium

      • High

    • RESOURCE

    • COMMITMENT

      • Low

      • Low

      • Medium

      • High

    ENTRY MODE

    Exporting

    Licensing

    Joint Venture

    Wholly Owned

    Subsidiary

    • CONTROL

      • High

      • Low

      • Medium

      • High


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    COUNTRY ENVIRONMENT

    ECONOMIC

    POLITICAL FACTORS

    CULTURAL

    COMPETITIVE SITUATION

    INDUSTRY

    CHARACTERISTICS

    ENTRY MODE DECISION

    COMPANY CHARACTERISTICS

    PRODUCT

    TECHNOLGOY

    RESOURCES

    GLOBALIZATION


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    CONDITION OF VARIABLES


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    CONDITION OF VARIABLES


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    CONDITION OF VARIABLES


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    Strategic Role of Joint Ventures

    Advantages

    * Resource Mobilizer

    * Political Insurance

    * Cultural Guide

    * Competitive Tool

    Major Drawbacks

    * Conflicting Priorities

    * Interaction Costs

    Managing the Relationship

    * Carefully assess complementarity

    * Know your partner

    * Achieve goal and strategy congruency

    * Identify conflict points

    * Make clear rules

    * Make transactions transparent

    * Communicate clear and often

    * Control creatively

    * Share equitably

    * Be Flexible

    73


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    Strategic Role of Joint Ventures

    • * Economic Analysis

    • * Political Analysis

      • - Risk Analysis

      • - Exposure

      • - Effective Counter-measures

    • * Complexities Unique to International Business

      • - Exchange Rates

      • - Tax Systems

      • - Labor Regulations

      • - Banking Practices

    • * Interpersonal Skills

      • - Relationships with Local Communities

      • - Minor Bureaucrats

      • - Several Cultures

    • * Relationship with the “Home Office”

      • - Time Frame

      • - Values

    74


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    Factors Affecting the Investment Decision

    Uncertainty

    • Demand

    • Input Prices

    • Exchange Rates

    • Competition

    • Government Regulations

    • Capital Controls

    Strategic

    • Logistics / Location

    • Trade / Tariffs

    • Multi-Domestic Industry

    • Technology Transfer

    • Sourcing / Customer / Supply proximity

    75


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    Foreign Exchange Impact

    There are three main ways thatforeign exchange

    fluctuationsaffect a company’s financial performance:

    Transaction Exposure:by changing the expected results of transactions denominated in non-domestic currencies.

    Translation Exposure:by changing the domestic currency value of net assets held in foreign currency.

    Operating Exposure:by changing the domestic currency value of future cash flows to be earned in foreign currencies or by changing a firm’s future competitive position.

    76


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    Currency Risk Management Strategies

    MICRO-LEVEL STRATEGIES

    Proportion of Use

    Payment in US Dollars 85%

    (Risk Avoidance)

    Buying Foreign Currency Forward 20%

    (Risk Avoidance)

    Buying Foreign Currency Futures 35%

    (or Options) (Risk Minimization)

    Risk Sharing Contract Agreement 55%

    (Risk Minimization)

    Payment in Supplier Currency 5%

    MACRO-LEVEL STRATEGIES

    Proportion of Use

    Supplier Selection through 20%

    Exchange Rate Forecasts

    Flexible Sourcing Contracts on 10%

    Volume/Timing Purchases

    Develop a Portfolio of Global N/A

    Suppliers / Supplier Switching

    77


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    VW Mexico

    Case Presentation


    Omsan loj st k

    Volkswagen de MEXICO

    • Car production at 1600/day.

      • 900 Golfs/Jettas (Export)

      • 150 Golf Cabriolets (Domestic only)

      • 150 Old-Style Beetles (Domestic only)

      • 400 Light Trucks

    • 75% of production is now in exporting.

      • Canada, South America, US, Germany, Spain

    • Engines

      • 3000/day, 1400 exported to Germany and Spain (SEAT).

    79


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    Domestic Competition

    • The Mexico 5 Car Companies.

    • Competitors also moving production to Mexico.

      • Low costs

      • Free trade

    • VWM only one without

    • US plants.

    80


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    Mexico Exports

    • An ideal export platform

      • Land-link proximity and ports on 2 oceans

      • Inexpensive, reliable transportation infrastructure

      • Cheap labor with improving technology/labor productivity

      • German and other international parts suppliers producing in Mexico

      • Remaining trade barriers (US to Mexico, but not Mexico to US and Canada)

    81


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    Reducing the Foreign Exchange Exposure

    • Marketing Strategy

      • Diversify exports markets.

      • Prepare for domestic market turnaround.

      • Develop less price sensitive product line.

    • Financial Strategy

      • Diversify debt portfolio among countries VWM sells into.

    • Production Strategy

      • Maintain flexible production factor sourcing.

    82


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    Product Design

    Establishes the “upper bound” on supply chain efficiency

    Logistics

    Purch.

    Mfg.

    Distrib.

    Service

    Suppliers

    Customers

    Information Technology

    Enables and institutionalizes supply chain processes

    Supply Chain Boundaries

    Complementary / synergistic combinations


    Omsan loj st k

    "We know what we are and what we're not. We are a really superb product integrator. We're a tremendously good sales-and-logisitcs company. We're not the developer of innovative technology."


    Product architecture

    Product Architecture

    • Shared Platforms

    • Modularity

    • Common Components

    • Ease of Assembly

    • Postponement

    Critical for mass customization and

    Supply Chain Efficiency.


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