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DPS 406: GLOBAL SUPPLY CHAIN MANAGEMENT TOPIC ONE: INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Bibliiography Clarkson University. “Global Supply Chain Management.” www.clarkson.edu May 7, 2002. Global Supply Chain Associates homepage. www.gsca.com May 7, 2002. Macaulay Institute. “Why have these global supply chains developed.” www.mluri.sari.ad.uk/ May 8, 2002. Russell, Roberta and Taylor, Bernard. Operations Management. New Jersey: Prentce Hall, Inc. 2000. pp 373-86. The Forum. “The Stanford Global Supply Chain Management Forum.” www.stanford.edu/group/scforum/ May 8, 2002. • Michigan State University’s Global Logistics Research Team (1995), World Class Logistics: The Challenge of Managing Continuous Change,” Oak Brook, IL: Council of Logistics Management (Sponsored by the Council of Logistics Management). • Locke, Dick (1996), Global Supply Management, Boston, MA: McGraw Hill (Sponsored by the National Association of Purchasing Management).
Supply Chain Management • A supply chain is a set of organizations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer. Managing a supply chain is 'supply chain management' • Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).
Historical developments in supply chain management • Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization, Specialization Phases One and Two, and SCM 2.0.
Historical developments in supply chain management Creation era • The term supply chain management was first coined by a U.S. industry consultant in the early 1980s. However, the concept of a supply chain in management was of great importance long before, in the early 20th century, especially with the creation of the assembly line. The characteristics of this era of supply chain management include:
Historical developments in supply chain management • The need for large-scale changes, • Re-engineering, • Downsizing driven by cost reduction programs, and • Widespread attention to the Japanese practice of management
Historical developments in supply chain management Integration era • This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of supply chain evolution is characterized by both increasing value-adding and cost reductions through integration.
Historical developments in supply chain management Globalization era • The third movement of supply chain management development, the globalization era, can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chains over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back several decades (e.g., in the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business.
Historical developments in supply chain management • This era is characterized by the globalization of supply chain management in organizations with the goal of increasing their competitive advantage, value-adding, and reducing costs through global sourcing.
Historical developments in supply chain management Specialization era—phase one: outsourced manufacturing and distribution • In the 1990s, industries began to focus on “core competencies” and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond company walls and distributing management across specialized supply chain partnerships.
Historical developments in supply chain management • This transition also re-focused the fundamental perspectives of each respective organization. The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands.
Historical developments in supply chain management Specialization era—phase two: supply chain management as a service • Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non-asset-based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management. • At any given moment, market forces could demand changes from suppliers, logistics providers, locations and customers, and from any number of these specialized participants as components of supply chain networks. This variability has significant effects on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to more complex requirements including the configuration of the processes and work flows that are essential to the management of the network itself.
Historical developments in supply chain management • Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity.
Historical developments in supply chain management Supply chain management 2.0 (SCM 2.0) • Building on globalization and specialization, the term SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era".
Historical developments in supply chain management • Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is to help navigate the vast amount of information available on the Web in order to find what is being sought. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results, a combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization, near-/far- and off-shoring, and talent scarcity.
Interest in supply chains cont…. • It becomes critical for companies to manage the entire network of supply to optimize overall performance • due to a realization by most companies that maximizing performance of one department or functions may lead to less than optimal performance for the whole company. • E.g. Purchasing may negotiate at lower price on a component and receive a favorable purchase price variance, but the cost to produce the finished product may go up due to inefficiencies in the plant.
Interest in supply chains • The supply chain has become a very prominent concern for both large and small organizations as they strive for better quality and higher customer satisfaction (Chopra and Meindle 2001). • The increasing demand for reduced costs, increased quality, improved customer service and continuity of supply have significantly elevated supply chain management’s stature within organizations. • Companies have become more specialized and search for suppliers who can provide low cost, quality materials rather than own their source of supply.
Interest in supply chains cont... • increased national and international competition. Customers have multiple sources from which to choose to satisfy demand; locating product throughout the chain. However, the dynamic nature of the marketplace make holding inventories a risky and potentially unprofitable. • Supply chain has therefore become a key element in any organizational corporate strategy.
The Need for Supply Chain Management • The need to improve operations. • Increasing levels of outsourcing. • Increasing transportation costs. • Competitive pressures. • Increasing importance of e-commerce. • The need to manage inventories
What the supply chain is not • The definitions described and developed earlier and recent industry collaborative activities indicate that supply chain management is not a standalone process. Many supply chain efforts have fallen short of the potential advantages because the term is often viewed as only relating to the supply side of the business or to the purchasing function. As indicated above, supply chain management is much more that just procurement.
Among the misunderstanding evidenced, SCM is not: • Inventory management; • Logistics management; • Supplier partnerships; • Driven from the supply side; • A shipping strategy; • Distribution management; • The logistics pipeline; • Procurement • A computer system
Reasons for the slow growth of integrated SCM include the following: • Lack of guidelines for creating alliances with supply chain partners. • Failure to develop measures for monitoring alliances. • Inability to broaden the supply chain vision beyond procurement or product distribution to encompass larger business processes. • Inability to integrate the company internal procedures.
Reasons cont……. • Lack of trust inside and outside a company. • Organizational resistance to the concept. • Lack of buyin-by top managers. • Lack of integrated information systems and electronic commerce linking firms.
Elements of SCM • Supply chain management involves coordinating activities across the supply chain central to these corresponding activities at each level of the supply chain. Elements Typical Issues • Customers - Determining what products and/or services customers want • Forecasting - Predicting the quantity and timing of customer demand.
Elements of SCM Cont……. • Inventory - Meeting demand requirements while managing the costs of holding inventory • Purchasing - Evaluating potential suppliers, supporting the needs of operations on purchased goods and services
Elements…….. Suppliers - Monitoring supplier quality, on-time delivery, and flexibility maintaining supplier relations Location - Determining the location of facilities Logistics - Deciding how to best move information and materials
Elements cont….. • Capacity Planning - Matching supply and demand • Processing - Controlling quality, scheduling work
INTRODUCTION • International business - engages in cross-border transactions • Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country • Global company - integrates operations from different countries, and views world as a single marketplace • Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness
Some Global Strategies • International Strategy: uses exports and licenses to penetrate the global area • Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business • Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants • Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization
INTRODUCTION • Global competition is transforming the way products are produced and moved around the world. • A new structure namely global supply chain has evolved which is able to take advantage of the unique competitive advantages in different countries. • This structure needs to be properly tied with the procurement, processing, and distribution activities of a multinational firm. • Given the reduced trade barriers, it’s now possible to garner the competitive advantage that differing countries have to offer. • The various value adding activities of the supply chain can be strategically dispersed among various countries and coordinated to produce competitive advantage.
INTRODUCTION CONT…. • Global trade is the backbone of our modern, commercial world, as producers in various nations try to profit from an expanded market, rather than be limited to selling within their own borders. • There are many reasons that trade across national borders occurs, including lower production costs in one region versus another, specialized industries, lack or surplus of natural resources and consumer tastes.
Global Trade • This is exchange of capital, goods, and services across international borders or territories. • In most countries, it represents a significant share of gross domestic product (GDP). • While international trade has been present throughout much of history, economic, social, and political importance has been on the rise in recent times. • Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the global trade system. • Without global trade, nations would be limited to the goods and services produced within their own borders
Global Supply Chain • The supply chain incorporates all aspects of moving material from the vendor through the manufacturing process to the final customer. • The supply chain focuses on vendors, manufacturers, intermediaries, logistical services and the customer. • The supply chain is no longer contained within countries borders, but encompasses all nations, whether they are vendors, manufacturers or customers. • Economists predict that the some of the current developing nations will be some of the most important economic powers in the next decade.
As the global supply chain becomes more complex with every passing year, companies must adapt to this change and incorporate them into their supply chain strategies. • This change could mean using vendors from developing nations or exporting goods to new markets. • Companies that have traditionally operated within national or regional trading groups may feel ill-equipped to extend their global supply chain. • Businesses have to understand that cultural difference play a deciding role in the success or failure of a venture in a new global region.
Supply Chain Defined:- • The facilities, functions, and activities involved in producing and delivering a product or service, from suppliers to customers.
Global Supply Chain Defined:- • An integrated process where several business entities such as supplies, manufacturers, distributors and retailers work together to plan, coordinate and control material, parts and finished goods from suppliers to customers. One or more of these business entities operate in different countries.
What is a Global Supply Chain • The global supply chain is made up of the interrelated organizations, resources, and processes that create and deliver products and services to end consumers. • In the instance of global supply, the chain is extended to many different countries around the world.
Formal Definitionof a Supply Chain • A supply chain is a “network of facilities and activities that performs the functions of product development, procurement of material from suppliers, the movement of materials between facilities, the manufacturing of products, the distribution of finished goods to customers, and after-market support for sustainment” (Mabert and Venkataraman 1998).
Supply Chain Utilities TIME PLACE POSSESSION
Network of Relationships Finland Sweden Germany Denmark Norway Netherlands Iceland
Ford Example Enfield Instruments, fuel and water gauges, plugs Basildon Radiators, water pump assembly, engine components Belfast Carburetors and distributors Treforest Spark plug insulators Genk Body panels, road wheels Leamington Foundry production of engine components Wülfrath Transmission parts, engine components Cologne Die-cast transaxle casings, gear and engine components Dagenham Final assembly Bordeaux Transmissions Valencia Final assembly Saarlouis Final assembly
Types of InternationalSourcing Strategy A company procures major components in-house by procuring them domestically A company buys major components from independent suppliers internationally A company procures major components from its foreign subsidiary A company buys major components from independent suppliers at home
International SupplyChain Organization • A supply chain organization is a relatively enduring interfirm cooperative that uses resources from international participants to accomplish shared and independent goals of its members.
International SCM Theory Actor Bonds Activity Links Resource Ties
Practicality and Usefulness • Help companies compete all over the world. • Expand business operations. • Offer new services and applications to meet global customers needs. • Give company a competitive advantage. • Falling International Trade Barriers Mean Rising Profits.
Goal of the Global Supply Chain • Prompt and reliable delivery of high-quality products and services at the least cost. • To effectively meet rising customer expectations
Recent changes effecting the global supply chain • Internet and technological change • Proliferation of trade agreements • Falling Trade Barriers • Increase in international trade groups • New Markets
Advantages of global supply chain • Reduced total costs • Inventory reduction • Improved fulfillment cycle time • Reduce cycle time • Increased forecast accuracy • Productivity increase • Improved capacity • Expand international connections • Increase intellectual assets • Delivery improvement • Diversified business and trading • Competitive advantage • Untapped markets • Enhance speed and efficiency
Potential Global Supply Chain Obstacles • Member nations VS. Non member nations • Inefficient transportation and distribution systems • Market instability • Different languages • Differences in Currencies • Differences in Measurement Systems (metric versus decimal) • Different Customs, beliefs and cultures • Political turmoil • Trade imbalances • Export surges and recessions • Greater distance • Tax Policies • Operational Threats • Strategic Challenges • Technological capabilities