Global Supply Chain Management: Strategies, Sourcing, and Optimization

Posted on Aug 31, 2024 in Economy

Global Supply Chains

Due to globalization, suppliers and customers are now globally dispersed. Consequently, companies have developed massively global and complex supply chains. These chains contribute significantly to a company’s cost structure and are challenging to manage.

The Supply Chain Network

Modern supply chains are best described as networks—webs of entities and activities involved in producing and delivering a product to the end consumer. These activities are categorized as upstream or downstream relative to the focal firm (FF):

  • Upstream: Suppliers/raw materials (e.g., cotton, steel, rubber), component parts, assembly.
  • Downstream: Distributors/Wholesalers, retailers, end consumers.

The Value Chain

A value chain encompasses the global supply chain and refers to the process of transforming inputs into a final product through various activities. It includes:

  • Primary Activities: Directly contribute value to the end product (e.g., R&D, production, marketing).
  • Support Activities: Enable primary activities (e.g., HR, finance, logistics).

Competitive Advantage Strategies

Companies primarily compete for advantage using one of three strategies:

  1. Differentiation: Creating superior value (high value, high price, high cost). Examples: Tesla, Technogym.
  2. Low-Cost Structure: Offering lower value at a lower price (low value, low price, low cost). Examples: Costco, Walmart.
  3. Differentiation and Low-Cost: Combining high value with low cost (high value, high price, low cost). Examples: Nike, Apple.

Example: Nike’s Value Chain

Primary Activities: R&D, Product Development, Manufacturing, Marketing, Customer Support.

Support Activities: HR, Accounting, Finance, MIS, Logistics.

Supply Chain Management

Supply chain management involves managing external entities and activities within the value chain. Key focus areas include:

  1. Planning: Forecasting demand for all products.
  2. Sourcing: Evaluating make-or-buy decisions for all tiers (raw materials, components, assembly).
  3. Delivering: Managing logistics between upstream and downstream nodes using various modes (truck, rail, air, ocean).
  4. Returns: Handling excess inventory and defective products.

Key Supply Chain Characteristics

To effectively manage supply chains, companies aim for:

  • Agility: Reacting quickly to unexpected events and shifts in demand or supply.
  • Adaptability: Adjusting supply chain configurations in response to external changes (e.g., political, economic, technological).
  • Alignment: Coordinating interests of all entities involved in the supply chain. This requires:
    • Power: Typically, the focal firm should hold the most power for better alignment.
    • Trust: Essential for effective collaboration and should be established and nurtured by the focal firm.

Supply Chain Strategy

A company’s supply chain strategy must align with its overall business model and consider five key elements:

  1. Cost: Relevant to all supply chain activities.
  2. Innovation: Focusing on developing valued products and services.
  3. Quality: High quality leads to increased value and price.
  4. Time: Delivering products and services when customers expect them.
  5. Service: Understanding and meeting customer expectations for service.

Sourcing Decisions

Sourcing decisions involve determining which activities to perform internally (make) and which to outsource (buy). Factors to consider include:

  1. Company’s business model.
  2. The five competing priorities.
  3. Potential supply chain risks (e.g., IP infringement, weather events, quality issues).

Outsourcing (Buy)

and offshoring (make) relative to the value chain (primary)R&D àProduct Development à MFG àMKTG à Customer Support à End Product.//Outsourcing: refers to when a company decides to contract with another company located in a foreign country to perform a specific value-chain activity. If that activity is manufacturing it may be referred to as contract manufacturer. No ownership by the company in the contracted entity. Offshoring: refers to when a company decides to establish PPE, hire and train labor force and perform a value-chain activity or even to perform the entire value-chain in a foreign country.*Ownership:Outsourcing and offshoring can apply to both upstream and downstream activities. Supply Chain Management: refers to managing activities and entities associated with the value-chain that are external to the firm; whereas, ops management often refers to the internal functions related to the value-chain. The individual/s responsible for managing the supply chain report to the COO – the individual responsible for managing the internal aspects related to the overall value-chain.GSCM is a functional field (reporting to COO) that is responsible for making, implementing, and managing all upstream and downstream activities (inclusive of distribution, delivery, and support of the product).4 primary areas of focus associated w/GSCM: 1.Planning – anticipating and estimating demand for all customers for all products.2. Sourcing – evaluate or reevaluate the make/buy decision for all tiers for all products (raw materials, components, assembly/production/manufacturing).3.Delivering – is relevant to logistics between/among both upstream and downstream nodes of GSC activities. Keep in mind there are multi-modes of logistics activities (truck, rail, air, ocean).4.Returns – process identified to handle receiving excess inventory back as well as handle and account for defective product.//Overall, companies (as they manage their GSCs) aim to get the right product (the product that the customers want) in the right quantity (enough to meet demand and not have too much excess inventory) delivered to the right place at the right time, all while meeting value, price, and cost targets. 3 key underpinnings of the character of supply chains in order to best achieve the previous statement. 1.Agility – refers to the ability to react quickly to unexpected events and/or shifts in supply chain demand and/or supply. Being agile reduces likelihood that the consumers will switch (customer decides to change product to a competing alternative). Decreasing sales, decrease revenue, decrease in profitability. At the same time the company incurs increased costs associated with the fix. Increased cost, reduced profitability. E.g Samsung lithium ion battery, Chipolte food safety issues. Companies need their supply chains to be speedy and efficient – maximizing productivity while minimizing wasted time and therefore expense. 2.Adaptability – refers to the ability to change supply chain configurations in response to changes primarily in the external environment (changes that occur that are outside the company’s ability to directly control. Political conditions, broader economic conditions, social environment technological e.g. 3D printing, etc.).3.Alignment – refers to the lining up of interests of the various entities that perform separate activities in involved in the supply chain. All entities and associated activities must be coordinated to hit all delivery dates, quality expectations, cost targets, etc. in order to achieve the goal. E.g. Boeing and 787 orders and corresponding delivery dates did not have proper alignment. * 2 critical elements received to achieve alignment: power, trust:A.power: Not all entities in the supply chain are equal. (upstream, focal firm, & downstream) Typically, one entity will be most powerful & in order to best be aligned that entity should be the focal firm.Boeing squandered their power as the most powerful entity & as a result MIS-alignment. B)Trust is more problematic – it must exist across the supply chain between each entity & then among the collective of the entities. Trust is established as a framework first & then a foundation is built by the FF who then demonstrates they, as an entity, are trustworthy & that in turn builds trust across the supply chain. Supply Chain Strategy:Recall concept of the business model (what strategy a company pursues to create profitability & compete for advantage within the industry).Charts (high V,P, low C) and so on… (High P & V, low C, high profit margins) (Low V, P, C, low profit margin. Strategy is the relationship between 3 variables: V, P, C. The supply chain strategy must be consistent with and support the company’s business model. The business model is the lens through which all other functions – level strategies are determined.Next, supply chain strategy requires an evaluation of 5 elements and identifying which elements are relevant & need to be prioritized to establish the supply chain strategy.5 Elements (in no order or priority – that is determined by the business model: 1)cost.2)innovation.3)quality.4)time.5)service.Bob Marshall, Biga Pizza. (1.cost-innovation-quality-time-service)// Vision – 3 things: 1)Great quality.2)Keep local(economics of the food).3)Reduce environmental impact(food cycle that creates economical impact-pollution).// * In terms of the business model, it is more important for him high value(freshness of products) with a high price. ( Value, price, cost ) we don’t know where the margin is to dictate the cost. (he lowers the cost by having 8 farmers for example selling the food and then whit what he has left he can make a special menu with all this products). Seasonally and locally available, fresh, organic, prime inputs drives 4 product menu (pizza, salad, antipasto, calzones), drives business restaurant 49 seats. May menu, September menu. Menu changed to accommodate local supply changes. Summer menu – relationships – Western Montana Growers Coop, Clark Fork Organics, Bakery & Restaurant Supply, TOP Company, Costco, Farmers Market, UNFI //High Value, High Price, Moderate Cost (averaged among offerings, not a set margin).5 competing priorities in Supply Chain strategy:1) Cost, regarding of business model, will be relevant, but it may have a lower given certain business models. Cost is relevant to the entire supply chain, including upstream, focal firm and downstream activities.2)innovation:(product) company focuses in developing product/services that customers value. Products have features that deliver specific benefits that customers place value on. 3)Quality: high quality products leads to increase value and increase price.*depending on the business model, the quality and cost can be competing priorities-how to increase qualities without increasing cost to the same extent. 4)time: ability to deliver/offer products/services to customer when the customer expects them. -if time is a competitive priority then updating/replacing products/services frequently.5)service: requires the FF to understand how customers define high degree of customer service and accordingly will tailor product/service offering to meet or exceed that need.Sourcing Decisions: Much of supply chain strategy has to do with determining what activities the focal firm will perform vs what activities the focal firm will contract out. Sourcing applies to both upstream and downstream supply chain activities. Primary, common downstream activities contracted out are logistics and customer support. We will focus our attention on upstream sourcing decisions. These could include identifying, evaluating and selecting suppliers for raw materials, component parts, mfr/assembly. Sourcing decisions are made taking into consideration:1)Company’s business model.2)5 competing priorities.3)Potential supply chain risk – ex. IP infringement, weather events, product quality and safety, fuel price increases, anything that can potentially have an adverse impact on the company’s profitability.//The sourcing decision is a strategic decision referred to as the “make or buy” decision. This decision should be based on the company’s primary value chain activities, meaning what activities should the focal firm perform because they are the activities that primarily create value vs. those activities that do not.  R&D, PD, Mktg/Sales./Buy (outsourcing)*if a company decides to “make”, but to perform that activity in a foreign country, this is referred to as offshoring. Generally speaking: Advantages and disadvantages to buy: +  affords the focal firm the opportunity to focus efforts/resources on the activities that are primarily creating value.+ the companies performing the activity(ies) realize economies of scale which leads to lower costs to the focal firm. + affords improved quality due to companies that are performing the contracted activity, specializing in that activity+ greater flexibility and adaptability to technological changes and /or product changes+ increased efficiency realized by companies contracted with leading to decreased costs. DIS:-Increased risk associated with managing all the supplier relationships -Increased risk associated with IP infringement-Increased risk associated with logistics and delivery -Increased risk associated with product safety and/or quality//*When a firm decides to “buy” for specific value-chain activities they consider:1)What activities they will “buy” and then for each activity how many suppliers they will “buy” from (contract with) 2)The geographic locations of the suppliers: A)For logistics concerns.B)Proximity to markets. 3)Cost associated with each supplier relationship and the length of each contract.//Suppliers will compete for the contract on the basis of these 3 aforementioned factors. Total cost of Ownership (TCO) – companies evaluate the strategic decision to make or buy first using this tool and then assuming the decision is to buy, then use TCO to evaluate and select suppliers.TCO is a management(executive) accounting=g concept and represents the costs associated with the purchase of a good before, during & after the transaction.BEFORE costs include: time associated with identifying potential suppliers, visiting prospective suppliers, evaluating the suppliers and in some cases supplier certification.DURING: purchase price of ordering, transportation, expediting, receiving and inspecting the goods.AFTER: costs associated with inventory, supply chain risk, warranty//Splintering has more to do with specialization and demand; reducing risk. Splintering monolithic supply chains into smaller, nimbler ones can help tame complexity, save money, and serve customers better. Hedging is building a buffer against acknowledged risk. Second, leading companies treat their supply chains as dynamic hedges against uncertainty by actively and regularly examining—even reconfiguring—their broader supply networks with an eye toward economic conditions.In doing so, these companies are building diverse and more resilient portfolios of supply chain assets that will be better suited to thrive in a more uncertain world.