Navigating Global Supply Chain Management: Strategies, Challenges, and Optimization

Posted on Sep 4, 2024 in Economy

Chapter 11: Global Dimensions of Supply Chain Management

Going Global: Strategies and Considerations

Expanding business operations internationally presents both opportunities and challenges. Here are some common strategies for going global:

• Exporting: Manufacturing products domestically and selling them abroad.
• Licensing: Granting another organization the right to manufacture or sell products using a company’s technology or product specifications.
• Franchising: Granting another organization the right to use a company’s name and operating methods.
• Joint Venture: Forming a separate, independent organization with a partner for a specific business purpose.
• Foreign Subsidiary: Directly investing in a foreign country by establishing a separate and independent production facility or office.

The most expensive option is typically establishing a foreign subsidiary, followed by franchising, licensing, exporting, and finally, global sourcing.

Common objectives for going global include:

• Increasing revenue through access to new markets.
• Expanding production capacity.
• Reducing direct costs by leveraging cheaper resources and labor.

Advantages and Disadvantages of International Expansion

Advantages of staying domestic:

• Focus on local markets.
• Minimal coordination effort.
• Cross-functional decisions made by a small group of executive managers.

Disadvantages of staying domestic:

• Limited to local markets.
• Difficulty responding to globally based customers.
• Inability to fully capitalize on economies of scale.

International Business Strategies

Multi-domestic Strategy:

• Advantages: Focus on local markets, minimal coordination efforts, allows firms to target key growth markets while minimizing complexity.
• Disadvantages: Not easily scalable, difficulty responding to globally based customers.

Global Strategy:

• Advantages: Focus on local markets, leverages global brands and products, meets unique needs of individual markets.
• Disadvantages: Not easily scalable, difficulty responding to globally based customers, limited synergies with global customers, limited drive for global data and processes.

Transnational Strategy:

• Advantages: Global focus for global solution development and delivery, highly scalable for domestic and global firms.
• Disadvantages: Requires substantial coordination and information integration, reduces ability to respond to market uniqueness.

Regional Operating Challenges

North America:

• Open geography.
• Extensive transportation options.
• Limited cross-border documentation.

Europe:

• Relatively compact geography.
• Numerous political, cultural, and language differences.
• Congested transportation infrastructure.

Pacific Rim:

• Island-based geography.
• Poor infrastructure.
• Extensive reliance on water and air shipments for long distances.

Logistics in a Global Economy

Global operations introduce complexities to logistics, including:

• Increased Uncertainty: Greater distances, longer lead times, and decreased market knowledge.
• Increased Variability: Unique customer requirements, documentation requirements, and shifting political environments.
• Decreased Control: Reliance on international service firms, varying customer requirements, and trade restrictions.
• Decreased Visibility: Longer transit times, longer holding times, and challenges in tracking shipment locations.

Domestic vs. International Operations

Key differences between domestic and international operations include:

• Performance cycle structure.
• Transportation complexities.
• Operational considerations.
• Information systems integration.
• Strategic alliances.

Global Transportation Changes

Four significant changes impacting global transportation:

• Removal of Intermodal Ownership and Operation: Simplifies operation and tracking of international shipping.
• Increased Carrier Privatization: Reduces reliance on often costly and unreliable government-owned carriers.
• Relaxation of Cabotage Restrictions in the EU: Improves trade efficiency.
• Constraints on Physical Infrastructure Capacity: Requires strategic planning and investment.

Challenges of Global IS Integration

Integrating information systems globally presents challenges due to:

• Substantial capital investment required.
• Need for seamless integration of ERP and global planning systems.
• Limited number of firms with fully integrated global information systems.

Key Challenges in Global Operations

Four major challenges in global operations:

• Demand: Accurately forecasting and meeting demand in diverse markets.
• Diversity: Managing operations across various cultures, languages, and regulations.
• Distance: Overcoming geographical barriers and managing longer lead times.
• Documentation: Complying with complex international trade documentation.

Hidden Costs in Global Operations

Be aware of hidden costs such as:

• Foreign taxes.
• Tariffs.
• Transit time uncertainty.

Chapter 12: Supply Chain Network Design

Enterprise Facility Network

The availability of cost-effective transportation options drives the design of efficient facility networks. Design requirements stem from integrated procurement, manufacturing, and customer accommodation strategies.

Evolution of Warehouse Networks

Local Presence Paradigm:

• Historically, transportation services were unreliable, leading to a need for local inventory to ensure consistent delivery.

Contemporary View:

• Transportation services have become more reliable and consistent.
• Information technology enables faster access to customer requirements and real-time tracking of shipments.

Warehouse Types and Functions

Warehouses optimize total costs and enhance customer service. They specialize in either supply-facing or demand-facing services.

• Supply-Facing Warehouses: Manage inbound materials.
• Demand-Facing Warehouses: Facilitate customer accommodation.

Warehouse Drivers

• Procurement Drivers: Ensure the purchase of materials and components at the lowest total inbound cost.
• Manufacturing Drivers: Consolidate finished products for outbound customer shipments.
• Customer Accommodation Drivers: Provide customer inventory assortments to wholesalers and retailers.

Warehouse Justification

Warehouses are strategically positioned to achieve freight consolidation and must provide either a service or cost advantage. Their justification is based on their ability to lower total costs or improve customer service.

Systems Concept in Supply Chain Management

The systems concept is an analytical framework that aims to integrate all components of a supply chain to achieve specific objectives. Key elements include order processing, inventory management, transportation, and warehousing. Systems analysis quantifies trade-offs between these functions.

Principles of the Systems Concept:

• Total system performance is paramount.
• Individual components do not need to be optimized in isolation.
• Trade-offs between components are essential.
• Synergy between components leads to greater overall results.

Total Cost Integration

Economic Transportation:

• Quantity Principle: Maximize shipment size within legal and carrier limits.
• Tapering Principle: Transport large shipments over the longest possible distances.

Inventory Economics

Inventory economics are driven by service response time, with the performance cycle as a key driver. Forward deployment of inventory can improve response time but increases overall inventory costs.

Inventory Components:

• Base stock.
• Safety stock.
• In-transit stock.

Impact of Warehouses on Inventory

Adding warehouses to a network increases the need for safety stock due to increased uncertainty and individual replenishment cycles. Base stock determination is independent of the number of warehouses, while in-transit stock decreases with additional warehouses.

Total Cost Network Graph

This graph combines transportation and inventory cost curves to identify the optimal balance between the two. The point of minimum total cost may not coincide with the lowest point on either individual curve.

Limitations:

• Difficulty in measuring and reporting all relevant costs.
• Need to consider a wide range of network design alternatives.

Service Sensitivity Analysis

This analysis uses a threshold service level to evaluate the impact of potential changes in the number of warehouses, performance cycles, and safety stock policies on overall service capabilities.

Portfolio Effect

The portfolio effect describes the relationship between uncertainty and required inventory levels. It can be estimated using the square root rule.

Chapter 13: Supply Chain Planning and Optimization

Planning Methodologies

Effective planning methodologies are crucial for evaluating options and responding to customer behavior. Supply chain decisions often involve complex and data-intensive analysis due to the multitude of factors impacting total cost and the range of potential solutions.

Phases of Supply Chain Planning

Phase 1: Feasibility Assessment

• Analyze the current situation.
• Develop supporting logic.
• Estimate the cost-benefit of proceeding.

Project Planning:

• Define objectives of proposed changes.
• Establish constraints and scope.
• Set measurement standards.
• Select analysis techniques.
• Create a project work plan.

Phase 2: Assumptions and Data Collection

• Define the analysis approach and select techniques.
• Define and review assumptions.
• Identify data sources.
• Collect and validate data.

Analysis:

• Develop questions for analysis.
• Validate the baseline analysis.
• Analyze each alternative.
• Complete sensitivity analysis.

Phase 3: Development of Recommendations

• Identify the best alternative.
• Estimate costs and benefits.
• Develop a risk appraisal.
• Prepare a presentation.

Implementation:

• Define the implementation plan.
• Schedule implementation.
• Define acceptance criteria.
• Implement the plan.

Methods and Techniques for Supply Chain Decisions

• Design decisions.
• Design logic.
• Inventory decisions.
• Transportation decisions.
• Freight lane analysis.
• Inventory analysis.

Data Requirements for Supply Chain Analysis

• Market segmentation by geography.
• Product definition by stock keeping units (SKUs).
• Network definition including channel members and locations (current and proposed).
• Customer demand by market geography.
• Transportation rates for inbound and outbound shipments.
• Variable and fixed costs.
• Tax incentives.

Transportation Decisions and Analysis

Transportation decisions range from strategic to tactical, with the goal of minimizing the combination of vehicles, hours, and miles required for product delivery.

Transportation Analysis Techniques:

• Heuristic Approaches: Use rule-of-thumb techniques to add and delete stops.
• Exact Approaches: Employ linear programming to identify optimal routes.
• Interactive Approaches: Utilize simulations, cost calculators, or graphics to support decision-making.

Network, Demand, and Operating Characteristics

• Network: Defines all possible routes.
• Demand Data: Specifies periodic customer pickup and delivery requirements.
• Operating Characteristics: Define the number of vehicles, vehicle limitations, driver constraints, and operating costs.

Chapter 14: Supply Chain Relationships

Functional Aggregation

Functional aggregation involves combining logistics functions into a single managerial group to enhance integration and improve understanding of how operational changes impact overall performance.

Factors Enabling Process Structure

• Highly involved work environments with self-directed teams.
• Focus on managing processes rather than functions.
• Rapid and accurate information sharing.

Challenges of Process Management

• Maintaining a customer-centric focus.
• Ensuring process owners have the necessary skills.
• Promoting synergy across the organization.

Barriers to Process Integration

• Functional organizational structures.
• Departmental budgets.
• Traditional performance measurement and reward systems.
• Inventory management practices that support functional performance.
• Information flow aligned with traditional functions.
• Limited knowledge sharing.

Integration Challenges

Integrating procurement and manufacturing often presents a divide compared to integrating distribution and marketing.

Essential Concepts in Supply Chain Collaboration

• Risk: Understanding and mitigating potential disruptions.
• Power: Recognizing the shifting power dynamics within the supply chain.
• Leadership: Establishing effective leadership models for collaboration.

Forms of Collaboration

• Contracting: Establishes a time dimension for traditional buying and selling.
• Outsourcing: Shifts the focus from buying materials to procuring specific services or activities.
• Administrative Domination: One firm governs the relationship through command and control.
• Alliance: Collaborative partnerships, such as Walmart and Procter & Gamble.
• Enterprise Extension: An extreme form of collaboration.

Supply Chain Flows

• Product/Service Value Flow: Movement of products and services from raw materials to end customers.
• Market Accommodation Flow: Structure for post-sales service and administration.
• Information Flow: Bidirectional exchange of transactional data, inventory status, and strategic plans.
• Cash Flow: Typically flows in the reverse direction of value-added activities.

Capability and Work in Logistics

• Capability: The knowledge and skills required for integrated performance.
• Work: The visible activities within logistical operations.

Operational Context of Integration

• Customer Integration: Building close relationships with customers.
• Internal Operations Integration: Coordinating procurement, manufacturing, and customer accommodation functions.
• Supplier Integration: Establishing operational linkages with material and service providers.

Planning and Control Context of Integration

• Technology and Planning Integration: Designing, implementing, and coordinating information systems.
• Measurement Integration: Monitoring and benchmarking functional and process performance.

Behavioral Context of Integration

• Relationship Integration: Building and maintaining strong collaborative relationships.

Maintaining Relationships

Key activities for maintaining strong supply chain relationships:

• Establishing mutual strategic and operational goals.
• Implementing two-way performance measurements.
• Creating formal and informal feedback mechanisms.

Types of Trust

• Reliability-Based Trust: Based on perceived behavior and operating performance.
• Character-Based Trust: Grounded in shared values, culture, and philosophy.

Chapter 15: Supply Chain Performance Measurement

Key Objectives of Performance Measurement

• Monitor system performance through appropriate metrics.
• Control system performance with performance standards.
• Focus employee efforts on system performance through motivation and rewards.
• Improve shareholder value through superior logistics performance.

Balanced Scorecard Approach to Measurement

• Financial Perspective: Profitability, ROI.
• Internal Operations Perspective: Process quality, efficiency, productivity.
• Customer Perspective: Logistics service, quality, satisfaction.
• Innovation and Learning Perspective: Process improvement, benchmarking, human resource development.

Operational Assessment

• Functional perspectives.
• Measuring customer accommodation.
• Determining appropriate metrics.
• Supply chain comprehensive metrics.
• Benchmarking.

Functional Perspectives on Performance

Major categories of functional performance:

• Cost.
• Customer service.
• Quality.
• Productivity.
• Asset management.

Cost Measurement

Total logistics cost includes:

• Order processing.
• Inventory carrying costs.
• Transportation.
• Warehousing and materials handling.
• Facility network costs.

Customer Service Measurement

Key metrics for customer service:

• Availability: Order fill rate, item fill rate, line fill rate, value fill rate.
• Operational Performance: Average order cycle time.

Quality and Productivity Measurement

• Quality: Often measured through service reliability.
• Productivity: Output of goods compared to input quantities.

Asset Management Measurement

• Focuses on the utilization of capital investments in facilities, equipment, and inventory.
• Inventory Turnover Rate: A common measure of inventory performance.
• Days of Supply: Amount of inventory available to meet forecasted sales.

Measuring Customer Accommodation

• Perfect Order: Measures the effectiveness of integrated logistics performance.
• Absolute Performance: Indicates the impact of a firm’s performance on customers.
• Customer Satisfaction: Requires ongoing monitoring, measurement, and feedback collection.

Factors Influencing Measurement

• Competitive Basis: Choosing between responsive or efficient logistics performance.
• Measurement Focus: Ranging from operational to strategic metrics.
• Measurement Frequency: Balancing daily monitoring with periodic performance reviews.

Supply Chain Comprehensive Metrics

• Cash-to-cash conversion time.
• Inventory days of supply.
• Total supply chain cost.

Benchmarking

Benchmarking helps organizations stay competitive by providing insights into industry best practices.

Financial Assessment

• Links supply chain performance to financial results.
• Utilizes cost-revenue analysis to provide a financial view of integrated logistics.

Activity-Based Costing (ABC)

ABC traces costs to specific activities, providing a more accurate view of cost drivers. Challenges include identifying activities, related expenses, and expense drivers.

Return on Investment Metrics

• RONW (Return on Net Worth): Measures the profitability of funds invested by owners.
• ROA (Return on Assets): Measures profitability generated from managing operational assets.

Improving ROA

• Manage net profit margin improvements.
• Manage asset turnover improvements.

Strategic Profit Model (SPM)

• Adaptable to spreadsheet analysis.
• Integrates income statement and balance sheet data.
• Demonstrates the relationship between financial data and ROA.

Sarbanes-Oxley Act (SOX)

• Section 404 requires an internal control report with the annual report.
• Mandates internal measurement capabilities that comply with SEC requirements.
• Requires disclosure of off-balance-sheet liabilities and material events.

Chapter 16: Emerging Supply Chain Trends and Challenges

Evolution of Supply Chain Management

The field has evolved from a focus on procurement, manufacturing, and logistics to encompass processes, resources, risk, security, and sustainability.

Process and Resources

• Product Complexity: Managing a wide range of product design variations.
• Outsourcing: Leveraging third-party logistics (3PL) providers for specialized services.

Risk and Security

• Regulations: Balancing opportunities and constraints presented by regulations.
• Environmental Regulations: Adhering to environmental standards and supporting green initiatives.
• Financial and Taxation Incentives: Leveraging incentives for supply chain optimization.
• Security: Ensuring the security of supply chains, particularly in global operations.

Tax-Aligned Supply Chains (TASC)

TASC strategies aim to optimize global tax rates. Common approaches include:

• Central Entrepreneur Strategy: Centralizing key functions and risks in low-tax countries.
• Incremental Strategy: Considering tax implications for each supply chain change.

Supply Chain Security Initiatives

• C-TPAT (Customs-Trade Partnership Against Terrorism): Certifies known shippers through security self-appraisals and audits.
• CSI (Container Security Initiative): Pre-screens containers and fast-tracks cargo upon arrival in the U.S.
• AMR (Advanced Manifest Rule): Requires detailed cargo data before shipping to or from the U.S.
• ACI (Advanced Cargo Information): Requires comprehensive cargo information before entry into the U.S.
• FAST (Free and Secure Trade): Expedites border crossings for low-risk goods transported by trusted carriers.

International Security Organizations

• ISO (International Organization for Standardization).
• Strategic Council on Security Technology.
• WCO (World Customs Organization).
• WTO (World Trade Organization).

Supply Chain Sustainability

Key aspects of supply chain sustainability:

• Talent management.
• Experience and credibility.
• Adapting to changing fuel prices.

Supply Chain Expertise

Essential skills for supply chain professionals:

• Cross-functional expertise.
• Breadth and depth of supply chain knowledge.
• Global management skills.
• Experience and credibility.

Supply Chain Dynamics

• Balancing scale and reliability.
• Addressing infrastructure congestion.
• Managing rising energy costs.
• Adapting to shifts in supply chain mode selection and design.

Guest Speaker Insights

Randy Fedie (Lean Project Manager at Rockwell Automation)

• Focus on lean principles and eliminating waste (defects, overproduction, waiting).
• Emphasis on the Toyota Production System (TPS) for quality, cost, and lead time optimization.
• Lean tools and concepts: 5S, Andon, Kaizen, Muda.
• People are the most valuable resource.
• Prioritizing customer satisfaction and human development.
• Aligning key performance indicators (KPIs) with key behavior indicators (KBIs).

Terry Fons (VP-Industrial for Hydrite Chemical Co.)

• Serving diverse industries with a focus on industrial, agricultural, and chemical processing segments.
• Expanding business into new regions while managing competitive risks.
• Importance of defining clear goals, shipping strategies, HR needs, and sales strategies.
• Understanding and mitigating potential risks associated with expansion.