Chapter 11 Global and Multi-Market Supply Chain Management

1. Chapter 11Global and Multi-Market Supply Chain Management John S. Hill

2. Catalysts of Global and Multi-Market Supply Chain Development Integration Mechanisms Information Technologies (IT) Multicultural Managers & Human Resources New Product Development Processes • Global/Multi-Country Supply Chains: • Integration Options • Supplier-Manufacturer Linkages • Trends • Sourcing strategies • Supplier Integration • International Manufacturing Systems • Factors Affecting Manufacturing Configuration • Evolution of International Manufacturing Systems • Managing Manufacturing Process Transfers across markets • Manufacturer-Distributor Linkages • Trends • Organizational Options • Distributor-Customer Linkages • Electronic Data Interchange (EDI) • De-Integration • (Outsourcing) Decisions • Strategic Perspectives • Raw Materials • Components • Manufacturing • Logistics • Distribution • Information Technologies • Human Resources • New Product Development

3. Chapter Outline • Global and Multi-Market Supply Chains • Integration Options • Integration Mechanisms for Global Supply Chains • De-integrating the Global Supply Chain: Outsourcing Strategies

4. Catalysts of Global and Multi-Market Supply Chain Development • Environmental Catalysts • Free trade movement • Homogenization of global demand • Pressure of global competition • Technological advance in information system, global media, transportation and logistic systems • Corporate Catalysts • Contributions to cost leadership: more supply/distribution options; scale economies • Contributions to differentiation advantages: service, new product development inputs; global brands

5. Figure 11.2: Factors promoting Global and National Supply Chains • Factors Promoting National Supply Chains • Protectionist tendencies (tariffs, non-tariff barriers) • Xenophobia • Nepotism (cronyism) • Preservation of national demand characteristics • Competitive tendencies superceded by other factors (e.g. employment maintenance) • Limits on foreign companies (e.g. ownership limitations) • Undeveloped national infrastructures (telecoms, road, rail, electronic) • Inconvertible currencies/balance of payments management • Factors Promoting Global Supply Chains • Environmental Factors • Free Trade movements • Competition-based economies • International Media • Convertible Currencies • Globalization of products • Corporate Factors • Industry pressures towards JIT systems • Time-based management: customer responsiveness • Management information systems • Suppliers • Manufacturing • Distribution • Customers

6. Integration Options • Supplier-Manufacturer Integration: “Upstream Relationships” • International Manufacturing Systems and Supply Chain Management • Manufacturer-Distribution Linkages • Distributor-Customer Linkages

7. Supplier-Manufacturer Integration: “Upstream Relationships” • Trends • Sourcing Strategy Options • Home Market Sourcing • Regional Sourcing • Worldwide Sourcing • Integrating Suppliers • Stages • Relationships

8. Supplier-Manufacturer Integration: “Upstream Relationship” • Trends Affecting Supplier-– Manufacturer Supply Chain Relationships • Decline of Mass Production: CIM, CAD-CAM • Reductions in Processing Time: JIT • Organizational Changes: “what firms do best”—core competencies

9. Supplier-Manufacturer Integration: “Upstream Relationship” • Global Sourcing Strategies • #1, Maintaining Home Market Suppliers • Low labor costs • Service and quick response is important • Quality levels problems in foreign plants • Patriotism and “Made in” advantages • Economic capital intensive assembly processes

10. Supplier-Manufacturer Integration: “Upstream Relationships” • Global Sourcing Strategies • #2, Regional Sourcing from Neighboring Countries • Free trade agreements • Common technical standards • Low labor and transportation costs • #3, Global Sourcing between Regions • Impressive cost economies • Transportation costs and trade barriers are minimal

11. Supplier-Manufacturer Integration: “Upstream Relationship” • Integrating Suppliers • Global Sourcing Stages • Stage 1 to 6, from domestic purchasing to international supply chain integration • The Evolution of Supplier-Customer Relationships • Phases 1 to 5, from adversarial relationship to partnership to lean supply phase • Integrating Subsidiary Suppliers into Global Manufacturing Networks: encouraging marketing and manufacturing improvements

12. International Manufacturing Systems and Supply Chain Management • Evolution of International Manufacturing Systems • Transferring Manufacturing Capabilities Across Markets • Global Diffusion of Management Philosophies and Processes

13. International Manufacturing Systems and Supply Chain Management • Evolution of International Manufacturing Systems • Country-based or home market-based manufacturing systems • Multi-domestic and regionally uncoordinated manufacturing systems • Regional specialization and regional integrated systems • Globally coordinated, globally integrated and global specialization

14. International Manufacturing Systems and Supply Chain Management • Transferring Manufacturing Capabilities Across Markets • The Toyota Production System (TPS) Principles • waste elimination • workflow maximization • respect for people

15. International Manufacturing Systems and Supply Chain Management • Global Diffusion of Management Philosophies and Processes • Just-in-time (JIT): in 1950’s at Toyota • Total Quality Management (TQM): Japan • Reengineering corporate structures and processes All take time, employee involvement, good communications, trust

16. Manufacturer-Distribution Linkages • Changing Distributive Frameworks • Manufacturer-Distributor Organizational Options

17. Manufacturer-Distribution Linkages • Changing Distributive Frameworks • Increasing concentrations of retail ownership: decline of mom-pop stores • Disappearing middlemen • Changing consumer purchasing patterns: autos and refrigerators—one-stop shopping • Information technologies: EDI linkages • International retailing: US, European , Japanese • Emergence of global and pan regional carriers

18. Manufacturer-Distribution Linkages • Manufacturer-Distributor Organizational Options • Classical system: bulk shipments going directly to subsidiary warehouse; low transportation, high storage costs • Transit system: distribution centers for small high value shipments: low storage, high transportation costs • Direct system, directly into customer or subsidiary’s distribution channel • Multi-country warehouse system: dedicated manufacturing sites to warehouse where products, components can be consolidated

19. Distributor-Customer Linkages • Electronic Data Interchange (EDI): keeps warehouses, firms abreast of demand • Internet System: moving to complete coordination suppliers through to retailers/customers

20. Integrating Mechanisms for Global Supply Chains • Supply Chain Integration and Information Technologies • Creating Multicultural Managers • Integrating Supply Chain and Human Resource Policies • Global and Multi-Market New-Product Development Strategies

21. Supply Chain Integration and Information Technologies • Obstacles to Internet-based Supply Chain Extension • National Obstacles • costs of infrastructure impediments • regulatory obstacles to advertising, data transfers, illegal products • economic issues such as taxation of internet sales • currency convertibility • foreign language • Customer based Obstacles • ownership of personal computers and technologies • credit card ownership and cash payments • consumer buying patterns: distrust of ‘sight unseen’

22. Creating Multicultural Managers • Managing the Expatriate Assignment • Executive selection, suitable candidates are empathetic, independent, good communicators, culturally sensitive • Pre-preparation includes pre-assignment visit, language and cultural training • Enhancing the foreign experience: happy spouses, mentors, other expatriates, money • Coming home: smooth repatriation process with career planning, de-briefings

23. Integrating Supply Chain and Human Resource Policies • Integrating Supply Chain and Human Resource Policies • Recruitment and selection criteria: consistency versus local needs • Rewards systems: standardization possible but difficult • Global perspectives on HR policies: integrating HR managers into foreign operations/rotations • Labor-management relations: regional cooperation within trade blocs such as EU, MERCOSUR

24. Global and Multi-Market New Product Development Strategies • Generating New Product Ideas on a Global Basis • Implementing New Product Development Progress

25. Global and Multi-Market New Product Development Strategies • Generating New Product Ideas on a Global Basis • About 30% of 3M’s sales coming from products less than 4 years old • Asda use “Tell Archie” to encourage employees submit new ideas • Using observational techniques to observe users in national market • R&D department • Traditional market research and intensive testing • Ideas from canvassing suppliers, distributors and customers

26. Global and Multi-Market New Product Development Strategies • Implementing New Product Development Progress • Cross-functional new-product development teams • Maintaining the same product design team • Early involvement of manufacturing • Use of common components • Product design and recycling • Appropriate organizational structures (e.g. product structures)

27. De-integrating the Global Supply Chain: Outsourcing Strategies • Strategic Advantages of Outsourcing • Strategic Disadvantages of Outsourcing • Outsourcing Individual Supply Chain Components: Pros and Cons

28. De-integrating the Global Supply Chain: Outsourcing Strategies • Strategic Advantages of Outsourcing • Focus on core competencies • Access world-class capabilities of other companies • Free up capital and resources • Reduce operating costs • Share or reduce marketplace risks • Secure resources not available internally

29. De-integrating the Global Supply Chain: Outsourcing Strategies • Strategic Disadvantages of Outsourcing • Loss of core competencies: key expertise or processes maybe lost • Control problems: recruiting appropriate suppliers/distributors; quality problems • Corporate and home market repercussions of foreign outsourcing: job losses, corporate reputation • Inadequate supervision of the supply chain process; supply chain specialists needed!

30. De-integrating the Global Supply Chain: Outsourcing Strategies • Outsourcing Individual Supply Chain Components: Pros and Cons • Raw material from global commodities markets: in-sourcing high % value-added (oil) • Component outsourcing for standardized output and to supply OEMs • Manufacturing outsourcing for products having constant changes in customer tastes or in technologies • Logistics outsourcing: more common as logistics supply companies increase

31. De-integrating the Global Supply Chain: Outsourcing Strategies • Outsourcing Individual Supply Chain Components: Pros and Cons • Distribution outsourcing:outside operators have global reach and effective information systems • Information Technologies outsourcing to keep up with IT developments; tough to go back • New product development: too important for most international companies to out-source, but flexible; control, quality, confidentiality problems • Human resource management outsourcing for some functions (recruiting, wages, benefits); but much local knowledge usually required

32. Key Points • Defining global and multi-market supply chains • Sourcing strategies may be national, regional, global • Evolution of international manufacturing systems: domestic to globally integrated • Supply chain integration via IT, expatriates, new product development • Outsourcing of raw materials, components, manufacturing, logistics, distribution, IT, HR, NPD