Ludivine d’Aulisa Romain Toulemonde Jens Johnen Toni Laitila

1. Global Supply Management Ludivine d’Aulisa Romain Toulemonde Jens Johnen Toni Laitila

2. Globalization of World Trade: • International agreements foster free trade - OECD, GATT • Formation of European Union, NAFTA • World Trade Organization • 130 member countries, accounts for more than 90% of world trade

3. Importance of Global Purchasing: • Global trade has increased significantly – total trade in 1997 was 14 times the level of 1950 • Internet is accelerating the trend US Imports • Leading sources of imported goods were Canada, China, Mexico, Japan, Germany • Aggregate US Trade deficit reached a record level of $617.7 billion in the 2004,a 24% increase since 2003 (includes goods and services) • Growth in deficit reflects surging imports and continued, rapid decline in competitiveness of U.S. manufacturing industries • China’s trade surplus with US was $162 billion in 2004, a 30.6% increase since 2003 and the US’s largest bilateral deficit.

4. 2004 US Imports (Goods) Top 15 Countries (76.5% of Total)

5. CHINA • China sets the global benchmark for prices (“the China price” = lowest price possible) • GM: clause in supplier contracts that gives suppliers 30 days to meet China price or risk immediate termination. • Walmart: more than 80% of the 6000 factories in their worldwide database of suppliers are in China. - 560 purchasing people on ground in the country • If Walmart were a nation, they would rank as China’s 5th largest export market, ahead of Germany and Great Britain

6. Reasons For Global Purchasing • Lower overall cost key reason to buy internationally • Reasons for Lower costs: • lower labour costs • exchange rate may favour buying offshore • Equipment and processes may be more efficient • supplier pricing very low to gain volume • Government Pressures – US and Canadian Firms have pressure to purchase from the companies they export to. (a condition of sale or as a social responsibility) • More consistent quality (on some products) • Unavailability of items domestically (ie. certain raw materials or electronic equipment)

7. Reasons For Global Purchasing • Faster Delivery (in some cases) • Better Technical Service – Superior Distribution Network • Technology – international suppliers may be more advanced • Tie-in with Offshore Subsidiaries: Support for the Local Economy • Competitive Clout: international competition pressures the domestic supplier to become more efficient

8. Are you ready?

9. The Jens Show

10. Potential Problems: • Source Location and Evaluation • Lead/Delivery Time • Expediting • Political and Labor Problems • Hidden Costs

11. Potential Problems: • Currency Fluctuations • Payment methods • Quality • Warranties and Claims • Tariffs and Duties • Paperwork costs

12. Potential Problems: • Legal problems • Logistics and Transportation • Incoterms: • - departure • - main carriage unpaid • - main carriage paid by seller • - arrival

13. Potential Problems: • Language • Communications • Cultural and Social Customs • Ethics

14. Are you ready?

15. The Jens Show

16. Where to find information about suppliers ? • US Department of commerce • Chambers of commerce • International chamber of commerce • Embassies • Purchasing professionals • Suppliers • Importers and brokers • Banks • Supplier directories • Associations • Web sites

17. Capabilities evaluation: • Other purchasing people experiences • Suppliers visit • List of present and past customers • Payment procedures required • Banking reference • Facilities list • Numberships in quality • Basic business informatrion

18. Global sourcing organizations3 approaches for centralized organizations: • regional purchasing offices • global commodity management organizations • International purchasing offices (IPOs)

19. Intermediaries • Import brokers and agents • Import merchant • Seller’s subsidiary • Sales representatives • Trading company

20. 5-stage Global Sourcing Process

21. Are you ready?

22. The Jens Show

23. Countertrade • Barter/Swaps • Offset arrangements • Counterpurchase • Buyback/Compensation • Switch trade • American Coutertrade association

24. Foreign trade zones • Manufacturing • Transshipment • Storage • Manipulation • Refunding of duties • Exhibition and display

25. North American Free Trade Agreement • NAFTA eliminates or reduces tariffs among member countries. • Rules of origin • Possibility of a free trade Area of the Americas

26. Are you ready?

27. The Jens Show

28. Case 14-2Marathon Oil Comapny International • Summary: - International company (UK, Ireland, Egypt, Indonesia, Tunisia) - Sakhalin Island (Russia) = hidden treasure - A consortium of 5 companies: Marathon from Houston, Shell from Holland, McDermott from Houston, Mitsui and Mitsubishi from Japan want to develop 2 worldclass oil fields offshore - 3 locations possible for IPO: London, Houston, Tokyo What factors are important in this decision and where should they plan to locate the IPO?

29. Map of Sakhalin Island Region

30. Where do you think they should locate?London, Houston or Tokyo

31. Alternative 1: Locate IPO in London • Pros • No language barrier for the members of the consortiums • 3 of the 5 members of the consortium already have offices in London • The IPO of Marathon oil company is in Scotland - easier to communicate and recruit staff

32. Alternative 1: Locate IPO in London • Cons • Far away from the operations in Sakhalin island

33. Alternative 2: Locate IPO in Houston • Pros • Location of head office of Marathon oil company • No language barrier for the members of the consortiums • 35% of all buys for the regions were controlled from corporate purchasing in Houston

34. Alternative 2: Locate IPO in Houston • Cons • Far away from the operations in Sakhalin island

35. Alternative 3: Locate IPO in Tokyo • Pros • Near the operations location • Two companies of the consortium are major entities from Japan

36. Alternative 3: Locate IPO in Tokyo • Cons • Major political concerns • Language barrier for the majority of the consortium

37. Recommendation • The recommended solution is to locate the IPO in LONDON.

38. THANK YOU MERCI DANKE SCHOEN KIITOS XIE XIE