Global Dimensions of Supply Chains

Chandana Hewege
Global Sourcing and Supply Chain

> http://www.youtube.com/watch?v=ykYgVz75JGc
 Globalisation and Supply Chain

Three eras of globalization

– The first era was initially driven by countries (1400–1800) seeking
materials and goods not available in their own land

– The second era of globalization (1800–2000) was driven by

companies seeking goods and materials, labor, economies of
scale, and markets.

– In the third era of globalization, said to have begun around the

year 2000, the significant characteristic is that it is being powered
by individuals and smaller organizations
 Globalisation and Supply Chain

Supply Chains in a Global Economy

– Economies and companies could improve their “wealth” by allowing specialization of

tasks.

– The advantage is true as long as you can sell the increased volume that is produced. It
is an important role of logistics to help extend the market area of countries or
companies through improved efficiency to lower the “landed cost” in new market areas.
The Scope and Magnitude of Global Business

– The ability to connect to individuals and companies across the

globe and to connect computer information systems on a 24/7
basis has provided unparalleled opportunity for collaboration
horizontally and vertically in supply chains.

– The trade volume with China was 18.2 percent of the total of the
top 10 for 2006, and it increased its trade volume by 20 percent
from 2005 to 2006. In 2000, China was number 4 following
Canada, Mexico, and Japan. Check the latest statistics below
– https://www.cia.gov/library/publications/the-world-
factbook/geos/us.html
Global Markets and Strategy
– The global business environment has changed significantly and become much
more conducive to business activity between and among different countries.

– Success in the global market place requires developing a cohesive strategy,

including product development, technology, marketing, manufacturing, and
supply chains.

– Global markets and strategy have four important characteristics:

• standardization reduces complexity
• global competition reduces the product life cycle
• traditional organizational structures and business models frequently
change
• globalization introduces more volatility
Supply Chain Security: A Balancing Act

– Given the importance of global trade to the United States, a delicate balance exists
between security and the efficient flow of global commerce.

– More cargo inspections, much more paperwork, and a longer time to clear U.S. borders
are now a reality.

– C-TPAT is a cooperative effort to secure the global supply chain and to facilitate
legitimate cargo and conveyance.
Ports

– Ports are a critical part of global supply chains and also a major
focus for global security.

– America’s ports are a vital part of its global commerce. Over $2

trillion in trade value per year passes through U.S. ports, and over
$18 billion is collected in industry fees and taxes.
North American Free Trade Agreement & Supply Chain
Potentials

– NAFTA establishes free trade between these three countries and

provides the way the agreement is to be interpreted.

– Even though the U.S./Canada Free Trade Agreement has been in

effect for some time, certain trade barriers still remain.

– The supply chain constraints will eventually be eliminated as

NAFTA experience grows. Refer to the diagram in the next slide.
A Typical Truck Shipment Crossing into Mexico
Global Transportation Options
Ocean
• The most pervasive and important global shipment method, accounting for
two-thirds of all international movements. Major advantages are low rates
and the ability to transport a wide variety of products and shipment size
• Three major categories:
– Liner service (offer scheduled services)
– Charter vessels
– Private carriers
Air
• Fast transit times
• An advantage in packaging
• Disadvantage of air carriage is high rates
Global Transportation Options (cont.)
Motor
– Use motor transport when shipping goods to between the United States and
Mexico or Canada
– It is very common in Europe
– Motor also plays a large part in intermodal shipments

Rail
– International railroad use is also highly similar to domestic rail use
– Intermodal container shipments by rail are increasing
– Maritime bridge concepts
• Land bridge
Strategic Channel Intermediaries
Foreign Freight Forwarders
• Supplies expertise to international shippers
• Consolidate small shipments into more economical sizes
• Derives income from fees for service

Non-Vessel-Operating Common Carriers

• Consolidates and dispenses containers at inland points
• Uses the shipping expertise that NVOCCs possess
• Ocean carrier gains from the increased market area
Strategic Channel Intermediaries (cont.)
Export Management Companies
– EMCs act as agents for domestic firms in the international arena
– Obtain orders, selecting appropriate markets, distribution channels, and promotional
campaigns

Export Trading Companies

– ETC exports goods and services to overseas buyers and handles most of the export
arrangement
– ETC allows small- to medium-size firms to engage in foreign trade
Strategic Channel Intermediaries (cont.)
Customs House Brokers

– Oversee the movement of goods through customs and ensure that the
documentation accompanying a shipment is complete and accurate for entry
into the country

– Operate under power of attorney from the shipper to pay all import duties due
on the shipment

– The importer is ultimately liable for any unpaid duties

– Keeps abreast of the latest import regulations and specific requirements of

individual products
Storage Facilities and Packaging

– Transit sheds provide temporary storage while the goods await the next portion of the
journey

– Carrier provided hold-on-dock storage free of charge until the vessel’s next departure
date

– Public warehouses are available for extended storage periods.

– Bonded warehouses operate under customs agency’s supervision and are used to
store, repack, sort, or clean imported merchandise entered for warehousing without
paying import duties while the goods are in storage.
Packaging

– Export shipments moving by ocean transportation require more

stringent packaging than domestic shipments normally do

– The shipper may find settling liability claims for damage to export
goods very difficult. Usually, the freight handling involves many
firms, and these firms are located in different countries.
Summary
> Companies competing in global supply chains need to address some important
questions for their global networks to ensure their efficiency and effectiveness.

> There have been three phases of globalization: the first was driven by countries,
the second by large companies, and the third by individuals and small
organizations.

> Successful global companies have transformed their supply chains on an ongoing
basis to enable them to deliver low cost and high value to the ultimate customer.

> The scope and magnitude of trade flows between the United States and other
countries have grown considerably in the last several decades. One interesting
development has been the growth in importance of trade with China and several
other Asian countries.

> Success in the global marketplace requires developing a cohesive set of strategies
with respect to customer service, product development, business models, and
overall supply chains.
Summary (cont.)

> Supply chain security has taken on increased importance since September 11, 2001.
Companies individually, jointly, and in cooperation with the various levels of government
need to be actively involved. The federal government, in particular, has expanded the scope
of its regulations and policies for global security.

> U.S. ports play a critical role in global supply chains since over 90 percent of global trade
passes through them. Ports are also an important focus for security.

> Canada and Mexico are ranked number 1 and 3, respectively, on the list of most important
trading partners with the United States. That relationship is enhanced by the North American
Free Trade Agreement ratified by Congress in 1994. While the treaty had lofty goals, it still is
experiencing problems with full implementation of its objectives. Nevertheless, it has
fostered trade in North America.

> Global supply chains have a number of transportation and related service options available
to managers. Each of the options has advantages and disadvantages that need to be
analyzed.