GLOBAL SUPPLY CHAIN

MANAGEMENT &

LEARNING PROPENSITY MODEL

Global SCM Strategy & LPM:

• Global SCM is about managing business activities in the Value chain or the supply chain which is
configured and coordinated on a global scale.

• The Learning propensity model or ‘LPM’ creates an effective and efficient framework that helps
managers to plan their global supply chain strategy more systematically.

• The ‘Dynamic Research Framework (DRF)” for global SCM contains key decision factors related
to the scale &/or scope in a dynamic time sequence.

• Globalization is a dynamic process through which firms implement, experience and update their
operations strategy in the Global market.

Supply Chain Structural

Dimensions:
• Configuration.
• Connection.
• Inventory Supply Chain
• Logistics Configuration:
Supply Chain • Operational
Infrastructural Performance.
Dimensions : • Financial
Operations Management • Coordination Performance.
• New Product Development • Collaboration • Customer
• Total Quality Management . Satisfaction
• Technology Management
• Value
• Outsourcing.
Creation.
• Manufacturing
• Process Analysis.
 INTEGRATIVE PROSPECTIVE OF SCM :

• Coordination is a key factor for the successful ‘SCM’. Coordination is a joint learning process
involving more than one organization participating in the ‘SCM’.

• SCM is a dynamic process. To improve SCM performance, the decision makers in the SCM
system should be able to establish the Cause and Effect relationship between various forces and
factors in supply chain operations among the participants of the SCM.

• Coordination between Supply Chain partners with well defined Strategic direction for effective
and efficient supply chain is forged with mutual learning between the partners leveraging on
each others’ competencies is vital to the world class SCM. The Whole is always greater than all
the parts put together individually is the crux of SCM principle.

• This mutual learning along with structured external input leads to a continual up gradation of
the SCM systems and Technology .

Extensive

Limited

Global
SCM

Supply
Networks

Individual
Process
Analysis
Individual (OM)
Supply Chain
Impetus for Global SCM :

• Achieving Economics of Scale and low cost manufacturing by creation of low cost Manufacturing
facility abroad.

• Bringing down the cost of production and final products by global sourcing of the parts and
components.

• To derive competitive advantage by above strategies in highly competitive domestic and global
market. E.g. Daewoo Motors.

• Procuring advance technology and R&D facilities from advanced countries.

• Gaining a leadership position by expanding the market globally.

• Globalization motivation decides Global strategy for the firm.

• Globalization strategy of the firm decides which market to concentrate on and which particular
‘Value Chain activity’ to globalize.

• Globalization strategy decides how fast the firm should expand in the global market based on
the resources at its disposal and its capability.

• The periodic evaluation of the firm’s selected strategy of global operations and its effectiveness
has to ascertained and strengthened to derive competitive advantage and customer satisfaction
on an ongoing basis.

Globalization dynamics is the speed and flexibility blended together with the cost effectiveness in
terms of accurate measuring segment wise global market demand and aligning the global sourcing
and supply chain to satisfy this demand effectively efficiently and on a continual basis by continuous
permutation and combination of resources of self and strategic alliances partners.
 Global Market
Limited
Firm
level

Extensive
Firm level
Individual Process

Industry
Level

Supply Chain coverage

or Scope.

Timing Decision factors (Scale/scope of global operation.

Pre - entry Globalization motivation:

• Market saturation or attractiveness. Efficiency.

• Competitive reaction, risk diversification.

• Learning, Innovation.

Entry • Resource Commitment, Profitability potential.

• Target country Market, Cultural Difference

• Value Chain configuration and coordination.

Post-entry Growth or Expansion Strategy :

Going Concern • 3S – Scale, Scope and Speed.

• Vertical versus Horizontal.

Exit • Industry Life Cycle.

• New market Opportunity.

• Strategic trade-off.

• Resource opportunity Cost

Four Stages of Global Strategy Formulation :

• Global Conceptualization –

Deals with the strategic issues a global company must take into account before entering into the Global
market.

• Global Initiation –

These are the Strategic factors of a global company at entry point.

• Global Operations –

Focuses on the implementation issues at post entry level.

• Global restructuring –

It provides useful guides and insights for the firm when it faces Mature or Declining Market, Product or
Technology. It consists of Strategic considerations at the point of transition such as regeneration,
sustaining or exit.

BASIC STRUCTURE OF ‘DRF’ :

Globalization Process Generic Strategic Factors for Globalization :

Global Conceptualization. • Globalization History.

Pre-entry • Globalization Motivation.
• Country capability & organizing Principles.
• Administrative Heritage.
Global Initiation. • Entry Mode – Cultural, Economic, Political, Social &
Entry Distances.

Global Operations. • Global Expansion Strategy – Globalization speed.

Post-entry

Global Restructuring • Transition Strategy – Remaining, Regeneration , exit.

Transition

Global Conceptualization. • Defining, designing, Configuration and Coordination.

Pre-entry

Global Initiation. • Forming Strategic alliances like Joint venture, green field,
acquisition.
Entry

Global Operations. Managing Strategic alliance including subsidiaries.

Post-entry

Global Conceptualization. • Defining, designing G-SCM.

Pre-entry
Global Initiation. • Implementing G-SCM.

Entry

Global Operations. Managing and improving G-SCM in terms of Flexibility,

Technology management, Postponement, Risk based Production
Post-entry planning.

Overarching Theoretical Foundations for Dynamic Research Framework :

Is ‘Learning Propensity Model’ consisting of

• Dynamic Learning.

• Market Based Learning.

• Risk Containment analysis.

Learning Propensity Model :

• Learning in Supply Chain Operations is a Process thro’ which the Manufacturing system
identifies, analyzes and internalizes complex Cause-and-effect relationship among key
operations and enhance its performance by elimination of the root causes of the various
problems in operations.

• In Single loop learning the organization tries to improve performance by fixing the problems
thro’ corrective measures.

• In Double loop learning the organization tries to improve performance by fixing the problems
thro’ corrective measures and eliminating the symptoms thro’ preventive steps.

Comparison of chaebols – Daewoo and Hyundai

Attributes Daewoo Hyundai

Market share in the Korean car About 20% About 50%
market (in 1993)
1978 1967
Time (year) to enter the
automobile industry $39.1 billion $54.6 billion

Total asset – business group as - Automobile: 17% - Automobile: 33%

a whole (as of 1996)
Business portfolio (sales ratio) –
business group as a whole (as of
1997)
- Financial/Services: 5%
- Construction: 10%
- Electronics: 16%
- Heavy Industry: 10%
- Petrochemical:
- Textile/Trade: 42%
- Logistics/Shipping:
0%
- Financial/Services: 9%
- Construction: 14%
- Electronics: 6%
- Heavy machinery:
15%
- Petrochemical: 9%
- Textile/Trade: 9%
- Logistics/Shipping:
5%

Daewoo Motor Co. Ltd.

• Daewoo acquired Shinjin Motor Co. in 1978 & renamed as Saehan Motor Co. from Korean
Development Bank. It was a joint venture with General Motors till 1992.

• Daewoo’s Globalization proceeded in three stages- Domestic, Export and Globalization.

• At domestic stage Daewoo struggled to become a viable motor co. with market share of 20%
against Hyundai’s well established market share of 50%.

• Daewoo started export in 1986. By 1993, it had 42% of car export as against Hyundai’s 58%.

• In 1994 onwards it started globalization of SCM in earnest mainly to gain competitive advantage
in domestic market. In 1994 it acquired ‘FSL’ and “FSO’ in Poland successively and ‘Rodae
Automobile S.A. in Romania.

• By 2000 Daewoo globalized into nine countries where it was managing 11 Manufacturing and 30
Marketing subsidiaries.

• Daewoo’s globalization speed was very fast. It has its manufacturing facility in India, Philippines,
China, Indonesia, Vietnam and Iran in Asia, in Uzbekistan, Poland, Czechoslovakia, Romania and
 Ukraine in East Europe and at Morocco in Africa. Daewoo’s heavy emphasis on manufacturing
and marketing in East European countries is obvious. These locations were taking care of both
marketing and manufacturing as well as sourcing simultaneously having an integrated supply
chain network.

• Daewoo had three R &D centers at UK, Germany and Poland and technology alliance with
France.

• Daewoo’s additional marketing network is established in Australia, Myanmar, Thailand, UK,

Italy, Spain, Austria, Benelux, France, Switzerland, Kazakhstan, Bulgaria, Azerbaijan,

Hungary, Peru, Chile, Colombia, Venezuela, Ecuador and Algeria.

Hyundai Motor Co.

• Hyundai Motor was established in Dec.,1967 in technical collaboration with Ford motor Co.

• In 1972, Hyundai broke collaboration with Ford as apart of its strategy to gain technological
independence and development of its own car models.

• In 1976, Hyundai developed compact car ‘Phony’ and commanded 43.6% of Korean Car Market
and exported its first export to Ecuador.

• In 1983 Hyundai entered north American market by setting up its sales subsidiary at Canada.

• In 1985, it developed its second model ‘Excel’ which was big success internationally as well as in
Korean domestic market.

• In 1986 Hyundai opened its R & D center in USA and in 1988 it put up its first manufacturing
subsidiary in Canada which was closed in 1993.

• Hyundai Motors has its manufacturing plant in India, China, Malaysia, Thailand, Romania and
Turkey where as it has sourcing under technical agreement at Netherlands, Czechoslovakia,
Philippines, Indonesia, Pakistan, Taiwan, Venezuela, Botswana, Egypt and Zimbabwe. Hyundai
has marketing subsidiary at all these places.

• Hyundai has three R & D center in USA, one in Germany and one in Japan.

• Hyundai’s compounded rate of capacity increase between 1988 to 1997 was 10% i.e. from
6,40,000 to 1,500,000 cars p.a. where as Daewoo’s compounded annual rate of growth was 32%
Between 1988 (1,80.000 cars p.a) and 1997 (2,200,000 cars p.a.). Between 1989 to 1996
Daewoo’s foreign car production capacity increased from zero to 1.2 million cars where as
Hyundai remained almost unchanged at 1,00,000 cars p.a.. Hyundai concentrated more on
increasing Domestic car production whereas Daewoo focused both on domestic as well as global
manufacturing.
 Global learning propensity dynamics

DEVELOPMENT STAGES OF ‘SCM’ Customization

Volume

Make-to-
order
Make-to-
Order