Lecture 5

Drivers of Supply Chain Change

Ali Zaki
 Lecture Outline
• Globalization
• Reasons for Global Sourcing
• Potential Challenges for Global Sourcing
• Counter Trade
• Flexibility & Process Centered Management
• Collaboration

Case Study for Supply Chain Leaders: Dell’s Transformative

Journey Through Supply Chain Segmentation
 Globalization
➢ What does “globalization” mean?
– What are its causes?
– Why is it proceeding rapidly?
– What is its impact on
• Jobs?
• Incomes?
• Labor and environmental policies?
• National sovereignty?
➢ International Trade patterns
– Foreign direct investment (FDI) flows
– Economic growth rates
– Multinational corporations and their impact
 Globalization
The process by which businesses or other
organizations develop international influence or
start operating on an international scale.
 Globalization and the MNE
A multinational enterprise (MNE) is any
business that has productive activities in two
or more countries
MNCs
 Globalization of Markets
• Distinct/separate markets merging into a
huge global marketplace
• MNCs creating global marketplace?
• MNCs more vulnerable to competition in
their home markets
 Global Supply Chains
A global supply chain refers to the network
created among different worldwide companies
producing, handling, and distributing specific
goods and/or products.
 Benefits of Globalization for SCM
• Expanded sourcing opportunities.
A world market offers businesses opportunities to secure
a diverse selection of workers, materials, and products.
This larger selection of goods and services often means
the opportunity to select higher-quality or lower-cost
options.
• The opportunity to reach new customers in new
markets.
Just as globalization offers more materials and laborers,
it also offers new customers in new locations with new
needs.
 Benefits of Globalization for SCM
• More room to grow.
New technologies and a shrinking globe mean that it is
easier for companies to grow generally: to produce
more, offer more, and sell more. Expanding borders also
means expanding businesses and corporations.

• More opportunities to save money.

Globalization’s biggest benefit is that increases
options: options for source materials, options for
workers, and options for transportation. More
options mean more chances to save on spending and
increase profits.
 Challenges of Globalization
• Large-scale management issues. The opportunity to grow
business goes hand-in-hand with the issue of greatly
increased supply chain complexity when it comes to
management. Companies must scale up all aspects of their
business as it grows across borders, which can cause
problems that stretch the globe. Inventory issues and
distribution issues are high on the list of problems
encountered by going global.
• Greater risk. Having materials, factories, and customers all
over the world means being at the mercy of global events,
from natural disasters, to port closures, to political
uprisings. Globalization requires that supply chain
managers have detailed risk management plans in place
and that they are prepared when disaster strikes.
 Challenges of Globalization
• Global competition. You are not the only entity with access
to supplies, products, and labor around the world – you
now have a lot of competition scattered across the globe.
Globalization necessitates that supply chains are highly
efficient and and well-run in order to stay competitive in a
global market.
• Information collection challenges. With different aspects
of your supply chain scattered around the world, and with
an increasingly complex process for getting products to
customers, data collection and oversight can be huge new
challenges. While big data analytics is helping some supply
chain managers tackle the issue of information collection, it
is still a large problem that has emerged alongside
globalization.
 Challenges of Globalization
• Legal issues. Operating across borders means operating in
countries that very likely have different laws and
regulations. For example, secret product details may not be
safe in China, where they have less stringent intellectual
property laws. In another example, a country where you
have a factory may have very different employment laws
than another where you have an identical factory.
 Surge in Global Sourcing
Global sourcing has surged due to;
– Improvements in Communication &
Transportation technologies
– Reduction of International Trade Barriers
– Deregulation of Transportation Industry
 Reasons for Global Sourcing
• Lower Prices
• Better Quality
• Access to Patented Technology
• Faster delivery to foreign units
• Better Services
• Better process or product technology
 Challenges of Global Sourcing
Global sourcing leads to
– High complexity & Costs
• Selecting Foreign Suppliers
• Dealing with Tariffs & Duties
• Customs Clearance
• Currency Exchange
• Political Issues
• Cultural Issues
• Labor & Legal Problems
 Global Sourcing & Countertrade

Firms may buy from Foreign Supplier to support

the local economy where they have subsidiaries,
or they may be involved in countertrade, in
which the contract calls for the exchange of
goods or services for raw materials from local
suppliers.
 Countertrade
This type of arrangement is used by countries
where there is a shortage of hard currency or as a
means to acquire technologies. Countertrade
transactions are more complicated as goods are
exchanged with goods.

Types of Countertrade
1. Barter
2. Offset
3. Counter purchase
 Types of Countertrade
Barter is the complete exchange of goods or services of equal value
without the exchange of currency. The seller can either consume the
goods or services or resell the items.

Offset is an exchange agreement for industrial goods or services as a

condition for military related export. It is commonly used in the
aerospace and defense sectors. Most of the Offset packages are
divided in two types:

Direct Offset usually involves co-production, or a joint venture and

exchange of related goods or services.

Indirect Offset involves exchange of goods and services unrelated to the

initial purchase.
 Types of Countertrade
Counter-purchase is an agreement whereby the
original exporter agrees to sell goods or services to
foreign importer and simultaneously agrees to buy
specific goods or services from the foreign importer.

Note: Many developing countries mandate the

transfer of technology as part of a countertrade or
offset arrangement.
 Flexibility & Process Centered
Management
Process-centered organization (PCO) structures have come into fashion over
the past few years. PCO structures realign organization building blocks with
the value-adding processes in the business. Instead of functional hierarchies
being the dominant structure, people are organized into multidisciplinary
teams whose goals are focused on managing the end-to-end activities that
deliver value to their customer. Team size can extend to many tens of
members.

Lean & Flexible

This concept has become best practice in many industries where lean, fast
material and information flows are crucial for survival. Removal of cross-
functional boundaries and an element of self-management and
empowerment are fundamental. When it works, the value stream can be run
with fewer layers of management; headcount efficiencies are increased; and
decision-making can be delegated more effectively. Most importantly,
communication routes can be short-circuited and the black holes found at
organization interfaces are often eliminated.
 Globalization & Collaboration

Globalization: Competition or Collaboration?

 Globalization & Collaboration

Rapid globalization, fierce competition, social change, technological

breakthroughs, scarcity of raw materials; businesses need to reinvent
themselves continuously to cope with this string of challenges.
Technical, commercial and financial innovations tend to be the focus of
attention. But this can be achieved with ease through collaboration.

For example: methanization provides threefold recovery of organic

waste, producing electricity, heat and soil amendments. In order to
achieve this, partnerships have to be formed between industry,
municipalities and farmers, who all emerge as winners. These
partnerships promote a local economy, intermeshing local jobs with
local resources and local usages.

Collaboration of Businesses through JV’s!!

 Globalization & Collaboration
Difference Between Joint Venture and Collaboration
• Collaboration is a generic term that describes coming
together of two or more entities for mutual benefit
• Joint Venture is a specific entity that describes the
purpose for which two or more parties come together
for business
• JV allows a party to gain easy entry into another
country and also to use resources of the local partner
in the venture.
• JV is characterized by joint control and no single party
has outright control over the business entity
 Case Study

Case Study for Supply Chain Leaders: Dell’s

Transformative Journey Through Supply Chain
Segmentation