Global supply chain management

CHAPTER 5 LOGISTICS
Global logistics is responsible for transportation, inventory
management, packaging, and materials handling

Global Suppliers
PURCHASING
PURCHASING Global purchasing is
responsible for the boundary
IN GLOBAL SUPPLY CHAINS spanning role with suppliers
Global Customers
MARKET
CHANNELS
Global market channels is
responsible for the boundary
spanning role with customers

OPERATIONS
Global operations is responsible for the managing of production,
competitive priorities, vertical integration, and quality

Global purchasing
3

¨ Purchasing as a strategic function has a clearly

defined role in global supply chains
4 What is Purchasing?
¨ Take place in the inbound or upstream portion of Sourcing
the global supply chain Purchasing
¨ Involves in buying something: raw materials, Strategic sourcing
component parts, work in process, products/service
¨ Integrate with the elements of the production cycle
for MNCs
 Sourcing
5 6
¨ Sourcing is the business function responsible for all
activities and processes required to purchase
goods and services from suppliers.
Strategic sourcing
7 8
¨ Strategic sourcing goes beyond focusing on just the price of
goods to looking at the sourcing function from a strategic and
future oriented perspective.
¨ This requires expanding the role of sourcing from mere
buying, to building close and longer term working
relationships with specially selected suppliers and partners.
Purchasing
¨ Purchasing is a term that defines the process of
buying goods and services.
¨ It is a narrow functional activity with duties that
include supplier identification and selection,
buying, negotiating contracts, and measuring
supplier performance.
Strategic sourcing
Source: Nada R. Sanders (2012), Supply chain management – a global
perspective, John Wiley & Sons Publisher, printed in USA.
Responsible for linking the organization to
its suppliers
 Purchasing function
9 10
¨ The job of the purchasing function is to:
¤ Select appropriate suppliers
¤ Negotiate contracts
¤ Manage the process of acquisition
¨ Purchasing must first decide if the need can be met with
existing suppliers or whether new suppliers must be identified.
¨ Purchasing typically maintains an acceptable list of suppliers
for ongoing purchases, but also evaluates suppliers for new
needs that occur on an ongoing basis.
12
11 Global purchasing strategy
Global strategic sourcing
¨ Global strategic sourcing is the development and
management of global supplier relationships to
acquire goods and services in a way that aids in
achieving the immediate needs of the business.
¨ As a result of Globalization and inexpensive
communication technology, the matter is how firms
can make the most capabilities available globally.
Cost vs. Price
¨ Purchasing managers are responsible for buying goods and
services and determining fair price.
¨ The goal in developing purchasing contracts and negotiation is
to find a fair price, which is the lowest price that can be paid
while ensuring a continuous supply of quality goods.
¨ A better way to evaluate price in purchasing is to estimate the
total cost of ownership (TCO) before selecting a supplier.
¤ Total cost of ownership is the purchase price plus all other costs associated with
acquiring the item.
¤ This includes transportation, administrative costs, follow-up, expediting, storage,
inspection and testing, warranty, customer service, and handling returns.
 Bidding or negotiation Domestic vs. Global Purchasing
13 14

¨ Once suppliers have been identified, competitive bidding and
negotiation are two different methods used to reach agreement
and develop contracts with potential suppliers.
¨ Global purchasing has been on the rise as companies have
been attracted to cheaper labor costs in other parts of the
world.
¨ Global purchasing requires workgroups of individuals from
different companies, different cultures and languages, to work
together effectively.

Types of purchasing strategy Types of purchasing strategy

16
Types of Purchasing Where to Purchase Types of Purchasing
(Where and How) (Domestic or Global) (Where and How) ¨ Internationalization of purchasing refers broadly to
Domestic the types of purchasing done
Internal Domestic
Purchasing
¤ Buy from domestic suppliers in domestic markets
Internal
Purchasing ¤ Buy from foreign suppliers in domestic markets
Global Internal ¤ Buy from foreign suppliers in foreign markets
Global
Purchasing
Purchasing ¨ Globalization of purchasing is tied to the level of
Decision
Domestic
headquaters involvement
External Domestic ¤ No headquaters involvement
Purchasing
External ¤ Headquaters recommends standards and/or products
Purchasing
¤ Headquaters mandates standards and/or products
Global External
Global ¤ Headquaters does the purchasing
Purchasing
 Types of purchasing decisions Purchasing process
17 18

Short Low Strategic Demand management Global sourcing and procurement

Request for
proposal 1. Demand forecasting 1. Strategic sourcing
Spot 2. Inventory reports 2. Measuring sourcing
purchase
Request for bid 3. Demand planning performance
Contract And Specificity
duration Reverse auctions
Electronic
catalog

Strategic Vendor
alliance managed
inventory
Long High

High Transaction costs Low

What is Forecasting & Planning?

20

¨ Forecasting is the process of predicting future

19 Strategic Demand Management events
¨ Forecasting is one of the most important
business activities because it drives all other
Demand Forecasting business decisions. Decisions such as which
markets to pursue, which products to produce,
Inventory reports how much inventory to carry, and how many
Demand planning people to hire are all based upon a forecast.

¨ Planning is the process of taking action in order

to be prepared for the future. It requires
organizing resources in anticipation of the
forecast and being prepared for future events.
 Strategic demand management Forecasting process
21 22

1 2 3 4 5
• Decide • Analyze • Select the • Monitor
• Generate
what to appropriate forecasting forecast
the forecast
forecast data model accuracy

Strategic demand management → Help to set the strategy of

how a firm will meet the demand

Forecasting methods Forecasting methods

23 24
 Collaborative Planning, Forecasting, and
Planning decisions
Replenishment (CPFR)
25 26

1. Scheduling existing resource. For a business and its supply chain to be
competitive it must use its current resources in the most efficient way
possible. This includes the production process, transportation, labor,
facilities, and capital. An important aspect of planning is deciding how to
best utilize existing resources.
2. Determining future resource needs. In addition to efficiently utilizing
current resources, organizations must determine what resources are going
to be needed in the future. These decisions depend on forecasts of
emerging market opportunities, new technology, new products, and
competition.
3. Acquiring new resources. It takes time for companies to acquire new
facilities, new technologies, new equipment, or expand to new locations.
Plans must be made well in advance, and procedures to acquire new
resources and capabilities put in place well ahead of time.
¨ CPFR is a collaborative process of developing joint forecasts and
plans with supply chain partners, rather than doing them independently.
It is based on the premise that companies can be more successful if
they work together to bring value to their customers, share risks of the
market place, and improve their performance.
¨ CPFR was developed by the Voluntary Interindustry Commerce
Standards (VICS) association, a non-profit organization formed in l986
to develop standards and guidelines for improving supply chain
efficiency.
¨ CPFR is one such set of guidelines and provides a process to be
followed in achieving coordination for both forecasting and inventory
replenishment.

Sales and operations planning Sales and operations planning

27 28

¨ Sales and Operations Planning (S & OP) is an organizational

process intended to match supply and demand through
functional collaboration.
¨ S & OP requires teamwork among sales, distribution and
logistics, operations, finance, and product development.
¨ This enables firms to provide better customer service, lower
inventory, reduce customer lead times, and stabilize
production schedules.
¨ The process is designed to coordinate activities between
marketing and sales, with those of operations and sourcing, in
order to ensure that supply meets demand requirements.
Source: Nada R. Sanders (2012), Supply chain management – a global perspective, John Wiley & Sons Publisher, printed in
USA.
 Supplier selection
30

¨ Selecting the right suppliers for your business needs is vital

29 Global sourcing and procurement to ensure that you are able to deliver your products and
services on time, at the right price, and in compliance with
Strategic sourcing your quality standards.

Measuring sourcing performance ¨ By implementing specific supplier’s selection criteria, it’s

possible to identify companies that will work with you to
meet the demands of your customers.

Select global suppliers Select global suppliers

31 32

5. Create Contract
3. Scorecard 4. Negotiate and Activate
1. Supplier 2. Identify Suitable Purchasing System
Cost Selection Scorecard Suppliers Ranking

Cost •Current suppliers Select the highest You may negotiate Once an agreement
Competitive Speed Quality •Past suppliers ranking supplier with just the top has been reached, a
supplier on your contract is signed.
Priorities Quality Delivery •Competitors scorecard, even if Again, depending
Capacity •Industry groups Choose more than one others remain on the
for further upon complexity,
list of potentials.
Flexibility •Recommendations qualification lawyers may be
Flexibility Lead time and prior business involved. For simpler
relationships transactions, the
Certification Purchase Order is the
•Internet
-------------------- Location contract.
Reputation
Industry Industrial globalization Collaboration The last step is to
activate your
Customer base
drivers Financial health
procurement system.

Social responsibility
--------------------------------- Product development
Infrastructure Security and risks
Global infrastructure
 Supplier relationship management International purchasing office (IPO)
33 34
Sourcing Supplier Relationship
strategy selection management

¨ From a global supplier (internal) network

¨ Refer to any form if association and/or network of global suppliers
perspective, a typical IPO in a MNCs has the
dealing with firm-based or non-firm-specific alliances. responsibity for:
¨ Take purchasing to a higher strategic level than transactional
1. Identify supplier opportunities in the global
relationships.
marketplace
¨ Includes strategic initiatives:
1. International purchasing office (IPO) 2. Select global suppliers for partnerships
2. Global supplier association
3. Global supplier networks 3. Coordinate input from buyers, deciders,
MNCs can rarely be successful without a supplier base gatekeepers, influencers, and users that are
that is competitive on a worldwide basis. involved in specific global sourcing situations

Global supplier association Global supplier networks

35 36

¨ MNC brings its key global suppliers as a formal group on a ¨ Are supplier networks that are independent of any one
regular basis (eg. “Annual global supplier conferences”) in firm
order to achieve strategic and tactical alignment.
¨ Provide a link between many global suppliers and many
¨ Toyota global buyers.
¤ First firm to form a global supplier association in 1939 ¤ Sometimes with a broad product assortment
¤ Now, more than 200 members ¤ Sometimes very industry-specific and/or very product-specific
¨ Help to facilitate global supplier development: ¨ Ariba
¤ Reducing costs
¤ Using Internet to facilitate and improve the firm’s purchasing process
¤ Sharing best practices
¤ Ariba Networks has more than 700.000 buyers and sellers doing
¤ Trainning and development business in more than 140 countries without being tied to any one firm
¤ Strengthening the trust and mutual benefit of the relationship among
members
 Discussion: New Toyota Yaris Measuring purchasing performance
37 38

1. Why does Toyota support suppliers to improve Inventory turnover =

Cost of goods sold
their technology? Average aggregate inventory value

2. How does Toyota global supplier networks help to æ Average aggregate inventory value ö
Weeks of supply = ç ÷ ´ 52 weeks
create a higher quality car? è Cost of goods sold ø

“Inventory turnover” measures how quickly inventory moves. The higher

the inventory turnover rate the better the company utilizes its inventory

“Weeks of supply” provides the length of time demand can be met with on-
hand inventory. A large ‘‘weeks of supply’’ value means too much
inventory is being held, whereas a value that is too low increases the
chances of a stock-out or lost sales

Critical success factors for Purchasing in

Measuring purchasing performance (Eg.)
global supply chains
39 40

¨ Jenco Incorporated is a producer of children’s dolls for 1. Organizational support structure

the toy industry. It has high inventory costs and is 2. Executive commitment
concerned that its inventory is selling at an appropriate 3. Organizational resource availability
rate. It has an annual cost of goods sold of $8,000,000
4. Information systems and technology
and an average inventory in dollars is $2,000,000.
5. Well-defined global sourcing process
6. Availability of global suppliers
Inventory turnover = 4 turns per year 7. Performance measurement systems
8. Communication and coordination mechanisms
Weeks of supply = 13 weeks of supply