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Global Supply Chain


Mohsen tabatabaie
Global Supply Chain[7]

• Definition :
An integrated process where several business entities
such as suppliers, manufacturers, distributors, and
retailers work together to plan, coordinate and
control materials, parts, and finished goods from
suppliers to customers. One or more of these
business entities operate in different countries.
Practicality and Usefulness

• Help companies compete all over the world

• Expand business operations
• Offer new services and applications to meet global
customers needs
• Give company a competitive advantage
• Falling International Trade Barriers Mean Rising
Goal of the Global Supply Chain

• Prompt and reliable delivery of high-quality

products and services at the least cost

• To effectively meet rising customer

Recent changes effecting the global supply

• Internet and technological change

• Proliferation of trade agreements
• Falling Trade Barriers
• Increase in international trade groups
• New Markets
Advantages of Global Supply Chains[7]

• Reduced total costs

• Inventory reduction
• Improved fulfillment cycle time
• Reduce cycle time
• Increased forecast accuracy
• Productivity increase
• Improved capacity
• Expand international connections
• Increase intellectual assets
• Delivery improvement
• Diversified business and trading
• Competitive advantage
• Untapped markets
• Enhance speed and efficiency
Potential Global Supply Chain
• Member nations VS. Non member nations
• Inefficient transportation and distribution systems
• Market instability
• Different languages
• Differences in Currencies
• Differences in Measurement Systems (metric versus decimal)
• Different Customs, beliefs and cultures
• Political turmoil
• Trade imbalances
• Export surges and recessions
• Greater distance
• Tax Policies
• Operational Threats
• Strategic Challenges
• Technological capabilities
Combating Obstacles[7]
• Duty specialists and trade specialists
• Join nation groups
• Banding together
• Form consortiums
• Vertically integrate
• Be innovative & Be flexible
• Research
• New technology
• Infrastructure improvements
• Reduce the number of “stops” in the chain
Global Supply Chains Entail Additional
• When your supply extends beyond domestic borders, a whole new level of
security comes into play.

• If you are shipping by ocean, you absolutely need to consider capacity
issues and route your goods accordingly.


• Make sure that manufacturing or sourcing overseas is as low cost as you
think it is. Tax and tariff regulations differ according to country. Something
as basic as the way a product is packaged can change its entire tariff
structure. Be sure to do your homework.
Global Supply Chains Entail Additional
• Extending your supply chain into another country requires in-depth
knowledge of how that country operates. Partners, either through 3PLs or
directly, are often critical to success.
• To Americans this may seem like a small thing, but misunderstanding the
culture can wreak havoc on your planning.
• A global supply chain often requires an even greater investment in
technology to improve visibility.
• With a global supply chain, the possibility of things going wrong is greater
and often more costly to fix. Knowing what the risks are and planning for
them in advance is critical.
What are some reasons for extending
your business globally?

• Cost, Access to raw-material

• Increase sales, New Markets
• Satisfy shareholders
• Falling tariffs
• Increase in International Trade, Multi-Point
• Increase in internet use throughout the world.
Issues/considerations when designing a global
supply chain

• Strategic plan or Objective goals

• Uncertainty
• Communication and information flow
• Types and numbers of facilities and location
Global operation[2]
Components of a supply chain[8]

• Structures
– Supplier
– Distributor
– Logistics Requirements
• Processes
• Linkages of activities
– Buying
– Making
– Moving

Capacity, inventory levels, delivery schedule, payment terms

Supplier Manufacturer Distributor Customer

Orders, return requests, repair and service requests, payments

global operations management

• Supply Base Design / Vendor Consolidation

• Outsourcing & global sourcing
• New Product Pipeline Design
• Manufacturing Strategy
• International logistics
• International transportation
• International Inventory Issues
• International Packaging Issues
• Spare Parts Logistics
• Global business & Export Documentation
Supply Base Design / Vendor
Consolidation [12]

• How do I simultaneously perform supplier selection

for all the parts in the same commodity group?
• How many suppliers is best and which suppliers
should send which parts to which plants?
• Am I missing opportunities by sourcing one part at a
• Supplier Relations :How much should be the degree of
involvement with your suppliers?
Five level of sourcing[12]

International Purchasing Global Sourcing

Level I Level II Level III Level IV Level V

Domestic International International Global Sourcing Global Sourcing

Purchasing Purchasing Purchasing strategies strategies
Only Only As As port of Integrated Across Integrated Across
needed Sourcing Worldwide Worldwide
strategy locations Locations and
functional Groups

Percent of companies operating or expecting to operate at a particular level (N=169)

Currently 13.4% 21.3% 31.0% 18.1% 16.1%
Future plans 7.8% 7.8% 14.3% 15.6% 54.2%
Expected change -42.0% -63.0% -54.0% -14.0% +239.0%
Characteristics of global sourcing excellence[12]

• Executive commitment to global sourcing

• Rigorous and well-defined processes
• Availability of needed resources
• Integration through information technology
• Supportive organization design
• Structured approaches to communication
• Methodologies for measuring saving

• What is outsourcing?
• What parts of my supply chain should I keep "in-house" and what parts to
• What if a third party has a higher variable cost but a lower fixed cost than in-
house production?
• Advantages
– Focus on core competencies – target your resources at what you do best
– Reduce costs – a third-party provider may have greater economies of scale
than you
– Access the third-party provider’s expertise
• What can you outsource?
– Transportation and related services
– Sales and marketing in target market
Outsourcing Configurations[12]

• Vertical Integration
• Arm’s-length purchases from outside suppliers
• Japanese keiretsu relationships with suppliers
New Product Pipeline Design[9,10]

• What should the supply chain look like for a new

• How should I fit the new product into my current supply
• Should I single or double source this product?
• How much do my fixed costs affect this decision?
• What is the cross-over point to open up a second and
third source of supply?
Manufacturing Strategy[4,8]

• How many plants do I need?

• Where should each plant be located?
• What products should each make in each plant?
• What demand regions should each plant serve?
• What process technologies should each have and how
much of each process is needed?
• What part of the world should each plant serve?
Global Manufacturing Strategies[4,8]

• What is manufacturing compatibility?

• Manufacturing Configuration
– Should manufacturing be centralized in one country or should we have manufacturing
facilities in specific zones to service those zones or should we go multidomestic with a
facility in each country
– When should we have a centralized location?
– When should we go for multidomestic location?
• Coordination and Control
– Linking or integrating activities into a unified system is called COORDINATION
– Defining organizational structure and reporting systems to ensure timely implementation
of policies is termed as CONTROL
Global Manufacturing Strategies[4,8]

• Plant Location Strategies

– Transportation costs, duties, proximity to customers and suppliers, foreign exchange
rate risk, economies of scale in the production process, government incentives,
climate, technological requirements of the manufacturing process.
• Plant Layout Planning Strategies
– physical arrangement of economic activity centers within a manufacturing facility
– Every manufacturing facility cannot have the same type layout—local conditions
such as cost of labor, cost of land, local culture must be considered in deciding
about the plant layout
• Multi-agent systems (MAS) enhance overall system performance, in particular along
such dimensions as computational efficiency, reliability, extensibility, responsiveness,
reuse, maintainability, and flexibility.
Overview of a global manufacturing
supply chain network[4,8]
global manufacturing[4,8]
International Logistics[9,10]

• Definition – designing and managing a system to

control the flow of materials into, through, and out
of a company
• Two phases of the movement of materials:
– Materials management – the timely movement of
materials, parts, and supplies
– Physical distribution – movement of the company’s
physical product to customers-- transport, warehousing
and order processing
Logistics Flow : Participants in the Value Chain

EU National Governments WCO

Customs Customs
Shipping Lines

Port Operators

Terminal Operators


Warehousing/Wholesale Warehousing/Wholesale


Manufacturer/Exporter Adapted from SIEMENS

Logistic Chain
24 hour Advanced rule Paperless Economic
Authorised Economic Customs
C.S.I. operator

Factory Consolidation/ Port of Vessel Transit Vessel Port of Consolidation/

distribution loading discharge distribution
Road/rail Road/rail port Road/rail
center center
transport transport

DOE/Megaports Initiative
International Logistics [9,10]

• Cost-saving programs that can be part of

international logistics
– Just-in-time (JIT) purchasing and manufacturing
– Electronic data interchange (EDI)
– Early supplier involvement (ESI)
• Before or early in the design phase of a project
Classical Logistic Issues[9,10]

• Facility Locations
• Sourcing
• Distribution
Facility location[6]
Physical Distribution[9,10]

• The act and functions of physically distributing goods

and services including the elements of transport,
warehousing and order processing
• Physical distribution is 10-25% of the total cost of an
international order
• Distribution is a key to winning and keeping
international customers
– Why?
Distribution Strategy[9,10]

• Should we ship direct from the plants or use warehouses?

• How many warehouses and where located?
• What service areas for each distribution center?
• What modes of transportation to use?
• How best to use in-transit merge to fulfill orders?
• Should I outsource logistics? Which functions?
• What spare parts and returns network design?
Distribution Complexity

1. Request for Quote 3. Purchase Order

4. P. O. Confirmation 2. Quotation
13. Payment Order 6. Ship Order
/ Instr.
14. Remittance
Buyer 15. Import 12. Export Supplier
Documents Documents

st Bank
Bank ife 7a nstr .+
an .M r Order/I
.M an
ife 5. Shippe oice 5. Shipper Order/Instr
7a Air Freight st Inv + Invoice
16. Proof of + Packing List
Delivery Terminal at Terminal
Destination st at Origin
7a. M
Surface Carriers

11. Pre- 7a. Ship Instr. Cycle

rival No
tice oL)
cle ( S/O, B
Freight Forwarder er Cy Freight Forwarder
pping Ord
Capture 7b. Sh
Gate Movement 8. Gate-in/ Capture
8. Gate-out/ Gate Movement
Gate-out Gate-in
Terminal at (Gate-out/in)
10. Bay Plan 9. Bay Plan Terminal
Ocean Carrier at Origin
International Transportation [9,10]

• Usually greater distances than with domestic

– Longer lead times (more planning needed)
– More chances for things to go wrong
• Potential for delays at
port or border
Modes of Transportation [9,10]

• Rail and truck

– NAFTA countries
– Europe
• Ocean freight
– Conventional cargo vessels
– Container ships
• Air freight
• pipeline
Selecting a Mode of Transportation [9,10]

• Transit time
– Important for highly perishable products
– Important when product is needed ASAP
• Predictability of delivery by a specific date
– Important when buyer needs product by specified date
• Cost of shipping per dollar of product value
– Important to economize on costs with bulky
International Inventory Issues [9,10]

• Inventories tie up a major portion of corporate funds,

therefore proper inventory policies should be a major
concern to the international logistician
• Just-in-time inventory policies minimize the volume of
inventory by making it available only when needed
• The goals of inventory systems are to
– Maintain product movement in the delivery pipeline
– Have a cushion to absorb demand fluctuations
How Much Inventory? [9,10]

• Factors that determine the level of inventory

– Order cycle time
– Desired customer service levels
– Use of inventories as a strategic tool
• Outsourcing from around the world and its impact on
inventory management
• issues of distance, time, and uncertainty in foreign
Storage Facilities [9,10]

• A stationary period is involved when merchandise becomes

inventory stored in warehouses
• The location decision addresses how many distribution centers
to have and where to locate them
• Storage facilities abroad can differ in availability and quality
– Refrigerated facilities
• The logistician should analyze international product sales and
then rank order products according to warehousing needs
Special Trade Zones[10]

• Foreign trade zones are areas where foreign goods

may be held or processed and then re-exported without
incurring duties
• Trade zones can be useful as transshipment points to
reduce logistics cost and redesign marketing
Export Processing Zones [9,10]

• In export processing zones, special rules apply that are

different in other regions of the country
• These zones usually provide tax-free and duty-free
treatment for production facilities whose output is
destined abroad
• The maquiladoras of Mexico are one example of a
program that permits firms to take advantage of sharp
differentials in labor costs
International Packaging Issues [9,10]

• Packaging is instrumental in getting merchandise to

the destination in a safe, presentable condition
– Food safety regulations
• Because of the added stress of international shipping,
packaging that is OK for domestic purposes may be
not be adequate for international shipping
• One solution to the packaging problem has been the
development of inter-modal containers
Spare Parts Logistics [9,10]

How many echelons of repair and stocking is best? •

How many repair shops are needed, where should they •
be located, what products should each handle, and
what geographic area should each serve?
How do the drivers of product value, weight, •
complexity, and frequency of repair affect this
Les 3 niveaux de “Global Supply Chain”



An Oversight System Implements and Enforces
Rules of Behavior Within and Across Layers

Oversight Layer Federal Trade Commission Int’l Maritime Org World

U.S. Coast Guard Customs
U.S. Customs Org
and Border Protection

Transaction Layer Retailer NVOCC Foreign Supplier


Import/Export Bank Foreign Supplier

Logistics Layer
Truck Carrier Truck Carrier
U.S. Port Ocean
Rail Carrier Carrier Foreign Port
Global Business Issues[13]

• In the global economy, the classical logistics issues of facility

locations, sourcing and distribution are greatly influenced by such
political and economic factors as taxes on corporate income,
customs duty, local content and offset trade.
• International Factors :
• Costs
• Customs Duty
• Taxes on Corporate Income
• Offset Trade and Local Content
• Export Regulations
• Time
• The Payment Contract
• freight forwarding
Costs [13]

• Local labor rates

• Local space costs
• International freight tariffs
• Currency exchange rates
Customs Duty [13]

• Duty rates differ by commodity and level of assembly

• Duty drawback
• Impact of GATT: Changes over time
• Transfer pricing
• Duty suspension
Taxes on Corporate Income [13]

• Different markups by country

• Tax havens and not havens
• Make vs. buy effect
Offset Trade and Local Content [13]

• Local content requirement for government purchases

• Content for preferential duty rates
• Offset trade requirements
Export Regulations [13]

• Export licenses
• Denied parties list
Time [13]

• Lead time
• Cycle time
• Transit time
• Export license approval cycle
• Customs clearance
Impact of Duty / Drawback, Taxes, Local
Content & Offset Trade [9,10]

• If the duty rates come down according to GATT, how

should I change my supply chain design?
• Does it make sense to locate production inside the new
ASEAN, MERCOSUR, and AFTA trading blocks?
• What is the best use of the tax havens (Singapore,
Puerto Rico, Ireland)?
The Payment Contract [9,10]

• What language should the contract be in?

– If in two languages, which version is the official one in
a case a dispute arises?
• Which country’s law governs the contract?
• How should the seller be paid?
– Payment on collection – buyer pays seller when the
transaction takes place
– Documentary letter of credit – buyer borrows from
bank, and bank pays seller
Freight Forwarders [9,10]

• Act as an agent for exporter in arranging

transportation and related services, handling
• Why use a freight forwarder?
– Expertise with entire exporting process –
documentation, regulations, transportation, export
financing, etc.
– Access to discounted shipping rates
• Cost: 1-5% of value of shipment
Export Documentation [8,9,10]

• Both exporting country and importing country have

paperwork requirements
• Shippers, distributors, and others in supply chain also
have documentation requirements
• Average international shipment requires 46 separate
• Typically outsourced to a third party
Common Export Documents

Document Issued by Purpose

Pro forma invoice Seller Quotation to buyer, used to obtain
import license & financing
Sales contract Seller or buyer Confirms all details of transaction

Shipper’s export U.S. government Required by U.S. law

Export license U.S. government Required by U.S. law for some
a. Air waybill a. Airline Contract between exporter and carrier
b. Bill of lading b. Ocean carrier for transport of cargo
c. Carrier’s receipt c. Truck or rail carrier
Insurance certificate Insurance company Shows cargo is insured
Common Export Documents

Document Issued by Purpose

Inspection certificate Inspection company Confirms to financing bank, buyer and
importing country that cargo meets
specs and health/sanitary requirements

Packing lists Seller Required by shipping company and

foreign buyer
Commercial invoice Seller Actual invoice for goods

Consular invoice Consul of importing Used by many countries to control

country imports and identify goods, consular fee
usually required
Certificate of origin Exporter or Chamber of Often required by importing country
Export Management Company (EMC)

• Serves as the export department for a company –

does everything a freight forwarder does plus sales
and marketing
• Advantages of an EMC
– Expertise with entire exporting process
– Export sales come more quickly – sales and distribution
network already established
– Up-front costs are lower
– Opportunity to learn from a professional
EMCs (continued)

• Drawbacks of an EMC
– Most are small, limited financial resources
– They look for sure profits – may see your product as
too risky
– Most EMCs don’t cover Canada
• Cost: 10-15% of value of shipment
Four marketing strategy challenges[16]

• 1. Customer value learning in global supply chains

• 2. Understanding customer value change in global
supply chains
• 3. Delivering value in a world of uncertainty
• 4. The customer value process challenge in global
supply chain
IT use in the Supply chain management
systems [8]

• E-Commerce
• Internet
• Intranets
• Extranets
• Supply chain management software
Supply Chains and the Internet [8]

• Because of the Internet, firms are able to conduct

many more global comparisons among suppliers and
select from a wider variety of choices
• When customers around the world have the ability to
access a company through the Internet, a company
must be prepared for 24-hour order-taking and
customer service
Telecomm Networks [8]

• Extra-nets and the Internet link buyers and suppliers.

• Intranets link company warehouses, production facilities,
and the point-of-sale.
Virtual Reality [8]

• Inter-company TV broadcasts allow buying by

“telephone” (computer orders)
• Videoconferencing to coordinate the work of dispersed
Databases [8]

• Data warehouses keep records of all company

transactions and provide instant memory.
• Groupware (e.g., Lotus Notes) creates a shared repository
of the combined knowledge and data of organization
Organizational Intelligence [8]

• Data mining allows profiling of customers.

• Intelligent information systems evaluate buyer
behavior, forecast future demand and manage
Role of Information Systems and
Technology [8]

• Key to successful global supply chain management

• coordinate, schedule, and control
– procurement,
– production,
– inventory management, and
– delivery of products and services

• Integrate
• demand planning,
• production forecasting,
• materials requisition,
• order processing,
• inventory allocation,
• order fulfillment,
• transportation services,
• receiving, invoicing, and payment.
Example [17]
Production Sales Representative (Brussels) Factory (Hong Kong)

online Customer Order

replenishes Customer Service

Warehouse Representative

Shipment Date Enterprise System

Stock of Parts
Corporate Headquarter
Cost Centers Accounting

Available Cash

Accounts Receivables/ Payables Balance Sheets Payroll

Information management [11]

• Technology, visibility and flexibility are basic

ingredients that need to be incorporated seamlessly in
order for a supply chain to function efficiently
• Technology, visibility and flexibility are all tied to
information and this leads to an area increasingly
important in supply chain management :
• the need for upgraded information management.
Logistics and Security[15]

• After the terrorist attacks of 2001, companies have to

deal with the fact that the pace of international
transactions has slowed down and that formerly
routine steps now take longer
• Logistics systems and modern transportation systems
are often the targets of attacks
• New safeguards for international shipments affect the
ability of firms to efficiently plan their international
Future Challenges:
Security in the Supply Chain
• Pre 9/11 major concern was theft
• Post 9/11 concern is security and prevention of terrorism
• Security enhancements are needed
– Governments and industry must work together
– Society should not have to sacrifice the efficiencies that have been built into the
– i.e., security and efficiency are mutually reinforcing
• Opportunities for enhanced trade efficiencies
– Harmonized and Transparent Customs Procedures
– Automation
• Must ensure changes support further trade in IT
Supply Chain Security is Non-Traditional

• Traditional Security • Non-Traditional Security

– “Conflict of nations” – No political borders
– Resolved through diplomacy, – Does not conflict with
engagement, and military sovereignty
force – Countered rather than
– Requires broad international
Supply Chain Efficiency and Security Capabilities Are
Distinct but Interconnected

• Supply chain is designed to provide inexpensive transport

1. Efficiency
2. Shipment reliability
• Combating smuggling now includes combating terrorism
3. Shipment transparency
• Supply chain systems exhibit network properties
4. Fault tolerance
5. Resilience
RAND Volker Initiative Workshop Brought Together
Key Leaders from Industry

• Key insights from participants

– A policy window to address freight transport capacity will open when
consumers feel “pain”
– Security will be a significant motivator
– DOT National Freight Policy and North American Security and Prosperity
Partnership are good starts
– No unified view of freight transport system
– In the short term, promote effective use of resources
– Capital for public and private infrastructure improvements is needed
Trends in Freight Transportation Offer Opportunities

Trend Consequences Opportunities

Performance Reduced efficiency Infrastructure

Consolidation Less flexibility Niche transport

Externalities Operating restrictions Community

Environment Operating restrictions New technology
Mode shifting
Fuel Costs Increased costs New technology
Mode shifting
Security Increased delays Harmonization
Compliance costs New technology
Labor Transport shortage
Increased costs

• The supply chain is complex, globally integrated and extends beyond the
enterprise to third parties.
• Changes to the supply chain are being driven by company efforts to deliver
better customer value, reduce costs, increase responsiveness and resiliency.
• IT duties and customs barriers are factors in internal business optimization and
location decisions.
• New challenges are on the horizon as governments develop strategies to
address security concerns.
• Security and efficiency are mutually reinforcing.
• Supply Chain complexities make government-industry partnership essential.
• Traditional trade facilitation issues and platforms provide an opportunity to
expand global IT trade and also address new security concerns.
Use of TQM [15]
risk analysis in global Supply chain network
environment [14]
Supply chain risk management [3]

• two types of risks :

1-internal : supply risk, demand risk, and trade credit risk

• example
• the firm’s objective is to maximize its global after-tax profit subject to capacity constraints in each plant
and demand requirements in each market.
• to make an open/shut decision of plants and shipment quantities from such plants to targeted markets
• uncertainties in market demand, volatility in exchange rates, differing country tax rates, and varying
import tariffs at different ports of call even within a country
Supply chain risk management [3]
the Bridging Role Typology [5]
the Bridging Role Typology [5]
Global supply chain design models[6]
Global supply chain design models[6]
Decision models in global supply chain
management [18]
• strategic, tactical, and operational SCM decisions
• Five illustrative models
9managing buyer–supplier behavior
9integrated operations
different modeling approaches [18]

• (a) investment implications of innovation-based

competition between buyer and supplier
• (b) bidding by a prospective supplier of a product
• (c) bid evaluation and supplier selection by a buyer
dealing in multiple products
• (d) integrated operations in a supply chain
• (e) market integrated distribution
Selecting a global supply
chain model.
Different Types of Global Supply Chain Models

• Own and manage your own infrastructure

• Use strategic alliances
• Partner with an asset-based third-party
• Partnership with a global integrator of logistics
Own and Manage Your Own Infrastructure

Pro Con
• Heavy costs
• Maximum control
Use Strategic Alliances

Pro Con
• Convenience • Unreliable alliance-prone
• Large areas covered
Partner With An Asset-Based Third-Party

Pro Con
• Operational standards • Ignorance of complex
customs regulations
• Uniform identity and
• Lack of connections
marketing strength
• Local economic downturns
• Dedicated mgmt structure
Partnership With a Global Integrator of Logistics

Pro Con
• Customer friendly • Limited use
• In-country knowledge
• Less control
• True information systems
• Uniform standards
A Real World Example

• Stanford Global Supply Chain

Management Forum

• Global Supply Chain Associates

Supply Chain Overview:
Factory and Distribution Locations
Americas Europe Asia
• 8 Fabs
BPSM Netherlands
X-Dock • 6 High-Volume

Assembly/Test locations

• 11 major logistics sites
Folsom Ireland

Santa Clara Korea

LAX X-Dock
SFO X-Dock
Supply Chain Organizations
X-Dock Taiwan
• Materials
– Indirect / Direct Materials
New Mexico Israel
– Subcontractor
Costa Rica
Malaysia Malaysia
• Customer Fulfillment,
Planning, and Logistics
1-Worldwide Manufacturing and Distribution Supply
Chain Design for a Large Computer Hardware
• Goals
• Reduce cost
• Improve ROA
• Simplify the worldwide supply chain
• Objectives
• Redesign the entire worldwide manufacturing and distribution supply chain
• Determine how many plants and where they should be located
• Determine what process technologies should be in each plant
• Specify the loading on each plant and the service area for each plant
• Results:
• Recommended plant closings, re-chartering and re-tooling
• Reduced number of facilities from 33 plants to 12 plants
• Created three relatively self-contained customer-oriented supply zones: Americas, Europe,
Pacific Rim
• Estimated benefits:
– Reduced manufacturing / logistics cost by $375 Mil. annually
– Improved Corporate ROA by 3.2 points
• Recommendations have been implemented and benefits have been captured
Global supply chain structure before
study [13]
Global supply chain structure after
2-Global Spare Parts Network [13]
• Global Spare Parts Repair and Distribution Networks for a Hardware Manufacturer
• Goals
• Reduce Cost
• Improve ROA
• Objectives
• Redesign the entire global spare parts repair and distribution networks
• Determine how many parts distribution centers are needed, where located and what service
• Determine how many repair centers are needed, where located, repair menu and service areas
• Results
• Recommended a mix of decentralized fast repair (menu) and complex central repair
• Recommended new stocking strategy
• Reduced the number of sites from 34 to 17 worldwide
• Benefits estimated / now being captured:
– Reduced spare parts repair and distribution costs by $81 Mil. annually
– Reduced spare parts inventory by $74 Mil.
– Improved Services ROA by 7.1 points
Picture of closed-loop service parts
repair and distribution flow [13]
3-Latin and South America Manufacturing and Distribution
Strategy for a Manufacturer of Commercial Fluids [13]

• Goals
• Reduce Cost
• Improve ROA
• Issues
• Existing plants make full product line
• Existing plants are autonomous and serve only their local market
• Markets are growing dramatically
• Trade is becoming freer
• Questions
• Should each plant specialize on fewer products and then serve a wider geographic area?
• Can you get there from here?
• Results
• Identified the opportunity to save $8 Mil. on $100 Mil. annual supply chain expenditure
• Defined the manufacturing locations where capacity should be expanded
• Identified one uncompetitive plant (Market can be supplied more cost effectively from other sources)
• Highlighted two plants of marginal competitiveness and defined the areas and magnitude of cost
improvement necessary to make them more competitive
• As a result of the study, significant cost reduction opportunities are actively being pursued at several plants
• The GSCM® model will be used again shortly to re-calibrate the entire supply chain with updated cost,
capacity and international trade information
Map showing Americas supply chain
locations [13]
4-Single Product Supply Chain [13]
• New Product Global Pipeline Design
• Questions:
• How should this new product fit into the existing
supply chain?
• What is the impact on capacity and fixed cost?
• At what point (demand) should a second source be
added? Where?
• At what point (demand) should a third source be
Schematic of a typical new product bill of material structure with associated
material flows showing candidate locations: [13]
The Laptop to Europe Case
• Laptops are made in China
• Sales through Internet and Telephone in local sales
offices in Europe
• Inventory in Shanghai
• Orders are placed to Warehouse by Customer’s head
office in Hamburg untill 18.00 hours.
• Orders contain:
– Main type
– Software requirement
– Accessory requirement
The Laptop to Europe Case
• Warehouse starts operating at 0600 local
– Orders are translated into pick orders and software loading orders
– Routing through warehouse is Main machine and Software loading
stations and Accessory route.
– Orders are joined and undergo quality control
– The cartons are labeled

• Ship out and arrival

– Shanghai – Frankfurt
– Labeling for Carrier delivery
– Delivery to carriers

• Delivery to customers
• [1] Supply Chain Management, M. Eric Johnson, David F. Pyke, The Tuck School of
Business Dartmouth College, Hanover, NH 03755, 603 (646) 2136, July 27, 1999
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