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International

Issues in SCM

International Supply Chain


Management

Dispersed over a larger geographical area


Offers many more opportunities than just
the domestic supply chain

Risk factors are also present

International Supply Chains

International distribution systems

International suppliers

Raw materials and components are furnished by foreign


suppliers
Final assembly is performed domestically.
In some cases, the final product is then shipped to foreign
markets.

Offshore manufacturing

Manufacturing still occurs domestically, but distribution and


typically some marketing take place overseas.

Product is typically sourced and manufactured in a single


foreign location
Shipped back to domestic warehouses for sale and
distribution

Fully integrated global supply chain

Products are supplied, manufactured, and distributed from


various facilities located throughout the world.

International Logistics
Costs comprise between 10% & 30% of the
Logistics
total landed costs of an International Order. Thus,
International Logistics is a competitive tool

International Logistics and Supply Chain


Effective
Management can produce higher earnings and greater
Corporate Efficiency

International Logistics - Definition

International Logistics is design and management of a

system that controls the flow of materials into, through,


and out of the International Corporation

By taking a systems approach, the Company explicitly

recognises the linkages among the traditionally separate


logistics components within and outside the Corporation

Difference between Domestic and


International Logistics

Distance

Currency Fluctuations

Border crossing Process

Transportation Modes

Packaging and Labelling requirements

Infrastructure

The Sixth Driver : Leverage

Availability of Modes
Ocean Shipping Liner Service (regularly

scheduled passage) / Tramp Service (available


for irregular routes and scheduled on demand)

Container

Ships (Roll-on-Roll-off / RORO)

Air Shipping

Types of Vessels

Container Ships

Roll on Roll off Ships

Breakbulk Ships

Combination Ships

Crude Carriers

Dry bulk Carriers

Gas Carriers

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Containers
General
Reefer
Tank
Dry

Purpose Containers

Containers

Containers

bulk Containers

Pre-cooling
Containers
Used at the farm level to
maintain Humidity and bring
down the temperature of the
product.

Portable Storage on
40Reefer Containers

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International Air Transportation


Types of Aircrafts :

Passenger Air Planes

Air freiters / Cargo Planes

Combis

Charter Planes

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Multi modal Transportation


Involves

at least two different modes of


transportation

Usually Ocean and Land (Rail / Road)


Uses only one Shipping Document( Bill of
Lading issued at the point of origin )

Custom House Agents (CHA)

The Role of Agents (brokers) is the same worldwide

Clearing of Goods through Customs

Booking of space for Ocean, Air, and Land freight

Providing information to the clients

Preparation of Import / Export documents

Rendering Freight forwarding service

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Packaging for Exports


Protecting the Goods in transit from breakages
Protecting the Goods from water seapage
Protecting Goods from theft / pilferage

Transportation Documents

Bill of Lading fundamental Shipping document / is a


contract of carriage / is a receipt for the
goods / is a certificate for title of Goods

Airway Bill is a document that fulfils the same function


as an ocean Bill of Lading / however, it is
non- negotiable

Packing List

Certificate from Shipping Company

Certificate of Origin

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Payment Systems
Normal mode of payment in International Trade
is through Letter of Credit :

Letter of Credit An arrangement whereby obligation to


pay the Exporter is undertaken by a Bank

The Buyers Bank issues a L/C in favour of the Seller

Types of L/Cs : Revokable L/C


Irrevokable L/C
Revolving L/C

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Forces Driving
Globalization

Global Market Forces


Technological Forces
Global Cost Forces
Political and Economic Forces
McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Global Market Forces

Foreign competition in local markets


Growth in foreign demand
Domestic consumption from 40% to <30% of world
consumption since 1970
Foreign sales fuel growth

Global presence as a defensive tool


Nestles and Kelloggs

Presence in state-of-the-art markets


Japan -- consumer electronics
Germany -- machine tools
US: SUVs
McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Technological Forces

Diffusion of knowledge
Many high tech components developed overseas
Need close relationships with foreign suppliers
For example, Canon has 80% of laser engines

Technology sharing/collaborations
Access to technology/markets

Global location of R&D facilities


Close to production (as cycles get shorter)
Close to expertise (Indian programmers?)
McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Global Cost Forces


Low labor cost
Diminishing importance (Costs underestimated, benefits
overestimated)

Other cost priorities


Integrated supplier infrastructure (as suppliers become
more involved in design)
Skilled labor

Capital intensive facilities

tax breaks
joint ventures
price breaks
cost sharing

McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Political and Economic


Forces
Exchange rate fluctuations and operating
flexibility
Regional trade agreements (Europe, North
America, Pacific Rim)
Value of being in a country in one of these
regions
Implications for supply network design
Reevaluation of foreign facilities (Production
processes designed to avoid tariffs)
McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Political and Economic


Forces

Trade protection mechanisms

Tariffs
Quotas
Voluntary export restrictions

Local content requirements

Health/environmental regulations

Government procurement policies

Japanese automakers in US
TI/Intel factories in Europe
Japanese automakers in the EU
Japanese refused to import US skis for many years (different snow)
Up to 50% advantage for American companies on US Defense
contracts

McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Added Complexities
Substantial geographic distances
Added forecasting difficulties
Infrastructural Inadequacies

Worker skill, performance expectations


Supplier availability, reliability, contracts
Lack of local technologies
Inadequacies in transportation, communications
infrastructure

McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Added Complexities
Exchange rate uncertainties
Cultural differences

accepted partnerships, styles


value of punctuality

Political instability

tax rates
government control

Added competition at home

McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi

Operational Strategies
To Address These Risks

Speculative Strategy

Bet on a single scenario


Japanese auto manufacturing in Japan

Hedged Strategy

Losses in one area offset by gains in another


VW in US, Brazil, Mexico, Germany

Flexible Strategy
McGraw-Hill/Irwin

2003 Simchi-Levi, Kaminsky, Simchi-Levi