International Issues in Supply Chain Management

Designing & Managing the Supply Chain Chapter 8 Yun-Ho Song ezeckiel@pusan.ac.kr
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Outline 
CASE : Wal-Mart Changes Tactics to Meet International Tastes  INTRODUCTION  RISK AND ADVANTAGES OF INTERANTIONAL SUPPLY CHAINS  ISSUES IN INTERATIONAL SUPPLY CHAIN ANAGEMENT  REGIONAL DIFFERENCES IN LOGISTICS  SUMMARY

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Wal-Mart Changes Tactics to Meet International Tastes 
Wal-Mart Stores is finding out that what plays in Peoria isn¶t necessarily a hit in suburban Sao Paulo 
Tanks of live trout are out; sushi is in  American footballs have been replaced by soccer balls  American-style jeans price at $19.99 have been dropped in favor of $9.99 knock-offs 

Adapting to local tastes may have been the easy part 
Three years after embarking on a blitz to bring ³everyday low price´ to the emerging market of Brazil and Argentina  Wal-Mart is finding the going tougher than expected 

However Wal-mart produced red ink 
Brutal competition  Don¶t achieve efficiency through economies of scale  Own mistakes
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which is targeting not only South America but also China Indonesia  The markets of China and Indonesia are promising and pitfalls  The growth is dwindling in America 4/31 . doubling the number now in each country  Wal-Mart¶s global expansion drive.DEEP POCKET  Wal-Mart has revised its merchandising in Brazil and Argentina and made other changes  4 newest stores are smaller than the initial outlets in San Paulo and Buenos Aires  It located at Mid size cities where competition isn¶t so force  8 stores are planned to open in both Argentina and Brazil next year.

Glass expects international growth to account for a 1/3 of War-Mart¶s annual increase in sales and profits within three to five years 5/31 .A SMALL OPERATION SO FAR  The six-year-old international operation is relatively tiny  It accounted for only 4.8 percent of Wal-Mart¶s 1996 sales  Most of the company¶s international revenue comes from Canada  Mr.

000 items. stocks 22.000 items 6/31 .LOSSES FORECAST  SA. while the Wal-Mart next door carries 58. a few shoppers are in the store during peak hours one Sunday ‡ Little difference between the goods at Wal-Mart and those at near by Carrefour ‡ Competitor¶s chain supermarket supply fresh meat  Carrefour drives Hard bargains with its suppliers. Argentina. on top of an estimated $48 million in losses since starting up in South America in 1995  Some store in Buenos Aires. expect Wal-Mart to lose $20 million to $30 million in Brazil this year. can afford to play low-ball because it has the critical mass that War-Mart lacks here  Carrefour holds down overhead by stocking far-narrow selection of merchandise ‡ Ex) Carrefour in La Plata.

DISTRIBUTION PROBLEMS  Wal-Mart¶s effort to stock such a wide variety of merchandise is hurting it  Squeezing out costs in the supply chain is crucial to it¶s EDL pricing formula  Bumper-to-bumper traffic of San Paulo  The biggest issue Wal-Mart is shipping product on time and getting on the shelf  Wal-Mart recently built a warehouse in Argentina and Brazil to reduce distribution problem 7/31 .

Cordless tools  Wal-Mart brought in stock-handling equipment that didn¶t work with standardized local pallets  Installed a computerized bookkeeping system that failed to take into account Brazil¶s wildly complicated tax system 8/31 . American footballs.VARIOUS MISTAKES  Wal-Mart¶s troubles in South America stem partly from its own mistakes  Some goods are useless in San Paulo ‡ Ex) Live trout.

Glass characterized the missteps are regarded as temporary problems and inevitable in entering a new market. 9/31 .PROBLEMS CALLED TEMPORARY  Wal-Mart¶s Mr.

INTRODUCTION  Important of Global operation and Supply chain  Dornier¶s statistics ‡ About 1/5 of the output of U.S.S. over half of U. firms is produced overseas ‡ 1/4 of U.S. parent companies ‡ Since the late 1980s. imports are between foreign affiliates and U. companies increased the number of countries in which they operate 10/31 .S.

but distribution and typically some marketing take place overseas  International suppliers  Raw materials and Components furnished by foreign suppliers . and then shipped back to domestic warehouses for sale and distribution  Fully integrated global supply chain  Products are supplied. in some case. but final assembly is performed domestically. the final product is shipped to foreign markets  Offshore manufacturing  Product is typically sourced and manufactured in a single foreign location.INTRODUCTION  International distribution systems  Manufacturing occur domestically. manufactured and distributed from factories located throughout the world 11/31 .

in US and Nestle in Europe ‡ They failed attempts in the past to penetrate each other¶s home markets. are enough to maintain the status quo  Overflow of information can be one reason of global demand  Ex) Television. Internet 12/31 . dominated by Kellogg Co.Global Market Forces  Involve the pressures created by foreign competitors as well as the opportunities created by foreign customers  As in the dry breakfast cereal business. combined with the threat of retaliation. E-mail.

England to take advantage of the expertise available in Europe 13/31 .Technological Forces  Related to the product themselves  Various subcomponents and technologies are available in different regions and locations around the world  Global location of research-and-development facilities is becoming more common  product cycles become shorter and time more important. companies have discovered how useful it is to located research facilities close to manufacturing facilities  Specific technical expertise may be available in certain areas or regions ‡ Ex) Microsoft recently opened a research lab in Cambridge.

other global cost forces have become more significant ‡ Many of the analyses and programs that US consulting firms undertook to address the Year 2000 problem were done in India. where programming skills are much cheaper ‡ Capital cost of building a new facility often dominate labor cost 14/31 .Global Cost Forces  Global location decisions  In the past the low cost of unskilled labor was decisive factor in determining factory location  Recently.

 Tariffs and quotas affect what can be imported. Pacific Rim. or North America trading block  Various trade protection mechanisms can affect international supply chain decisions.Political and Economic Forces  Affect the drive toward globalization  Regional trade agreements drive companies to expand into one of the countries in the regional group ‡ A company¶s advantage to obtain raw materials from or to manufacture within European. and lead a company to decide to manufacture within the market country or region ‡ Ex) Local content 15/31 .

labor. and outsourcing sources and a greater number of potential manufacturing sites.RISK AND ADVANTAGES OF INTERANTIONAL SUPPLY CHAINS  Cost can be lowered with greater potential raw material.  Management understand the different demand characteristics and cost advantages of different regions  The global supply chain can provide a firm with the flexibility to address the in international markets  Flexibility can ne used to counteract the inherent risks from various factor that are relevant to global companies 16/31 .

a firm can be underpriced in the market  Government reactions  Intervene to stabilize currencies or even directly support endangered firms by providing subsidies or tariffs 17/31 .Risks  Fluctuating exchange rates  Change relative value of production and profit  Operating exposure  Customer reactions ‡ How a firm adjusts prices in various market  Competitor reactions ‡ Competitor¶s relative cost decrease more.

so that products can be moved at minimal cost from region to region as economic conditions demand 18/31 . with often spectacular results if the scenario is realized. and dismal ones if it is not  Hedge Strategies  A company designs the supply chain in such a way that any losses in part of the supply chain will be offset by gains in another part  Flexible Strategies(1/2)  Enable a company to take advantage of different scenarios  Typically.Addressing Global Risks  Speculative Strategies  A company bets on a single scenario. flexible supply chains are designed with multiple suppliers and excess manufacturing capacity in different countries  Factories are designed to be flexible.

Addressing Global Risks  Flexible Strategies(2/2)  several approaches ‡ Is there enough variability in the system to justify the use of flexible strategies? ‡ Do the benefits of spreading production over various facilities justify the cost? ‡ Does the company have the appropriate coordination and management mechanisms in place to take rapid advantage of flexible strategies? 19/31 .

firms can move their operations 20/31 .Addressing Global Risks  Production shifting  Flexible factories and excess capacity and suppliers can be used to shift production from region to region to take advantage of current circumstances  Information sharing  Information can be used to anticipate market changes and find new opportunities  Global coordination  Having multiple facilities worldwide provides a firm with a certain amount of market leverage that it might otherwise lack(Ex 8-2 253p)  Political leverage  The opportunity to move operations rapidly gives firms a measure of political leverage in overseas operations ‡ governments are lax in enforcing contracts or international law. or present expensive tax alternatives.

and which can be manufactured in various facilities  Purchasing  A company will find it useful to have management teams responsible for the purchase of important materials from many vendors around the world ‡ easier to ensure that the quality and delivery options from various suppliers are compatible  Production  Excess capacity and plants in several regions are essential if firms are to take full advantage of the global supply chain by shifting production as conditions warrant ‡ Centralized management are essential in this case 21/31 .Requirements for Global Strategy Implementation  Product development  It is important to design products that can be modified easily for major markets.

a centralized system must be in place so that regional customers can receive deliveries from the global supply chain with the same efficiency as they do from local or regionally based supply chain 22/31 . is carried out on a regional basis  Order fulfillment  To successfully implement a truly flexible supply chain management system.Requirements for Global Strategy Implementation  Demand management  It involves setting marketing and sales plans based on projected demand and available product.

opportunity  Technological forces .location.Review the last part  Following Forces are lead the Globalization  Global market forces . but other part get income  Flexible Strategies ± typically contract many supplier and design the surplus produce capacity ‡ Production shifting ‡ Information sharing ‡ Global coordination ± market leverage 23/31 . Y2k  Political and economic forces ± local contents  Addressing global risk  Speculative Strategies ± set one scenario  Hedge Strategies ± one part loss.product  Global cost forces. labor.

Levi¶s jeans and McDonald¶s burgers  Consider carefully which of the 2 product type is more appropriate for a particular situation 24/31 . in the sense that no modification is necessary for global sales  Ex) Coca-Cola.ISSUES IN INTERATIONAL SUPPLY CHAIN MANAGEMENT  Region-specific products  Some products have to be designed and manufactured specifically for certain regions ‡ For example. automobile designs are often Region specific ‡ Ex) Honda Accord has 2 type of body ‡ Ex 8-3 255p  True global products  These products are truly global.

Local Autonomy versus Central Control  Centralized control can be important in taking advantage of some of the strategies  But in many cases it makes sense to allow local autonomy in the supply chain  Regional operation have proven to be successful  Regional business depending on the characteristics of the region ‡ Japan.S  Ex 8-4 p 256 25/31 . German. U.

Miscellaneous Dangers       Exchange rate fluctuation Offshore facilities Cheap labor Expensive training Local collaboration (Ex8-5 202p) Dangers related to foreign governments  Ex) To deal with China and gain access to that country¶s huge markets. many companies are handing over critical manufacturing and engineering expertise to the Chinese government or to Chinese partners  protectionism (Ex8-6 202p) 26/31 .

expression. gestures.differ widely from culture to culture ‡ Customs .differ widely from culture to culture 27/31 .REGIONAL DIFFERENCES IN LOGISTICS  Cultural Differences  Cultural differences can critically affect the way international subsidiaries interpret the goals and pronouncements of management ‡ Language . context ‡ Belief .

logistics as a necessary expense and not a strategic advantage. relative economic conditions have affected the mix of logistics and supply chain components  Emerging nations. the infrastructure is generally insufficient to support advanced logistics operations 28/31 . the supply chain infrastructure is usually not fully in place. so they limit investments in logistics infrastructure  Third World.REGIONAL DIFFERENCES IN LOGISTICS  Infrastructure First World Infrastructure Highly developed Emerging Under developed Third World Insufficient to support advanced logistics  First World.

appointment  In the Third World. operating standards typically vary greatly ‡ Ex) contract. traditional performance measures have no meaning ‡ Shortages are common ‡ Customer service measure have no meaning 29/31 . operating standards are generally uniform and high  emerging nations.REGIONAL DIFFERENCES IN LOGISTICS  Performance Expectation and Evaluation  First World.

REGIONAL DIFFERENCES IN LOGISTICS  Information System Availability  First World. Support systems may not be in place to implement efficient information systems ‡ Communication network incomplete and not reliable  Third World. Advanced information technology is simply not available ‡ Inefficient communication system 30/31 . EDI  Emerging nations. computer technology has increased at same rate across different nations ‡ POS.

skilled managerial and technical personnel are frequently not available  Third World. technically and managerially competent workers are available ‡ Unskilled labor is relatively expensive  Emerging nations. Although it may be possible to find employees that are appropriate to the available technology level ‡ Difficult to find Trained logistics professionals and managers familiar with modern management techniques 31/31 .REGIONAL DIFFERENCES IN LOGISTICS  Human Resources  First World.

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