Global Strategic

Positioning
 Global Supply Chain Integration
• There are four major differences between domestic
and global logistics operations which are
characterized as the 4 Ds: Demand, Distance,
Diversity, and Documentation.
• Global logistics operations typically imply increased
demand as the enterprise is attempting to serve a
broader range of markets around the world. This
makes it more difficult to manage capacity as
demand swings are often but not always more
significant particularly for seasonal products.
Global Supply Chain Integration
• Global logistics operations significantly increases
distances that goods must travel resulted in
extended transit times and often increased variation
as product gets held up by weather and customs.
• Global logistics operations increases product
diversity as the product’s technical and language
characteristics must be customized for each country
or market segment. This requires more production
changeovers and reduces the ability to shift
products between markets.
Global Supply Chain Integration
• Finally, global logistics increases the need
for specific documentation for customs,
insurance, and financial transfers. Many
documents must be completed, often in
the language of the local country which
are necessary to get the product through
customs. Typically, if the documents are
not absolutely correct, the product will be
held at customs
 Logistics in Global Economy
• Global operations increase logistics cost
and complexity.
• Estimated 2002 logistics cost for
industrialized nations exceeded $6.7
trillion or 13.8 percent of GDP.
Table 12-1 Estimated 2002 National Logistical
Expenditures
 Stages of International
Development
• The continuum of global trade development
ranges from export/import to local presence
to the concept of stateless enterprise.
• The stages of international development
include:
• 1) Export/Import;
• 2) International operations; and
• 3) Globalization.
 1) Export/Import
• At the Export/Import stage, logistics
management is outsourcing many of the
warehousing and storage services the
third party service providers.
• At this stage, the enterprise’s logistics
function doesn’t need much international
expertise as it pays others to complete the
international activities.
2) International operations
• During stage two, International operations/local
presence, the enterprise uses subsidiaries and local
distributors with specific business charters and visible
local presence.
• This gives the enterprise more control along with
greater sales and margin. During this stage, logistics
has to develop international expertise as it is
responsible for moving the product from the home
country to the international markets so it must
understand the documentation and shipping
requirements.
 3) Globalization
• However, at this stage, most of the flows go
out from the home country.
• At stage three, globalization, there is a
worldwide flow of key resources to leverage
global sourcing and marketing advantages.
• During this stage, the firm’s logistics
organization must have the relationships and
be capable of moving product into and out of
many countries.
Table 12-2 Differential Characteristics of Global
Development
 Managing Global Supply Chain
• Logistics management must consider major
differences between domestic and international
operations.
• Operational considerations for logistics in a global
environment. These include:
• 1) performance cycle structure;
• 2) transportation;
• 3) operational considerations;
• 4) information system integration; and
• 5) alliances.
 1) performance cycle
structure
• Global operating performance cycles are
generally longer resulting in increased
uncertainty and less visibility.
• Other reasons leading to longer cycle time
are communication delays, financing
requirements ,special packaging, ocean
freight scheduling ,slow transit time and
custom clearances.
 2) transportation
• Global transportation typically involves
more participants and substantially less
control meaning it is more difficult to track
and monitor shipments.
• Changes which have occurred in global
transportation are:
1.Intermodal ownership and operations
2.Privatization
3) operational considerations
• Global operations require that logistics
accommodate multiple legal constraints,
technologies, and languages. This increase
the complexity for moving the product.
• International operations considerations are:
• Multiple languages
• Documentations
Table 12-3 Common Forms of International
Logistics Documentation
 4) information system
integration
• Global operations requires information
technology integration or at least
interchange with divisions and subsidiaries
around the globe. This likely implies
integrated data bases.
• Two types of system are required:
1.Global transaction or ERP
2.Global planning system
 5) alliances
• Global operations also requires effective
use of alliances to outsource activities that
are not core to the enterprise.
• While alliance with carriers and
specialized service suppliers are important
in domestic operations, they are essential
in international commerce.
 International Sourcing
• Increased need for global competitiveness
is driving many firms, particularly those in
durable and fashion industries, to identify
and establish relationships with suppliers
in low cost countries.
• There are a number of justifications for
such sourcing initiatives.
 Rational for low cost country
sourcing
• First, sourcing from countries with low
wage rates typically reduces
manufacturing cost. While such strategies
may reduce manufacturing cost, some
firms have not considered the total cost
impact of international sourcing particularly
with respect to the logistics cost
components of transportation and
inventory.
 Rational for low cost country
sourcing
• Second, seeking out suppliers in low cost countries
can also increase the number of possible sources
and thus increase the competitive pressure on
domestic suppliers.
• Third, low cost country sourcing can increase the
firm’s exposure to state-of-the-art product and
process technologies. Without pressure from global
suppliers, there may be reluctance on the part of
domestic suppliers to investigate or invest in new
technologies because they have significant assets
tied up in older technologies.
 Rational for low cost country
sourcing
• . Conversely, global suppliers may place significant focus on new
technologies to establish a competitive position in foreign markets
even given the issues discussed earlier regarding extended supply
chains.
• A final rationale for low cost country sourcing is to establish a local
presence to facilitate sales in the international country. For
example, while the U.S. automobile industry is significantly
increasing sourcing from low cost countries to reduce component
cost, but is also seeking facilitate automobile sales in the local
country. Due to political or legal constraints, it is often necessary for
a firm to have local relationships and production operations to be
allowed to sell their product in the local country. The combination of
these make a strong case for sourcing from a low cost country but it
is necessary to also consider the challenges.
issues and challenges related to
low cost country sourcing
• The first challenge is the identification of
sources capable of producing the
materials in the quality and quantity
required. While it is becoming easier to
achieve the quality objective, ensuring that
the potential supplier has the ability to
meet volume and seasonal fluctuation
demands in a suitable time frame remains
a challenge.
issues and challenges related to
low cost country sourcing
• This second challenge considers the
protection of a firm’s Intellectual Property
as products or components are produced
and transported. The suppliers and
countries involved need to have legal
constraints in place to protect product
designs and related trade secrets.
 issues and challenges related to
low cost country sourcing
• The third challenge relates to understanding import/export
compliance issues. There may be government regulations
regarding the volume of a commodity that can be imported
before duties or other restrictions are enforced. The
percentage of materials that are foreign sourced may also
restrict a firm’s ability to sell to select customers. For
example, government contracts may require a specific
level of domestic made components. For example, if the
contract requires that the product is “Made in the U.S.A.”
95 percent of the material must be of domestic origin.
issues and challenges related to
low cost country sourcing
• The fourth challenge relates to
communication with suppliers and
transportation companies. While the
procurement negotiation with low cost
countries is not easy, there is often a
greater difficulty in dealing with carriers,
freight forwarders, and government
customs due to time zone, language, and
technology differences.
issues and challenges related to
low cost country sourcing
• The fifth challenge is the need to guarantee the security of the
product while it is in-transit.
• The sixth challenge concerns the inventory and obsolescence risk
associated with extended transit times. With the longer transit times
associated with low cost country sourcing, it is not uncommon for
the firm to have one or two months supply of product in transit which
must be counted as an asset and incur the related inventory
carrying cost. Extended lead times also increase the potential for
obsolescence as orders have longer lead times and there is
generally little flexibility to change. Such extended leadtimes also
can impact recovery when a quality issues develops. It is not
unusual for firms to fly components from offshore suppliers to
recover from an unexpected quality problems or delayed shipments.
issues and challenges related to
low cost country sourcing
• The final challenge, which synthesizes the
previous ones, focuses on the need to
understand the difference between piece
price and total cost. While the piece price
may include the material as well as direct
and indirect labor, the total cost
perspective needs to consider other cost
elements including freight, inventory,
obsolescence, duties, taxes, recovery, and
other risk considerations.
 Guidelines for Sourcing
• Products and components that have extended
times between manufacturing changeovers
are ideal for low cost country sourcing
• Products and components that have
numerous variations should also generally be
domestically sourced because the extended
lead times associated with low cost country
sourcing makes it difficult to forecast the
precise mix of product that will be demanded.
 Guidelines for Sourcing
• Products or components with high labor
content should take advantage of the
typically low labor rates in low cost
counties.
• Products or components with high
intellectual property content should be
sourced domestically as the legal systems
in many of the low cost countries do not
provide adequate trade secret protection
 Guidelines for Sourcing
• Domestic sourcing is generally appropriate for
products and components with relatively high
transport cost such as those that are bulky or damage
easy.
• Products or components with relatively low value are
ideal for low cost country sourcing as the inventory
carrying cost while it is in transit is not significant.
• Products and components that are constrained for
security or other types of import restrictions by a
domestic government should tend toward domestic
sourcing.
 Supply Chain Security
• Supply chain security refers to efforts to
enhance the security of the supply chain: the
transport and logistics system for the world's
cargo. It combines traditional practices of
supply chain management with the security
requirements of the system, which are driven
by threats such as terrorism, piracy, and theft.
Secure Supply Chain Requirements
• Not allowing any biological or chemical agent to be
introduced to the products
• Not allowing any illegal commodity to be
intermingled with the shipment
• Not allowing the replacement of the product with
an illegal commodity or person
• Not allowing the shipment to be used as a weapon
 Supply Chain Security
• Typical supply chain security activities
include:
1. Credentialing of participants in the supply chain.
2. Screening and validating of the contents of
cargo being shipped.
3. Advance notification of the contents to the
destination country.
4. Ensuring the security of cargo while in-transit via
the use of locks and tamper-proof seals.
5. Inspecting cargo on entry.
Supply Chain Security Initiatives
• The Customs Trade Partnership against
Terrorism (C-TPAT), a voluntary
compliance program for companies to
improve the security of their corporate
supply chains.
• Certify known shippers through self-
appraisals of security procedures coupled
with audits and verifications.
 Supply Chain Security Initiatives (cont.)

• Container Security Initiative (CSI) – Pre-

screening of containers coupled with fast
tracking when cargo reaches the U.S.
• The CSI program offers its participant
ht
countries the reciprocal opportunity to
enhance their own incoming shipment
security. CSI partners can send their customs
officers to major U.S. ports to target ocean-
going, containerized cargo to be exported
from the U.S. to their countries.