Chapter 12

Global Supply
Chain Management

Copyright 2011 John Wiley & Sons, Inc. 12-1

 Lecture Outline

• Global Supply Chain Management

• Global Market Challenges

• Global Infrastructure Design

• Cost Considerations

• Political and Economic Factors

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 The Global Environment

Rapid growth of globalization and

international trade are a result of:

• Advances in Transportation

• Advances in Technology

• Rise in Personal Income

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 Increased Globalization
The global trend impacts:
• Consumers:
– greater access to a variety of goods
– competitive prices

• Supply Chain Companies

– accelerated competition requires:
• strategy to compete in new markets
• another strategy to protect local market
from foreign competition
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 Environmental Factors

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 Global Supply Chain Opportunities
• Large market
• Economies of scale in production and
distribution
• Lower select costs
– labor
– supply

• Better ability to target markets

• Leverage good ideas quickly and efficiently
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 Global Supply Chain Barriers
• Longer and more varied lead time
• Political risk and instability
• Overall cost
– transportation
– tariffs
• Infrastructure access
– facilities
– transportation
• Exchange rate risks
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 Factors Impacting
Global Supply Chains

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 Factors Impacting Global
Supply Chains Continued
•Market and Competition
–customer preferences may be unique
–consider competition
•Cost
–often reason for going global
–consider added logistical and transportation costs,
differential productivity, costs of quality
•Infrastructure
–lack of infrastructure in developing countries

Copyright 2011 John Wiley & Sons, Inc. 12-9

 Factors Impacting Global
Supply Chains Continued
•Technology
–enables global communication
–bar codes, GPS, EDI, RFID
•Politics and Economy
–currency fluctuations
–government regulation & political instability
–trade agreements
•Culture
–consider varying beliefs and behaviors

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 Global Market Challenges

Global markets pose a number of

challenges:
•Global Consumer
•Global vs. Local Marketing
•Cultural Challenge

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 Global Consumer
•Identify diverse customer preferences
•Customers increasingly want customization
–supply chains moving from standardization to
customization
–explodes number product combinations
–requires moving through design, production, and
distribution quicker
–requires lean and flexible systems

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 Global vs. Local Marketing
Two marketing approaches:
•Global
–focus on bringing standardization to global market
•Local
–focus on micro-segmentation of customers and products

Product Postponement
–one strategy to help merge global and local marketing
approaches

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 Cultural Challenge

•Marketing strategies may need to

be modified for different cultures
•Culture is a critical element of
communication

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 Five Dimensions of Culture

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 Five Dimensions Continued

• Small vs. Large Power Distance

– extent to which there is a strong separation
of individuals based on rank

• Individualism vs. Collectivism

– extent of belief in individual responsibility
and reward, vs. reward of the group

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 Five Dimensions Continued

• Masculinity vs. Femininity

– masculine cultures value competitiveness,
assertiveness, ambition, accumulation of
wealth
– feminine cultures value relationships,
harmony, environment, and quality of life

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 Five Dimensions Continued

• Weak vs. Strong Uncertainty Avoidance

– extent to which a culture prefers situations
with clear rules over ambiguous situations

• High vs. Low Context Cultures

– reliance on high vs. low context
communications

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 Global Infrastructure Challenges
There are significant challenges developing
and managing the physical supply network
in diverse global environments

Consider:
• Labor

• Transportation

• Suppliers

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 Labor Infrastructure Challenges
• Significant productivity differences
– speed of work
– precision and quality
– acceptable work hours
– skills and capabilities

• Technology
– increasing technology can substitute
for skilled labor

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 Transportation
Infrastructure Challenges

Access to roads and transportation can be

poor in developing countries
– increases length and variability of lead times

– products can change hands many times

– higher distribution costs

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 Supplier Infrastructure Challenges
• Easier to manage few suppliers
– creates high dependence risk
– less flexible for higher capacity needs

• Lack of available quality suppliers

– supply shortages
– irregular schedules
– uncertainty causes higher levels of inventory

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 Role of Technology
• Information Technology
– broken down distance barrier
– internet, bar codes, RFID
– developing countries may require investment

• Manufacturing Technology
– provides flexibility for mass customization

• Equipment Technology
– distributes products
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 Cost Considerations
Firms seek lower labor costs globally
– gained popularity in U.S. in 1980s
– made sense with short product life cycles

Need to Consider:
• Hidden Costs

• Non-Cost Considerations

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 Hidden Costs
• Labor often small % overall costs

• Locations of cheap labor shift

• Unexpected costs
– additional training
– increased lead times
– poor transportation
– poor quality
– bureaucratic government
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 Non-Cost Considerations
More than 60% U.S. overseas manufacturing
investment is in developed countries

• Need:
– skilled workers
– quality suppliers

• Total Quality Management (TQM)

– focus on total cost of quality

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 Political & Economic Factors

Consider:
• Exchange Rate Fluctuations

• Regional Trade Agreements

• Impact of Non-Tariff Barriers

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 Exchange Rate Fluctuations
Currency devaluations in markets where a
company has operations can increase costs

Strategy:
• Diversify Production Geographically
– can shift production to areas of lower cost
– minimizes exchange rate fluctuation risks
– effective when firm has global facility networks

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 Regional Trade Agreements

Global supply chains should be aware of the

opportunities & restrictions of trade agreements

Agreements encourage trade by giving

preference to members of the agreement and
minimizing:
– tariffs
– quotas
– other trade barriers
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 Non-Tariff Barriers
• Reduced Tariffs
– General Agreement on Tariffs and Trade (GATT)
– became World Trade Organization (WTO)
– industrial goods between developed countries

• Non-Tariff Barriers
– Import Quotas
– Local Content Requirements
– Technical Standards
– Health Regulations
Copyright 2011 John Wiley & Sons, Inc. 12-30
 Review
1. Globalization growth is a result of advances in
transportation and information technology, and a
rise in personal income.
2. Six forces that impact global supply chains are:
market and competition, cost, infrastructure,
technology, political and economic environment,
and culture.
3. Global marketing concerns bringing
standardization to the global market. Local
marketing stresses localized differentiation.
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 Review Continued
4. The availability of infrastructure is important to
going global.
5. Technology enables global supply chains. Three
types: information, manufacturing, & equipment.
6. Cost is a significant global supply chain factor.
There are numerous hidden costs and non-cost
considerations: quality & proximity to customers.
7. Political & economic factors such as regulations
& tariffs impact the global supply chain.
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• Think of a product you are familiar with—the
clothes you are wearing or the beverage you just
drank or the book you are reading. Identify the
challenges that would be involved in distributing
this product on a global scale to different
markets.
• Come up with a new product idea. How might
you modify this product to sell it to different
global markets? How would you market this
product globally?
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• You have $1500 U.S. to spend on a trip abroad.
Explain the impact of currency fluctuations on
your trip and what you can purchase if you
choose to go to Asia versus Australia versus
Europe versus Africa.
• Think of an idea you are passionate about. How
would you sell your idea to a high content versus
low content culture? How about a low power
distance versus high power distance culture?

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