Global Supply Chain Management

Lowest total cost

• Count every cost from raw material to the customer

• Not just the purchase price

  • e.g., a part 10% cheaper in China may cost more after shipping ,tariffs , and extra inventory

Higher quality

• Fewer defects mean less rework, scrap, and warranty

• Tools: TQM (culture), Six Sigma (data method), ISO 9000 (certification)

TQM (Total Quality Management)

e.g., “Any Toyota worker can stop the line”

Sigma

• data-driven method to reduce defects

• e.g., GE aims for 3.4 defects per million

ISO 9000

• quality-management standards

• e.g., many global buyers require certified suppliers

Where to produce?

Which country? How many plants?

Country factors for producing

• Factor costs: labour, capital, and land

  • e.g., garment sewing in Bangladesh Vietnam

• Trade barriers: tariffs, quotas

  • e.g., Hyundai builds cars in Georgia, USA

• Transport: made near buyers

  • e.g., bottled drinks

• Exchange rates: currency swings

  • e.g., Toyota builds most North American cars in North America

Technology & product factors for producing

• High fixed costs & MES: a few large plants serve the world

  • e.g., TSCM chip fabs

• Low MES: smaller plants in many markets

  • e.g., local coca cola bottles

• Flexible manufacturing: one plant, many methods

  • e.g., one Toyota line builds several models

• Mass customization: low cost + product variety

  • e.g., Nike By You custom sneakers

MES (minimum efficient scale)

output needed to reach the lowest unit cost

“International businesses frequently face ______”

make or buy decisions"

why make?

• Facilitates investments in highly specialized assets

• Protects proprietary technology

• Accumulating dynamic capabilities

• Improves planning, coordination, and scheduling of adjacent processes (just-in-time systems)

highly specialized assets

Asset whose value is significantly reduced in its next-best use. Without integration, the partner may exploit the relationship (hold-up); switching costs are high

Accumulating dynamic capabilities

• skills that become more valuable over time through learning

• “firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments”

• sensing: Netflix seeing shift from DVDs to streaming

• seizing: Netflix launches streaming in 2007

• transforming: Netflix becoming streaming company

• reconfiguring: resources to make orginal shows

why buy?

• Flexibility

• Lower cost structure

• text

Flexibility (why buy)

• Shift sourcing when exchange rates, trade barriers, or politics change

  • e.g. Hong Kong is cheapest one year, Mexico the next

Lower cost structure

Fewer subunits mean less cost to coordinate and control

2 goals of global supply chain mangement

lower total cost, raise quality