GLOBAL SUPPLY MANAGEMENT

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• GLOBAL SUPPLY MANAGEMENT

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Global Supply Management and WCSM

• Supply Managers who strive for WCSM have chosen
  to pursue a global supply philosophy that unifies
  rather than divides
• Pursue global supplier relationships that are
  based on fairness, honesty and trust, which
  result in lower total costs without exploitation.

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Future of Global Supply Management

• World financial markets are closely linked
  through 24-hour trading
• International business is no longer limited to
  large multinational corporations
• Fewer marketplace differences exist
• Westernization of global consumer markets is
  occurring at a rapid rate
• Manufacturing firms in developing countries
  have improved their capabilities
• Productivity and quality is dramatically
  improving worldwide

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• Common Terms in Global Supply Management

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Common Terms

• Import duties (or rates)
• ad valorem rate
• Most common, a percentage of appraised value of
  the merchandise (such as 5)
• specific rate
• Specified amount per unit, such as 1,000 for a
  fur coat
• compound rate
• Combination of the ad valorem and specific rates

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Common Terms

• Dutiable or free of duty
• GSP - Generalized System of Preferences
• Basically means Duty Free
• MFN - Most Favored Nation
• Duty rates are lower than full rates (statutory
  rates).
• Statutory Rates
• Full rates for tariffs

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Common Terms

• Assists
• Used in aiding the production outside of the
  buying firms country and are provided by the
  buying firm
• Components
• Subassemblies or parts in imported goods
• Special tooling
• Tools, dies, molds, equipment
• Design Information
• Rulings on imports
• With respect to duties, these occur after entry
  documents have been filed and the entry is
  liquidated
• no guarantee that subsequent shipments will
  receive the same tariff

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Common Terms

• Customs brokers
• Serve as the buying firms agent
• Handle clearance of shipments through customs
• Customs invoice
• Used to clear merchandise through customs
• Not a commercial invoice
• Supplied by U.S. Treasury
• Filled out by the supplier

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Common Terms (Continued)

• Pro forma invoice
• Commercial invoice estimate used mainly for
  banking permit needs
• Enables the firm to obtain an import or exchange
  permit
• Packing list
• More than one is may be needed
• Movement order, contents, descriptions (weights,
  markings, measures)

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Common Terms (Continued)

• Bill of lading
• Receipt issued by the carrier for merchandise
• A contract for shipment of merchandise
• A receipt of merchandise
• Document of freight charges
• List of Handling Instructions
• Bill of Lading Types
• Ocean bill of lading
• Air way bills

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Common Terms (Continued)

• Inspection certificate
• Prepared by entity independent of the exporter
• Assures buyer shipment is as ordered
• Certificate of origin
• May be required by customs
• A product shipped from Hong Kong may not actually
  have been made there, so this is an effort to
  trace product origins

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Stages to Global Supply Management

• Stage One International Purchasing
• Stage Two Global Sourcing
• Stage Three Global Supply Management

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Features of the Trans-National Corporation

• Instantaneous electronic communications
  capabilities
• Instantaneous electronic funds transfer
• Distributed, highly autonomous local operations
• Global real-time flow of intellectual property
• Highly differentiated products
• Worldwide flow of raw materials, and finished
  goods, highly insensitive to both national and
  corporate boundaries

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Reasons for Global Purchasing

• Superior Quality
• Better Timeliness
• Lower Costs
• More Advanced Technology
• Broader Supply Base
• Expanded Customer Base

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Potential Problems

• Cultural Issues
• Long lead times
• Additional Inventories
• Lower Quality
• Social and Labor Problems
• Higher Costs of Doing Business
• High Opacity

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Questions Before Going Global

• Does it have a long life (two to three years)?
• Does it lend itself to repetitive manufacturing
  or assembly?
• Is demand for the product fairly stable?
• Are specifications and drawings clear and well
  defined?
• Is technology not available domestically at a
  competitive price and quality?

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Supply Channels

• After deciding to source globally need to decide
  what supply channels to use
• Simplest way to source globally is through the
  use of an intermediary
• Import merchants
• Commission houses
• Agents or reps
• Import brokers
• Trading companies
• Subsidiaries

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Direct Suppliers

• Eliminating Intermediaries
• Results in lowest purchase price
• Identifying Direct Suppliers
• Qualifying Direct Suppliers
• Preparing for Direct Relations
• The Initial Meeting

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Preparing for Direct Relations

• Cultural preparation
• Interpreters
• Technical and commercial analysis
• Prepare and review specifications and drawings
• Pack samples or photos of required materials if
  helpful
• Clearly prepare the quality requirements
• Identify specific scheduling requirements
• Determine what of production can be placed
  offshore
• Determine requirements for special packaging
• Identify likely lead times
• Develop a clear idea of the price objective

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The Initial Meeting

• Provide a briefing on your firm
• Provide a tour of your facility
• If the initial meeting is at the suppliers
  facility, then tour the suppliers facilities
• Meet with critical personnel
• Describe how and when the suppliers firm would
  get paid
• Remember the potential supplier is judging your
  firm at the same time

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Currency and Payment Issues

• Preferred method of payment is after receipt and
  inspection of the goods
• It may be customary in many countries for advance
  payments to be made prior to commencing work
• Letters of credit are common in global commerce
• Of particular importance are
• Exchange Rates
• Payments

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Four Potential Situations in the Absence of Fixed
Exchange Rates

• Assume the buyer is a United States company
• Case 1 Contract is for payment in foreign
  currency, exchange rate moves against the dollar
  during performance of the contract
• Case 2 Contract is for payment in foreign
  currency
• Case 3 Contract is with a global supplier, with
  payment in dollars, and the dollar weakens
• Case 4 Contract is with a global supplier with
  payment in dollars, and the dollar strengthens

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Case 1

• Contract was awarded for 1 million euros
• Rate of exchange was 1.00 Eu 1.5
• Eu l,000,000
• Eu 1.5/ 666,666.66
•  
• However, dollar weakens to 1.00 Eu 1
• Eu l,000,000
• Eu 1.0/ 1,000,000

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Case 2

• Contract is for payment in foreign currency and
  the exchange rate improves so 1 Eu 2
• Eu l,000,000
• Eu 2/ 500,000
•  
• The buyer has reduced its costs from the initial
  likely amount of 666,666.66 to 500,000.00, a 25
  percent saving

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Case 3

• Contract is with a global supplier, with payment
  in dollars, and the dollar weakens
• Assume the rate of exchange was U.S. 1 Eu 1.5
• The cost of the item was Eu 1 million, or
  666,666.66.
• Unfortunately for the supplier, the dollar has
  weakened so that 1 will buy only Eu 1
• Now, when the supplier receives its 666,666.66
  and has this converted to euros, it receives only
  Eu 666,666.66
• A 33 percent reduction from what it expected
  under the former exchange rate

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Case 4

• Contract is with a global supplier with payment
  in dollars, and the dollar strengthens
• As with case 3, the contract called for a payment
  of 666,666.66
• Assume rate of exchange changed so 1 Eu 2
• When the supplier receives its 666,666.66 and
  converts to euros it will receive 666,666.66 x 2
  Eu 1,333,333.32
• A windfall gain of Eu 333,333.33

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Countertrade

• Refers to any transaction in which payment is
  made partially or fully with goods instead of
  money
• Countertrade links sale of a product into a
  foreign country and sale of goods out of that
  country
• Foreign governments may impose countertrade
  requirements

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Countertrade Definitions

• Barter Goods are exchanged for other goods with
  no money involved
• Offset The value of the sale is offset by
  purchases of items produced in the buying country
• Types direct offset and indirect offset
• Counterpurchase Unrelated goods are exchanged
• Normally involves two separate contracts
• Buy-Back/Compensation Agreement by the seller
  of turnkey plants, machinery, or other capital
  equipment to accept as partial or full payment
  products produced in the plants and/ or on the
  capital equipment

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Countertrade

• Advantages
• Avoiding exchange controls
• Selling to countries with inconvertible
  currencies
• Marketing products in less-developed countries
• Reducing risks with unstable currency
• Fuller use of plant capacity

• Disadvantages
• Lengthier negotiations
• Complex negotiations
• Government involvement
• Higher transaction costs
• Technology transfer

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Example of Countertrade
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Political And Economic Alliances

• European Union
• North American Free Trade Agreement
• MERCOSUR
• Association of Southeast Asian Nations
• Asia Pacific Economic Cooperation

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Advantages of the Euro

• Greatly Reduced Transaction Costs
• Increased Competition
• Reduced Exchange Rate Risk
• Increased Trade and Capital Movement

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North American Free Trade Agreement

• U.S., Canada, Mexico
• Original Goals of NAFTA
• Elimination of tariffs
• Remove agricultural barriers
• Remove manufacturing barriers
• Remove service trade barriers
• Remove investment restrictions
• Protect intellectual property rights
• Resolve environmental concerns

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Closing Remarks

• With respect to global supply management, supply
  professionals must learn to
• Develop a global supply management view
• Learn to deal with changing global environments
• Deal with diverse cultures effectively
• Work within distributed organizational structures
• Work with teams composed of global members
• Learn to communicate effectively with cultural
  beliefs and values different than their own

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• TOWARD WORLD CLASS SUPPLY CHAIN MANAGEMENT

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The Power of SCM

• The issue of how to utilize the power of SCM is
  creating debate in upper management boardrooms
  and academic classrooms across the world
• Firms need to come to terms with how they are
  going to improve their competitiveness in the
  future through SCM
• Competition is not just firm versus firm, but
  chain versus chain (or network versus network.)
• Identification of who is in charge of SCM is the
  first step to moving it towards world class

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Definitions of Supply Chain Management

• A strategic concept that involves the
  understanding and managing of the sequence of
  activities - from supplier to customer - that add
  value to the product supply chain.
• The supply chain encompasses all activities
  associated with the upstream and downstream flow
  and transformation of goods and information from
  the raw materials stage (extraction), through to
  the end user.
• Supply chain management is the collaborative
  effort of multiple channel members to design,
  implement, and manage seamless value-added
  processes to meet the real needs of the end
  customer.

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The WCSCM Triangle
World Class Logistics Management
World Class Demand Management
World Class Supply Management
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Three Stages of SCM

• SCM is the management of the internal supply
  chain
• SCM is supplier-focused
• SCM is the management of a network of enterprises

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Supply Networks
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Demand Management Defined

• Demand management seeks to
• Estimate
• Control
• Smooth
• Coordinate
• Balance
• Influence
• demand and supply for a firms products and
  services in an effort to reduce total costs for
  the firm and its supply chain

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Demand Management Characteristics

• Recognizes forecasts are developed at several
  points throughout an organization
• Accepts forecasts from other functions and
  updates them based on actual, real-time demand
• Works with the supply side to adjust the inflow
  of materials and products
• Controls through effective production plans,
  inventory levels, capacity levels and customer
  service strategies

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Demand Management Information Flows
Research and Technology
Research and Technology
Strategic Product Decisions
Future Customer Demand
Strategic Capacity Planning
Strategic Capacity Planning
Future Customer Demand
Demand Forecasting
Aggregate Plan for Production
Aggregate Plan (12-24 months)
Demand Forecasting
SUPPLYING FIRM
BUYING FIRM
Master Production Schedule
Master Schedule (1-12 months)
DEMAND MANAGEMENT
DEMAND MANAGEMENT
Operations Schedules
Operations Schedules (1-4 weeks)
Daily Schedules
Daily Schedules
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World Class Demand Management
World Class

• Involved in aggregate planning, master
  production scheduling and strategic product
  decisions
• Fully integrates supply and planning strategies
• Facilitates reconciliation of demand conflict
  (forecast vs. actual demand)
• Plans and coordinates internal and external
  (supplier) material and capacity requirements
• Involved in new product developments earliest
  stages to address capacity issues
• Works in collaborative cross functional teams
  (typically organized around product families as
  well as commodities)
• Teams may involve both customers and suppliers
• Manages requirements of the Extended Enterprise
• Reports to Supply Chain Management
• Employs state-of-the-art information systems to
  communicate requirements throughout the supply
  chain

Proactive

• Involved in aggregate planning and master
  production scheduling
• Involved in internal capacity management
• Cross-functional team orientation
• Coordinates master scheduling with Sales,
  Marketing and Procurement
• Involved in new product introduction and
  Engineering/Production Prototyping
• Involved with Marketing and Sales to reconcile
  forecast error
• Emphasis is on balance between schedule
  attainment, customer satisfaction, inventory risk
  and investment
• Data is centralized and available through a data
  accumulation and delivery system

Mechanical

• Transactional focus
• Involved in developing the master production
  schedule
• Originates material requisitions
• Nervous planning (bullwhip effect)
• Inventory management occurs at product/family
  level and component level
• Relationships with suppliers are still mostly
  adversarial
• Reports to Materials Management
• Data is derived from combination of informal,
  manual systems and disparate legacy information
  systems
• Data is still historical

Clerical

• Process paperwork
• Confirms actions of others
• Emphasis is on expediency
• Reactive focus
• Sales forecast is unchallenged
• Goal is schedule attainment in current period
• Inventory management occurs at component level
  only
• Relationships with suppliers are adversarial
• Reporting is at a very low level
• Data is historical

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5 6 7 8
9 10
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World Class

• Involved in aggregate planning, master
  production scheduling and strategic product
  decisions
• Fully integrates supply and planning strategies
• Facilitates reconciliation of demand conflict
  (forecast vs. actual demand)
• Plans and coordinates internal and external
  (supplier) material and capacity requirements
• Involved in new product developments earliest
  stages to address capacity issues

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The Bullwhip Effect

• Failure to accurately estimate demand and share
  information among supply chain entities can
  result in bloated inventory levels due to a
  cumulative effect of poor information cascading
  up through a supply chain

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Evolution to WCDM

• Manual and visual systems for replenishment
• Reorder Point replenishment (ROP)
• Statistical Reorder Point techniques
• Material Requirements Planning (MRP)
• Distribution Requirements Planning (DRP)
• Manufacturing Resources Planning (MRP II)
• Distribution Resources Planning (DRP II)
• Just-in-Time (JIT)
• Enterprise Resource Planning (ERP)
• E-Commerce, E-Procurement, B2B capabilities

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Questions Related to Demand Management

• What is enough inventory?
• What is too much inventory?
• What are the cost implications?
• What are the effects on customer service levels?

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Forecasting Demand

• A forecast is an estimate of future demand
• A calculated guess or estimate about the future
  demand for a firms products and services under
  conditions of uncertainty
• Forecasts fall into two categories
• Quantitative
• Qualitative

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Frequent Comments about Demand Forecasts

• Forecasts are always inaccurate?
• Forecasts are always wrong!
• Forecasts constantly change!
• You cannot believe the numbers!
• Someone must be to blame for an inaccurate
  forecast!
• If only we had a good computerized forecasting
  software module.
• Using statistical forecasting tools takes too
  much time.

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Planning with Time Fences
Long-
Current
Intermediate
Range
Planning
Production
Planning
Period
Period
Period
FROZEN
SLUSHY
FLUID
Demand Time Fence
Planning Time Fence
TIME
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Implications for Supply Management

• Demand management organizationally fits within
  either supply management
• Supply professionals manage the relationships in
  the supply chain therefore they are in a
  critical position to facilitate the high levels
  of communication and trust that are required in
  WCDM

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World Class Logistics Management (WCLM)

• WCLM forms the third side of the WCSCM triangle
• Important role in the success of supply chain
  management through management of transportation,
  storage, and warehousing activities

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Definition of Logistics

• Logistics is the part of the supply chain process
  that
• Plans
• Implements
• Controls
• the efficient, effective flow and storage of
  goods, services, and related information from
  point of origin to point of consumption.

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A Generalization of a Typical Logistics System
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Typical Logistics Manager Activities

• Production Planning
• Purchasing
• Customer Service Levels
• Site Location Analysis
• Return Goods Handling
• Parts and Service Support
• Salvage and Scrap Disposal

• Traffic and Transportation
• Warehousing and Storage
• Industrial Packaging
• Materials Handling
• Inventory Control
• Order Fulfillment
• Demand Forecasting

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Evolution to WCLM

• Increased value-added activities
• Real-time traceability of materials and product
  throughout the supply chain
• Logistics competencies enhanced via consultancy
  role
• Collaborative cross functional teams

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World Class Logistics Management
World Class

• Manages logistics requirements of the extended
  enterprise
• Actively involved in developing corporate
  strategy
• Enables customization at the product level to
  better meet diverse customer needs
• Increased value added activities and process
  employed in-transit of products and materials as
  well as at the point of sale
• Logistics specifications are integrated with
  product specifications
• Real-time traceability of materials and product
  exists throughout the supply chain and the
  information is utilized
• Comprehensive performance measurement is realized
• Works in collaborative cross functional teams
  that include suppliers and/or customers when
  appropriate
• Logistics chain competencies are enhanced via a
  consultancy role within the supply chain as a
  logistics process improvement advocate

Proactive

• Cross-functional team orientation
• Aligns distribution resource plan with master
  planning process
• Involved with Marketing and Sales to reconcile
  forecast errors
• Inbound and outbound logistics are integrated
• Reports at a high enough level that it can
  influence upper management strategy, but in a
  hit and miss manner
• Improved customer satisfaction through proactive
  storage and distribution management
• Balance schedule attainment, customer
  satisfaction, inventory risk, and investment
• Real time data is now available and used, but not
  across entire chain

Mechanical

• Historical demand and stockouts drive
  replenishment
• Functional discrimination between warehousing
  /stores, transportation, material handling and
  field service still operate relatively
  independently in a decentralized manner
• Historical demand and stock outs drive
  replenishment decisions
• High transaction levels exist with associated
  costs
• Logistics contributes little to firms bottom
  line
• Reports to logistics /warehouse /transportation
  manager

Clerical

• Process paperwork
• Confirms actions of others
• Emphasis is on expediency
• Reactive, focus is on current current planning
  and replenishment period
• Inbound and outbound transportation are
  organizationally separate
• Lack of collaboration between supply chain
  members
• Reporting is at a very low level with virtually
  no organizational power
• Data is historical

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5 6 7 8
9 10
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World Class

• Real-time traceability exists throughout the
  supply chain and the information is utilized
• Comprehensive performance measurement is realized
• Works in collaborative cross functional teams
  that include suppliers and/or customers when
  appropriate
• Manages logistics requirements of the extended
  enterprise
• Logistics chain competencies are enhanced via a
  consultancy role within the supply chain as a
  logistics process improvement advocate

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Implications for Supply Management

• Supply management provides the critical skills
  required to manage the interrelationships on
  which successful supply chains are built
• To achieve WCSM, WCLM, WCDM and WCSCM
• Supply management and logistics must collaborate
  together with other functional areas and supply
  chain members

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Concluding Remarks

• Increasing emphasis on supply chain relationships
• Increasing emphasis on the long-term view
• Use of information technology to enhance supply
  chain communications
• An increasing focus which looks outward toward
  the intricacies of supplier and customer
  relations
• The emergence of the supply management
  professional as a manager and facilitator of
  relationships, versus an information broker
  whose attention is defined by commodity knowledge